Illinois Finance Authority

This Preliminary Official Statement and information contained herein are subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, qualification or exemption, under the securities law of any such jurisdiction. individuals andcorporations.See“ thereof for federal income tax purposes and is not included as an item of tax preference in computing the alternative minimum tax for below) withcertaincovenants,underpresentlaw,interestontheSeries2017ABondsisexcludablefromgrossincomeofowners Bondholder isadvisedtoread“ of theObligatedGroupdescribedherein,regulatoryenvironmentandprovisionsprincipaldocuments.AprospectiveSeries 2017A made tosuchregisteredowner,anddisbursementofpaymentswillbetheresponsibilityDTCitsparticipants.See“ owners ofSeries2017ABonds.AslongasCede&Co.istheregisteredownernomineeDTC,paymentsonBonds willbe Bond TrusteetoDTC,whichinturnwillremitsuchprincipalandinterestpaymentsitsparticipantsforsubsequentdisbursementthe beneficial owners oftheSeries2017ABondswillbeevidencedbybook-entryonly.Principalandintereston paid bythe Series 2017A Bonds will not receive certificates representing their interests in the Series 2017A Bonds purchased. Ownership by the beneficial Depository TrustCompany,NewYork,York(“DTC”).DTCwillactassecuritiesdepositoryfortheSeries2017ABonds.Purchasers ofthe “Interest PaymentDate”),commencingJuly15,2018. Indenture described herein. The sources of payment of, and security for, the Series 2017A Bonds are more fully described in this Official Statement. secured byapledgeofpaymentstobemadeundertheLoanAgreementandonSeries2017AObligationissuedNMHCpursuantMaster will beusedforthepurposesdescribedherein.ExceptasinthisOfficialStatement,Series2017ABondspayablesolelyfromand HealthCare (“NMHC”)pursuanttoaLoanAgreementdatedasofDecember1,2017(the“LoanAgreement”)betweenNMHCandtheAuthority, Wells FargoBank,N.A.,asbondtrustee(the“BondTrustee”).TheproceedsoftheSeries2017ABondswillbeloanedtoNorthwesternMemorial (the “Series 2017A Bonds”) pursuant to a Bond Trust Indenture dated as of December 1, 2017 (the “Bond Indenture”) between the Authority and Loop Capital Markets J.P. Morgan Dated: DateofDelivery B NEW ISSUE * Preliminary, subjecttochange. of owningtheSeries2017ABonds.TheinterestonBondsisnotexemptfrompresentIllinoisincometaxes. making ofaninformedinvestment decision. security therefor.Potentialinvestors mustreadthisentireOfficialStatement,includingtheAppendices, toobtaininformationessentialthe for deliverythroughthefacilitiesof DTConoraboutDecember19,2017. Counsel andbyitsspecialcounsel,DentonsUSLLP,Chicago,Illinois. ItisexpectedthattheSeries2017ABondsindefinitiveformwillbeavailable Chicago, Illinois;forthe Underwriters by theirspecial counsel, Nixon Peabody LLP,Chicago, Illinois; and for theObligated Group by its General Chicago, Illinois, Bond Counsel. Certain legal matterswill be passedupon for the Authority by its special counsel,Katten Muchin RosenmanLLP, withdrawal ormodificationoftheofferwithoutnoticeandto approvaloflegalitytheSeries2017ABondsbyChapmanandCutlerLLP, 2017A BONDS.THEAUTHORITYDOESNOTHAVEPOWERTO LEVYTAXESFORANYPURPOSESWHATSOEVER. OF ILLINOISORANYPOLITICALSUBDIVISIONTHEREOFTOPAY THEPRINCIPALOF,PREMIUM,IFANY,ORINTERESTONSERIES OWNER OF ANY SERIES 2017A BOND SHALL HAVE THE RIGHT TO COMPEL THE TAXING POWER, IF ANY, OF THE AUTHORITY, THE STATE SERIES 2017ABONDSOROTHERCOSTSINCIDENTALTHERETO, EXCEPTASOTHERWISEPROVIDEDINTHEBONDINDENTURE.NO POLITICAL SUBDIVISIONTHEREOFISPLEDGEDTOTHEPAYMENT OFTHEPRINCIPALOF,PREMIUM,IFANY,ANDINTERESTON NEITHER THEFULLFAITHANDCREDITNORTAXINGPOWER, IFANY,OFTHEAUTHORITYORSTATEILLINOISANY POLITICAL SUBDIVISIONTHEREOF,WITHINTHEPURVIEWOF ANYCONSTITUTIONALORSTATUTORYLIMITATIONPROVISION. GENERAL ORMORAL,APLEDGEOFTHEFULLFAITH LOANOFCREDITTHEAUTHORITY,STATEILLINOISORANY EXTENT, THESERIES2017ABONDSANDINTERESTTHEREONDONOTCONSTITUTEANINDEBTEDNESSOROBLIGATION, OTHER COSTSINCIDENTALTHERETOONLYFROMTHESOURCESSPECIFIEDINBONDINDENTURE.EXCEPTTOSUCH LIMITED will bepreparedforsuchSeries2017ABonds. and purchaseand,atthattime,itisexpectedareofferingcircularorsupplementtothisOfficialStatementotherdisclosure document different InterestRatePeriodortobearinterestatnewFixedRates,theSeries2017ABondsbeconvertedwillsubjectmandatory tender established ontheoriginalissuedateofSeries2017ABonds.ShouldBondsorportionthereofbeconvertedtooperate ina 2017A BondsandforadiscussionofcertainriskfactorswhichshouldbeconsideredinconnectionwithaninvestmenttheSeries Bonds. MORE FULLY DESCRIBED HEREIN. DESCRIBED IN THIS OFFICIAL STATEMENT. THE SERIES 2017A BONDS ARE ALSO SUBJECT TO MANDATORY TENDER AS AND PURCHASE IN LIEU OF REDEMPTION, PRIOR TO MATURITY ON THE DATES AND UNDER THE CIRCUMSTANCES ook An investmentintheSeries2017ABondsinvolvesacertaindegreeofriskrelatedtonaturebusinessNMHCandotherMembers In theopinionofChapmanandCutlerLLP,BondCounsel,assumingcompliancebyAuthorityNMHC(eachasdefined The Series 2017A Bonds, when issued, will be registered initially only in the name of Cede & Co.,asregistered ownerandnomineeofThe The Series2017ABonds,whenissued,willberegisteredinitiallyonlyinthenameofCede & Interest ontheSeries2017ABonds(baseda360-dayyearoftwelve30-daymonths)willbepayableeachJanuary15andJuly(each,an The IllinoisFinanceAuthority(the“Authority”)isissuingits$523,515,000*RevenueBonds,Series2017A(NorthwesternMemorialHealthCare) This coverpagecontainscertaininformation foreaseofreferenceonly.Itdoesnotconstituteasummary oftheSeries2017ABondsor The Series2017ABondsarebeingofferedwhen,asandifissued receivedbytheUnderwriters(asdefinedherein),subjecttopriorsale, THE AUTHORITYISOBLIGATEDTOPAYPRINCIPALOF,PREMIUM,IFANY,ANDINTERESTONSERIES2017ABONDS AND This OfficialStatementsummarizescertaintermsoftheSeries2017ABondsonlywhilebearinterestatFixed Rates THE SERIES 2017A BONDS WILL BE SUBJECT TO OPTIONAL, MANDATORY AND EXTRAORDINARY OPTIONAL REDEMPTION -E ntry ONLY

PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER 30, 2017 S ecurity

T (NORTHWESTERN MEMORIALHEALTHCARE)

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the xemption ILLINOIS FINANCE AUTHORITY S REVENUE BONDS,SERIES2017A eries ” hereinforamoredetaileddiscussionofcertainthefederalincometaxconsequences Official Statement dated December__,2017 2017A B 2017A $523,515,000* onds Barclays ” and“ B ondholders

’ R isk ” hereinforadescriptionofthesecuritySeries Due: July15,asshownontheinsidecover Cabrera Capital Markets,LLC Wells FargoSecurities S R ee atings “R B ook atings M : S&P:AA+ -E oody ntry ” H S ’ s ystem : Aa2 erein .” . Northwestern Medicine system map

132 131 12 137 76 69 2 47 31 Lindenhurst 41 173 83 NM Grayslake 120 Outpatient Center 90 14 Gurnee 1475 E. Belvidere Road 134 120 Grayslake, IL 60030 Grayslake

251 60

45 NM Lake Forest Hospital 176 47 660 N. Westmoreland Road 20 176 Lake Forest, IL 60045 2 Vernon Hills 20 23 59 94 14 22 31 90 Highland Park 41 Deerﬁeld 94 68 25

68 2 72 72 62 Glenview Genoa Hampshire 294 72 53 94 NM Kishwaukee Cancer Center 39 10 Health Services Drive 23 Elgin 20 51 DeKalb, IL 60115 47 72 Evanston 90 Northwestern University 25 Bartlett NM Central DuPage Hospital NM Kishwaukee Hospital 25 North Winfield Road Feinberg School of Medicine 251 1 Kish Hospital Drive South Elgin 64 Winfield, IL 60190 420 East Superior Street DeKalb, IL 60115 Sycamore NM Delnor Hospital 59 Sauganash Chicago, IL 60611 300 Randall Road 90 31 Bloomingdale 38 Geneva, IL 60134 Malta Lakeview River Rochelle 64 355 DeKalb St. Charles Bucktown North 64 SoNo 88 NM Delnor Cancer Center Carol Stream Loop –South Clark 304 Randall Road Elmhurst Geneva 38 Geneva, IL 60134 Glen Ellyn 290 Winfield South Loop-Roosevelt Oakbrook Collection Marianjoy Rehabilitation Batavia Terrace Oakbrook 23 Wheaton Hospital, part of NM 56 Northwestern Memorial Hospital 26W171 Roosevelt Road Warrenville 34 88 Downers Grove Arkes Family Pavilion Wheaton, IL 60187 Naperville 39 Lisle 55676 N. Saint Clair Street, Chicago, IL 60611 56 30 53 Feinberg Pavilion Waterman Sugar Grove Aurora 251 E. Huron Street, Chicago,94 IL 60611 34 355 90 25 47 Galter294 Pavilion NM Valley West Hospital NM Chicago Proton Center 201 E. Huron Street, Chicago, IL 60611 1302 North Main Street 31 4455 Weaver Parkway Palos Heights Lavin Family Pavilion Sandwich, IL 60548 Warrenville, IL 60555 259 E. Erie Street., Chicago,57 IL 6061194 NM Warrenville Cancer Center Homer Glen Olson Pavilion 4405 Weaver Parkway 34 Plano 71 710 N. Fairbanks Court, Chicago, IL 60611 Warrenville, IL 60555 Sandwich Prentice Women’s Hospital 126 250 E. Superior Street, Chicago, IL 60611 55 Crest Hill 59 94

New Lenox ILLINOIS INDIANA

Ottawa Peru

NM hospitals

NM facilities

City/neighborhood with NM locations MATURITY SCHEDULE*

$523,515,000 ILLINOIS FINANCE AUTHORITY REVENUE BONDS, SERIES 2017A (NORTHWESTERN MEMORIAL HEALTHCARE)

Maturity Interest (July 15) Amount Rate Price Yield CUSIP© 2018 $6,295,000 % % 2019 14,900,000 2020 8,750,000 2021 11,445,000 2022 11,870,000 2023 12,440,000 2024 13,135,000 2025 20,275,000 2026 14,515,000 2027 15,380,000 2028 16,195,000 2029 10,270,000 2030 10,700,000 2031 7,670,000 2032 2,800,000 2033 7,145,000 2034 7,320,000 2035 6,070,000 2036 6,830,000 2037 7,105,000 c Price and yield to July 15, 20__ par call date.

$59,145,000 _.__% Term Bonds due July 15, 2042; Priced at __.___ to Yield _.___% CUSIP No. ______$253,260,000 _.__% Term Bonds due July 15, 2047; Priced at __.___ to Yield _.___% CUSIP No. ______

* Preliminary, subject to change. © CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services is managed on behalf of the American Bankers Association by S&P Global Market Intelligence. CUSIP data is included solely for the convenience of the registered owners of the applicable bonds. Neither the Authority, the Underwriters nor the Members of the Obligated Group are responsible for the selection or use of the CUSIP data, and no representation is made as to the correctness of the CUSIP data on the applicable bonds or as included herein. The CUSIP number for a specific maturity of the Series 2017A Bonds is subject to being changed after the issuance of the Series 2017A Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Series 2017A Bonds. [THIS PAGE INTENTIONALLY LEFT BLANK]

REGARDING USE OF THIS OFFICIAL STATEMENT

No dealer, broker, salesman or other person has been authorized by the Authority, the Members of the Obligated Group, or J.P. Morgan Securities LLC, Barclays Capital Inc., Wells Fargo Securities, Loop Capital Markets LLC or Cabrera Capital Markets LLC (collectively, the “Underwriters”) to give any information or to make any representations, other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale hereunder implies that there has been no change in the matters described herein since the date hereof. This Official Statement does not constitute an offer to sell or the solicitation of any offer to buy, nor shall there be any sale of the Series 2017A Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale.

The Authority has consented to the use and distribution of this Official Statement. The information set forth in this Official Statement relating to the Authority under the captions “THE AUTHORITY” and “LITIGATION – The Authority” has been obtained from the Authority. The information under the caption “BOOK-ENTRY SYSTEM” has been furnished by DTC. All other information herein, unless otherwise indicated, has been obtained by the Underwriters from NMHC, the other Members of the Obligated Group and other sources deemed by the Underwriters to be reliable, and is not to be construed as a representation by the Authority or the Underwriters. The Authority has not reviewed or approved any information in this Official Statement except information relating to it under the headings “THE AUTHORITY” and “LITIGATION – The Authority.” The information and expressions of opinion in this Official Statement 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 Authority or the Obligated Group since the date hereof (or since the date of any other information dated other than the date hereof).

The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with and as part of their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

The Series 2017A Bonds have not been registered under the Securities Act of 1933, as amended, and neither the Master Indenture (as hereinafter defined) nor the Bond Indenture (as hereinafter defined) has been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon exemptions contained in such Acts. The registration or qualification of the Series 2017A Bonds in accordance with applicable provisions of securities laws of the states in which the Series 2017A Bonds have been registered or qualified and the exemption from registration or qualification in other states cannot be regarded as a recommendation thereof. Neither these states nor any of their agencies has passed upon the merits of the Series 2017A Bonds nor the accuracy or completeness of this Official Statement. Any representation to the contrary may be a criminal offense.

CUSIP numbers included in this Official Statement are for the convenience of the holders and potential holders of the Series 2017A Bonds. No assurance can be given that the CUSIP numbers for the Series 2017A Bonds will remain the same after the date of issuance and delivery of the Series 2017A Bonds. CUSIP is a trademark of the American Bankers Association. CUSIP numbers appearing on the inside front cover of this Official Statement have been provided by the CUSIP Service Bureau, which is managed on behalf of the American Bankers Association by S&P Global Market Intelligence. Neither the Authority, the Underwriters nor the Obligated Group is responsible for the selection of CUSIP numbers

and makes no representation as to their correctness on the Series 2017A Bonds or as set forth on the inside front cover of this Official Statement.

In connection with the offering of the Series 2017A Bonds, the Underwriters may over allot or effect transactions which stabilize or maintain the market price of the Series 2017A Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Series 2017A Bonds may be offered and sold to certain dealers (including dealers depositing the Series 2017A Bonds into investment accounts) and to others at prices lower than the public offering prices set forth on the inside front cover page of this Official Statement. After the Series 2017A Bonds are released for sale to the public, the public offering prices and other selling terms may from time to time be varied by the Underwriters.

FORWARD-LOOKING STATEMENTS

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements.” Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “budget” or similar words. Such forward-looking statements include, among others, the information under the caption “BONDHOLDERS’ RISKS” and the information in APPENDIX A to this Official Statement.

THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE OBLIGATED GROUP DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN CHANGES TO ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED, OCCUR.

TABLE OF CONTENTS

Page INTRODUCTION ...... 1 Purpose of this Official Statement; Definitions ...... 1 The Obligated Group ...... 1 Simultaneous Issuance of Series 2017B Bonds ...... 2 Purpose of the Bonds ...... 3 Security for the Series 2017A Bonds ...... 3 Existing and Additional Indebtedness ...... 5 Book-Entry Only System ...... 5 Summaries ...... 6 Bondholders’ Risks ...... 6 PLAN OF FINANCE ...... 6 The Project ...... 6 Advance Refunding and Equity Redemption ...... 6 ESTIMATED SOURCES AND USES ...... 7 THE SERIES 2017A BONDS...... 7 General ...... 8 Mandatory Tender of Series 2017A Bonds for Purchase on or after Optional Redemption Date; Conversions ...... 9 Redemption and Purchase ...... 10 Mandatory Purchase in Lieu of Optional Redemption ...... 11 Purchase in Lieu of Redemption ...... 12 Selection of Series 2017A Bonds for Redemption ...... 12 Notice of Redemption ...... 12 Registration, Transfer and Exchange ...... 13 Defeasance and Retained Call Rights ...... 13 BOOK-ENTRY SYSTEM ...... 14 Bonds in Book-Entry Form ...... 14 DTC and Its Participants ...... 14 Discontinuance of DTC Services ...... 16 Use of Certain Terms in Other Sections of this Official Statement ...... 16 SECURITY FOR THE SERIES 2017A OBLIGATION...... 17 General ...... 17 Amendment and Restatement of Existing Master Indenture; Effectiveness of Certain Changes ...... 18 Covenants Related to Other Series of Bonds ...... 19 State of Illinois Not Liable on the Series 2017A Bonds ...... 19 THE AUTHORITY ...... 20 Description of the Authority ...... 20 Bonds of the Authority ...... 20 Authority Counsel ...... 21 ESTIMATED ANNUAL DEBT SERVICE REQUIREMENTS ...... 21 BONDHOLDERS’ RISKS ...... 23 General ...... 23

Table of Contents (continued) Page

Impact of Disruptions in the Credit Markets and General Economic Factors ...... 23 Debt Limit Increase ...... 24 Financial Industry Risk ...... 24 Risks Associated with LIBOR Securities ...... 25 Interest Rate Swap Risk ...... 25 Risks Related to Variable Rate or Private Placement Indebtedness ...... 26 Future Nonprofit Legislation ...... 30 Budget Control Act of 2011 ...... 31 Nonprofit Healthcare Environment ...... 31 Payment for Health Care Services ...... 33 Commercial Insurance and Other Third-Party Plans ...... 42 Regulation of the Health Care Industry ...... 44 Corporate Compliance Program ...... 52 Antitrust ...... 52 Information Technology ...... 52 Cybersecurity ...... 53 Payment Card Industry Data Security Standards and EMV ...... 53 Issues Related to the Health Care Market of the Obligated Group ...... 54 Risks Related to Tax-Exempt Status ...... 55 Charity Care ...... 59 Labor Relations ...... 59 Physician and Staffing Shortage ...... 60 Bond Ratings ...... 60 Matters Relating to Enforceability of the Master Indenture ...... 60 Potential Effects of Bankruptcy ...... 61 Changes in Obligated Group ...... 62 Market for Series 2017A Bonds ...... 62 Other Risk Factors Affecting the Obligated Group ...... 62 LITIGATION ...... 63 The Authority ...... 63 The Obligated Group ...... 64 TAX EXEMPTION ...... 64 INDEPENDENT AUDITORS ...... 66 FINANCIAL STATEMENTS ...... 66 RATINGS ...... 67 LEGAL MATTERS ...... 67 FINANCIAL ADVISOR ...... 67 VERIFICATION AGENT ...... 68 RELATIONSHIP OF CERTAIN PARTIES ...... 68 UNDERWRITING ...... 68 CONTINUING DISCLOSURE ...... 70 MISCELLANEOUS ...... 70

APPENDIX A — NORTHWESTERN MEMORIAL HEALTHCARE APPENDIX B — CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION OF NORTHWESTERN MEMORIAL HEALTHCARE AND SUBSIDIARIES FOR THE YEARS ENDED AUGUST 31, 2017 AND 2016 APPENDIX C — SUMMARY OF THE MASTER INDENTURE APPENDIX D — SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT APPENDIX E — FORM OF OPINION OF BOND COUNSEL APPENDIX F — FORM OF DISCLOSURE DISSEMINATION AGREEMENT

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OFFICIAL STATEMENT

$523,515,000* ILLINOIS FINANCE AUTHORITY REVENUE BONDS, SERIES 2017A (NORTHWESTERN MEMORIAL HEALTHCARE)

INTRODUCTION

The information contained in this Introduction is a summary statement and is subject in all respects to the more complete information set forth in this Official Statement, particularly APPENDICES C and D attached hereto. The purchase of the Series 2017A Bonds involves certain investment risks that are discussed throughout this Official Statement, including under the caption “BONDHOLDERS’ RISKS.” Investors must read the entire Official Statement to obtain information essential to making an informed investment decision.

Purpose of this Official Statement; Definitions

This Official Statement, including the cover page and the APPENDICES, sets forth certain information concerning (i) the Members of the Obligated Group (as defined herein), (ii) the Illinois Finance Authority (the “Authority”) and (iii) the Authority’s $523,515,000* in aggregate principal amount of Revenue Bonds, Series 2017A (Northwestern Memorial HealthCare) (the “Series 2017A Bonds”). Certain capitalized terms used in the forepart of this Official Statement and not otherwise defined herein are defined in APPENDICES C AND D hereto.

The Obligated Group

Northwestern Memorial HealthCare (“NMHC”), Northwestern Memorial Hospital (“NMH”), Northwestern Lake Forest Hospital (“NM LFH”), Northwestern Memorial Foundation (“NMF”), Northwestern Medical Faculty Foundation d/b/a Northwestern Medical Group (“NMG”), Lake Forest Health and Fitness Institute, Central DuPage Hospital Association (“NM CDH”), CDH-Delnor Health System (“CDHS”), Delnor-Community Hospital (“NM Delnor”), Central DuPage Physician Group d/b/a Northwestern Medicine Regional Medical Group (“NM RMG”), KishHealth System (“KHS”), Kishwaukee Community Hospital (“NM KCH”), Valley West Community Hospital (“NM VWH”), Kishwaukee Physician Group, Inc. (“KPG”), Marianjoy Rehabilitation Hospital & Clinic, Inc. (“MRH”), and Rehabilitation Medicine Clinic, Inc. (d/b/a Marianjoy Medical Group) (“MMG”), each an Illinois not for profit corporation, are members of an obligated group (referred to herein individually as a “Member of the Obligated Group,” an “Obligated Group Member” or a “Member” and collectively as the “Obligated Group Members,” the “Obligated Group” or the “Members of the Obligated Group”) established under the Amended and Restated Master Trust Indenture dated as of May 1, 2004, as supplemented and amended, including as supplemented and amended by the Twenty-Eighth Supplemental Master Indenture dated as of December 1, 2017 (collectively, the “Existing Master Indenture”), each among the Obligated Group Members and Wells Fargo Bank, N.A., as master trustee (the “Master Trustee”).

Each of NMHC, NMH, NM LFH, NMF, NMG, Lake Forest Health and Fitness Institute, NM CDH, CDHS, NM Delnor, NM RMG, KHS, NM KCH, NM VWH, KPG, MRH and MMG has been determined by the Internal Revenue Service (“IRS”) to be exempt from federal income taxation under

* Preliminary, subject to change. 1

Section 501(a) of the Internal Revenue Code of 1986, as amended (the “Code”), as an organization described in Section 501(c)(3) of the Code.

NMHC is the parent corporation of an integrated healthcare delivery system which includes, among other entities, NMH, NM LFH, NMF, NMG, Lake Forest Health and Fitness Institute, NM CDH, CDHS, NM Delnor, NM RMG, KHS, NM KCH, NM VWH, KPG, MRH and MMG. NMH owns and operates an academic medical center hospital with its main campus located in downtown Chicago, Illinois that provides a complete range of adult inpatient and outpatient services in an educational and research environment. NMH’s hospital facility contains 894 licensed beds and serves as the primary teaching hospital for the Feinberg School of Medicine of Northwestern University. NM LFH owns and operates multiple facilities on a 160-acre campus in Lake Forest, Illinois, approximately 30 miles north of downtown Chicago, including a 114-licensed bed acute care hospital facility. NM CDH owns and operates a 392-bed acute-care hospital in Winfield, Illinois and serves as a regional destination for certain clinical services including, oncology, neurology, orthopaedics, pediatrics and cardiology. NM Delnor owns and operates a 159-bed acute-care hospital in Geneva, Illinois and is home to a Cancer and Breast Health Center. NM KCH is a 98-bed acute care hospital in DeKalb, Illinois and includes a Joint Center, Spine Center, and Breastfeeding Center with one of the State’s first milk depots for at-risk infants. NM VWH owns and operates a 25-bed critical access hospital in Sandwich, Illinois that has served the Fox Valley community for more than 70 years. MRH owns and operates a 127-bed rehabilitation hospital in Wheaton, Illinois and offers several specialty programs for both adults and pediatric inpatients and outpatients.

Other persons may become Members of the Obligated Group, and Members may withdraw from the Obligated Group, all in accordance with the procedures set forth in the Master Indenture described herein. While NMHC is currently reviewing its internal organizational structure, management of the Obligated Group does not intend to materially alter the aggregate assets and resources of the Obligated Group in the immediately foreseeable future.

More detailed information concerning the Obligated Group Members, the Obligated Group’s relationship with the Feinberg School of Medicine of Northwestern University and other affiliates, and its financial condition is set forth in APPENDIX A attached hereto. The consolidated financial statements and supplementary information of Northwestern Memorial HealthCare and Subsidiaries (“NMHC and Subsidiaries”) for the fiscal years ended August 31, 2017 and 2016 are set forth in APPENDIX B attached hereto. As of August 31, 2017, the Members of the Obligated Group accounted for approximately 99% of the consolidated net assets and approximately 98% of the consolidated operating revenue of NMHC and Subsidiaries.

Simultaneous Issuance of Series 2017B Bonds

As part of the plan of financing that includes the issuance of the Series 2017A Bonds, NMHC expects the Authority will issue its $163,095,000* Revenue Bonds, Series 2017B (Northwestern Memorial Healthcare) (the “Series 2017B Bonds” and together with the Series 2017A Bonds, the “Bonds”), and loan the proceeds from the sale of the Series 2017B Bonds to NMHC pursuant to a loan agreement between NMHC and the Authority. NMHC will issue an Obligation under the Existing Master Indenture to the bond trustee for the Series 2017B Bonds (the “Series 2017B Bond Trustee”) to secure the Series 2017B Bonds (the “Series 2017B Obligation”) which will be equally and ratably secured under the Existing Master Indenture described herein. The proceeds of the sale of the Series 2017A Bonds and the Series 2017B Bonds will be used together, with certain other funds, for the purposes stated in “Purpose of the Bonds” below. No assurance can be given or made that the Series 2017B Bonds will be issued as

* Preliminary, subject to change.

described herein. The issuance of the Series 2017A Bonds is not dependent on the issuance of the Series 2017B Bonds.

Purpose of the Bonds

The proceeds from the sale of the Bonds will be used, together with certain other moneys, to: (i) finance, refinance or reimburse all or a portion of the costs of planning, designing, acquiring, constructing, renovating, improving, expanding, completing and equipping certain health facilities owned by NMHC and by NM LFH and certain other Members of the Obligated Group (collectively the “Users”), including, but not limited to, the construction and equipping of a replacement hospital facility for NM LFH (collectively, the “Project”); (ii) refund all or a portion of one or more series of the outstanding (a) Illinois Finance Authority Revenue Bonds, Series 2009A (Northwestern Memorial Hospital) (the “NMH Bonds”), (b) Illinois Finance Authority Revenue Bonds, Series 2009 (Central DuPage Health) (the “Series 2009 CDH Bonds”), (c) Illinois Finance Authority Revenue Bonds, Series 2009B (Central DuPage Health) (the “Series 2009B CDH Bonds” and, together with the Series 2009 CDH Bonds, the “CDH Bonds”) (the NMH Bonds and the CDH Bonds are collectively referred to herein as the “Prior Bonds”); (iii) pay a portion of the Northwestern Memorial HealthCare Taxable Commercial Paper Notes, Series A (the “Taxable Notes”); and (iv) pay certain expenses incurred in connection with the refunding of the Prior Bonds, the payment of the Taxable Notes and the issuance of the Series 2017A Bonds, all as permitted under the Act. See “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES” herein.

Security for the Series 2017A Bonds

The Series 2017A Bonds will be issued under and be secured by a Bond Trust Indenture dated as of December 1, 2017 (the “Bond Indenture”) between the Authority and Wells Fargo Bank, N.A., Chicago, Illinois, as bond trustee (the “Bond Trustee”). The Authority will loan the proceeds from the sale of the Series 2017A Bonds to NMHC pursuant to a Loan Agreement dated as of December 1, 2017 (the “Loan Agreement”) between NMHC and the Authority. The Series 2017A Bonds will be limited obligations of the Authority payable solely from payments made by NMHC under the Loan Agreement, from payments made by the Obligated Group on the Series 2017A Obligation (as hereinafter defined) and other sources described herein.

To evidence the loan of the proceeds from the sale of the Series 2017A Bonds, NMHC will issue and deliver to the Authority its Direct Note Obligation, Series 2017A (Illinois Finance Authority) (the “Series 2017A Obligation”), in a principal amount equal to the aggregate principal amount of the Series 2017A Bonds, pursuant to the terms of the Existing Master Indenture. The Series 2017A Obligation will be the joint and several obligation of each Member of the Obligated Group, will be issued pursuant to the Existing Master Indenture and will be equally and ratably secured under the Existing Master Indenture with outstanding and any additional Obligations issued pursuant to the Existing Master Indenture.

Contemporaneously with the issuance of the Bonds, NMHC and the other Members of the Obligated Group expect to enter into the Second Amended and Restated Master Trust Indenture dated as of December 1, 2017 (as supplemented and amended in the future in accordance with the terms thereof, the “Second Amended and Restated Master Indenture”) with the Master Trustee which will amend and restate the Existing Master Indenture. The Existing Master Indenture, as amended and restated by the Second Amended and Restated Master Indenture, is referred to herein as the “Master Indenture.” Certain amendments to the provisions of the Existing Master Indenture that are being made by the Second Amended and Restated Master Indenture are permitted upon the written approval or consent of the holders of not less than a majority in aggregate principal amount of the Obligations outstanding thereunder. Certain other amendments to the provisions of the Existing Master Indenture that are being made by the Second Amended and Restated Master Indenture are permitted only upon the written

approval or consent of the holders of not less than a majority in aggregate principal amount of the Obligations of each series of Outstanding Obligations under the Existing Master Indenture (the “Springing Amendments”). For a summary of the Springing Amendments, see “SUMMARY OF THE MASTER INDENTURE – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE – SUMMARY OF CERTAIN SPRINGING AMENDMENTS TO THE MASTER INDENTURE” in Appendix C to this Official Statement.

Under the Existing Master Indenture, each holder of a Series 2017A Bond will be deemed to hold the Series 2017A Obligation in a principal amount equal to the principal amount of such Series 2017A Bonds. Each purchaser of a Series 2017A Bond will be deemed to have consented to the execution and delivery of the Second Amended and Restated Master Indenture, including the Springing Amendments, pursuant to the terms of the Existing Master Indenture by virtue of their acceptance of the Series 2017A Bonds. Neither the Underwriters nor any entity that agrees to purchase any of the Series 2017A Bonds pursuant to a negotiated dealer agreement will be deemed to have consented to the execution and delivery of the Second Amended and Restated Master Indenture, including the Springing Amendments. Additional consents necessary for the Master Indenture to become effective are expected to be received after the issuance of the Bonds as described in more detail in the following paragraph. Following such amendment and restatement, the Master Indenture will contain the provisions described herein and in APPENDIX C – “SUMMARY OF THE MASTER INDENTURE.” Notice of the effective date of the Second Amended and Restated Master Indenture and the Springing Amendments will be posted on the Electronic Municipal Market Access system (“EMMA”) of the Municipal Securities Rulemaking Board (“MSRB”). A summary of certain provisions of the Existing Master Indenture that will remain in effect until the Second Amended and Restated Master Indenture becomes effective may be found as Exhibit B to the Obligated Group’s Notice posted on EMMA on November 26, 2014 and available at https://emma.msrb.org/EA666887-EA522699-EA918882.pdf and is incorporated herein by reference.

It is expected that the Springing Amendments will become effective after the effective date of the other amendments that are being made to the Existing Master Indenture under the Second Amended and Restated Master Indenture. The Springing Amendments are expected to become effective upon the earlier to occur of (i) the payment or provision for payment in full of each series of outstanding Obligations under the Existing Master Indenture other than the Series 2017 Obligations or (ii) a written consent to the effectiveness of the Springing Amendments is delivered to the Master Trustee by the holder of not less than a majority in aggregate principal amount of each such series of outstanding Obligations. See APPENDIX C – “SUMMARY OF CERTAIN SPRINGING AMENDMENTS TO THE MASTER INDENTURE” for a summary of the Springing Amendments. NMHC currently is seeking consent to the Springing Amendments from the current holders of Obligations or the Related Bonds associated with such Obligations, including the outstanding Series 2013 Bonds. The Series 2017A Bonds may be allocated on a priority basis to current holders of the Series 2013 Bonds who provide consent and place an order for the Series 2017A Bonds; provided, however, that no assurance can be given that any Series 2017A Bonds will be allocated to orders from holders of the Series 2013 Bonds who provide consent and NMHC is not obligated to make any such allocation. Notice of the effectiveness of the Springing Amendments contained in the Master Indenture also will be posted on EMMA.

The Authority will pledge and assign the Series 2017A Obligation and certain of its rights under the Loan Agreement to the Bond Trustee as security for the Series 2017A Bonds. The terms of the Series 2017A Obligation will require payments by NMHC which, together with other moneys available therefor (and interest earned thereon), will be sufficient to provide for the payment of the principal of, premium, if any, and interest on the Series 2017A Bonds. The Series 2017A Obligation will entitle the Bond Trustee, as the holder thereof, to the protection of the covenants, restrictions and other obligations imposed upon the Obligated Group by the Master Indenture.

The obligation of NMHC and the other Members of the Obligated Group to make payments on the Series 2017A Obligation is not secured by any pledge or mortgage of, or security interest in, any assets of the Obligated Group. See the information set forth under the caption “BONDHOLDERS’ RISKS – Security for the Series 2017A Bonds.”

Under the circumstances described in the Bond Indenture, the Series 2017A Obligation may be exchanged for the obligations of a different obligated group (“Substitute Notes”) of which NMHC and the other Members of the Obligated Group (to the extent any are then current Members of the Obligated Group) need not be a member. This could, under certain circumstances, lead to the substitution of different security in the form of Substitute Notes backed by an obligated group that is financially and operationally different than the then current Members of the Obligated Group. Such new obligated group could have substantial debt outstanding that would rank on a parity with the Substitute Notes. Such exchange could adversely affect the market price for and marketability of the Series 2017A Bonds. In order to so exchange the Series 2017A Obligation, the Obligated Group must meet certain requirements, as described in APPENDIX D, “SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT – SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE – Release and Substitution of Series 2017A Obligation upon Delivery of Replacement Master Indenture.”

Existing and Additional Indebtedness

The Members of the Obligated Group have issued multiple Obligations under the Existing Master Indenture to holders of debt instruments issued by or on behalf of the Members of the Obligated Group, to banks providing liquidity support for certain portions of those debt instruments or lines of credit for operations and to counterparties to interest rate swap agreements entered into by NMH, which will be outstanding and secured on a parity basis with the Series 2017A Obligation (collectively, the “Existing Obligations”). Immediately following the issuance of the Series 2017A Bonds and the Series 2017B Bonds, and the application of the proceeds thereof, approximately $1.3 billion* in principal amount of Indebtedness will be outstanding and secured by Obligations issued under the Master Indenture.

Additional Obligations may be issued in the future under the Master Indenture on a parity with the Series 2017A Obligation, the Series 2017B Obligation and the Existing Obligations. Under the terms of the Master Indenture, such Additional Obligations may be entitled to the benefit of security that may not be pledged under the Bond Indenture to secure the Series 2017A Obligation, but such Additional Obligations will be equally and ratably secured with the Series 2017A Obligation (except as described herein). See “SECURITY FOR THE SERIES 2017A BONDS” and “SUMMARY OF THE MASTER INDENTURE – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE – Additional Indebtedness” in APPENDIX C attached hereto. The Series 2017A Obligation, the Series 2017B Obligation, the Existing Obligations and any Additional Obligations issued by NMHC, any other Member of the Obligated Group and any future Member of the Obligated Group under the Master Indenture are collectively referred to herein as the “Obligations.”

Book-Entry Only System

The Series 2017A Bonds will be initially issued through a Book-Entry Only System maintained by The Depository Trust Company (“DTC”). The Series 2017A Bonds will be initially registered in the name of Cede & Co., as DTC’s nominee. See “BOOK-ENTRY SYSTEM.”

* Preliminary, subject to change.

Summaries

The references herein to the Act, the Master Indenture, the Series 2017A Obligation, the Bond Indenture, the Loan Agreement and the Disclosure Agreement are brief summaries of certain provisions thereof. Such summaries do not purport to be complete, and for full and complete statements of the provisions thereof reference is made to the Act, the Master Indenture, the Series 2017A Obligation, the Bond Indenture, the Loan Agreement and the Disclosure Agreement. Copies of such documents will be on file at the office of the Bond Trustee following the delivery of the Series 2017A Bonds. All estimates and other statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact.

Bondholders’ Risks

There are certain risks involved in the purchase of any Series 2017A Bonds. See the information herein under the caption “BONDHOLDERS’ RISKS.”

PLAN OF FINANCE

The Project

NMHC will use a portion of the proceeds of the Bonds, together with certain other available funds, to pay or reimburse NMHC and the Users for, or refinance the costs of, all or a portion of the costs of the acquisition, construction, renovation and equipping of certain health facilities of the Users (the “Project”). The Project includes the construction and equipping of a replacement hospital facility for NM LFH located on a 160-acre campus in Lake Forest, Illinois. The hospital will house 114 private inpatient rooms, an eight bed clinical decision unit and 40 universal care beds for procedural recovery. The Authority makes no warranty or representation, whether express or implied, with respect to the Project or the location, use, operation, design, workmanship, merchantability, fitness, suitability or use for particular purpose, condition or durability thereof or title thereto.

Advance Refunding and Equity Redemption

NMHC will use a portion of the proceeds of the Bonds and its own funds to refund or prepay all of the outstanding principal amount of the Prior Bonds. In addition, NMHC will use its own funds to prepay all of the outstanding Illinois Finance Authority Revenue Bonds, Series 2009B (Northwestern Memorial Hospital) (the “Series 2009B NMH Bonds”), the Illinois Health Facilities Authority Revenue Bonds, Series 2002A – Series 2002D (Delnor-Community Hospital) (the “Series 2002 Delnor Bonds”) and the Illinois Health Facilities Authority Revenue Bonds, Series 2003A – Series 2003C (Delnor- Community Hospital) (the “Series 2003 Delnor Bonds” and together with the Series 2002 Delnor Bonds, the “Delnor Bonds”). The Bond proceeds or NMHC funds will be deposited with the applicable bond trustees in an amount sufficient (i) to pay a portion of the principal of and interest on the NMH Bonds and the Series 2009B NMH Bonds coming due on or prior to August 15, 2019 and to redeem the remaining NMH Bonds and Series 2009B NMH Bonds on August 15, 2019 at a redemption price of 100% of the principal amount thereof plus accrued interest to the redemption date, (ii) to pay the principal of and interest on the Series 2009 CDH Bonds and the Series 2009B CDH Bonds coming due on or prior to November 1, 2019 and to redeem the remaining Series 2009 CDH Bonds and Series 2009B CDH Bonds on November 1, 2019 at a redemption price of 100% of the principal amount thereof plus accrued interest to the redemption date, (iii) to redeem the outstanding Series 2002 Delnor Bonds on May 15, 2018 at a redemption price of 100% of the principal amount thereof plus accrued interest to the redemption date, and (iv) to pay the principal of and interest on the Series 2003 Delnor Bonds coming due on or prior to May 15, 2018 and to redeem the remaining Series 2003 Delnor Bonds maturing on May 15, 2018, at a

redemption price of 100% of the principal amount thereof plus accrued interest to the redemption date. The amount of the Prior Bonds that will be refunded or prepaid and the source of the funds for such refunding or prepayment will be subject to market conditions at the time the Bonds are priced. See “VERIFICATION AGENT” herein.

The CDH Bonds and the Delnor Bonds are secured by obligations issued under a Master Trust Indenture, dated as of May 1, 2000, as previously supplemented and amended (the “Cadence Master Indenture”), among CDH, CDHS, NM Delnor and Wells Fargo Bank, N.A., as master trustee. Upon redemption of the CDH Bonds and the Delnor Bonds, there will be no obligations outstanding under the Cadence Master Indenture and the Cadence Master Indenture will be terminated.

The Series 2017A Bonds and the Series 2017B Bonds will be described in two separate official statements and will be issued simultaneously. The Series 2017A Bonds and the Series 2017B Bonds will be part of a single issue for tax purposes. For more detailed information regarding the use of proceeds of the Bonds, see the information under the caption “ESTIMATED SOURCES AND USES” below.

ESTIMATED SOURCES AND USES*

The estimated proceeds of the sale of the Bonds, exclusive of investment earnings, and the estimated uses of such funds are shown below:

Series 2017A Series 2017B Bonds Bonds Total Sources of Funds: Principal Amount Original Issue Premium/Discount Total Sources of Funds

Uses of Funds: Reimbursement for Project Costs Deposit to Project Fund Refunding of the NMH Bonds Refunding of the Series 2009 CDH Bonds Refunding of the Series 2009B CDH Bonds Repayment of the Taxable Notes Costs of Issuance(1) Total Uses of Funds ______* Preliminary, subject to change. (1) Includes, without limitation, the estimated fees and expenses, as applicable, of the Underwriters, Underwriters’ Counsel, Bond Counsel, Obligated Group’s Counsel, the Authority, the Authority’s Counsel, the auditors, the Bond Trustee, the Master Trustee, the Rating Agencies, and other miscellaneous costs incurred in connection with the issuance of the Bonds.

THE SERIES 2017A BONDS

The following is a summary of certain provisions of the Series 2017A Bonds. Reference is made to the Series 2017A Bonds and to the Bond Indenture for a more detailed description of such provisions. The discussion herein is qualified by reference. See “APPENDIX D — SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT – SUMMARY OF CERTAIN PROVISIONS OF THE BOND

INDENTURE.” Terms not otherwise defined in the following summary have the meanings assigned thereto in APPENDIX C and APPENDIX D hereto. So long as DTC acts as securities depository for the Series 2017A Bonds, as described under the caption “BOOK-ENTRY SYSTEM” herein, all references herein to “Bondholder” or “Bondholders” and to “owners” and “holders” of Bonds shall be deemed to refer to Cede & Co., as nominee for DTC, and not to DTC Participants, Indirect Participants or Beneficial Owners (as said terms are hereinafter defined).

This Official Statement summarizes certain terms of the Series 2017A Bonds only while the Series 2017A Bonds bear interest at Fixed Rates established on the original issue date of the Series 2017A Bonds. Should the Series 2017A Bonds or any portion thereof be converted to operate in a different Interest Rate Period or to bear interest at new Fixed Rates, the Series 2017A Bonds to be converted will be subject to mandatory tender and purchase and, at that time, it is expected that a reoffering circular or a supplement to this Official Statement or other disclosure document will be prepared for such Series 2017A Bonds.

General

The Series 2017A Bonds will be dated the date of delivery and will mature as shown on the inside cover of this Official Statement. The Series 2017A Bonds are being issued in a Fixed Period at the rates indicated on the inside cover of this Official Statement. The Series 2017A Bonds, or portions thereof, may be converted, at NMHC’s election, to a Daily Interest Rate Period, a Two-Day Interest Rate Period, a Weekly Interest Rate Period, a Short-Term Interest Rate Period, a Flexible Rate Period, an FRN Interest Rate Period, a VRO Interest Rate Period, a Window Interest Rate Period, a Direct Purchase Interest Rate Period or a new Fixed Period, all as defined in the Bond Indenture. Any such Conversion may occur only during the period such Fixed Bonds are subject to optional redemption pursuant to the provisions of the Bond Indenture as described under “THE SERIES 2017A BONDS – Redemption and Purchase – Optional Redemption” below. See “THE SERIES 2017A BONDS – Redemption and Purchase – Mandatory Tender of Series 2017A Bonds for Purchase on or after Optional Redemption Date; Conversions.”

Interest on the Series 2017A Bonds (based on a 360-day year of twelve 30-day months) will be payable each January 15 and July 15 (each, an “Interest Payment Date”), commencing July 15, 2018, or if any January 15 and July 15 is not a Business Day, the next succeeding Business Day.

The Series 2017A Bonds will be subject to mandatory, optional and extraordinary optional redemption, and purchase in lieu of redemption prior to maturity as described under “THE SERIES 2017A BONDS – Redemption and Purchase.”

The Series 2017A Bonds will be made available to Beneficial Owners in book-entry form only, in Authorized Denominations. Beneficial Owners of the Series 2017A Bonds will not receive certificates representing their interests in the Series 2017A Bonds, except as described below. So long as Cede & Co. is the registered owner of the Series 2017A Bonds, the principal of, and the interest on, the Series 2017A Bonds are payable by wire transfer by the Bond Trustee to Cede & Co., as nominee for DTC which, in turn, will remit such amounts to DTC Participants for subsequent disbursement to the Beneficial Owners. So long as all records of ownership of the Series 2017A Bonds are maintained through the book-entry only system, all payments to the Beneficial Owners of the Series 2017A Bonds will be made in accordance with the procedures described herein under “BOOK-ENTRY SYSTEM.”

The principal of, premium, if any, and interest on the Series 2017A Bonds shall be payable in any currency of the United States of America which, at the respective dates of payment thereof, is legal tender for the payment of public and private debts. Such principal, and premium, if any, shall be payable upon

presentment at the designated corporate trust office of the Bond Trustee, or its successor as Bond Trustee, or at the office of any alternate Paying Agent, if any, named in the Series 2017A Bonds. Payment of the interest on any Series 2017A Bond will be made to the person appearing on the registration books of the Bond Trustee (the “Bond Register”) as the registered owner thereof as of the close of business of the Bond Trustee on the Business Day immediately preceding such Interest Payment Date (each, a “Record Date”) for such interest payment and shall be paid by (i) check or draft of the Bond Trustee mailed on the Interest Payment Date to the registered owner at such owner’s address as it appears on the Bond Register or at such other address as is furnished to the Bond Trustee in writing by such owner prior to the Record Date or (ii) in the case of an interest payment to any owner of more than $1,000,000 in aggregate principal amount of the Series 2017A Bonds as of the close of business of the Bond Trustee shown in the Bond Register on the Record Date for a particular Interest Payment Date, by wire transfer to such owner on such Interest Payment Date upon written notice to the Bond Trustee from such owner containing the wire transfer address within the continental United States to which such owner wishes to have such wire directed which written notice is received prior to the Record Date for such Interest Payment Date.

Mandatory Tender of Series 2017A Bonds for Purchase on or after Optional Redemption Date; Conversions

At the option of the NMHC, all or a portion of the Series 2017A Bonds may be converted to operate in one or more of a Daily Interest Rate Period, a Two-Day Interest Rate Period, a Weekly Interest Rate Period, a Short-Term Interest Rate Period, a Long-Term Interest Rate Period, a Flexible Rate Period, an FRN Interest Rate Period, a VRO Interest Rate Period, a Window Interest Rate Period, a Direct Purchase Interest Rate Period or a new Fixed Period on the first Business Day of any calendar month during the period such Fixed Bonds are subject to optional redemption pursuant to the provisions of the Bond Indenture maturity as described under “THE SERIES 2017A BONDS – Redemption and Purchase – Optional Redemption” below. The Bond Trustee shall give Electronic Notice, confirmed by first class mail, of the Conversion to the holders of the Series 2017A Bonds or portion thereof to be converted, not less than 20 days prior to the Conversion Date. Such notice shall state, among other things: (1) that the Purchase Price of any Series 2017A Bond so subject to mandatory tender for purchase shall be payable only upon surrender of such Series 2017A Bond to the Bond Trustee at its Principal Office; (2) that all Series 2017A Bonds so subject to mandatory tender for purchase shall be purchased on the Mandatory Purchase Date which shall be explicitly stated; (3) that in the event that any Holder of a Series 2017A Bond so subject to mandatory tender for purchase shall not surrender such Series 2017A Bond to the Bond Trustee for purchase on such Mandatory Purchase Date, then such Series 2017A Bond shall be deemed to be an Undelivered Bond, and that no interest shall accrue thereon on and after such Mandatory Purchase Date and that the Holder thereof shall have no rights under the Bond Indenture other than to receive payment of the Purchase Price thereof. Such Conversion and mandatory tender will not occur unless the following shall occur (i) the Bond Trustee shall have received a Favorable Opinion of Bond Counsel with respect to such Conversion; (ii) the remarketing proceeds and funds transferred by NMHC to the Bond Trustee and available on the Conversion Date shall not be less than the amount required to purchase all of such Series 2017A Bonds to be converted at the applicable Purchase Price; (iii) in the case of any Conversion of Series 2017A Bonds to any interest rate period (except a new Fixed Period, a Long-Term Rate Period, or a Direct Purchase Period), prior to the Conversion Date, NMHC shall have appointed a remarketing agent and there shall have been executed and delivered a remarketing agreement and (iv) if such Conversion is with respect to less than all of a series of the Series 2017A Bonds, such Series 2017A Bonds to be converted shall be designated as separate series as provided in the Bond Indenture.

In connection with any proposed Conversion of Series 2017A Bonds (or a portion of the Series 2017A Bonds) from the Fixed Mode to one or more other Interest Rate Modes, NMHC has the right to deliver to the Bond Trustee and the Authority on or prior to 10:00 a.m., New York City time, on the

second Business Day preceding the effective date of any such Conversion, a notice to the effect that NMHC elects to rescind its election to implement any such Conversion. If NMHC rescinds its election to implement any such Conversion, then the mandatory tender shall not occur and the Series 2017A Bonds will continue to bear interest at the current interest rates for the Fixed Period in effect immediately prior to such proposed Conversion Date.

Payment of the Purchase Price; Consequences of Failure to Pay Purchase Price. Funds for the payment of the Purchase Price of the Series 2017A Bonds shall be received by the Bond Trustee from the following sources and used in the order of priority indicated: (A) proceeds of the sale of the Series 2017A Bonds remarketed and furnished to the Bond Trustee by the Remarketing Agent; and (B) moneys required to be provided by NMHC to the Bond Trustee. The obligation of NMHC to purchase the Series 2017A Bonds upon mandatory tender is not initially supported by a bank or other third party Credit Facility or Liquidity Facility.

Failed Conversion. If sufficient funds are not available for the purchase of all tendered Series 2017A Bonds on a Purchase Date or any condition precedent to such conversion required under the Bond Indenture shall not be satisfied, including delivery of the required Favorable Opinion of Bond Counsel, no purchase shall be consummated. Failure of NMHC to provide sufficient funds for the purchase of all tendered Series 2017A Bonds on a Purchase Date shall not constitute an Event of Default under the Bond Indenture and the Loan Agreement. If such Series 2017A Bonds are not purchased when required, then such Series 2017A Bonds shall continue to bear interest at the current interest rate as in effect immediately prior to such proposed Conversion Date.

Redemption and Purchase

Optional Redemption. The Series 2017A Bonds maturing on or after July 15, 20__ are subject to redemption prior to maturity on or after July 15, 20__ at the option NMHC out of amounts prepaid by NMHC on the Series 2017A Obligation and deposited in the Optional Redemption Fund, in whole or in part, at any time or from time to time, and if in part in Authorized Denominations and by maturities or portions thereof designated by NMHC or, if not so designated, in inverse order of maturity (and if less than all of a single maturity is being redeemed randomly, within a maturity in such manner as may be determined by the Bond Trustee), at a redemption price equal to 100% of the oustanding principal amount of the Series 2017A Bonds to be redeemed plus accrued interest thereon to the date of redemption. At the option of the NMHC, all or a portion of the Series 2017A Bonds may be converted to operate in a Daily Interest Rate Period, a Two-Day Interest Rate Period, a Weekly Interest Rate Period, a Short-Term Interest Rate Period, a Flexible Rate Period, an FRN Interest Rate Period, or a VRO Interest Rate Period on the first Business Day of any calendar month during the period such Fixed Bonds are subject to optional redemption as described under this caption.

Extraordinary Optional Redemption. The Series 2017A Bonds are subject to extraordinary optional redemption at the option of NMHC, in whole or in part (in such amounts as may be specified by NMHC), prior to their respective dates of maturity in the event (i) of damage to or destruction of the Facilities of any Member of the Obligated Group or any part thereof or condemnation or sale consummated under threat of condemnation of such Facilities or any part thereof, if the Net Proceeds of insurance, sale or condemnation received in connection therewith and applied to make prepayments on the Series 2017A Obligation exceeds the greatest of (a) $1,000,000 or (b) the sum of $1,000,000 plus an amount equal to $1,000,000 multiplied by a percentage equal to the annual percentage increase or decrease in the Index from its level as of May 1, 2004, to the extent net proceeds of insurance or condemnation award in connection therewith are applied to make prepayments on the Series 2017A Obligation at a Redemption Price equal to the principal amount thereof, plus interest accrued thereon, if

any, to the date fixed for redemption, without premium. If called for redemption in the events referred to above, the Series 2017A Bonds shall be subject to redemption by the Authority upon direction of NMHC at any time, in whole or in part, and if in part, in Authorized Denominations and by maturities or portions thereof designated by NMHC or, if not so designated, in inverse order of maturity (and if less than all of a single maturity with the same interest rate is being redeemed, selected randomly using such method as may be designated by the Bond Trustee), at the principal amount thereof plus accrued interest to the redemption date and without premium; provided, however, that in no event shall the principal amount of Bonds so redeemed exceed the amount of such Net Proceeds.

Mandatory Bond Sinking Fund Redemption. The Series 2017A Bonds maturing on July 15, 20___, are subject to mandatory sinking fund redemption prior to their stated date of maturity, in part, by lot, from money deposited in the Bond Sinking Fund, on each July 15 in the years 20__ and 20__, and are payable at maturity on July 15, 20__ at 100% of the principal amount so redeemed or paid, plus accrued and unpaid interest to the redemption or maturity date, without premium, in the amounts set forth below:

Bond Sinking Fund Redemption Date (July 15) Amount $

* ______* Maturity

Deposits required to be made to the Bond Sinking Fund will be reduced (i) by the amount of Series 2017A Bonds acquired and delivered in accordance with the terms of the Bond Indenture in satisfaction of such Bond Sinking Fund requirements and (ii) in connection with a partial redemption of Series 2017A Bonds if NMHC elects to reduce mandatory Bond Sinking Fund deposits for the Series 2017A Bonds in the manner provided in the Bond Indenture.

Mandatory Purchase in Lieu of Optional Redemption

Notwithstanding the provisions of the Bond Indenture, any Series 2017A Bonds subject to optional redemption and cancellation pursuant to the optional redemption pursuant to the provisions of the Bond Indenture summarized under the heading “THE SERIES 2017A BONDS – Redemption and Purchase – Optional Redemption” above, or (ii) extraordinary redemption pursuant to the provisions of the Bond Indenture summarized under the heading “THE SERIES 2017A BONDS – Redemption and Purchase – Extraordinary Optional Redemption” above, shall also be subject to optional call for purchase and, at the option of NMHC, holding, resale or cancellation by NMHC, at a purchase price equal to the optional redemption price therefor. To exercise such option, NMHC shall give the Bond Trustee a Written Request exercising such option as though such Written Request were a written request for redemption, and the Bond Trustee shall thereupon give the holders of the Series 2017A Bonds to be purchased notice of such purchase in the manner specified, and within the time period specified, under the heading “THE SERIES 2017A BONDS – Notice of Redemption” and the purchase of such Series 2017A Bonds shall be mandatory and enforceable against the Bondholders and the Bondholders will not have the right to retain their Bonds. On the date fixed for purchase pursuant to any exercise of such option, NMHC or its assignee shall pay or cause to be paid the purchase price of the Series 2017A Bonds then being purchased to the Bond Trustee in immediately available funds on the purchase date, and the Bond Trustee shall pay the same to the sellers of such Series 2017A Bonds against delivery thereof. Following such purchase, the Bond Trustee shall cause such Series 2017A Bonds to be registered in the name of NMHC or its assignee and shall deliver them to NMHC or its assignee. In the case of the purchase of less than all of the Series 2017A Bonds, the particular Series 2017A Bonds to be purchased shall be selected

in accordance with the provisions summarized under the heading.” “THE SERIES 2017A BONDS – Selection of Series 2017A Bonds for Redemption” below. No purchase of the Series 2017A Bonds pursuant to the provisions of the Bond Indenture summarized in this paragraph shall operate to extinguish the indebtedness of the Authority evidenced thereby (subject to all the terms and limitations contained in the Bond Indenture). Notwithstanding the foregoing, no purchase shall be made pursuant to the provisions of the Bond Indenture summarized in this paragraph unless NMHC shall have delivered to the Bond Trustee and the Authority concurrently therewith an Opinion of Bond Counsel to the effect that such purchase and resale thereof will not, in and of itself, adversely affect the validity of the Series 2017A Bonds or result in the inclusion of interest on the Series 2017A Bonds in gross income for federal income tax purposes, to the extent not already so included with respect to such purchase.

Purchase in Lieu of Redemption

In lieu of redeeming Series 2017A Bonds, the Bond Trustee may, at the Written Request of NMHC, use such funds otherwise available under the Bond Indenture for redemption of Series 2017A Bonds to purchase and cancel Series 2017A Bonds in the open market at a price not exceeding the redemption price then applicable under the Bond Indenture. In the case of any such redemption or purchase and cancellation of Series 2017A Bonds, the Authority shall receive credit against its required Bond Sinking Fund deposits with respect to the Series 2017A Bonds in the manner directed by NMHC (if no election is made, in the inverse order thereof).

Selection of Series 2017A Bonds for Redemption

Whenever provision is made in the Bond Indenture for the redemption of less than all of the Series 2017A Bonds or any given portion thereof, the Bond Trustee shall select the Series 2017A Bonds to be redeemed, from all Series 2017A Bonds subject to redemption or such given portion thereof not previously called for redemption, as directed in writing by NMHC or in the absence of direction randomly in any manner which the Bond Trustee in its sole discretion shall deem appropriate and fair.

Notice of Redemption

Notice of the call for any such redemption shall state the following: (i) the name of the bond issue, (ii) the CUSIP number and bond certificate number of the Series 2017A Bonds to be redeemed, (iii) the original dated date of the bond issue, (iv) the interest rate and maturity date of the Series 2017A Bonds to be redeemed, (v) the date of the redemption notice, (vi) the redemption date, redemption price and the place or places where the redemption price will be payable (including the name and address of the Bond Trustee and its telephone number) and (vii) and, in the case of Series 2017A Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Additionally, each such notice shall also state that that the notice may be rescinded by written notice given to the Bond Trustee by NMHC on or prior to the date specified for redemption, such redemption shall be of no effect if the notice is rescinded and such rescission shall not constitute an Event of Default under the Bond Indenture. Notice of the call for any redemption will be given by mailing a copy of the notice of redemption by first class mail, postage prepaid, to the registered owners of the Series 2017A Bonds to be redeemed, not less than 20 or more than 60 days prior to the redemption date at the address shown on the Bond Register, provided, however, that failure to give such notice by mailing or a defect in the notice or the mailing as to any Bond will not affect the validity of any proceedings for redemption as to any other Bond with respect to which notice was properly given and provided further that, as long as DTC or its nominee is the holder of the Series 2017A Bonds, the Bond Trustee may give such notice of redemption by e-mail, facsimile transmission or other electronic delivery method so long as such delivery method is authorized under the Letter of Representations and receipt of such notice is confirmed by DTC. The Bond Trustee will also file such notice of redemption with the MSRB in electronic format, accompanied

by such identifying information as is prescribed by the MSRB, in a timely manner but not later than 10 Business Days after the redemption date.

Prior to the date that the redemption notice is first mailed as aforesaid, funds shall be placed with the Bond Trustee to pay the principal of such Bonds, the accrued interest thereon to the redemption date and the premium, if any, thereon or such notice shall state that any redemption is conditional on such funds being deposited on the redemption date and that failure to deposit such funds shall not constitute an Event of Default under the Bond Indenture; provided, however, that the provisions of the Bond Indenture summarized in this paragraph will not apply to the mandatory sinking fund redemption of Bonds. The Bond Trustee will immediately notify the applicable holders of the Series 2017A Bonds of the failure to satisfy any such condition and of the resulting cancellation of any such redemption.

Registration, Transfer and Exchange

For a description of the procedure to transfer ownership of a Bond while in the book-entry only system, see “BOOK-ENTRY SYSTEM” below. The Series 2017A Bonds, if not then in book-entry only registration, are subject to the limitations described below.

Upon surrender for transfer of any Series 2017A Bond at the designated corporate trust office of the Bond Trustee, the Authority shall execute and the Bond Trustee shall authenticate and deliver in the name of the transferee or transferees a new fully registered Series 2017A Bond or Series 2017A Bonds without coupons of the same series and maturity and of authorized denomination for the aggregate principal amount which the registered owner is entitled to receive. Any Series 2017A Bond or Series 2017A Bonds may be exchanged at said office of the Bond Trustee for a like aggregate principal amount of a Series 2017A Bond or Series 2017A Bonds of the same series and maturity of other authorized denominations. The execution by the Authority of any Series 2017A Bond shall constitute full and due authorization of such Series 2017A Bond, and the Bond Trustee shall thereby be authorized to authenticate, date and deliver such Series 2017A Bond.

All Series 2017A Bonds presented for transfer or exchange shall be accompanied by a written instrument or instruments of transfer or authorization for exchange, in form and with guaranty of signature satisfactory to the Bond Trustee, duly executed by the registered owner or by such owner’s duly authorized attorney.

No service charge shall be imposed for any exchange or transfer of Series 2017A Bonds. The Authority and the Bond Trustee may, however, require payment by the person requesting an exchange or transfer of Series 2017A Bonds of a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in relation thereto, except in the case of the issuance of a Series 2017A Bond or Series 2017A Bonds for the unredeemed portion of a Series 2017A Bond surrendered for redemption.

The Authority and the Bond Trustee shall not be required to register the transfer or exchange of any Series 2017A Bond after notice calling such Series 2017A Bond or portion thereof for redemption has been given or during the 15-day period preceding the mailing of such notice of redemption of Series 2017A Bonds of the same series and maturity.

Defeasance and Retained Call Rights

The Bond Indenture provides that the Series 2017A Bonds may be defeased prior to payment or redemption by the deposit of cash or noncallable Government Obligations, or a combination thereof, sufficient to provide for the payment of all principal of and interest on the Series 2017A Bonds through maturity or the date upon which the Series 2017A Bonds will be redeemed pursuant to the Bond

Indenture. Series 2017A Bonds that are defeased will no longer be entitled to any security under the Bond Indenture or the Master Indenture, except for the right to payment from such cash and noncallable Government Obligations.

All or a portion of the Series 2017A Bonds may, in the future, be refunded or defeased to any redemption date or maturity date for the applicable Bonds. In connection with the issuance of the Series 2017A Bonds, the Authority, the Bond Trustee and NMHC have reserved all of the call rights pertaining thereto unless, in connection with making a deposit pursuant to the Bond Indenture, the Authority, at the direction of NMHC, shall have irrevocably elected to waive any future right to call such Bonds or portions thereof for redemption prior to maturity. Therefore, subject to certain requirements in the Bond Indenture, subsequent to the date that cash and/or noncallable Government Obligations are deposited with the Bond Trustee to provide for the payment of all or any portion of the applicable Bonds at the respective maturity dates therefor or any redemption date therefor, the Authority may, if directed by NMHC, elect to call such Bonds (or any portions thereof), on any earlier redemption date applicable to such Bonds. Subsequent to the date that cash and/or noncallable Government Obligations are deposited with the Bond Trustee to provide for the payment of all or any portion of the Series 2017A Bonds at any redemption date or dates applicable to such Bonds (but prior to the giving of any notice of redemption with respect to such Bonds pursuant to the Bond Indenture), the Authority may, if directed by NMHC, elect to pay such Bonds (or any portion thereof), at the respective maturity dates therefor. See “SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT – SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE – Defeasance” in APPENDIX D.

BOOK-ENTRY SYSTEM

The information in this section concerning DTC and the Book-Entry System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, the Authority, the Underwriters, the Bond Trustee, NMHC or the other Members of the Obligated Group.

Bonds in Book-Entry Form

Beneficial ownership in the Series 2017A Bonds will be available to Beneficial Owners (as described below) only by or through DTC Participants via a book-entry system (the “Book-Entry System”) maintained by DTC. If the Series 2017A Bonds are taken out of the Book-Entry System and delivered to owners in physical form, as contemplated hereinafter under “Discontinuance of DTC Services,” the following discussion will not apply.

DTC and Its Participants

DTC will act as securities depository for the Series 2017A Bonds. The Series 2017A Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond certificate will be issued in the aggregate principal amount for each maturity of the Series 2017A Bonds and will be deposited with DTC.

DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instruments

(from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has S&P Global Ratings’ highest rating: AAA. The DTC rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

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

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

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

Redemption notices shall be sent to DTC. If less than all of the Series 2017A Bonds 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 2017A Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Bond Trustee 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 2017A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal and interest payments on and purchase price of the Series 2017A Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the Authority or the Bond Trustee 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 Bond Trustee, the Authority, NMHC or any other Member of the Obligated Group, subject to any statutory or regulatory requirements as may be in effect from time to time. Payments of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) are the responsibility of the Bond Trustee, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

Discontinuance of DTC Services

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

The Authority may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Series 2017A Bond certificates will be printed and delivered to DTC.

Use of Certain Terms in Other Sections of this Official Statement

In reviewing this Official Statement it should be understood that while the Series 2017A Bonds are in the Book-Entry System, reference in other sections of this Official Statement to owners of such Series 2017A Bonds should be read to include any person for whom a Participant acquires an interest in Series 2017A Bonds, but (i) all rights of ownership, as described herein, must be exercised through DTC and the Book-Entry System and (ii) notices that are to be given to registered owners by the Bond Trustee will be given only to DTC. DTC is required to forward (or cause to be forwarded) the notices to the Participants by its usual procedures so that such Participants may forward (or cause to be forwarded) such notices to the Beneficial Owners.

None of the Authority, NMHC or any Member of the Obligated Group nor the Bond Trustee will have any responsibility or obligation to any DTC Participant or any Beneficial Owner with respect to: (1) the accuracy of any records maintained by DTC or any Participant; (2) the payment by DTC or any Participant of any amount due to any Beneficial Owner in respect of the principal or Tender Price of, or interest on the Series 2017A Bonds; (3) the delivery by DTC or any Participant to any Beneficial Owner of any notice (including a notice of redemption) or other communication which is required or permitted to be given to Bondholders under the Bond Indenture; (4) the selection of the Beneficial Owners to receive

payment in the event of any partial redemption of the Series 2017A Bonds; or (5) any consent given or other action taken by DTC as Bondholder.

SECURITY FOR THE SERIES 2017A OBLIGATION

General

NMHC’s obligations under the Loan Agreement will be secured by the Series 2017A Obligation, which will be issued and secured under the Existing Master Indenture. In connection with the issuance of the Series 2017A Bonds, the Existing Master Indenture will be amended and restated by the Second Amended and Restated Master Trust Indenture as described under “Amendment and Restatement of Existing Master Indenture; Effectiveness of Certain Changes” below. The Series 2017A Obligation will entitle the Bond Trustee, as the holder of such Obligation, to the protection and benefit of the covenants, restrictions and other obligations imposed on the Members of the Obligated Group by the Master Indenture.

The Loan Agreement will provide that NMHC shall make designated payments to the Bond Trustee in amounts sufficient to pay the principal of, premium, if any, and interest on the Series 2017A Bonds when due. The Obligated Group's obligation to make payments on the Series 2017A Obligation shall be satisfied to the extent payments are made by NMHC under the Loan Agreement, and NMHC will receive similar credit under the Loan Agreement for payments made by any Member on the Series 2017A Obligation. The Loan Agreement will also impose certain restrictions on the actions of NMHC for the benefit of the Authority and the owners of the Series 2017A Bonds. See “SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT– SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT” in APPENDIX D.

The rights of the Authority in and to the Series 2017A Obligation and the amounts payable thereon and the amounts payable to the Authority under the Loan Agreement (other than payments with respect to Unassigned Rights) will be assigned to the Bond Trustee under the Bond Indenture to provide for and to secure the payment of principal of, premium, if any, and interest on the Series 2017A Bonds. NMHC agrees under the Loan Agreement to make its payments on the Series 2017A Obligation pledged under the Bond Indenture directly to the Bond Trustee.

The Master Indenture provides that payments on the Series 2017A Obligation, the Existing Obligations and any Additional Obligations issued under the Master Indenture will be the joint and several obligations of all Members of the Obligated Group. See the information herein under the caption, “BONDHOLDERS’ RISKS – Enforceability of the Master Indenture.” See APPENDIX C – “SUMMARY OF THE MASTER INDENTURE” for a summary of certain terms of the Master Indenture.

The Series 2017A Obligation is the unsecured general obligation of each Member of the Obligated Group. No mortgage on, or similar security interest in, the Facilities or revenues of the Obligated Group has been granted to the Bond Trustee, the Master Trustee or any other party by any Member of the Obligated Group for the benefit of the holders of the Series 2017A Bonds. See “BONDHOLDERS’ RISKS – Security for the Series 2017A Bonds.”

The Master Indenture does not limit the ability of the Members of the Obligated Group to (i) issue Additional Obligations, (ii) incur other Indebtedness or (iii) enter into guarantees. Additional Indebtedness incurred by a Member of the Obligated Group may but need not be evidenced or secured by an Additional Obligation issued under the Master Indenture. Additional Obligations may be issued to the Authority or to parties other than the Authority. No Additional Obligations are required to be pledged under the Bond Indenture. Except as described below, all Obligations will be equally and ratably secured

under the Master Indenture with the Series 2017A Obligation pledged under the Bond Indenture. Subject to certain conditions set forth in the Master Indenture, Additional Indebtedness, including Additional Obligations, may be secured by security in addition to that provided for the Series 2017A Obligation and the other Obligations, including Liens on the Property (including health care Facilities) of the Obligated Group, Liens to secure Indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of constructing, improving or acquiring Property subject to such Liens, letters or lines of credit, insurance or security interest in reserve or other funds, which additional security or Liens need not be extended to any other Indebtedness (including, without limitation, the Series 2017A Obligation and the other Obligations). See the information herein under the caption, “BONDHOLDERS’ RISKS – Additional Indebtedness.” See also the information set forth under “SUMMARY OF THE MASTER INDENTURE – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE –Liens on Property” and “DEFINITIONS OF CERTAIN TERMS – Permitted Encumbrances” contained in APPENDIX C hereto.

The Master Indenture provides that a supplemental master indenture pursuant to which one or more series of Obligations entitled to additional security is issued may provide for such amendments to the provisions of the Master Indenture, including the provisions thereof relating to the exercise of remedies upon the occurrence of an event of default, as are necessary to provide such security and to permit realization upon such security solely for the benefit of the Obligations entitled thereof. See APPENDIX C – “SUMMARY OF THE MASTER INDENTURE” for a summary of certain terms of the Master Indenture.

Under the circumstances described in the Bond Indenture, the Series 2017A Obligation may be exchanged for Substitute Notes of which NMHC and the other Members of the Obligated Group (to the extent any are then current Members of the Obligated Group) need not be a member. This could, under certain circumstances, lead to the substitution of different security in the form of Substitute Notes backed by an obligated group that is financially and operationally different than the then current Members of the Obligated Group. Such new obligated group could have substantial debt outstanding that would rank on a parity with the Substitute Notes. Such exchange could adversely affect the market price for and marketability of the Series 2017A Bonds. In order to so exchange the Series 2017A Obligation, the Obligated Group must meet certain requirements as described in APPENDIX D, “SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT – SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE – Release and Substitution of Series 2017A Obligation Upon Delivery of Replacement Master Indenture.”

Amendment and Restatement of Existing Master Indenture; Effectiveness of Certain Changes

Certain amendments to the provisions of the Existing Master Indenture that are being made by the Second Amended and Restated Master Indenture are permitted upon the written approval or consent of the holders of not less than a majority in aggregate principal amount of the Obligations outstanding under the Existing Master Indenture. Certain other amendments to the provisions of the Existing Master Indenture that are being made by the Second Amended and Restated Master Indenture are permitted only upon the written approval or consent of the holders of not less than a majority in aggregate principal amount of the Obligations of each series affected thereby and are referred to herein as the “Springing Amendments.” See “SUMMARY OF THE MASTER INDENTURE – SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE – SUMMARY OF CERTAIN SPRINGING AMENDMENTS TO THE MASTER INDENTURE” in Appendix C to this Official Statement.

Under the Existing Master Indenture, each holder of a Series 2017A Bond will hold the Series 2017A Obligation in a principal amount equal to the principal amount of such Series 2017A Bonds. Each purchaser of a Series 2017A Bond will be deemed to have consented to the execution and delivery of the Second Amended and Restated Master Indenture, including the Springing

Amendments to the Master Indenture, pursuant to the terms of the Existing Master Indenture by virtue of their acceptance of the Series 2017A Obligation. Neither the Underwriters nor any entity that agrees to purchase any of the Series 2017A Bonds pursuant to a negotiated dealer agreement will be deemed to have consented to the execution and delivery of the Second Amended and Restated Master Indenture, including the Springing Amendments. The remaining consents necessary for the Second Amended and Restated Master Indenture and the Springing Amendments to become effective are expected to be received after the issuance of the Series 2017A Bonds. Following such amendment and restatement, the Master Indenture will contain the provisions described herein and in APPENDIX C – “SUMMARY OF THE MASTER INDENTURE.” Notice of the actual effective date of the Amended and Restated Master Indenture and the Springing Amendments will be posted on the Electronic Municipal Market Access system (“EMMA”) of the Municipal Securities Rulemaking Board (“MSRB”). A summary of the Existing Master Indenture is attached as Exhibit B to the Obligated Group’s Notice posted on the Electronic Municipal Market Access system of the Municipal Securities Rulemaking Board (“MSRB”) on November 26, 2014 and available at https://emma.msrb.org/EA666887-EA522699- EA918882.pdf and is incorporated herein by reference.

Covenants Related to Other Series of Bonds

NMHC has entered into certain credit, liquidity and swap agreements with commercial banks (the “Banks”) that contain certain covenants and restrictions (collectively, the “Bank Covenants”) solely for the benefit of the Banks. Such covenants are in addition to, and in certain respects are more restrictive than, the covenants in the Master Indenture. These Bank Covenants may be waived, modified or amended by the related bank in its sole discretion and without notice to or consent by the bond trustee of any outstanding bonds, the Bond Trustee, the Master Trustee, the holders of outstanding bonds, including the Series 2017A Bonds, the holders of any Obligations or any other Person. Violation of any of such Bank Covenants may result in an event of default under the related agreement, which could result in acceleration of all of the Obligations, including the Series 2017A Obligation.

State of Illinois Not Liable on the Series 2017A Bonds

The Series 2017A Bonds, any premium thereon and the interest thereon are special, limited obligations of the Authority, and except to such limited extent, do not constitute indebtedness or an obligation, general or moral, or a pledge of the full faith or a loan of credit of the Authority, the State of Illinois or any political subdivision thereof, within the purview of any constitutional or statutory

limitation or provision. The Authority is obligated to pay the principal of, premium, if any, and interest on the Series 2017A Bonds and other costs incidental thereto only from the sources specified in the Bond Indenture. Neither the full faith and credit nor the taxing powers, if any, of the Authority, the State of Illinois or any political subdivision thereof is pledged to the payment of the principal of, premium, if any, and interest on the Series 2017A Bonds. No owner of any Bond shall have the right to compel the taxing power of the Authority, the State of Illinois or any political subdivision thereof to pay the principal of, premium, if any, or interest on the Series 2017A Bonds. The Authority does not have the power to levy taxes for any purpose whatsoever.

THE AUTHORITY

Description of the Authority

The Authority is a body politic and corporate of the State of Illinois (the “State”). The Authority was created under the Illinois Finance Authority Act, as amended from time to time (the “Act”) which consolidated seven of the State’s previously existing financing authorities (the “Predecessor Authorities”). All bonds, notes or other evidences of indebtedness of the Predecessor Authorities were assumed by the Authority effective January 1, 2004. Under the Act, the Authority may not have outstanding at any one time bonds for any of its corporate purposes in an aggregate principal amount exceeding $28,150,000,000 (subject to change, from time to time, by acts of the State Legislature), excluding bonds issued to refund the bonds of the Authority or bonds of the Predecessor Authorities. Pursuant to the Act, the Authority is governed by a 15-member board appointed by the Governor of the State with the advice and consent of the Illinois State Senate. Currently the Authority board has two vacancies. The members receive no compensation for the performance of their duties but are entitled to reimbursement for all necessary expenses incurred in connection with the performance of such duties.

Bonds of the Authority

The Authority may from time to time issue bonds as provided in the Act for the purposes set forth in the Act. Any bonds issued by the Authority (and any premium thereon and the interest thereon) shall not constitute an indebtedness or an obligation, general or moral, of the State or any political subdivision thereof nor constitute a pledge of the full faith and a loan of credit of the State or any political subdivision thereof within the purview of any constitutional or statutory limitation or provision. The Series 2017A Bonds of the Authority as described herein are limited obligations of the Authority payable solely from the specific sources and revenues of the Authority specified in the resolutions and the Bond Indenture authorizing the issuance of the Series 2017A Bonds. No owner of any Series 2017A Bond shall have the right to compel any taxing power of the State or any political subdivision thereof to pay the principal of, premium, if any or interest on the Series 2017A Bonds. The Authority has no taxing power.

The Authority makes no warranty or representation, whether express or implied, with respect to the Bond Financed Property or the use thereof. Further, the Authority has not prepared any material for inclusion in this Official Statement, except that material under the headings “INTRODUCTION – The Authority,” “THE AUTHORITY” and “LITIGATION – The Authority” herein. The information herein is 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 Authority or the Obligated Group since the date hereof.

The offices of the Authority are located at 160 North LaSalle Street, Suite S-1000, Chicago, Illinois 60601 and its telephone number is (312) 651-1300.

Authority Counsel

Certain legal matters with respect to the Series 2017A Bonds will be passed upon for the Authority by its special counsel, Katten Muchin Rosenman LLP, Chicago, Illinois.

ESTIMATED ANNUAL DEBT SERVICE REQUIREMENTS

The following table sets forth, for each Fiscal Year ending August 31, the amounts required in each such year for the payment of principal and interest on the Bonds. In addition, the table sets forth total debt service on certain Indebtedness of the Obligated Group secured by Obligations (excluding Obligations issued by Members in connection with interest rate swap agreements or to direct bank purchasers to secure obligations under bank covenant agreements or to providers of credit or liquidity enhancement) expected to be outstanding after the issuance of the Bonds, and the application of the proceeds thereof. See the information in APPENDIX A hereto under the caption “SUMMARY OF FINANCIAL RESULTS – Debt Service Coverage” for certain calculations of coverage of debt service on the Obligated Group’s outstanding bonded indebtedness.

FISCAL YEAR ENDING SERIES 2017A BONDS SERIES 2017B BONDS OTHER LONG- TOTAL DEBT AUG. 31, PRINCIPAL INTEREST PRINCIPAL INTEREST TERM DEBT SERVICE

2018 $ 6,295,000 -- $ 35,995,563 2019 14,900,000 -- 36,200,502 2020 8,750,000 -- 36,306,034 2021 11,445,000 -- 36,363,376 2022 11,870,000 -- 36,555,847 2023 12,440,000 -- 36,747,283 2024 13,135,000 -- 36,844,154 2025 20,275,000 -- 30,546,239 2026 14,515,000 -- 37,322,656 2027 15,380,000 -- 37,247,684 2028 16,195,000 -- 37,268,579 2029 10,270,000 -- 44,079,035 2030 10,700,000 -- 44,242,940 2031 7,670,000 -- 47,891,607 2032 2,800,000 -- 53,235,110 2033 7,145,000 -- 49,120,928 2034 7,320,000 -- 49,393,898 2035 6,070,000 -- 51,203,449 2036 6,830,000 -- 50,802,432 2037 7,105,000 -- 50,980,676 2038 7,425,000 -- 51,133,016 2039 7,295,000 -- 51,741,581 2040 14,090,000 -- 45,312,203 2041 14,795,000 -- 45,310,730 2042 15,540,000 -- 45,310,056 2043 16,315,000 -- 45,308,403 2044 54,975,000 -- 7,466,403 2045 57,720,000 -- 7,466,403 2046 60,610,000 -- 7,466,403 2047 63,640,000 -- 7,466,403 2048 ------2049 ------2050 ------2051 ------2052 ------2053 ------2054 ------2055 -- $ 51,735,000 -- 2056 -- 54,320,000 -- 2057 -- 57,040,000 -- Totals(2) $523,515,000 $______$163,095,000 $______$1,152,329,594 $______

(1) The calculations of estimated annual debt service requirements set forth in this table were calculated in accordance with the Master Indenture. (2) Totals may not add due to rounding. (3) NMH previously entered into interest rate exchange agreements associated with its Series 2007A Bonds. As a result, these calculations take into account the amounts payable by NMH pursuant to such interest rate exchange agreements. For purposes of these calculations, (i) NMH’s outstanding Series 2007A Bonds bear interest at a fixed rate of 3.889%, (ii) NMH's outstanding Series 2008A Bonds bear interest at the assumed variable rate of 0.65% per annum, (iii) the Obligated Group’s Series 2011A-C and Series 2015A-B Bonds bear interest at an assumed tax-exempt projected rate of 3.38% per annum, and (iv) the Obligated Group’s taxable bank term loan and taxable commercial paper amortize over 30 years on a level debt service basis at an assumed taxable projected rate of 3.79% per annum. Actual interest rates may vary from the assumed rates.

BONDHOLDERS’ RISKS

The purchase and ownership of any of the Series 2017A Bonds involve certain investment risks that are discussed throughout this Official Statement. Accordingly, each prospective purchaser of the Series 2017A Bonds (or a beneficial ownership interest therein) should make an independent evaluation of all of the information presented in this Official Statement in order to make an informed investment decision. Certain of these risks are described below. This discussion of risk factors is not meant to be exhaustive.

General

The principal of and interest on the Series 2017A Bonds are limited obligations of the Authority and, except to the extent payable from proceeds of the Series 2017A Bonds and certain other amounts on deposit with the Bond Trustee under the Bond Indenture, are payable solely from the payments to be made by NMHC under the Loan Agreement or by NMHC and the other Members of the Obligated Group on the Series 2017A Obligation and under the Master Indenture.

No representation or assurance is given or can be made that revenues will be realized by the Obligated Group in amounts sufficient to make payments on the Series 2017A Obligation or under the Loan Agreement when due and other payments necessary to meet the obligations of the Obligated Group. The receipt of future revenues is subject to, among other factors, the capabilities of management of the Obligated Group, government regulation and future economic and other conditions that are unpredictable and that may affect revenues and payment of principal of and interest on the Series 2017A Bonds. The realization of revenue and the level of expenses are affected by, and subject to, conditions that are impossible to predict and, therefore, may change to an extent and with effects that cannot be determined at this time.

Impact of Disruptions in the Credit Markets and General Economic Factors

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

The health care sector was adversely affected by the disruption of the credit and financial markets. Nationally, as unemployment has adversely affected certain regions, patient service revenues and inpatient volumes have not increased as historic trends would otherwise indicate. Reduced employment and personal income has resulted in increases in self-pay admissions, increased levels of bad debt and uncompensated care, reduced demand for elective procedures, and reduced availability and affordability of health insurance. The last recession also increased stresses on the budget of the State of Illinois, which could potentially result in reductions in Medicaid payment rates or increases in Medicaid eligibility standards, and delays of payment of amounts due under Medicaid and other state or local payment programs.

The Budget Control Act of 2011 (the “Budget Control Act”) mandates significant reductions in federal spending caps for fiscal years 2012-2021, including a reduction of two percent on all Medicare payments during this period. Subsequent legislation enacted by Congress extended these reductions through 2025. There is a substantial risk that Congress could act to extend or increase these across-the- board reductions. Because Congress may make changes to the budget in the future, it is impossible to predict the impact any spending cuts may have upon the Obligated Group. Similarly, it is impossible to predict whether any automatic reductions to Medicare may be triggered in lieu of other spending cuts that

may be proposed by Congress. If and to the extent Medicare and/or Medicaid spending is reduced under either scenario, this may have a material adverse effect upon the financial condition of the Obligated Group. Ultimately, these reductions or alternatives could have a disproportionate impact on hospital providers and could have an adverse effect on the financial condition of the Obligated Group, which could be material.

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd- Frank Act”) was enacted in an effort to stabilize the credit and financial markets. However, President Donald Trump and the Congressional majority leaders and members of their caucuses have expressed opposition to the Dodd-Frank Act and, in June 2017, the United States House of Representatives voted to repeal key financial reforms of the Dodd-Frank Act. The continued effects of these legislative, regulatory and other governmental actions, including the potential repeal of the Dodd-Frank Act, upon the Obligated Group and, in particular upon its access to capital markets and their investment portfolios, cannot be predicted.

The Obligated Group has significant holdings in a broad range of investments. Market fluctuations have affected and will continue to affect materially the value of those investments and those fluctuations may be and historically have been material. The market disruption has exacerbated the market fluctuations and negatively affected over certain time periods the investment performance of securities in the Obligated Group’s portfolios. Investment income (including both realized and unrealized gains on investments) has contributed significantly to the Obligated Group’s financial results over recent years. See “SUMMARY OF FINANCIAL RESULTS –Investments and investment policy” in APPENDIX A hereto.

Debt Limit Increase

Through legislation, the federal government has created a debt “ceiling” or limit on the amount of debt that may be issued by the United States Treasury. In the past several years, political disputes have arisen within the federal government in connection with discussions concerning the authorization for an increase in the federal debt ceiling. Any failure by Congress to increase the federal debt limit may impact the federal government’s ability to incur additional debt, pay its existing debt instruments and to satisfy its obligations relating to the Medicare and Medicaid programs.

On September 8, 2017, President Trump signed a bill increasing the debt ceiling to December 8, 2018. Management of the Obligated Group is unable to determine at this time what impact any future failure to increase the federal debt limit may have on the operations and financial condition of the Obligated Group, although such impact may be material. Additionally, the market price or marketability of the Series 2017A Bonds in the secondary market may be materially adversely impacted by any failure to increase the federal debt limit.

Financial Industry Risk

Disruption in the financial markets has affected the municipal bond market and the financial industry, including an adverse effect on the financial condition of a number of bond insurers and financial institutions, and a weakening of their credit status as reflected in their credit ratings. Any weakening of the financial condition and/or credit ratings of the Obligated Group’s existing credit facility provider may result in higher interest rates being borne by the Obligated Group’s existing bonded variable rate indebtedness and therefore have a financial impact on the Obligated Group. Further, any deterioration in the financial condition of the Obligated Group’s existing credit facility provider may also lead to rating downgrades or adverse rating actions affecting the Obligated Group’s variable rate indebtedness that could also affect interest rates borne by such indebtedness. Finally, variable rate bonds of the Obligated

Group that are tendered for purchase and not remarketed will be purchased by the Obligated Group’s existing credit facility provider. Bonds, if any, purchased by a credit facility provider typically bear interest at a rate significantly higher than bonds held by other bondholders, and are also subject to a more rapid amortization of principal than publicly held bonds.

Risks Associated with LIBOR Securities

In September 2012, the U.K. government published the results of its review of LIBOR (commonly referred to as the “Wheatley Review”). The Wheatley Review made a number of recommendations for changes with respect to LIBOR including the introduction of statutory regulation of LIBOR, the transfer of responsibility for LIBOR from the British Bankers’ Association (the “BBA”) to an independent administrator, changes to the method of compilation of lending rates and new regulatory oversight and enforcement mechanisms for rate setting. Based on the Wheatley Review, final rules for the regulation and supervision of LIBOR by the Financial Conduct Authority were published and came into effect on April 2, 2013 (the “FCA Rules”).

In particular, the FCA Rules include requirements that (1) an independent LIBOR administrator monitor and survey LIBOR submissions to identify breaches of practice standards and/or potentially manipulative behavior and (2) firms submitting data to LIBOR established and maintain a clear conflicts of interest policy and appropriate systems and controls. In addition, in response to the Wheatley Review recommendations, ICE Benchmark Administration Limited (the “ICE Administration”) has been appointed as the independent LIBOR Administrator, effective February 1, 2014.

On July 27, 2017, the Financial Conduct Authority announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR rates after 2021 (the “FCA Announcement”). It is not possible to predict the effect of the FCA Rules, the FCA Announcement, any changes in the methods pursuant to which the LIBOR rates are determined and any other reforms to LIBOR that will be enacted in the U.K. and elsewhere, which may adversely affect the trading market for LIBOR-based securities or result in the phasing out of LIBOR as a reference rate for securities. In addition, any changes announced by the Financial Conduct Authority, including the FCA Announcement, the ICE Administration or any other successor governance or oversight body or future changes adopted by such body, in the method pursuant to which LIBOR rates are determined, may result in a sudden or prolonged increase or decrease in the reported LIBOR rates. If that were to occur and to the extent that the value of LIBOR securities is affected by reported LIBOR rates, the level of interest payments and the value of the securities may be affected. Further, uncertainty as to the extent and manner in which the Wheatley Review recommendations will continue to be adopted and the timing of such changes may adversely affect the current trading market for LIBOR-based securities and the value of the 2004 Swap Agreement.

Interest Rate Swap Risk

NMH and other Members of the Obligated Group have previously entered into, and NMH and other Members of the Obligated Group may in the future periodically enter into, interest rate swap agreements to manage interest rate risk with respect to certain of its outstanding Indebtedness. See the information in footnote 10 to the “Consolidated Financial Statements and Supplementary Information of NMHC and Subsidiaries” in APPENDIX B hereto. The Obligated Group intends to terminate the swap agreements associated with the Delnor Bonds in early 2018. However, as the Obligated Group continues to review its swap position, there can be no assurance that such swap agreements will be terminated. Each of these swap agreements is subject to periodic “mark-to-market” valuations and may, at any time, have a negative value (which could be substantial) to the Obligated Group. Changes in the market value of such agreements could negatively or positively impact the Obligated Group’s financial condition, and

such impact could be material. Any of the Obligated Group’s existing or future swap agreements may be subject to early termination upon the occurrence of certain specified events. If either the Obligated Group or the counterparty terminates such an agreement when the agreement has a negative value to the Obligated Group, the Obligated Group could be required to make a termination payment to the counterparty in the amount of such negative value, and such payment could be substantial and potentially materially adverse to the Obligated Group’s financial condition. In the event of an early termination of a swap agreement, there can be no assurance that (i) the Obligated Group will receive any termination payment payable to it by the related swap provider, (ii) the Obligated Group will have sufficient monies to make a termination payment payable by it to the related swap provider, or (iii) the Obligated Group will be able to obtain a replacement swap agreement with comparable terms.

As of August 31, 2017, NMH had posted collateral of $330,000 pursuant to its interest rate swap agreements. See the information in footnote 10 to the “Consolidated Financial Statements and Supplementary Information of NMHC and Subsidiaries” in APPENDIX B hereto. The Obligated Group’s ability to pledge its assets as collateral is generally limited by the Master Indenture; however, the definition of Permitted Encumbrances allows the Obligated Group to create a lien on its assets to secure its obligations under interest rate swap agreements. See “DEFINITIONS OF CERTAIN TERMS – Permitted Encumbrances” in APPENDIX C. If NMH or any other Obligated Group Member is unable to secure its obligations under a swap agreement with sufficient collateral, the related swap provider will have the right to terminate such swap agreement, and the Obligated Group could be required to make a termination payment to the related swap provider, the amount of which could be substantial.

Pursuant to the swap agreements previously entered into by NMH, the related swap provider is obligated to make floating rate payments to NMH determined pursuant to a formula based on a percentage of LIBOR plus a fixed percentage based on the applicable notional amount, which floating rate payments may be more or less than the amount NMH is required to pay on its outstanding variable rate demand revenue bonds (“VRDBs”). There is no guarantee that any floating amount payable by the related swap provider under any swap agreement will match the amount payable by NMH to the owners of such VRDBs at all times or at any time. To the extent of a mismatch, NMH is exposed to “basis risk” in that the floating amount it receives from the related swap provider pursuant to each swap agreement will not equal the variable amount it is required to pay on the applicable VRDBs.

The agreement by the related swap provider to pay certain amounts to NMH pursuant to the swap agreements does not alter or affect NMH’s obligation to pay the principal of, interest on, or redemption price of, any of its VRDBs. The related swap provider has no obligation to make any payments with respect to the principal of, interest on, or redemption price of VRDBs. Neither the holders of the VRDBs, nor any other person (other than NMH) shall have any rights under the swap agreement or against the related swap provider.

Risks Related to Variable Rate or Private Placement Indebtedness

The Obligated Group has historically incurred variable rate indebtedness. Generally, the interest cost of variable rate indebtedness is lower than for fixed rate debt of a comparable maturity. In order for variable rate indebtedness to have the desired result of lowering borrowing costs, the variable rate indebtedness commonly requires credit enhancement such as bond insurance or a bank letter of credit. Any such indebtedness therefore will bear interest at rates that are directly related to the ratings accorded to, and to investor perceptions of, the financial strength of the applicable provider of credit enhancement. In addition, the Obligated Group has historically incurred indebtedness purchased by private placement purchasers in non-public transactions. Such indebtedness generally bears interest at an initial rate and is subject to mandatory tender at the end of the initial holder’s purchase period. Similar to the failure to extend or replace a credit facility, the failure to remarket private placement bonds could result in such

obligations bearing interest at a penalty rate or default rate, increasing the debt service obligation of the Obligated Group.

The applicable providers of credit enhancement and the purchasers of private placement bonds often are the beneficiaries of covenants in addition to those set forth in the Master Indenture. The additional covenants could result in an event of default under the applicable agreement which may result in a default under the Master Indenture. Upon an event of default under the Master Indenture, the Master Trustee may be required to accelerate all Obligations then outstanding under the Master Indenture.

Proposed Changes to Tax Treatment of Series 2017A Bonds

Legislative proposals to alter or eliminate the exclusion of interest on tax-exempt bonds from gross income for some or all taxpayers have been made in the past and may be made again in the future. Such legislative proposals, if enacted, could alter the federal and/or state tax-exempt treatment described under the heading “BONDHOLDERS’ RISK – Risks Related to Tax-Exempt Status.” In November, 2017, each of the U.S. House of Representatives and Senate released tax reform proposals, both of which could make sweeping changes to many areas of the tax law, including dramatically reducing the ability of state and local governments to issue tax-exempt bonds by eliminating advance refundings. In addition, the House proposal would eliminate all private activity bonds. If enacted, the changes to the Code would apply to all bonds issued after December 31, 2017, and would not allow for refundings of bonds issued prior to the effective dates of the rules, including the Series 2017A Bonds.

For certain individual taxpayers, future tax legislation could tax a portion of the interest on tax- exempt bonds under the regular income tax or the alternative minimum tax, and could apply not only to bonds issued on and after the effective date, but to bonds issued before the effective date, including the Series 2017A Bonds. It is unclear whether any legislation will be enacted as proposed or whether other legislation will be proposed or enacted affecting the tax treatment of interest on the Series 2017A Bonds. If any such legislation is retroactive and applies to tax-exempt bonds, including the Series 2017A Bonds, previously issued for the benefit of any Obligated Group Member, the adoption of any such legislation could adversely affect the marketability of and the market value for the Series 2017A Bonds and the financial condition of the Obligated Group. In addition, the adoption of any such legislation could materially increase the cost to the Obligated Group of financing future capital needs.

Nonprofit Health Care Environment

General. As nonprofit tax-exempt organizations, the Members of the Obligated Group are subject to federal, state and local laws, regulations, rulings and court decisions relating to their organization and operation, including their operation for charitable purposes. At the same time, the Members of the Obligated Group conduct large scale complex business transactions and are major employers in their geographic areas. There can often be a tension between the rules designed to regulate a wide range of charitable organizations and the day-to-day operations of a complex health care organization.

Recently, an increasing number of the operations or practices of health care providers have been challenged or questioned to determine if they are in compliance with the regulatory requirements for nonprofit tax-exempt organizations. These challenges, in some cases, are broader than concerns about compliance with federal and state statutes and regulations, such as Medicare and Medicaid compliance, and instead in many cases are examinations of core business practices of the health care organizations. Areas that have come under examination have included pricing practices, billing and collection practices, charitable care, executive compensation, exemption of property from real property taxation and sales taxation and others. These challenges and questions have come from a variety of sources, including state

attorneys general, the IRS, labor unions, Congress, state legislatures, other federal and state agencies and patients, and in a variety of forums, including hearings, audits and litigation. These challenges or examinations include the following, among others:

Health Care Reform. The Patient Protection and Affordable Care Act of 2010 (the “Health Care Reform Law”) has changed and will continue to change the health care delivery system in the United States. The purpose of the Health Care Reform Law is to reduce health care spending and extend health coverage to millions of uninsured Americans. A significant component of the Health Care Reform Law is reformation of the sources and methods by which consumers pay for health care for themselves and their families and by which employers procure health insurance for their employees and dependents and, as a consequence, expansion of the base of consumers of health care services. The Health Care Reform Law was designed to make available, or subsidize the premium costs of, health care insurance for some of the millions of uninsured (or underinsured) consumers who fall below certain income levels. Two major initiatives stemmed from this goal – the “individual mandate” and Medicaid program expansion. To fund the Medicaid expansion, the Health Care Reform Law includes several initiatives including quality improvement programs, incentives to cut costs, and enhanced fraud and abuse measures. The Health Care Reform Law has been politically controversial since its inception and has faced numerous legal, legislative, and executive challenges, including replacement and repeal efforts. The potential impact of any repeal or replacement efforts on the Obligated Group’s business or financial condition is impossible to predict and may be material. Specifically, any action that reduces the number of health insurance enrollees, shifts health care demand, or changes the healthcare delivery system or insurance markets could have a material adverse effect on the Obligated Group’s business or financial condition.

The Republican Party has increasingly focused on the repeal and replacement of the Health Care Reform Law. In 2017, both the United States House and Senate introduced bills aimed at repealing and replacing certain portions of the Health Care Reform Law. However, the legislature has thus far failed to pass any legislative proposals to “repeal and replace” or “repeal only” the Health Care Reform Law. Management of the Obligated Group cannot predict whether these efforts will be successful or whether a bill repealing and replacing all, or portions of, the Health Care Reform Law will become law. The Congressional Budget Office (“CBO”) has issued reports predicting that if any bills that have been introduced by Congress became law, the number of uninsured would increase and Medicaid spending would decrease significantly.

Government efforts to repeal or modify the Health Care Reform Law may have an adverse effect on the Obligated Group’s business, results of operations, cash flow, capital resources, and liquidity. Also, there can be no assurances that any current health care laws and regulations, in addition to the Health Care Reform Law, will remain in the current form. There can be no assurances that any potential changes to the laws and regulations governing health care would not have a material adverse financial or operational impact on the Obligated Group.

Furthermore, executive actions may also impact Health Care Reform Law implementation and the Health Care Reform Law insurance exchange markets. President Donald Trump issued an executive order permitting federal agencies with authority under the Health Care Reform Law “to waive, defer, grant exemptions from, or delay” parts of the Health Care Reform Law that place “unwarranted economic and regulatory burdens” on states, individuals or health care providers. It is impossible to predict what effect this mandate may have on the health care market; it may be interpreted by the Department of Health and Human Services (“HHS”) to allow HHS to grant waivers to the “individual mandate” and potentially reduce the number of healthy individuals on the health insurance exchanges. It is impossible

to predict what impact any future executive action will have on the Obligated Group’s business or financial condition, though such effects may be material.

In addition, on January 30, 2017, President Trump issued an executive order requiring federal agencies to remove two previously implemented regulations for every new regulation added. On February 24, 2017, President Trump issued an executive order directing each federal agency to set up a “regulatory reform task force” to review existing regulations and eliminate those which are costly or unnecessary. Based on these executive orders and the present political climate, there can be no assurances that any existing health care laws and regulations will remain in their current form. Further, there can be no assurances that any potential changes to the laws and regulations governing health care would not have a material adverse financial or operational impact on the Obligated Group Members.

Internal Revenue Service Form 990. The IRS Form 990 (“Form 990”) is used by 501(c)(3) not for profit organizations to submit information required by the federal government for tax exemption. Form 990 requires detailed public disclosure of compensation practices, corporate governance, loans to management and others, joint ventures and other types of transactions, political campaign activities and other areas the IRS deems to be compliance risk areas. Form 990 also requires the reporting of detailed community benefit information on Schedule H to the form and establishes uniform standards for the reporting of charity care. Form 990 also contains a separate schedule requiring detailed reporting of information relating to tax-exempt bonds, including compliance with the arbitrage rules and rules limiting private use of bond-financed facilities, including compliance with the safe harbor guidance in connection with management contracts and research contracts. Form 990 allows for enhanced transparency as to the operations of tax-exempt organizations. It is likely to result in enhanced enforcement, as Form 990 makes available a wealth of detailed information on compliance risk areas to the IRS and other stakeholders, including state attorneys general, unions, plaintiff’s class action attorneys, public watchdog groups and others. The Health Care Reform Law amended the Code to require tax-exempt hospitals to include in their Form 990 a report describing how they are addressing the needs identified in each community health needs assessment conducted as required under the Health Care Reform Law (see “Risks Related to Tax- Exempt Status” below and their audited financial statements or the consolidated financial statements in which they are included).

Litigation Relating to Billing and Collection Practices. Lawsuits have been filed in both federal and state courts alleging, among other things, that hospitals have failed to fulfill their obligations to provide charity care to uninsured patients and have overcharged uninsured patients. The cases are proceeding in various courts around the country with inconsistent results. While it is not possible to make general predictions, some hospitals and health systems have incurred substantial costs in defending such lawsuits, and in some cases have entered into substantial settlements. No Obligated Group Member is currently a defendant in litigation relating to billing and collection practices related to uninsured patients.

Challenges to Real Property Tax Exemptions. Recently, the real property tax exemptions afforded to certain nonprofit health care providers by state and local taxing authorities have been challenged on the grounds that the health care providers were not engaged in sufficient charitable activities. These challenges have been based on a variety of grounds, including allegations of aggressive billing and collection practices and excessive financial margins. As a result, while management of the Obligated Group is not aware of any current challenges to the tax exemption afforded to any of its material real property, there can be no assurance that such challenges will not occur in the future.

The foregoing are some examples of the examinations of and challenges facing nonprofit health care organizations. They are indicative of a greater scrutiny of the billing, collection and other business practices of these organizations, and may indicate an increasingly more difficult operating environment for health care organizations, including the Obligated Group Members. The challenges and examinations,

and any resulting legislation, regulations, judgments, or penalties, could have a material adverse effect on the Obligated Group Members.

Action by Purchasers of Hospital Services and Consumers. Major purchasers of hospital services could take action to restrict hospital charges or charge increases. As a result of increased public scrutiny, it is also possible that the pricing strategies of hospitals may be perceived negatively by consumers, and hospitals may be forced to reduce fees for their services. Decreased utilization could result, and hospitals’ revenues may be negatively impacted. In addition, consumers and groups lobbying on behalf of consumers are increasing pressure for hospitals and other health care providers to be transparent and provide information about cost and quality of services that may affect future consumer choices about where to receive health care services.

Health Care Payment Reform. As a part of the Health Care Reform Law described above in this Official Statement, the payment structure from payors, including Medicare, Medicaid and other government programs, as well as from private payors, has been and will continue to be altered from current methodologies. In addition to Health Care Reform Law payment reform initiatives, Medicare and Medicaid programs are subject to statute and regulatory changes, utilization review requirements, and federal and state funding restrictions. Any changes to these programs could affect the cost of providing services and timing of reimbursement, which could adversely affect the Obligated Group’s business or financial condition.

The foregoing are some examples of the challenges and examinations facing nonprofit health care organizations. The challenges and examinations, and any resulting legislation, regulations, judgments or penalties, could have a material adverse impact on the financial condition of the Obligated Group Members and, in turn, the ability of the Obligated Group to make payments.

Future Nonprofit Legislation

Other legislative proposals which could have an adverse effect on the Obligated Group include: (a) any changes in the taxation of non-profit corporations or in the scope of their exemption from income or property taxes; (b) limitations on the amount or availability of tax-exempt financing for corporations recognized under Section 501(c)(3) of the Code; (c) regulatory limitations affecting the Obligated Group’s ability to undertake capital projects or develop new services; and (d) a requirement that nonprofit health care institutions pay real estate property tax and sales tax on the same basis as for-profit entities.

Legislative bodies have considered proposed legislation on the charity care standards that not for profit, charitable hospitals must meet to maintain their federal income tax-exempt status under the Code and legislation mandating not for profit, charitable hospitals to have an open-door policy toward Medicare and Medicaid patients as well as to offer, in a non-discriminatory manner, qualified charity care and community benefits. Excise tax penalties on not for profit, charitable hospitals that violate these charity care and community benefit requirements could be imposed, or their tax-exempt status under the Code could be revoked. As described above, because of the complexity of health reform generally, additional legislation is likely to be considered and enacted over time beyond the Health Care Reform Law. The scope and effect of legislation, if any, which may be adopted at the Federal or state levels with respect to charity care of non-profit hospitals cannot be predicted. Any such legislation or similar legislation, if enacted, may have the effect of subjecting a portion of the Obligated Group’s income to federal or state income taxes or to other tax penalties.

Budget Control Act of 2011

On August 2, 2011, President Obama signed the Budget Control Act of 2011 (the “Budget Control Act”). The Budget Control Act limits the federal government’s discretionary spending caps at levels necessary to reduce expenditures by $917 billion from the current federal budget baseline over the course of 10 years, from federal fiscal years 2012 through 2021. Medicare, Social Security, Medicaid and other entitlement programs will not be affected by the limit on discretionary spending caps.

The Budget Control Act also set in place a protocol for mandatory spending cuts known as sequestration, including a 2% reduction in Medicare spending, beginning in January 2013. Medicaid is one of a number of programs exempted from sequestration. The Taxpayer Relief Act extended the date on which the 2% reduction in Medicare spending would become effective by 60 days.

If the Budget Control Act’s reductions go into effect, these reductions could have a material adverse effect on the financial condition of the Obligated Group. Further, with no long-term resolution in place for federal deficit reduction, hospital and physician reimbursement are likely to continue to be targets for reductions with respect to any interim or long-term federal deficit reduction efforts.

Nonprofit Healthcare Environment

Members of the Obligated Group are exempt from federal income taxation as organizations described in Section 501(c)(3) of the Code. As not for profit, tax-exempt organizations, the Members of the Obligated Group are subject to federal, state and local laws, regulations, rulings and court decisions relating to their organizations and operations, including their operation for charitable purposes.

Congressional Hearings. A number of House and Senate Committees, including the House Committee on Energy and Commerce, the House Committee on Ways and Means and the Senate Finance Committee, have conducted hearings and other proceedings inquiring into issues related to not for profit tax-exempt healthcare organizations. Such committees have also conducted investigations into hospital billing and collection practices, charity care and community benefit standards, prices charged to uninsured patients and possible reforms to the not for profit sector. These hearings and investigations may result in new legislation. The effect of any such legislation, if enacted, on either the nonprofit health care sector or the Obligated Group cannot be determined at this time.

The status of real property and sales tax exemptions for not for profit health care providers has been under scrutiny in the State for a number of years. As a result, in June 2012, the State enacted legislation (the “Illinois Property and Sales Tax Act”) creating standards for real property and sales tax exemptions for health care providers operating in the State. The Illinois Department of Revenue (“IDOR”) later issued related forms and instructions.

The Illinois Property and Sales Tax Act provides that a hospital owner or hospital affiliate satisfies the conditions for an exemption from real property taxation if the value of “qualified services or activities” for the hospital year equals or exceeds the relevant hospital entity’s estimated property tax liability for the calendar year in which exemption or renewal of exemption is sought. Nonprofit hospitals that satisfy this test will also be exempt from the State’s sales and use tax. The Illinois Property and Sales Tax Act includes a list of the items that are included within the definition of “qualified services and activities,” including charity care (free or discounted services pursuant to the hospital’s financial assistance policy, measured at cost); health services to low-income or underserved individuals (including, without limitation, financial or in-kind support relating to the care and treatment of low-income or underserved individuals); subsidies provided to State or local governments for programs related to health care for low-income or underserved individuals; support for State health care programs for low-income

individuals; and the portion of unreimbursed costs attributed to providing, paying for, or subsidizing goods, activities or services that relieve the burden of government relating to health care for low income individuals, including, without limitation, the provision of medical education and training of health care professionals as well as the provision of emergency, trauma, burn, neonatal, psychiatric, rehabilitation or other special services.

Two lawsuits challenging the constitutionality of the Illinois Property and Sales Tax Act have come to different outcomes in the appellate courts. In one of these cases, the trial court found the law not facially unconstitutional and granted the IDOR’s motion for summary judgment. The plaintiff appealed the case to the relevant appellate court and on December 22, 2016, such appellate court held the Illinois law exempting nonprofit hospitals from property taxes is constitutional. The plaintiff petitioned for an appeal to the Illinois Supreme Court, which the Illinois Supreme Court granted on September 27, 2017. This case is still ongoing. In the other case, an appellate court found the portion of the Illinois Property and Sales Tax Act addressing property tax exemption for not for profit hospitals unconstitutional in January 2016. In May 2016 the Illinois Supreme Court agreed to hear this case on appeal. Also in May 2016, based on the opinion of the appellate court holding the Illinois Property and Sales Tax Act unconstitutional, a lawsuit seeking class action status was filed, requesting, among other things, findings that nonprofit hospitals granted exemptions under the Illinois Property and Sales Tax Act have been unjustly enriched and have misused public funds, an injunction prohibiting nonprofit hospitals from claiming property tax exemptions under the Illinois Property and Sales Tax Act, and an injunction requiring nonprofit hospitals to make restitution for benefits received under the Illinois Property and Sales Tax Act. The Illinois Supreme Court heard oral argument regarding the constitutionality of the Illinois Property and Sales Tax Act in January 2017, but declined to rule on the arguments for and against the constitutionality and instead remanded the case to the circuit court based on the appellate court’s lack of jurisdiction for further proceedings. Obligated Group management cannot predict the ultimate outcome of these lawsuits; however, one or more adverse rulings which would subject NMHC or any other Obligated Group Members to property taxation could have a material impact on the financial condition of the Obligated Group.

Management of the Obligated Group believes it is in material compliance with the Illinois Property and Sales Tax Act; however, no assurance can be given that the IDOR or the State would not take a contrary position or that the Obligated Group Members will not be found to have violated the Illinois Property and Sales Tax Act.

State Legislative Initiatives. In addition to the increased scrutiny that tax-exempt hospitals have faced in the past few years through federal and state charity care litigation, congressional hearings and IRS examinations, the office of the Illinois Attorney General (the “Attorney General”) has also directed its attention toward state legislative and regulatory initiatives relating to tax-exempt hospitals. Under current Illinois law, tax-exempt hospitals are required annually to submit audited financial statements and detailed community benefits reports to the Attorney General. At times, the Attorney General has also been known to use its subpoena power to request additional information on charity care policies, billing practices and other matters. Attorney General involvement in these areas led to the establishment of a number of healthcare consumer protection laws over the course of the past decade.

The Fair Patient Billing Act relates to Illinois hospitals’ billing and collection procedures, and the Hospital Uninsured Patient Discount Act requires all hospitals to provide discounts to uninsured patients meeting certain eligibility requirements and to establish a maximum collectible amount of 25% of annual family income for eligible individuals.

In June 2012, the Governor of Illinois signed into law Public Act 97-0690 (the “Uninsured Charity Care Act”). The Uninsured Charity Care Act amends the Fair Patient Billing Act and the

Hospital Uninsured Patient Discount Act to require, among other things, (i) the Attorney General to develop standard provisions in applications for financial assistance, together with rules for determining presumptive eligibility, and (ii) hospitals, other than rural hospitals or critical access hospitals, to provide a charitable discount of 100% of its charges for all medically necessary health care services exceeding $300 to uninsured individuals who apply for such a discount and who have a family income of not more than 200% of the federal poverty guidelines, and rural hospitals or critical access hospitals to provide medically necessary free care to individuals with family income of up to 125% of the federal poverty guidelines. In August 2013, the Attorney General’s office released rules, which became effective on January 1, 2014, requiring specific disclosures in financial assistance applications and limiting the information that a hospital may require on its forms used to determine eligibility for assistance. These rules also required each hospital to develop and implement a presumptive eligibility policy identifying specific eligibility criteria by which a patient may be deemed eligible for financial assistance as soon as possible after receiving health care services and prior to the issuance of any bill for such services. Management of the Obligated Group believes that the Members are in substantial compliance with these rules; however, no assurance can be given that enforcement or regulatory agencies will not take a contrary position.

The foregoing are some examples of the challenges and examinations facing not for profit healthcare organizations. They are indicative of a greater scrutiny of the billing, collection and other business practices of these organizations, and may indicate an increasingly more difficult operating environment for healthcare organizations, including the Obligated Group Members. The challenges and examinations, and any resulting legislation, regulations, judgments or penalties, could have a material adverse effect on the Obligated Group.

Payment for Health Care Services

Third-Party Payment Programs. Most of the net patient service revenues of the Obligated Group are derived from third-party payors that reimburse or pay for the services and items provided to patients covered by such third parties for such services, including the federal Medicare program, state Medicaid program and private health plans and insurers, health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”) and other managed care payors. Many of these third-party payors make payments to the Members of the Obligated Group at rates other than the direct charges of the Members of the Obligated Group, which rates may be determined other than on the basis of the actual costs incurred in providing services and items to patients. Accordingly, there can be no assurance that payments made under these programs will be adequate to cover the Obligated Group’s actual costs of furnishing health care services and items. In addition, the financial performance of the Obligated Group could be adversely affected by the insolvency of, or other delay in receipt of payments from, third-party payors, which provide coverage for services to their patients.

Medicare and Medicaid Programs. The Obligated Group is dependent on reimbursement from the Medicare and Medicare programs. Changes in federal and state funding for these programs could adversely affect the business and financial condition of the Obligated Group. The Medicare program is a federally funded government health insurance program that provides insurance to individuals over 65 years of age regardless of income, individuals with permanent disability and end-stage renal disease. The Medicaid program is a joint federal and state health insurance program that provides health insurance to low-income individuals, children and individuals with disabilities. See “SUMMARY OF FINANCIAL RESULTS – Sources of revenue” in APPENDIX A.

Past federal budgets have contained cuts to the Medicare and Medicaid program. While it is uncertain whether future federal budgets will propose cuts to these programs, any reduction in the level of Medicare and/or Medicaid spending or a reduction in the rate of increase of Medicare and/or Medicaid

spending would have an adverse impact on the revenues of the Members of the Obligated Group derived from the Medicare and Medicaid programs. As Congress discusses future health care reform initiatives and subsequent fiscal year budgets, cost-saving considerations will likely include reductions in Medicare and other health care spending. While it is uncertain whether future federal budgets will include Medicare/Medicaid spending reductions, any reduction in the level of Medicare and/or Medicaid spending may have an adverse impact on the revenues of the Obligated Group derived from those programs.

The following is a summary of the Medicare and Medicaid programs and certain risk factors related thereto.

Medicare. Medicare is administered by the Center for Medicare & Medicaid Services (“CMS”)s, which delegates to the states the process for certifying hospitals to which CMS will make payment. In order to achieve and maintain Medicare certification, hospitals must meet CMS’ “Conditions of Participation” on an ongoing basis, as determined by the state and accreditation organizations such as The Joint Commission, DNV Healthcare Inc. and the American Osteopathic Association. The requirements for Medicare certification are subject to change, and, therefore, it may be necessary for hospitals to effect changes from time to time in their facilities, equipment, personnel, billing, policies and services. For the fiscal year ended August 31, 2017, approximately 24.8% of the Obligated Group’s patient service revenue, net of contractual allowances and discounts, but before the provision for uncollectible accounts, was derived from the Medicare program. See the information under the heading “SUMMARY OF FINANCIAL RESULTS – Sources of revenue” in APPENDIX A to this Official Statement.

Medicare pays acute care hospitals for most services provided to inpatients under a payment system known as the Prospective Payment System (“PPS”), pursuant to which hospitals are paid for services based on predetermined rates. The inpatient PPS payment is based on two national base payment rates or standardized amounts: one that provides for operating expenses and another for capital expenses. The following discussion on Medicare reimbursement relates to hospitals that are reimbursed on a PPS basis.

Acute care hospitals, including those operated by the Obligated Group that are reimbursed on a PPS basis, are paid a specified amount toward their operating costs based on the Diagnosis Related Group (“DRG”) to which each Medicare hospitalization is assigned, which is determined by the diagnosis and procedure and other factors for each particular inpatient stay. The amount paid for each DRG is established prospectively by CMS based on the estimated intensity of hospital resources necessary to furnish care for each principal diagnosis and is not directly related to a hospital’s actual costs. For certain Medicare beneficiaries who have unusually costly hospital stays (“outliers”), CMS will provide additional payments above those specified for the DRG. Outlier payments cease to be available upon the exhaustion of such patient’s Medicare benefits or a determination that acute care is no longer necessary, whichever occurs first. There is no assurance that any of these payments will cover the actual costs incurred by a hospital. In addition, revisions to the outlier regulations could be implemented to curb outlier payment abuse, which may adversely affect hospitals’ ability to receive such subsidies. In addition to outlier payments, DRG payments are adjusted for area wage differentials. These change on a yearly basis.

DRG payments are adjusted each federal fiscal year (which begins October 1) based on the hospital “market basket” index, or the cost of providing healthcare services. For nearly every year since 1983, Congress has modified the increases and given substantially less than the increase in the “market basket” index. In federal fiscal year 2008, CMS also implemented a documentation and coding adjustment to account for changes in payments under the Medicare Severity Diagnosis Related Group (the “MS-DRG system”) that are not related to changes in case mix. CMS was given the authority to retrospectively determine if the documentation and coding adjustments were adequate to account for

changes in payments not related to changes in case mix. The Taxpayer Relief Act required CMS to recover $11 billion by 2017 to fully recoup documentation and coding overpayments related to the transition to the MS-DRG system. Accordingly, the CMS’ fiscal year 2017 payment policies reflected a 1.5% reduction for documentation and coding required by the Taxpayer Relief Act for rates paid under the inpatient PPS.

The Health Care Reform Law will reduce the annual Medicare market basket updates each federal fiscal year through federal fiscal year 2019. The Health Care Reform Law also provides that annual Medicare market basket updates will be subject to productivity adjustments, further reducing Medicare payments to hospitals. As required by the Deficit Reduction Act of 2005 (the “Deficit Reduction Act”), hospitals that do not participate in the Hospital Inpatient Quality Reporting Program (the “Hospital Quality Initiative”) will receive the market basket update, less 2%. CMS continues to update quality measures that hospitals must report to qualify for the full market basket update. The hospitals operated by the Obligated Group participate in the Hospital Quality Initiative. Changes in the payments received for all services, including specialty services, could have an adverse effect on the Obligated Group. For further information regarding the Health Care Reform Law and its provisions, see “BONDHOLDERS’ RISKS – Health Care Reform Law ” herein.

The Health Care Reform Law established a value-based purchasing program that rewards hospitals with incentive payments for the quality of care they provide to Medicare patients. The quality performance standards take into account a broad range of factors designed to measure quality of care, how closely best clinical practices are followed and the overall experience of the patients. Because the Health Care Reform Law provides that the pool will be fully distributed, hospitals that meet or exceed the quality performance standards will receive greater reimbursement under the value-based purchasing program than they would have otherwise. Hospitals that do not achieve the necessary quality performance will receive reduced Medicare inpatient hospital payment. The Obligated Group is unable to predict how value-based purchasing will affect its results of operations, however the program could negatively impact the revenues of the Obligated Group. For federal fiscal year 2017, CMS increased acute care hospital based payment rates by 0.95%.

The Secretary of HHS is required to review annually the DRG categories to take into account any new procedures and reclassify DRGs and recalibrate the DRG relative weights that reflect the relative hospital resources used by hospitals with respect to discharges classified within a given DRG category. There is no assurance that the Obligated Group will be paid amounts that will adequately reflect changes in the cost of providing health care or in the cost of healthcare technology being made available to patients. Since the implementation of the MS-DRG system, CMS has created new DRGs and revised or deleted others in order to better recognize the severity of illness for each patient. CMS may only adjust DRG weights on a budget-neutral basis.

PPS was instituted as an attempt to provide incentives for hospitals to operate efficiently. If a hospital incurs costs in treating Medicare patients that exceed the DRG level of reimbursement plus any outlier payments, the hospital will realize a loss, which will have to be made up from other sources of revenue. However, if a hospital’s costs in providing such treatment are less than the applicable prospective payment rate, the hospital will realize a gain. Accordingly, there can be no assurance that the aggregate amount of payments to the Obligated Group under PPS will be sufficient to cover the actual costs of providing inpatient hospital services to Medicare beneficiaries.

Inpatient Capital-Related Costs. With limited exceptions, hospitals are reimbursed on a fully prospective basis for capital costs related to the provision of inpatient services to Medicare beneficiaries. Thus, capital costs are reimbursed exclusively on the basis of a standard federal rate (based on average national costs), subject to certain adjustments (such as for disproportionate share, indirect medical

education and outlier cases) specific to the hospital. Hospitals are reimbursed at 100% of the standard federal rate for all capital costs. This applies to the standard federal rate before the application of the adjustment factors for outliers, exceptions and budget neutrality.

There can be no assurance that the prospective payments for capital costs will be sufficient to cover the actual capital-related costs of the Obligated Group allocable to Medicare patient stays or to provide adequate flexibility in meeting the Obligated Group’s future capital needs.

Inpatient Hospital Rehabilitation Services. CMS reimburses inpatient rehabilitation facilities (“IRFs”) on a PPS basis. Under IRF PPS, patients are classified into case mix groups based on impairment, age, comorbidities and functional capability. IRFs are paid a predetermined amount per discharge that reflects the patient’s case mix group and is adjusted for area wage levels, low-income patients, rural areas and high-cost outliers.

Outpatient Hospital Services. Hospital outpatient services, including hospital operating and capital costs, are reimbursed on a PPS basis. Several Medicare Part B services are specifically excluded from this rule, including certain physician and non-physician practitioner services, ambulance, clinical diagnostic laboratory services and nonimplantable orthotics and prosthetics, physical and occupational therapy, and speech language pathology services.

Under the hospital outpatient PPS (“OPPS”), predetermined amounts are paid for designated services furnished to Medicare beneficiaries. CMS classifies outpatient services and procedures that are comparable clinically and in terms of resource use into ambulatory payment classification (“APC”) groups. Using hospital outpatient claims data from the most recent available hospital cost reports, CMS determines the median costs for the services and procedures in each APC group. Subsequently, a payment rate is established for each APC. Depending on the services provided, a hospital may be paid for more than one APC for a patient visit.

Critical Access Hospital Services. Unlike most acute care hospitals, which are reimbursed by Medicare under a prospective payment system based on the MS-DRG to which a patient was assigned, Medicare reimbursement to critical access hospitals (“CAHs”) is cost-based. NM VWH operates a CAH. CAH cost-based Medicare reimbursement has come under scrutiny as part of on-going deficit reduction discussions. There can be no assurance that CAH reimbursement will continue at current levels.

Provider-Based Standards. Some healthcare providers bill for services as “provider-based entities” and, as such, are subject to CMS’ provider-based regulations. CMS has stated that prior approval of provider-based status by CMS is not required for an entity to bill as provider-based. Rather, a provider may provide an optional attestation of its status as a provider-based entity. Although such attestation is not required to bill as a provider-based entity, it may provide some overpayment protection in the event that CMS subsequently makes a determination that an entity is not provider-based, assuming accurate representation by the provider to CMS. Any reclassification by CMS may adversely affect the entity’s reimbursement under the Medicare program. The Obligated Group believes all of its current facilities that bill for services as provider-based entities qualify as “provider-based” entities under the current regulations.

The Bipartisan Budget Act of 2015 reduces Medicare payments to newly enrolled provider-based, off-campus hospital outpatient departments (“HOPDs”) by excluding such facilities from payment under the OPPS beginning January 1, 2017. While this change does not affect existing and enrolled provider- based, off-campus HOPDs that were billing for services prior to November 2, 2015, newly enrolled provider-based, off-campus HOPDs will receive lower payments than in previous years for providing the

same services. Any such reclassification could significantly reduce reimbursement under the Medicare program.

Medicare Advantage. Medicare beneficiaries may obtain Medicare coverage through a managed care Medicare Advantage plan. A Medicare Advantage plan may be offered by a coordinated care plan (such as an HMO or PPO), a provider sponsored organization (“PSO”) (a network operated by healthcare providers rather than an insurance company), a private fee-for-service plan, or a combination of a medical savings account (“MSA”) and beneficiary-contributions to a Medicare Advantage plan. Each Medicare Advantage plan, except an MSA plan, is required to provide benefits approved by the Secretary of HHS. A Medicare Advantage plan will receive a monthly capitated payment from HHS for each Medicare beneficiary who has elected coverage under the plan. Healthcare providers such as the Obligated Group must contract with Medicare Advantage plans to treat Medicare Advantage enrollees at agreed upon rates or may form a PSO to contract directly with HHS as a Medicare Advantage plan. Covered inpatient and emergency services rendered to a Medicare Advantage beneficiary by a hospital that is an out-of-plan provider (i.e., that has not entered into a contract with a Medicare Advantage plan) will be paid at Medicare fee-for-service payment rates as payment in full.

The Health Care Reform Law provides that, through September 30, 2019, payments under the Medicare Advantage programs will be reduced, which may result in increased premiums or out-of-pocket costs to Medicare beneficiaries enrolled in Medicare Advantage plans. These beneficiaries may terminate their participation in such Medicare Advantage plans and opt instead for the traditional Medicare fee-for- service program. The reduction in payments to Medicare Advantage plans may also lead to decreased payments to providers by managed care companies operating Medicare Advantage plans. There can be no assurance, however, that rates negotiated for the treatment of Medicare Advantage enrollees will be sufficient to cover the cost of providing services to such patients. All or any of these outcomes will have a disproportionately negative effect upon those providers that rely more upon Medicare managed care revenues. For further information regarding the Health Care Reform Law and its provisions, see “BONDHOLDERS’ RISKS – Health Care Reform Law ” herein.

Hospital Inpatient Reimbursement. Payments are made to hospitals based on the DRG assignment for each patient’s diagnosis. Hospital reimbursement will be set at specific rates established by Medicare for that particular patient’s DRG, regardless of the actual costs incurred by the hospital for such treatment. The actual cost of care, including capital costs, may be more or less than the DRG rate. DRG rates are subject to adjustment by CMS and are subject to federal budget considerations. There is no guarantee that DRG rates, as they change from time to time, will cover actual costs of providing services to Medicare patients.

Other Medicare Service Payments. Medicare payment for skilled nursing services, psychiatric services, inpatient rehabilitation services, general outpatient services and home health services are based on regulatory formulas or pre-determined rates. There is no guarantee that these rates, as they may change from time to time, will be adequate to cover the actual cost of providing these services to Medicare patients. In addition, there is no assurance that the Obligated Group Members will be fully reimbursed for all services they bill through consolidated billing.

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

Medicare Payment for Preventable Medical Errors. The Deficit Reduction Act required the Secretary of Health and Human Services (“HHS”) to select at least two conditions that are: (i) high cost, high volume, or both; (ii) identified through coding as a complicating condition or major complicating condition that, when present as a secondary diagnosis at discharge, results in payment at a higher MS- DRG; and (iii) reasonably preventable through application of evidence-based guidelines. Such conditions are referred to as “hospital-acquired conditions.” The Deficit Reduction Act further required hospitals to begin reporting on claims for discharges, beginning October 1, 2007, whether the selected conditions were present on admission. In its 2008, 2009 and 2013 Inpatient PPS Final Rules, CMS selected conditions in furtherance of this mandate, and continues to consider additional conditions annually. Commencing with fiscal year 2011, federal payments to states for Medicaid services related to health care acquired conditions are prohibited and commencing with federal fiscal year 2015, Medicare payments to certain hospitals for hospital-acquired conditions such as infections are reduced by one percent. The incidence of adverse events and their payment implications continues to be an area of focus for regulators.

Medical Education Payments. Medicare pays for certain of the direct and indirect costs associated with medical education (including the salaries of residents and teachers and other overhead costs directly attributable to medical education programs). Payment for the direct costs of graduate medical education (“GME”) is made on a “pass-through” basis, not PPS, based on a formula that reflects the hospital’s base year per resident costs adjusted by inflation and the number of current-year reimbursable resident positions. Payment for the indirect costs of medical education (“IME”) is based on the ratio of a hospital’s number of full-time equivalent residents to its number of beds. These payments are vulnerable to reduction or elimination.

Physician Payments. Certain physician services are reimbursed on the basis of a national fee schedule called the “resource based-relative value scale” (“RB-RVS”). The RB-RVS fee schedule establishes payment amounts for all physician services, including services of provider-based physicians, and is subject to annual updates. Historically, Medicare payments for physician services have been linked to a sustainable growth rate (“SGR”) formula that tied physician reimbursement to the gross domestic product. The use of the SGR in determining physician fee schedule updates was widely criticized, and was consistently neutralized with Congressional intervention which served to delay considerable decreases to Medicare physician payments.

In response to these criticisms, the Medicare Access and Children’s Health Insurance Program Reauthorization Act (“MACRA”) replaced the SGR formula with statutorily prescribed physician payment updates and provisions. Specifically, MACRA eliminated the cut to physician payments required by the SGR formula, and substituted annual 0.5% payment increases through 2019. Thereafter, payments rates will be frozen at 2019 levels through 2025. Beginning in 2026, physicians and other professionals paid under the Medicare physician fee schedule will receive an annual update of 0.75% for participating in eligible alternative payment models, while all other professionals will receive annual updates of 0.25%. While the immediate payment cuts associated with the SGR formula have been eliminated, it is possible that future legislative action will be taken that would once again trigger physician payment reductions.

Medicare Audits and Withholds. Hospitals participating in Medicare and Medicaid are subject to audits and retroactive audit adjustments with respect to reimbursement claimed under those programs. Although management of the Obligated Group believes the Members’ reserves are adequate for the purpose, any such future adjustments could be material. Both Medicare and Medicaid regulations also provide for withholding payments in certain circumstances. Any such withholding with respect to any Member of the Obligated Group could have a material adverse effect on the financial condition and results of operations of the Members of the Obligated Group. In addition, contracts between hospitals and third party payors often have contractual audit, setoff and withhold language that may cause

substantial, retroactive adjustments. Such contractual adjustments also could have a material adverse effect on the financial condition and results of operations of the Members of the Obligated Group. Management of the Obligated Group is not aware of any situation in which a Medicare or other payment is being, or may in the near future be, withheld that would materially and adversely affect the financial condition or results of operations of the Obligated Group.

Recovery Audit Contractors. The goal of the Recovery Audit Contractor Program (“RAC Program”) is to identify and correct improper payments made to providers. RAC Program activities are executed by contractors selected by CMS, who are compensated on a contingency basis. Contractors have three years from the time a claim is paid to review that claim. However, no claims paid prior to October 2007 can be reviewed. Obligated Group management cannot anticipate the amount or volume of the Obligated Group’s past Medicaid claims that will be reviewed under the RAC Program or predict the results of any such audits.

Medicaid. Medicaid (Title XIX of the federal Social Security Act) is a health insurance program for certain low-income and needy individuals that is jointly funded by the federal government and the states. It covers approximately 50 million people, including children, the aged, blind, and/or disabled, and individuals who are eligible to receive federally assisted income maintenance payments. Pursuant to broad federal guidelines, the states and the United States territories (Puerto Rico, Guam, the Virgin Islands, American Samoa, and the Northern Mariana Islands) each (i) establish their own eligibility standards; (ii) determine the type, amount, duration, and scope of services; (iii) set the payment rates for services; and (iv) administer their own programs. Some states operate certain Medicaid programs under a waiver of some of the basic Medicaid requirements. Pursuant to the Medicaid program, the federal government supplements funds provided by the various states for medical assistance to the medically indigent. Payment for such medical and health services is made to hospitals in an amount determined in accordance with procedures and standards established by state law under federal guidelines. In Illinois, Medicaid is administered by the Illinois Department of Healthcare and Family Services (“IDHFS”).

Fiscal considerations of both the federal and state governments in establishing their budgets will directly affect the funds available to providers for payment of services rendered to Medicaid beneficiaries. Currently, Medicaid nursing facility payments are generally made using a prospective per diem payment based on cost, adjusted for various factors, including acuity. In addition, Medicaid inpatient hospital payments are generally made under a DRG, prospective payment system on a per discharge basis. It is important to note that although the payment systems can be categorized in general terms, the specific methodology varies from state to state. Significant changes have been and may continue to be made in the Medicaid program that could have a material adverse impact on the financial condition of the Obligated Group.

Medicaid eligibility is generally based on a combination of financial and categorical eligibility requirements. Most states determine threshold Medicaid eligibility levels by reference to other federal financial assistance programs, including Temporary Assistance to Needy Families (“TANF”) and Supplemental Security Income (“SSI”). TANF is a low-income assistance program for families with children that was adopted to replace the Aid to Families with Dependent Children program. SSI is a federal program that provides assistance to low-income aged, blind or disabled individuals.

The following paragraphs discuss certain Medicaid reimbursement rules for Illinois to which the Members’ hospitals are subject.

Illinois Medicaid. The State of Illinois continues to be adversely affected by fiscal considerations that affect its budget for programs such as Medicaid. Historically, federal payments and amounts appropriated by the Illinois General Assembly for payment of Medicaid claims have not been sufficient to

reimburse hospitals for their actual costs in providing services to Medicaid patients. Also, the State of Illinois has routinely failed to pay Medicaid claims on a timely basis. The Save Medicaid Access and Resources Together (the “SMART” Act), passed in 2012, includes approximately $1.6 billion in cuts to the state’s Medicaid funding, representing approximately $1.36 billion in program reductions and $240 million in reimbursement rate cuts. Separately, Public Act 97-0691 provides that the maximum amounts of unpaid Medicaid Assistance bills received and recorded by IDHFS on or before June 30 of a particular fiscal year that may be paid by IDHFS from future fiscal year Medicaid Assistance appropriations is $100 million for fiscal year 2014 and each fiscal year thereafter. The reduction in Medicaid services and programs, as well as any failure by the State of Illinois to pay Medicaid claims on a timely basis, may have an adverse effect on the cash flow and financial condition of the Obligated Group.

Since 2008, the State of Illinois has had in place a hospital assessment program (the “2008 Hospital Assessment Program”) that was approved by CMS, and as such, qualifies for federal matching funds under the Illinois Medicaid program. The 2008 Hospital Assessment Program has a sunset provision effective June 30, 2018. Under the 2008 Hospital Assessment Program, each hospital is assessed an amount based on that hospital’s adjusted gross hospital revenue. Such assessments are to be used to provide additional reimbursement from the federal government for Medicaid inpatient and outpatient services. There can be no assurance that the State of Illinois will extend, or that CMS will approve an extension of, the 2008 Hospital Assessment Program past its current sunset date.

In June 2012, the Governor of Illinois signed into law Public Act 97-0688, which originally provided for an enhanced hospital assessment program until the end of the 2014 calendar year, but was subsequently extended through calendar year 2018. The program requires each privately-owned Illinois hospital to pay an assessment equal to 0.008766% of its outpatient gross revenue, and is expected to generate a total assessment of approximately $290 million per year. Of this amount, $240 million will be used to attract federal Medicaid matching funds, which will result in total new Medicaid payments to hospitals of about $480 million, representing a net improvement of approximately $190 million. Payments will be made according to formulae to preserve and improve access to perinatal services, complex emergent services, outpatient services, hospital emergency and psychiatric services, outpatient services at specialty hospitals, salaried physician services in high volume Medicaid hospitals, and to maintain access to certain critical services and support hospitals serving high volumes of patients enrolled in Medicaid or dually eligible for Medicare and Medicaid. Assessments will not be due and any monies paid will be refunded if these hospital access improvement payments are not eligible for federal Medicaid matching funds. The use of provider assessments has been criticized in Congress and by various federal agencies and may be restricted or eliminated in the future.

In July 2013, Illinois enacted Public Act 98-0104 (the “Expanded Medicaid Act”), which expanded Medicaid health coverage to adults under the age of 65 with incomes under 138% of the federal poverty level. Approximately 350,000 adults are expected to obtain health coverage under the Medicaid expansion. The federal government will pay 100% of the cost of the newly eligible Medicaid recipients in 2014, 2015 and 2016, with matching levels phasing down (beginning in 2017, by about 2% per year) to 90% by 2020 and subsequent years.

In May 2014, the Illinois legislature passed and the State’s Governor signed into law the Omnibus Medicaid Bill, Senate Bill 741, as Amended by House Amendment #1 (“SB 741”). Among its provisions, SB 741 authorized a new hospital payment system, extended both the existing Medicaid assessment system and enhanced Medicaid assessment system to July 1, 2018 (both of these assessment systems were scheduled to expire on December 31, 2014), and provided that IDHFS request federal funding under the Health Care Reform Law for newly eligible Medicaid patients. The new hospital payment system became effective July 1, 2014. The goal of the new payment system is to better align the payment for services rendered to Medicaid patients with the hospitals providing the services. Under the

new hospital payment system, rates paid will be based on more current utilization data with a greater emphasis on accurate coding of claims. Quarterly fixed payments are being replaced with increased payments on a per claim basis. Outpatient rates are also being increased. IDHFS requested, and on January 9, 2015, CMS approved, federal funding for hospitals serving newly eligible Medicaid recipients under the Health Care Reform Law, retroactive to March 1, 2014. IDHFS estimates that this will provide approximately $400 million of new annual federal funding to be distributed to hospitals across Illinois. The distribution of this new funding is designed to mirror the two current hospital assessment systems’ distributions. The Obligated Group has realized a positive net increase of approximately $72.4 million for the fiscal year ended August 31, 2017 and an expected increase of $46.6 million for the fiscal year ending August 31, 2018.

Illinois Budget. The State of Illinois continues to be adversely affected by fiscal considerations that affect its budget for programs such as Medicaid. Historically, federal payments and amounts appropriated by the Illinois General Assembly for payment of Medicaid claims have not been sufficient to reimburse hospitals for their actual costs in providing services to Medicaid patients. Also, the State of Illinois has routinely failed to pay Medicaid claims on a timely basis. The State of Illinois endured an ongoing budget impasse, operating with no budget or six-month stop-gap budgets from July 1, 2015 through June 30, 2017. As a result of certain court actions and attorney general involvement during the budget impasse, the State of Illinois was required to pay all Medicaid providers during the impasse for services provided to Medicaid beneficiaries. On June 30, 2017, a federal judge ordered Illinois to begin paying $293 million every month in State money toward its backlogged Medicaid obligations and an additional $1 billion over the course of the following year. On July 1, 2017, following an override of Governor Rauner’s veto, the Illinois legislature enacted a State budget that is retroactive to July 1, 2017. Management of the Obligated Group is unable to predict if the newly enacted budget will result in timely payment of the court-ordered Medicaid obligations to health care providers like the Members or how future state budgets and legislation will impact payment rates, program services or other changes to the Medicaid program.

Inpatient Hospital Services. Payment for inpatient hospital services is made under a PPS, rather than a cost reimbursement system, using Medicare DRG rates and is modified by the State. Hospitals are reimbursed at the federal and regional blended rate per discharge for the Medicare program. This rate includes hospital-specific add-ons recognizing sole community hospitals, rural referral centers, Medicare dependent hospitals and rural hospitals deemed urban. Additional add-ons are made for outlier cases, indirect and direct medical education, capital costs, CRNA costs, and disproportionate share adjustments. Payment will not exceed Medicare upper limits. Psychiatric, rehabilitation, long-term stay, and sole community hospitals are reimbursed based on an allowable operating cost per diem plus other costs reimbursed on a per diem basis plus disproportionate share adjustments, outlier adjustments, applicable trauma center adjustments, and uncompensated care adjustments. Separate reimbursement rules exist for out-of-state hospitals and children’s hospitals.

Outpatient Hospital Services. Outpatient reimbursement is on a fee-for-service basis based on the Ambulatory Project Group System. Services provided under the Hospital Ambulatory Care Program are paid the lesser of charges, or, for Group I procedures, the alternate reimbursement rate, and, for Group II or III procedures, one of two separate rate maximums depending on the hospital’s classification. Group IV procedures are reimbursed the lesser of charges or one of six rate maximums depending on the hospital’s classification. An outpatient indigent volume adjustment is made to qualifying hospitals.

Managed Care Programs. Following the State’s Medicaid reform law and pursuant to the Health Care Reform Law, IDHFS transitioned over two million participants into managed care health plans. These efforts were concentrated in five mandatory managed care regions: Rockford, Central Illinois, Metro East, Quad Cities, and Greater Chicago (Cook and Collar Counties). In these regions, IDHFS

contracted with private health plans to manage the care of Medicaid patients to improve quality of care and control cost. In Cook County, IDHFS contracts with HMOs and Managed Care Community Networks (“MCCNs”) to provide health services to managed care enrollees. Expansion of the State’s managed care program will depend on legislative initiatives.

Medicaid Disproportionate Share Payments. Aimed at maintaining access to hospital care for vulnerable patients, Medicaid DSH payments offer additional Medicaid payments to mitigate the financial pressure placed upon hospitals that serve disproportionately large populations of low-income patients. The total payments within a state have long been capped according to state-specific “allotments.” Under the Health Care Reform Law, however, in fiscal years 2014 through 2020, a state’s Medicaid DSH allotment from federal funds will be reduced. For further information regarding the Health Care Reform Law and its provisions, see “BONDHOLDERS’ RISKS – Health Care Reform” herein.

Commercial Insurance and Other Third-Party Plans

Many commercial insurance plans, including group plans, reimburse their customers or make direct payments to the Obligated Group Members for charges at rates established by agreement. Generally, these plans pay per diem rates plus ancillary service charges, which are subject to various limitations and deductibles depending on the plan. To the extent allowed by law or as contracted, patients carrying such coverage are responsible to the hospital for any deficiency between the commercial insurance proceeds and total billed charges. There can be no assurance that patients will make payments of any such deficiencies.

Managed Care and Integrated Delivery System Development. Many hospitals and health systems, including the Obligated Group, are pursuing strategies with physicians to offer an integrated package of health care services, including physician hospital services, to patients, health care insurers, and MCOs. These integration strategies take many forms, several of which are discussed below. Further, many of these integration strategies are capital intensive and may create certain business and legal liabilities for the Obligated Group.

Even when these activities are conducted by affiliates outside of the Obligated Group, the start-up capitalization for such developments, as well as operational deficits, may be funded by the Obligated Group. Depending on the size and organizational characteristics of a particular development, these capital requirements may be substantial. In some cases, the Obligated Group may be asked to provide a financial guaranty for the debt of a related entity which is carrying out an integrated delivery strategy. In certain of these structures, the Obligated Group may have an ongoing financial commitment to support operating deficits, which may be substantial, on an annual or aggregate basis.

Further, the Obligated Group Members have entered into contractual arrangements with PPOs, HMOs, and other similar MCOs, pursuant to which they agree to provide or arrange to provide certain health care services for these organizations’ eligible enrollees. There can, however, be no assurance that revenues received under such contracts will be sufficient to cover all costs of services provided. Failure of the revenues received under such contracts to cover all costs of services provided may have a material adverse effect on the operations or financial condition of the Obligated Group.

Additionally, some hospitals and health systems are pursuing accountable care arrangements, which include varying degrees of clinical and financial integration with physician groups and other health care providers to improve efficiencies and quality outcomes for population-management in a risk-sharing model. Many of these integration strategies are capital intensive and may create certain business and legal liabilities for the related hospital or health system.

These types of alliances are likely to become increasingly important to the success of hospitals in the future as a result of changes to the health care delivery and reimbursement systems that are intended to restrain the rate of increases of health care costs, encourage coordinated care, promote collective provider accountability and improve clinical outcomes. The Health Care Reform Law authorizes several alternative payment programs for Medicare and Medicaid that promote, reward or necessitate integration among hospitals, physicians and other providers. Tax-exempt hospitals also face the risk in affiliating with for-profit entities that the IRS will determine that compensation practices or business arrangements result in private benefit or private use or generate unrelated business income for such hospitals.

Increased obligations on managed care payors imposed by the Health Care Reform Law may negatively impact commercial managed care volumes and payment rates from managed care payors. Any material reductions in the contracted rates the Obligated Group Members receive for their services, coupled with any difficulties in collecting receivables from managed care payors, could have a material adverse effect on the Obligated Group’s financial condition.

State Laws. States also are increasingly regulating the delivery of health care services. Much of this increased regulation has centered on the managed care industry. State legislatures have cited their right and obligation to regulate and oversee health care insurance and have enacted sweeping measures that aim to protect consumers and, in some cases, providers. A number of states have enacted laws mandating payment of claims within specified time periods, laws regulating access to specialists, and laws generally regulating provider agreements with MCOs.

Due to this increased state oversight, the Obligated Group could be subject to a variety of state health care laws and regulations affecting both MCOs and health care providers. In addition, the Obligated Group Members could be subject to state laws and regulations prohibiting, restricting, or otherwise governing PPOs; third-party administrators, physician-hospital organizations, independent practice associations or other intermediaries; fee-splitting; the “corporate practice of medicine”; selective contracting (“any willing provider” laws and “freedom of choice” laws); coinsurance and deductible amounts; insurance agency and brokerage, quality assurance, utilization review, and credentialing activities; provider and patient grievances; mandated benefits; rate increases; and many other areas.

In the event that the Obligated Group chooses to transact businesses subject to such laws, or is considered by a state in which it operates to be engaging in such businesses, the Obligated Group may be required to comply with these laws or to seek the appropriate license or other authorization from that state. Such requirements may impose operational, financial, and legal burdens, costs, or risks to the Obligated Group.

Dependence Upon Third-Party Payors. The Obligated Group’s ability to develop and expand its services and, therefore, its profitability, is dependent upon its ability to enter into contracts with third- party payors at competitive rates. Third-party payors are increasingly limiting coverage to those services provided by selected hospitals or providers (e.g. a “narrow network”). With narrow networks, private payors may direct patients away from nonselected hospitals by denying coverage for services provided by them, or providing for coverage with significant financial obligation. There can be no assurance that the Obligated Group Members will be able to attract and maintain third-party payors, and where it does, no assurance that it will be able to contract with such payors on advantageous terms. The inability of the Obligated Group Members to contract with a sufficient number of such payors on advantageous terms would have a material adverse effect on the Obligated Group’s operations and financial results. Further, while the Obligated Group Members expect to employ a system to control health care service utilization and increase quality, the Members cannot predict changes in utilization patterns or the system’s effect on health care providers.

Physician Contracting and Relations. The Obligated Group Members have contracted with physician organizations (“POs”) (e.g., independent physician associations, physician-hospital organizations) to arrange for the provision of physician and ancillary services. Because POs are separate legal entities with their own goals, obligations to shareholders, financial status, and personnel, there are risks involved in contracting with the POs. See the information under the caption “STRATEGIC INITIATIVES” in APPENDIX A hereto.

The Obligated Group has attempted to structure its operations to avoid characterization as engaging in the corporate practice of medicine. However, there can be no assurance that state agencies will not challenge the Obligated Group’s activities as they relate to its management of the provider networks and find violations of the corporate practice of medicine prohibition, which may have a material adverse effect on the Obligated Group’s operations and financial results.

Termination of Managed Care/Commercial Payor Contracts. The Members’ managed care contracts accounted for approximately 66.2% and 67.7% of the Obligated Group’s patient service revenue, net of contractual allowances and discounts, but before the provision for uncollectible accounts,for the years ended August 31, 2017 and 2016, respectively. Termination of one or more managed care contracts would have an adverse effect on the financial performance of the Obligated Group, including, without limitation, termination of the Obligated Group’s managed care contracts with Blue Cross Blue Shield of Illinois.

Capitated Payments, Shared Risk and Shared Savings. Managed Care plans are increasingly paying hospitals and physicians on a capitated basis. Under the traditional fee-for-service method of health care delivery, hospitals, physicians and other providers are reimbursed on a per-service basis and thus have a financial incentive to provide more services, which, in turn, generate more revenue. Under a capitated payment arrangement, in contrast, providers are reimbursed on a ‘‘per member, per month” basis; the provider bears some or all of the risk if the cost of services provided exceeds the amount of the capitation payments. This creates an incentive to control utilization of services. Capitation contracts may cover hospital and professional services separately, or together as “full-risk” contracts. In either case, the provider assumes financial responsibility for the quality and cost of covered health care services to enrollees under such contracts. There can be no assurance that the capitation payments will cover the Members’ costs in providing services to the members covered under such capitation contracts. For more information on the Obligated Group Members’ shared risk and shared savings contracts with certain payors, see “STRATEGIC INITIATIVES” in APPENDIX A hereto.

Regulation of the Health Care Industry

General. The health care industry is highly dependent on a number of factors that may limit the ability of the Obligated Group to meet its obligations under the Loan Agreement, the Master Indenture and the Series 2017A Obligation. Among other things, participants in the health care industry (such as the Obligated Group) are subject to significant regulatory requirements of federal, state and local governmental agencies and independent professional organizations and accrediting bodies, technological advances and changes in treatment modes, various competitive factors and changes in third-party reimbursement programs. Discussed below are certain of these factors that could have a significant effect on the future operations and financial condition of the Obligated Group.

Licensing, Surveys, Audits and Investigations. Hospitals and health facilities, including those of the Members of the Obligated Group, are subject to numerous legal, regulatory, professional and private licensing, certification and accreditation requirements. These include, but are not limited to, requirements relating to Medicare Conditions of Participation, requirements for participation in Medicaid, State licensing agencies, private payors and the accreditation standards of The Joint Commission. Renewal and

continuation of certain of these licenses, certifications and accreditations are based on inspections, surveys, audits, investigations or other reviews, some of which may require affirmative actions by the Members of the Obligated Group. The Obligated Group anticipates that it will be able to periodically renew currently-held licenses, certifications or accreditations when required. Nevertheless, adverse actions in any of these areas could occur and result in the loss of utilization or revenue or the ability of a Member of the Obligated Group to operate all or a portion of its hospital and/or health facilities and, consequently, could have a material and adverse effect on the financial condition of the Obligated Group.

Hospital Star Ratings. On July 27, 2016, CMS published and on December 19, 2016, CMS updated, its overall hospital quality star ratings. The ratings are a composite metric consisting of one to five stars (five being the best) and intended to convey the overall quality of nearly 4,000 hospitals in the U.S. Rating posted to the CMS website, Hospital Compare. Each rating summarizes up to 64 quality measures reflecting common conditions that hospitals treat, such as heart attacks and pneumonia. Along with the overall rating, Hospital Compare includes information on other aspects of quality, such as rates of infection and complications and patients’ experiences. The overall rating shows how well each hospital performed, on average, compared to other hospitals in the U.S. CMS maintains its star ratings will provide consumers an important tool for comparing hospitals both locally and nationwide. Each of NM VWH, NM KCH and NM Delnor maintains a four star rating, while each of NMH, NM LFH and NM CDH maintains a three star rating. Effective November 2017, preview reports from CMS indicate that results scheduled for December 2017 publication will reflect a five star rating for NM Delnor, a four star rating for NM VWH, NM LFH, NMH, and NM CDH, and a three star rating for NM KCH. There is no star rating in place for inpatient rehabilitation hospitals such as MRH. However, MRH’s inpatient skilled nursing unit maintains a five star rating among nursing homes nationally. Management of the Obligated Group is unable to determine at this time what impact such ratings may have on utilization rates and the overall financial condition of the Obligated Group.

Federal Privacy Laws. The Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) added two prohibited practices, the commission of which may lead to civil monetary penalties: (i) the practice or pattern of presenting a claim for an item or service on a reimbursement code that the person knows or should know will result in greater payment than appropriate (i.e., upcoding); and (ii) the practice of submitting claims for payment for medically unnecessary services. Violation of such prohibited practices due to civil neglect could amount to civil monetary penalties ranging from $50,000 to $1.5 million for all identical violations in a calendar year and/or imprisonment. Management of the Obligated Group is not aware of any violations of the prohibited practices provisions of HIPAA.

HIPAA also includes administrative simplification provisions intended to facilitate the processing of health care payments by encouraging the electronic exchange of information and the use of standardized formats for health care information. Congress recognized, however, that standardization of information formats and greater use of electronic technology presents additional privacy and security risks due to the increased likelihood that databases of personally identifiable health care information will be created and the ease with which vast amounts of such data can be transmitted. Therefore, HIPAA requires the establishment of distinct privacy and security protections for individually identifiable health information (“Protected Health Information” or “PHI”).

HHS promulgated privacy regulations under HIPAA (the “Privacy Rule”) that protect the privacy of PHI maintained by health care providers (including hospitals), health plans, and health care clearinghouses (collectively, “Covered Entities”) and provide individuals with certain rights regarding their PHI (including, for example, access to PHI, amending PHI, and receiving an accounting of disclosures of PHI). Security regulations have also been promulgated under HIPAA (the “Security Rule”). The Security Rule requires Covered Entities to have certain administrative, technical and physical safeguards in place to ensure the confidentiality, integrity and availability of all electronic PHI

they create, receive, maintain or transmit. Additionally, HHS promulgated regulations to standardize the electronic transfer of information pursuant to certain enumerated transactions (the “Transactions and Code Sets Rule”).

On September 29, 2015, the Office of Inspector General (“OIG”) released two reports that reviewed the Office of Civil Rights’ (“OCR”) enforcement of HIPAA. The first report (the Privacy Report) suggests that OCR strengthen its oversight of covered entities’ compliance with the Privacy Rule. The second report (the “Breach Enforcement Report”) suggests that OCR strengthen its follow-up of reported HIPAA breaches. In response to the reports, there has been a dramatic increase in the number of HIPAA enforcement actions and settlements, and OCR announced plans to conduct random audits of covered entities and business associates beginning in 2016. OCR has stated that the audits will primarily consist of a review of policies and procedures, but if serious compliance issues are identified, OCR may initiate a separate compliance review to further investigate which may result in settlements and fines. The OCR is currently in Phase II of its HIPAA audit program, in which OCR identified covered entities for audit in the summer and business associates in the fall. In 2017, OCR is set to identify additional entities for audit, and will include onsite audits over and above the desk audits that were performed in Phase I and the initial stages of Phase II. Despite the implementation of network security measures by the Obligated Group, its information technology systems may be vulnerable to breaches, ransom malware, hacker attacks, computer viruses, physical or electronic break-ins and other similar events or issues. Such events or issues could lead to the inadvertent disclosure of protected health information or other confidential information, could have an adverse effect on the ability of the Members to provide health care services, or could result in government civil, criminal or monetary penalties.

The 2009 Health Information Technology for Economic and Clinical Health (“HITECH”) Act significantly changed the landscape of federal privacy and security laws regarding PHI. The HITECH Act (i) extended the reach of HIPAA, certain provisions of the Privacy Rule, and the Security Rule; (ii) imposed a breach notification requirement on HIPAA covered entities and their business associates; (iii) limited certain uses and disclosures of PHI; (iv) increased individuals’ rights with respect to PHI; and (v) increased enforcement of, and penalties for, violations of the privacy and security of PHI.

The HITECH Act also created a federal breach notification requirement that mirrors protections that many states have passed in recent years. This requirement provides that the Obligated Group must notify patients of any unauthorized access, acquisition or disclosure of their unsecured PHI that poses significant risk of financial, reputational or other harm to a patient. In addition, a new breach notification requirement was established requiring reporting to the Secretary of HHS and, in some cases, local media outlets, of certain unauthorized access, acquisition or disclosure of unsecured PHI that poses significant risk of financial, reputational or other harm to a patient.

On January 17, 2013 HHS issued an omnibus final rule interpreting and implementing various provisions of the HITECH Act, including a final breach notification rule. In addition, the facilities of NMHC are also subject to any state law that is related to the reporting of data breaches and more restrictive than the regulations and/or requirements issued under HIPAA and the HITECH Act.

Any violation of HIPAA, the HITECH Act or the regulations promulgated thereunder is subject to HIPAA civil and criminal penalties, including monetary penalties and/or imprisonment. The Obligated Group believes it is in substantial compliance with HIPAA, the HITECH Act, and the rules promulgated thereunder, but there can be no assurance that the Obligated Group will not experience a HIPAA privacy or security breach.

Federal “Fraud and Abuse” Laws and Regulations. The federal health care program anti- kickback statute (“Anti-Kickback Statute”) is a broad criminal statute that prohibits one person from

“knowingly and willfully” giving (or offering to give) “remuneration” to another person if the payment is intended to “induce” the recipient to: (i) “refer” an individual to a person for the furnishing, or arranging for the furnishing, of any item or service for which payment may be made, in whole or in part, under a federal health care program (i.e., a “covered item or service”); (ii) “purchase,” “order,” or “lease” any covered item or service; (iii) “arrange for” the purchase, order, or lease of any covered item or service; or (iv) “recommend” the purchase, order, or lease of any covered item or service. The Anti-Kickback Statute also prohibits the solicitation or receipt of remuneration for any of these purposes.

Because the Anti-Kickback Statute is so broad, it covers a variety of common and non-abusive arrangements. Recognizing this overbreadth, Congress and HHS, through OIG – the lead enforcement agency with respect to the Anti-Kickback Statute – have established a large number of statutory exceptions and regulatory safe harbors (collectively, “safe harbors”). An arrangement that fits squarely into a safe harbor is immune from prosecution under the Anti-Kickback Statute. The safe harbors tend to be narrow, however, and OIG takes the position that immunity is afforded only to those arrangements that “precisely meet” all of the conditions of a safe harbor. Moreover, safe harbors do not exist for every type of arrangement that does (or may) implicate the Anti-Kickback Statute.

Where the Anti-Kickback Statute has been violated, the government may proceed criminally or civilly. If the government proceeds criminally, a violation of the Anti-Kickback Statute is a felony punishable by up to five years imprisonment, a fine of up to $25,000 and mandatory exclusion from participation in all federal health care programs. If the government proceeds civilly, it may impose a civil monetary penalty of $50,000 per violation and an assessment of not more than three times the total amount of “remuneration” involved, and may even exclude the offering or receiving party from participation in all federal health care programs. Many states, including Illinois, have enacted laws similar to, and in some cases broader than, the Anti-Kickback Statute.

Management of the Obligated Group believes that its contracts with physicians and other referral sources are in material compliance with the Anti-Kickback Law. However, in light of the narrowness of the safe harbor regulations and the scarcity of case law interpreting the Anti-Kickback Law, there can be no assurances that the Obligated Group will not be found to have violated the Anti-Kickback Law and, if so, whether any sanction imposed would have a material adverse effect on the operations of the Obligated Group.

Section 340B Drug Pricing Program. Hospitals that participate in the prescription drug discount program established under Section 340B of the federal Public Health Service Act (the “340B Program”) are able to purchase certain outpatient drugs for patients at a reduced cost. The federal agency that administers the 340B Program, HRSA, issued a proposed rule on August 28, 2015 which addresses key policy issues related to the 340B Program, including but not limited to, eligibility requirements for participating hospitals, outpatient facilities and patients, registration requirements, drug eligibility, and manufacturer compliance. If adopted in its current form, the proposed rule would have, among other things, restricted NMHC from purchasing drugs from the 340B Program. Such restrictions could have a material adverse effect on the Obligated Group. On January 30, 2017, the Trump administration withdrew this proposed rule. On January 5, 2017, HRSA issued a final rule called the 340B Pricing Program Ceiling Price and Manufacturers Civil Monetary Penalties Regulation, which it began enforcing as of April 1, 2017. As part of the 2018 proposed updates to the Medicare OPPS, HHS has proposed to decrease Medicare Part B payments to hospitals for 340B drugs by almost 30 percent. The cut in payment is explained in the proposed rule as necessary to slow growth in the 340B Program, shift trends of growing amounts paid by Medicare for outpatient hospital drugs and reduce Medicare beneficiary cost- sharing. Additionally, eligibility for the 340B Program is determined annually and there is no guarantee that eligibility in one year will result in eligibility in future years.

NM VWH participates in the 340B Program, which for the fiscal year ended August 31, 2017, provided an aggregate benefit of approximately $245,000. Restrictions on the ability of hospitals to utilize 340B Program drugs for their patients may have an adverse material effect on NM VWH. It is currently unclear whether HRSA will seek to promulgate any future rule that might adversely affect the NM VWH’s ability to purchase drugs under the 340B Program.

Restrictions on Referrals. The federal physician self-referral law and its implementing regulations (commonly referred to as the “Stark Law”) prohibits a physician from referring patients to an entity for the furnishing of designated health services (“DHS”) covered by Medicare if the physician (or one of his immediate family members) has a financial relationship with the entity, unless an exception applies. DHS includes: (i) clinical laboratory services; (ii) physical therapy services; (iii) occupational therapy services; (iv) outpatient speech-language pathology services; (v) radiology services, including magnetic resonance imaging, computerized axial tomography scans and ultrasound services; (vi) radiation therapy services and supplies; (vii) durable medical equipment and supplies; (viii) parenteral and enteral nutrients, equipment and supplies; (ix) prosthetics, orthotics and prosthetic devices and supplies; (x) home health services; (xi) outpatient prescription drugs; and (xii) inpatient and outpatient hospital services. The Stark Law also prohibits the furnishing entity from submitting a claim for reimbursement or otherwise billing Medicare or any other person or entity for improperly referred DHS.

An entity that submits a claim for reimbursement in violation of the Stark Law must refund any amounts collected and may be subject to civil penalties and exclusion from participation in federal health care programs. In addition, a physician or entity that has participated in a “scheme” to circumvent the operation of the Stark Law is subject to civil penalties and possible exclusion from participation in federal health care programs.

Although the Stark Law only applies to the Medicare program, a number of states have passed similar statutes pursuant to which similar types of prohibitions are made applicable to all other health plans or third-party payors. Additionally, several recent federal district court opinions have held that the Stark Law applies to Medicaid claims.

The Health Care Worker Self-Referral Act (the “Referral Act”) is an Illinois self-referral law that applies to Illinois licensed health care workers. The Referral Act prohibits a health care worker from referring a patient for health services to any entity outside the health care worker’s office or group practice in which the health care worker is an investor, unless the health care worker directly provides health services within the entity and will be personally involved with the provision of care to the referred patient.

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

Management of the Obligated Group believes that the Obligated Group is currently in material compliance with the Stark law provisions. However, in light of the scarcity of case law interpreting the Stark law provisions and the breadth and complexity of these provisions, there can be no assurances that the Obligated Group will not be found to have violated the Stark law provisions. Sanctions under the Stark Law, including exclusion from the Medicaid program, could have a material adverse effect on the financial condition and results of operations of the Members of the Obligated Group, as would any significant penalties, demands for refunds or denials of payment.

Federal False Claims Act. The federal civil False Claims Act (“FCA”), provides that any person who “knowingly presents, or causes to be presented” a “false or fraudulent claim for payment or approval” to the United States, and its agents and contractor is liable for a civil penalty ranging from $5,500 to $11,000 per claim, plus three times the amount of damages sustained by the government. Under the FCA’s so-called “reverse false claims,” liability also could arise for “using” a false record or statement to “conceal,” “avoid” or “decrease” an “obligation to pay or transmit money or property to the Government.” The FCA also empowers and provides incentives to private citizens (commonly referred to as qui tam relator or whistleblower) to file suit on the government’s behalf. The qui tam relator’s share of the recovery can be between 15% and 25% in cases in which the government intervenes, and 25% to 30% in cases in which the government does not intervene. The government may use the FCA to prosecute Medicaid and other government program fraud in areas such as coding errors, billing for services not provided and submitting false cost reports.

Amendments to the FCA in the Fraud Enhancement and Recovery Act of 2009 (“FERA”) and the Health Care Reform Law amended and expanded the reach of the FCA. FERA expanded the FCA’s reverse false claims provision, imposing liability on any person who “knowingly conceals” or “knowingly and improperly avoids or decreases” an “obligation to pay or transmit money or property to the Government,” whether or not the person uses a false record in doing so. FERA also clarified that an “obligation” can arise from the retention of an overpayment.

Section 6402 of the Health Care Reform Law further addresses the retention of overpayments by defining the term overpayment and the circumstances and timing under which an overpayment must be returned to the government before it becomes an “obligation” under the FCA. This expansion exposes NMHC and its hospitals to a much broader range of potential FCA liability claims than it had in the past. FERA and the Health Care Reform Law also amend certain jurisdictional bars to the FCA, effectively narrowing the public disclosure bar and expanding the definition of “original source,” thus potentially broadening the field of potential whistleblowers. While the Obligated Group makes every effort to be in compliance with applicable federal health care program requirements, there can be no assurance that the Obligated Group will not be subject to an investigation.

Illinois Insurance Claims Fraud Prevention Act. The Illinois Insurance Claims Fraud Prevention Act prohibits remuneration (in cash or kind) for patient referrals where ultimately an insurance company will pay claims. Penalties for violations of this Act include a civil penalty of $5,000 to $10,000 per violation, plus an assessment of not more than three times the amount of each claim for compensation under a contract of insurance.

Illinois Hospital Report Card Act. The Illinois Hospital Report Card Act, which mandates public access to certain information regarding hospital staffing and patient outcomes, requires the provision of certain hospital data reports to the Illinois Department of Public Health, mandates initial and continuing nursing and provides whistleblower protection for hospital employees who make good faith disclosures under the act. In addition, hospitals must share with consumers, upon request, nurse staff schedules, nurse assignment rosters, methods to determine and adjust nurse staff schedules, and staff training information. The act requires submission of quarterly and annual reports to the Illinois Department of Public Health for subsequent public release following review by the Department’s advisory committee. These reports must disclose information on topics including patient care levels and infection-related measures. The reporting and public disclosure requirements mandated by the Illinois Hospital Report Card Act have not had an adverse impact on operations of the Obligated Group.

Compliance, Audits and Investigations. In the current regulatory climate, it is anticipated that many hospitals and physician groups may be subject to an audit, investigation or other enforcement action regarding the health care fraud laws mentioned above. For example, HHS recently approved federal

funding for state Medicaid fraud control units to conduct data-mining activities to detect patterns of abuse. The cost of defending such an action, the time and management attention consumed and the facts of a case may dictate settlement. Therefore, regardless of the merits of a particular case, a hospital could experience materially adverse settlement costs, as well as materially adverse costs associated with implementation of any settlement agreement. Prolonged and publicized investigations could also be damaging to the reputation and business of a hospital, regardless of outcome.

CMS requires that extensive financial information be reported on a periodic basis and in a specific format or content. These requirements are numerous, technical and complex and may not be fully understood or implemented by billing or reporting personnel. With respect to certain types of required information, the False Claims Act and the Social Security Act may be violated by mere recklessness in the submission of information to the government even without any intent to defraud. New billing systems, new medical procedures and procedures for which there are no clear guidance from CMS may all result in liability. The penalties for violation include criminal or civil liability and may include, for serious or repeated violations, exclusion from participation in the Medicare or Medicaid program.

While the Members make every effort to be in compliance with Medicare and Medicaid billing requirements, there can be no assurance that the Members will not be subject to an investigation.

As previously discussed, the FCA provides that an individual may bring a civil action for a violation of such Act. These actions are referred to as qui tam actions. In this way, a hospital employee would be able to sue on behalf of the U.S. government if he or she believes that the hospital has committed fraud. If the government intervenes and proceeds with an action brought by this individual, the employee could receive as much as 25% of any money recovered. Even if the government does not intervene and proceed with an action, the employee could still proceed and receive a portion of any money recovered. Generally these risks are not covered by insurance.

Enforcement Affecting Clinical Research. In addition to increasing enforcement of laws governing payment and reimbursement, the federal government has also heightened enforcement of laws and regulations governing the conduct of clinical trials at hospitals. HHS elevated and strengthened its Office of Human Research Protections, one of the agencies with responsibility for monitoring federally funded research. In addition, the NIH significantly increased the number of facility inspections that these agencies perform. The FDA also has authority over the conduct of clinical trials performed in hospitals when these trials are conducted on behalf of sponsors seeking FDA approval to market the drug or device that is the subject of the research. The FDA’s inspection of facilities has increased significantly in recent years. These agencies’ enforcement powers range from substantial fines and penalties to exclusions of researchers and suspension or termination of entire research programs.

Emergency Medical Treatment and Active Labor Act. The Emergency Medical Treatment and Active Labor Act (“EMTALA”) is a federal civil statute that requires Medicare-participating hospitals with an emergency department to conduct a medical screening examination to determine the presence or absence of an emergency medical condition and to provide treatment sufficient to such emergency medical condition before discharging or transferring the patient. A hospital that violates EMTALA is subject to civil penalties of up to $103,139 per offense and termination of its Medicare provider agreement. EMTALA also provides for a limited private right of action against hospitals, and as a result a hospital could be subject to claims for personal injury where an individual suffers harm as result of an EMTALA violation.

Over the last few years, the federal government has increased its enforcement of EMTALA. Failure to comply with the law can result in exclusion from the Medicare and/or Medicaid programs, as well as civil and criminal penalties. In addition, a hospital may be held liable to a patient who suffered

injuries as a result of a violation of EMTALA and may be liable to the receiving hospital for financial losses suffered as a result of a transfer in violation of EMTALA. Substantial failure of the Members to meet its responsibilities under EMTALA could materially adversely affect the financial condition of the Obligated Group. Outpatient facilities that are included as part of a hospital by virtue of a provider-based status designation are required to adhere to EMTALA’s requirements, regardless of whether they are located on or away from the hospital’s main campus. Management of the Obligated Group believes its policies and procedures are in material compliance with EMTALA, but no assurance can be given that a violation of EMTALA will not be found. Any sanctions imposed as a result of an EMTALA violation could have a material adverse effect on the future operations or financial condition of any Member or of the Obligated Group.

Licensing and Accreditation. Health facilities are subject to numerous legal, regulatory, professional and private licensing, certification and accreditation requirements. These include, but are not limited to, requirements of state licensing agencies and The Joint Commission. Renewal and continuation of certain of these licenses, certifications and accreditations are based on inspections or other reviews generally conducted in the normal course of business of health facilities. Loss of, or limitations imposed on, hospital licenses could reduce hospital utilization or revenues or hinder a hospital’s ability to operate all or a portion of its facilities, and, consequently, could adversely affect the Obligated Group’s ability to make principal, interest and premium, if any, payments with respect to the Series 2017A Bonds. No assurance can be given as to the effect on future operations of existing laws, regulations and standards for certification or accreditation or of any future changes in such laws, regulations and standards.

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

The Members may be subject to requirements related to investigating and remedying hazardous substances located on their property, including such substances that may have migrated off the property. Typical hospital operations include the handling, use, storage, transportation, disposal and/or discharge of hazardous, infectious, toxic, radioactive, flammable and other hazardous materials, wastes, pollutants and contaminants. As such, hospital operations are particularly susceptible to the practical, financial and legal risks associated with compliance with such environmental laws and regulations. Such risks may result in damage to individuals, property or the environment; may interrupt operations and/or increase their cost; may result in legal liability, damages, injunctions or fines; may result in investigations, administrative proceedings, civil litigation, criminal prosecution, penalties or other governmental agency actions; and may not be covered by insurance. There is no assurance that the Members will not encounter such problems in the future, and such problems may result in material adverse consequences to the operations or financial condition of the Obligated Group.

At the present time, management of the Obligated Group is not aware of any pending or threatened claim, investigation or enforcement action regarding such environmental issues which, if determined adversely to any Member, would have a material adverse effect on the financial condition of such Member of the Obligated Group, taken as a whole.

Corporate Compliance Program

NMHC has developed and implemented a compliance program for itself and its subsidiaries that includes a compliance plan to assist all employees in understanding and adhering to the legal and ethical standards that govern the provision of patient care (the “Compliance Plan”). The Compliance Plan has been designed to (i) comply with the standards set forth in the Federal Sentencing Guidelines for Organizational Defendants (the “Federal Sentencing Guidelines”) and (ii) help ensure that NMHC and its affiliates act in accordance with their missions, values and known legal duties. Amendments to the Federal Sentencing Guidelines, effective November 1, 2004, recommend an effective compliance and ethics program with knowledgeable and reasonable oversight by the governing authority of an organization. See “CORPORATE COMPLIANCE AND INTEGRITY” in APPENDIX A hereto for additional information on the compliance plan.

Antitrust

Enforcement of the antitrust laws against health care providers is becoming more common, and antitrust liability may arise in a wide variety of circumstances including medical staff privilege disputes, third party contracting, physician relations, and joint venture, merger, affiliation and acquisition activities. In some respects, the application of the federal and state antitrust laws to health care is still evolving, and enforcement activity by federal and state agencies appears to be increasing. In particular, the FTC has publicly acknowledged increasing enforcement action in the area of physician joint contracting. Likewise, increased enforcement action exists relating to a retrospective review of completed hospital mergers. Violation of the antitrust laws could subject a hospital to criminal and civil enforcement by federal and state agencies, as well as by private litigants. At various times, the Members 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 activities among providers with respect to payor contracting, medical staff credentialing, hospital mergers and use of a hospital’s local market power for entry into related health care businesses. From time to time, the Members may be involved in joint contracting activities with other hospitals or providers. The precise degree to which this or similar joint contracting activities may expose the Members to antitrust risk from a governmental or private source is dependent on a myriad of factual matters which may change from time to time. A U.S. Supreme Court decision now allows physicians who are subject to adverse peer review proceedings to file federal antitrust actions against hospitals and seek treble damages, although the Health Care Quality and Improvement Act may provide immunity from such claims if certain requirements are met. Hospitals regularly have disputes regarding credentialing and peer review, and therefore may be subject to liability in this area. In addition, hospitals occasionally indemnify medical staff members who are involved in such credentialing or peer review activities, and may also be liable with respect to such indemnity. Court decisions have also established private causes of action against hospitals which use their local market power to promote ancillary health care businesses in which they have an interest. Such activities may result in monetary liability for the participating hospitals under certain circumstances where a competitor suffers business damage. Government or private parties are entitled to challenge joint ventures that may injure competition. Liability in any of these or other antitrust areas may be substantial, depending on the facts and circumstances of each case and may have a material adverse impact on the Members.

Information Technology

The ability to adequately price and bill health care services and to accurately report financial results depends on the integrity of the data stored within information systems, as well as the operability of such systems. Information systems require an ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards. Electronic media is also

increasingly being used in clinical operations, including the conversion from paper medical records to electronic health records, computerization of order entry functions and the implementation of decision- support software. The reliance on information technology for these purposes imposes new expectations on physicians and other workforce members to be adept in using and managing electronic systems. NMHC is in the midst of a multi-year effort which began in 2016 to implement a single electronic medical record across the Northwestern Medicine health system using Epic. NMHC is working towards one clinical history, one patient portal, one set of workflows, one point of coordinated scheduling, one consolidated bill, one procedure list and more to provide consistency, improve the caregiver experience, increase efficiency and enhance patient care. This effort is expected to be complete in March 2018. There can be no assurance that efforts to upgrade and expand NMHC’s information systems capabilities, protect and enhance these systems, and develop new systems to keep pace with continuing changes in information processing technology in the future will be successful, or that additional systems issues will not arise during the installment or installation phases of the pending information system infrastructure.

Reliance on information technology also introduces risks related to patient safety, and to the privacy, accessibility and preservation of health information. Technology malfunctions or failure to understand and use information systems properly could result in the dissemination of or reliance on inaccurate information, as well as in disputes with patients, physicians and other health care professionals. Health information systems are subject to different or higher standards and greater regulation than other information technology or the paper-based systems previously used by health care providers, which increases the cost, complexity and risks of operations. All of these risks may have adverse consequences on the operations or the financial performance of the Obligated Group.

Cybersecurity

Integrated electronic medical record and other information technology systems necessarily hold large quantities of highly sensitive protected health information that is highly valued on the black market for such information. As a result, the electronic systems and networks of healthcare providers and insurance are considered likely targets for cyberattacks and other potential breaches of their systems. In addition to regulatory fines and penalties, the healthcare entities subject to the breaches may be liable for the costs of remediating the breaches, damages to individuals (or classes) whose information has been breached, reputational damage and business loss, and damage to the information technology infrastructure. The Obligated Group has taken, and continues to take measures to protect its information technology system against such cyberattacks, but there can be no assurance that the Obligated Group will not experience a significant breach. If such a breach occurs, the financial consequences of such a breach could have a materially adverse impact on the Obligated Group. See the information in footnote 18 to the “Consolidated Financial Statements and Supplementary Information of NMHC and Subsidiaries” in APPENDIX B hereto.

Payment Card Industry Data Security Standards and EMV

Healthcare providers have seen significant changes in the method, amount of transactions and dollar amounts of patient payments. Healthcare providers recognize that cardholder data security is a paramount concern as is continuing to protect and secure patient information. Chip cards used at Europay, MasterCard and Visa (“EMV”) terminals protect against counterfeit transactions by replacing static data with dynamic data. Merchants are in the process of migrating to EMV chip card technology to improve the security of the card-present payments infrastructure. As a result, EMV is being introduced to health care providers. As of October 2015, the liability for card-present fraud shifted to the party least EMV-compliant in a fraudulent transaction. If a healthcare provider has not updated its system to accept chip cards and fraud occurs when a chip card is used at a terminal, the healthcare provider would be liable for the costs. It is not a requirement to use EMV compliant terminals and there are no fines or other

penalties associated with failure to use EMV compliant terminals; however, any Member that does not use EMV-compliant terminals may face much higher costs in the event of a large data breach.

Issues Related to the Health Care Market of the Obligated Group

Affiliation, Merger, Acquisition and Divestiture. The Members that own or operate hospitals often own, control or have affiliations with relatively large physician groups, including NMG. Generally, the sponsoring hospital will be the primary capital and funding source for such alliances and may have an ongoing financial commitment to provide growth capital and support operating deficits.

Many hospitals and health systems are pursuing strategies with physicians in order to offer an integrated package of health care services, including physician and hospital services, to patients, health care insurers and managed care providers. These integration strategies may take many forms, including management service organizations (“MSOs”) that provide physicians or physician groups with a combination of financial and managed care contracting services, office and equipment, office personnel and management information systems. Integration objectives may also be achieved via physician hospital organizations, or primary health organizations, organizations which are typically jointly owned or controlled by a hospital and physician group for the purpose of managed care contracting, implementation and monitoring. Other integration structures include hospital-based clinics or medical practice foundations, which may purchase and operate physician practices as well as provide all administrative services to physicians. Many of these integration strategies are capital intensive and may create certain business and legal liabilities for the related hospital or health system.

Often the start-up capitalization for such structures, as well as operational deficits, is funded by the sponsoring hospital or health system. Depending on the size and organizational characteristics of a particular strategy, these capital requirements may be substantial. In some cases, the sponsoring hospital or health system may be asked to provide a financial guarantee for the debt of a related entity which is carrying out an integrated delivery strategy. In certain of these structures, the sponsoring hospital or health system may have an ongoing financial commitment to support operating deficits, which may be substantial on an annual or aggregate basis. In addition, participating physicians may seek their independence for a variety of reasons, thus putting the hospital or health system’s investment at risk and potentially reducing its managed care leverage and/or overall utilization.

These types of integrated delivery strategies are generally designed to respond to trends in the delivery of medicine to better integrate hospital and physician care, to increase physician availability to the community and/or to enhance the managed care capability of the affiliated hospitals and physicians. However, these goals may not be achieved, and an unsuccessful alliance may be costly and counterproductive to all of the above-stated goals.

All such integrated delivery strategies carry with them the potential for legal or regulatory risks in varying degrees. Such strategies may call into question compliance with the Medicare fraud and abuse laws, relevant antitrust laws and federal or state tax exemption. Such risks will turn on the facts specific to the implementation, operation or future modification of any integrated delivery system. In addition, depending on the type of structure, a wide range of governmental billing and other issues may arise, including questions of the authorization of the entity to bill for or on behalf of the physicians involved. Other related legal and regulatory risks may arise, including employment, pension and benefits and corporate practice of medicine, particularly in the current atmosphere of frequent and often unpredictable changes in federal and state legal requirements regarding health care and medical practice. The ability of hospitals or health systems to conduct integrated physician operations may also be altered or eliminated in the future by legal or regulatory interpretation or changes or by health care fraud enforcement.

Possible Increased Competition. The Members could face increased competition in the future from other hospitals and from other forms of healthcare delivery that offer healthcare services to the populations which the Members currently serve. This could include the construction of new or the renovation of existing hospitals, ambulatory surgery centers, free standing emergency facilities, private laboratory and radiological services, intermediate nursing home care, preventive care and drug and alcohol abuse programs. Specifically, the emergence of groups of physician-investors could erode premium medical services from the Members, and such physician-investor groups could also recruit physicians and staff from the Obligated Group’s hospitals.

In addition, competition could result from forms of healthcare delivery, particularly ambulatory care facilities that are able to offer lower priced and more convenient services to certain of the population served by the Members. These services could be substituted for some of the revenue generating services currently offered by the Members. The services that could serve as substitutes for hospital treatment include skilled and specialized nursing facilities, diagnostics, home care, intermediate nursing home care, preventive care and drug and alcohol abuse programs. Competition may also come from specialty hospitals or organizations, particularly those facilities providing specialized services in areas with high visibility and strong margins, such as cardiac services and surgical services, and having specialty physicians as investors. Competition may also come from physician services being performed in retail settings or in virtual platforms.

Additionally, scientific and technological advances, new procedures, drugs and appliances, preventive medicine and outpatient health care delivery may reduce utilization and revenues of the hospitals in the future or otherwise lead the way to new avenues of competition. In some cases, hospital investment in facilities and equipment for capital-intensive services may be lost as a result of rapid changes in diagnosis, treatment or clinical practice brought about by new technology or new pharmacology.

Risks Related to Tax-Exempt Status

The tax-exempt status of interest on the Series 2017A Bonds depends at present upon maintenance by the Member of the Obligated Group that operates facilities financed or refinanced with the proceeds of the Series 2017A Bonds of its status as a tax-exempt organization by reason of it being an organization described in Section 501(c)(3) of the Code. The maintenance of such status is contingent on compliance with general rules based on the Code, regulations, and judicial decisions regarding the organization and operation of tax-exempt hospitals and health systems. The IRS’ interpretation of and position on these rules as they affect the organization and operation of health care organizations (for example, with respect to providing charity care, joint ventures, physician and executive compensation, and physician recruitment and retention, etc.) is constantly evolving. The IRS reserves the power to, and in fact occasionally does, alter or reverse its positions concerning tax exemption issues, even concerning long-held positions upon which tax-exempt health care organizations have relied.

In addition to violations of the Code, the IRS has asserted that tax-exempt hospitals that are in violation of Medicare and Medicaid regulations regarding inducement for referrals may also be subject to revocation of their tax-exempt status. Because a wide variety of hospital-physician transactions potentially violate these broadly stated prohibitions on inducement for referrals, the IRS has broadened the range of activities that may directly affect tax exemption, without defining specifically how those rules will be applied. As a result, tax-exempt hospitals, particularly those that have extensive transactions with physicians, are currently subject to an increased degree of scrutiny and, potentially, enforcement activities by the IRS. The IRS’ policy position is not necessarily indicative of a judicial adjudication of the applicable issues.

Section 4958 of the Code imposes excise taxes on “excess benefit transactions” between “disqualified persons” and tax-exempt organizations such as the Members of the Obligated Group. According to the legislative history and regulations associated with Section 4958, these excise taxes may be imposed by the IRS either in lieu of or in addition to revocation of exemption. These intermediate sanctions may be imposed in situations in which a “disqualified person” (such as an “insider”) engages in “excess benefit transactions” such as (i) a transaction with a tax-exempt organization on other than a fair market value basis, (ii) receipt of unreasonable compensation from a tax-exempt organization or (iii) receipt of payment in an arrangement that violates the prohibition against private inurement. A disqualified person who benefits from an excess benefit transaction will be subject to an excise tax equal to 25% of the amount of the excess benefit. Organizational managers who participate in the excess benefit transaction knowing it to be improper are subject to an excise tax equal to 10% of the amount of the excess benefit, subject to a maximum penalty of $20,000 per transaction. A second penalty, in the amount of 200% of the excess benefit, may be imposed on the disqualified person (but not upon the organizational manager) if the excess benefit is not corrected within a specified period of time. Fair market value and reasonable compensation for tax purposes typically reflect a range rather than a specific dollar amount, and the IRS does not rule in advance on whether a transaction results in more than fair market value payment or more than reasonable compensation to a disqualified person. Although it is not possible to predict what enforcement action, if any, the IRS might take related to potential excess benefit transactions, consistent with the legislative history of Section 4958, regulations issued by the IRS in March 2008 indicate that not all excess benefit transactions jeopardize exempt status. Rather, the IRS will consider all relevant facts and circumstances including: the size and scope of the organization’s activities that further exempt purposes; the size, scope and frequency of any excess benefit transactions; whether the organization has implemented appropriate safeguards reasonably designed to prevent future excess benefit; and whether the organization has made good faith efforts to correct any excess benefit such as by obtaining repayment of the amount of any excess benefit.

The legislation is potentially favorable to taxpayers because it provides the IRS with a punitive option short of revoking tax-exempt status to deal with incidents of private inurement. However, the standards for tax exemption have not been changed, including the requirement that no part of the net earnings of an exempt entity inure to the benefit of any private individual. Consequently, although the IRS has only infrequently revoked the tax exemption of nonprofit health care corporations in the past, the risk of revocation remains and there can be no assurance that the IRS will not direct enforcement activities against any of the Members.

In certain cases, the IRS has imposed substantial monetary penalties and future charity care or public benefit obligations on tax-exempt hospitals in lieu of revoking their tax-exempt status, as well as requiring that certain transactions be altered, terminated or avoided in the future and/or requiring governance or management changes. These penalties and obligations are typically imposed on the tax- exempt hospital pursuant to a “closing agreement” with respect to the hospital’s alleged violation of Section 501(c)(3) exemption requirements. Given the uncertainty regarding how tax exemption requirements may be applied by the IRS, the Members are, and will be, at risk for incurring monetary and other liabilities imposed by the IRS through this “closing agreement” or similar process. Like certain of the other business and legal risks described herein which apply to large multi-hospital systems, these liabilities are probable from time to time and could be substantial, in some cases involving millions of dollars, and in extreme cases, could be materially adverse.

Under the Health Care Reform Law, in order for tax-exempt hospitals to receive and maintain their Section 501(c)(3) federal tax-exempt status, they must perform a community health needs assessment every three years and develop an implementation strategy to meet the identified needs. Failure to satisfy the community health needs assessment requirement for any taxable year will subject the hospital to an excise tax penalty of $50,000. Furthermore, the United States Secretary of the Treasury

or that individual’s delegate is to review the community benefit activities of each tax-exempt hospital at least every three years, as well as submit an annual report to Congress with information regarding the levels of charity care, bad debt expenses, unreimbursed costs of government programs, and costs incurred by tax-exempt hospitals for community benefit activities. Under the Health Care Reform Law , tax- exempt hospitals cannot charge persons eligible for financial assistance higher rates than the amounts generally billed to patients who have insurance covering such care. The Health Care Reform Law also requires that tax-exempt hospitals have a written financial assistance policy in place. Finally, the Health Care Reform Law prohibits a hospital from engaging in extraordinary collection actions (which may include, among other things, a restriction on filing suit) before it has made reasonable efforts to determine whether the subject individual is eligible for financial assistance. The periodic reviews and reports to Congress regarding the community benefits provided by 501(c)(3) hospitals may increase the likelihood that Congress will require such hospitals to provide a minimum level of charity care in order to retain tax-exempt status and may increase IRS scrutiny of particular 501(c)(3) hospital organizations.

Section 501(r) was added to the Code in order to implement the new requirements under the Health Care Reform Law. On December 29, 2014, the IRS issued final regulations of 501(r), which provide guidance regarding Section 501(r)’s requirements for community health needs assessments, financial assistance policies, limitations on charges and billing and collection policies, and further clarify the consequences for failing to meet 501(r) requirements. Under the final regulations, hospital organizations are required to include on each billing statement a conspicuous written notice to inform patients about the availability of financial assistance and include contact information if patients want to learn more. Also, hospital organizations with multiple facilities may be allowed to collaborate and produce one joint community health needs assessment report and implementation strategy for all of its hospital facilities. Failure to meet these requirements could result in the application of an excise tax, or in certain egregious cases, a hospital could have its tax-exempt status revoked. Management believes that the Obligated Group is currently in material compliance with the requirements of Section 501(r).

The Tax Exempt and Governmental Entities Division of the IRS is responsible for the Team Examination Program (referred to as “TEP”) of the IRS which conducts audits of exempt organizations using teams of revenue agents. The TEP audit teams consider a wide range of possible issues, including the community benefit standard, private inurement and private benefit, partnerships and joint ventures, retirement plans and employee benefits, employment taxes, tax-exempt bond financing, political contributions and unrelated business income. In addition, the IRS conducts compliance checks and correspondence audits that focus initially on limited issues, such as executive compensation, unrelated business income or community benefit. Such limited scope reviews can be expanded in certain circumstances to include a variety of other issues as in a TEP audit.

One or more of the Members of the Obligated Group have been audited by the IRS in the past. Past examinations have resulted in little to no change in presentation of the tax returns in question and with no challenge to the tax exemption of the Members. There can be no assurance that such challenges will not occur in the event of audits conducted in the future. Nevertheless, because of the complexity of the tax laws and the presence of issues about which reasonable persons can differ, a TEP or other audit could result in additional taxes, interest and penalties. A TEP or other audit of one or more Members could potentially affect the tax-exempt status of such Member or Members or the other Members of the Obligated Group.

Loss of tax-exempt status by a Member of the Obligated Group could result in loss of the exclusion from gross income of the interest on the Series 2017A Bonds which, in turn, could result in a default under the Bond Indenture that could trigger an acceleration of such Series 2017A Bonds. Any such event would have material adverse consequences on the future financial condition and results of operations of the affected Members of the Obligated Group and, potentially the Obligated Group as a

whole. Additionally, the loss of federal tax-exempt status by a Member of the Obligated Group would adversely affect its access to future tax-exempt financing.

As described herein under the caption “TAX EXEMPTION,” failure to comply with certain legal requirements may cause the interest on the Series 2017A Bonds to become included in gross income of the recipients thereof for federal income tax purposes. In such event, the Series 2017A Bonds may be accelerated at the discretion of the Bond Trustee or, at the request of holders of not less than 25% of the aggregate principal amount of such Series 2017A Bonds that are then outstanding. Neither the Bond Indenture nor the Loan Agreement provide for the payment of any additional interest or penalty in the event the interest on the Series 2017A Bonds becomes included in gross income for federal income tax purposes. In addition to the Series 2017A Bonds, the Obligated Group has other series of tax-exempt bonds outstanding. Failure to comply with certain legal requirements similar to the requirements for the Series 2017A Bonds may cause the interest on such tax-exempt bonds to become included in gross income of the recipients thereof for federal income tax purposes.

Although the IRS has only infrequently taxed the interest received by holders of bonds that were represented to be tax-exempt, the IRS has recently reviewed a number of bond issues and concluded that such bond issues did not comply with applicable provisions of the Code and related regulations. The IRS has typically entered into closing agreements with issuers and beneficiaries of such bond issues under which potentially substantial payments have been made to the IRS to settle the issue of whether the interest on such bond issues could be treated as tax-exempt. No assurance can be given that the IRS will not examine a holder of the Series 2017A Bonds, the Obligated Group or the Series 2017A Bonds. If such an examination were to occur, it could have an adverse impact on the marketability and price of the Series 2017A Bonds and could lead to claims by the IRS for payment of substantial amounts by the Members of the Obligated Group to resolve any issue.

Bond Examinations

IRS officials have recently indicated that more resources will be invested in audits of tax-exempt bonds in the charitable organization sector with specific review of private use. In addition, the IRS has sent several hundred post-issuance compliance questionnaires to nonprofit corporations that have borrowed on a tax-exempt basis. The questionnaire includes questions relating to the borrower’s (i) record retention, which the IRS has particularly emphasized, (ii) qualified use of bond-financed property, (iii) arbitrage yield restriction and rebate requirements, (iv) debt management policies and (v) voluntary compliance and education. IRS representatives indicate that after analyzing responses from the first wave of questionnaires, thousands more will be sent. While the Obligated Group believes that its expenditure and investment of bond proceeds, use or property financed with tax-exempt debt and record retention practices have complied with all applicable laws and regulations, there can be no assurance that the issuance of surveys will not lead to an IRS review that could adversely affect the market value of the Series 2017A Bonds or of other outstanding tax-exempt indebtedness of the Obligated Group. Additionally, the Series 2017A Bonds or other tax-exempt obligations issued for the benefit of the Members of the Obligated Group, may be, from time to time, subject to examinations by the IRS. Management of the Obligated Group believes its post-issuance compliance procedures comply with various requirements for maintaining the federal tax exemption of interest on bonds issues on behalf of the Obligated Group.

IRS officials have indicated that more resources will be invested in audits of tax-exempt bonds in the charitable organization sector. The Series 2017A Bonds may be, from time to time, subject to audits by the IRS. The Obligated Group believes that the Series 2017A Bonds properly comply with the tax laws. In addition, Bond Counsel will render an opinion with respect to the tax-exempt status of the Series 2017A Bonds, as described under the caption, “TAX EXEMPTION” herein. The Obligated Group has not

sought to obtain a private letter ruling from the IRS with respect to the Series 2017A Bonds, however, and the opinion of Bond Counsel is not binding on the IRS or the courts. There can be no assurance that any IRS examination of the Series 2017A Bonds will not adversely affect the market value for or marketability of the Series 2017A Bonds. See “TAX EXEMPTION” herein.

Charity Care

Recently, focus has increased on the provision of charity care by not for profit health care institutions and their pricing policies and billing and collection practices involving the underinsured and uninsured. This increased focus has resulted in congressional hearings, governmental inquiries and private, purported class action litigation against a number of not for profit health care institutions generally alleging the overcharging of underinsured and uninsured patients. In addition, lawsuits have been filed in both federal and state courts alleging, among other things, that hospitals have failed to fulfill their obligations to provide charity care to uninsured patients and have overcharged uninsured patients. The Obligated Group has not been served with a complaint relating to any such litigation. Management cannot predict the impact that these or related developments may have on the Obligated Group or the health care industry as a whole.

Labor Relations

Hospitals are large employers with a wide diversity of employees. Increasingly, employees of hospitals are becoming unionized, and many hospitals have collective bargaining agreements with one or more labor organizations. The Employee Free Choice Act was introduced in Congress on March 10, 2009 with the stated purpose of amending the National Labor Relations Act to establish an easier system to enable employees to form, join, or assist labor organizations and to provide for mandatory injunctions for unfair labor practices during organizing efforts. It is uncertain at this time whether this proposed legislation or iterations thereof will become law, or if it does, what its final provisions will be. To date, it has not become law. In its present form, it would make it easier for employees to join collective bargaining units at the Obligated Group’s facilities. Employees subject to collective bargaining agreements may include essential nursing and technical personnel, as well as food service, maintenance and other trade personnel. Renegotiation of such agreements upon expiration may result in significant cost increases to hospitals. Employee strikes or other adverse labor actions may have an adverse impact on operations, revenue and hospital reputation. Approximately 6% of employees of NMHC and its subsidiaries are currently represented by employee organizations. In addition, certain security and maintenance services provided by companies under contract with the Obligated Group are represented by employee organizations. Management of the Obligated Group is not aware of any additional unionizing efforts at any of its hospital facilities. See “EMPLOYEES” in APPENDIX A hereto.

Wage and Hour Class Actions and Litigation. Federal law and many states impose standards related to worker classification, eligibility and payment for overtime, liability for providing rest periods and similar requirements. Large employers with complex workforces, such as hospitals, are susceptible to actual and alleged violations of these standards. In recent years there has been a proliferation of lawsuits over these “wage and hour” issues, often in the form of large, sometimes multi-state, class actions. For large employers such as hospitals and health systems, such class actions can involve multi-million dollar claims, judgments and/or settlements. A major class action decided or settled adversely to a Member could have a material adverse impact on its financial condition and result of operations. Currently, no such class action lawsuits are pending against any of the Members.

Physician and Staffing Shortage

The healthcare industry has, in the past, experienced a shortage of nursing and other allied health professional staff, which has resulted in increased costs and lost revenues due to the need to hire agency personnel at higher rates and increased compensation levels. The metropolitan Chicago area has multiple nurse training programs, and NMH serves as a clinical site for training of allied health professionals. See “RELATIONSHIP WITH NORTHWESTERN UNIVERSITY” and “RELATIONSHIP WITH MCGAW MEDICAL CENTER – Other Educational Programs” in APPENDIX A hereto. Currently, the Members of the Obligated Group incur moderate agency costs but are not experiencing any significant shortage of nursing or allied health professional staff. If a shortage of nursing or other allied health professional staff occurs in the future, it could adversely affect the Obligated Group’s operations or financial condition.

Historically and in recent years, the health care industry has suffered from a scarcity of physicians with certain specialties and subspecialties. Management of the Obligated Group has generally been able to sufficiently recruit specialists and subspecialties, but there can be no assurance that a specialist shortage will not occur in the future.

Bond Ratings

There is no assurance that the ratings assigned to the Series 2017A Bonds at the time of issuance will not be lowered or withdrawn at any time, the effect of which could adversely affect the market price for, and marketability of, the Series 2017A Bonds. See “RATINGS” herein.

Matters Relating to Enforceability of the Master Indenture

The accounts of the Obligated Group will be combined for financial reporting purposes and will be used in determining whether the test relating to debt service coverage contained in the Master Indenture is met, notwithstanding the uncertainties as to the enforceability of certain obligations of the Members of the Obligated Group contained in the Master Indenture which bear on the availability of the assets and revenues of the Members of the Obligated Group for payment of debt service on Obligations, including the Series 2017A Obligation pledged under the Bond Indenture as security for the Series 2017A Bonds. The joint and several obligations described herein of the Members of the Obligated Group to make payments of debt service on Obligations issued under the Master Indenture (including transfers in connection with voluntary dissolution or liquidation) to enable the Members of the Obligated Group to make payments of debt service on the Obligations may not be enforceable to the extent (1) enforceability may be limited by applicable bankruptcy, moratorium, reorganization or similar laws affecting the enforcement of creditors’ rights and by general equitable principles and (2) such payments (i) are requested to make payments on any Obligations which are issued for a purpose which is not consistent with the charitable purposes of the Members of the Obligated Group from which such payments are requested or which are issued for the benefit of any entity other than a tax-exempt organization; (ii) are requested to be made from any moneys or assets which are donor-restricted or which are subject to a direct or express trust which does not permit the use of such moneys or assets for such a payment; (iii) would result in the cessation or discontinuation of any material portion of the health care or related services previously provided by the Member of the Obligated Group from which such payment is requested; or (iv) are requested to be made pursuant to any loan violating applicable usury laws. Due to the absence of clear legal precedent in the area, the amount of assets of any present or future Member of the Obligated Group subject to a donor-restricted or a direct or express trust as described in (ii) above cannot be determined and could be substantial.

A Member of the Obligated Group may not be required to make any payment or to transfer funds to provide for the payment of any Obligation, or portion thereof, the proceeds of which were not loaned

or otherwise disbursed to such Member of the Obligated Group to the extent that such payment or transfer would render the Member of the Obligated Group insolvent or which would conflict with, not be permitted by or which is subject to recovery for the benefit of other creditors of such Member of the Obligated Group under applicable fraudulent conveyance, bankruptcy or moratorium laws. There is no clear precedent in the law as to whether such payments or transfers from a Member of the Obligated Group in order to pay debt service on the Obligations may be voided by a trustee in bankruptcy in the event of bankruptcy of the Member, or by third-party creditors in an action brought pursuant to state fraudulent transfer or fraudulent conveyance statutes. Under the United States Bankruptcy Code, a trustee in bankruptcy and, under state fraudulent transfer or fraudulent conveyance statutes and common law, a creditor of a related guarantor, may avoid any obligation incurred by a related guarantor if, among other bases therefor, (1) the guarantor has not received fair consideration or reasonably equivalent value in exchange for the guaranty and (2) the guaranty renders the guarantor insolvent, as defined in the United States Bankruptcy Code or applicable state fraudulent transfer or fraudulent conveyance statutes, or the guarantor is undercapitalized.

Application by courts of the tests of “insolvency,” “reasonably equivalent value” and “fair consideration” has resulted in a conflicting body of case law. It is possible that, in an action to force a Member of the Obligated Group to pay debt service on an Obligation for which it was not the direct beneficiary, a court might not enforce such a payment in the event it is determined that the Member of the Obligated Group is analogous to a guarantor of the debt of the Member of the Obligated Group who directly benefited from the borrowing and that sufficient consideration for the Member of the Obligated Group’s guaranty was not received and that the incurrence of such obligation has rendered or will render the Member of the Obligated Group insolvent or the Member of the Obligated Group is or will thereby become undercapitalized.

There exist, in addition to the foregoing, common law authority and authority under applicable state statutes pursuant to which the courts may terminate the existence of a nonprofit corporation or undertake supervision of its affairs on various grounds, including a finding that such corporation has insufficient assets to carry out its stated charitable purposes or has taken some action which renders it unable to carry out such purposes. Such court action may arise on the court’s own motion pursuant to a petition of the Illinois Attorney General or such other persons who have interests different from those of the general public, pursuant to the common law and statutory power to enforce charitable trusts and to see to the application of their funds to their intended charitable uses.

Potential Effects of Bankruptcy

If any Member or any future Member of the Obligated Group were to file a petition for relief (or if a petition were filed against any Member or any future Member of the Obligated Group) under the United States Bankruptcy Code, the filing would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against such Member of the Obligated Group and its property. If the bankruptcy court so ordered, such Member of the Obligated Group’s property, including its accounts receivable and proceeds thereof, could be used for the benefit of such Member of the Obligated Group despite the claims of its creditors. Amounts received by Bondholders with respect to the payment of principal of, and interest on, the Series 2017A Bonds during an applicable preference period could be required to be disgorged by the Bondholders to a bankruptcy trustee.

In a bankruptcy proceeding, the petitioner could file a plan for the adjustment of its debts which modifies the rights of creditors generally, or the rights of any class of creditors, secured or unsecured. The plan, if confirmed by the court, would bind all creditors who had notice or knowledge of the plan and discharge all claims against the debtor as provided for in such confirmed plan. No plan may be confirmed unless, among other conditions, the plan is in the best interests of creditors, is feasible and unless

otherwise ordered by the court (as referenced below) has been accepted by each class of claims impaired thereunder. Each class of claims has accepted the plan if at least two-thirds in dollar amount and more than one-half in number of the allowed claims of the class that are voted with respect to the plan are cast in its favor. Even if the plan is not so accepted, it may be confirmed if the court finds that the plan is fair and equitable with respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly.

Changes in Obligated Group

Any person may become a Member of the Obligated Group or cease being such a Member in accordance with the provisions of the Master Indenture (see the information under the captions “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE – Entrance into the Obligated Group” and “– Cessation of Status as a Member of the Obligated Group” in APPENDIX C hereto), resulting in an Obligated Group which is financially and operationally different from the current Obligated Group.

Market for Series 2017A Bonds

The Underwriters have advised the Obligated Group that they intend to make a market in the Series 2017A Bonds; however, the Underwriters are not obligated to make such a market, and no assurance can be given that a secondary market therefor will develop. Consequently, investors may not be able to resell the Series 2017A Bonds purchased should they need or wish to do so for emergency or other purposes.

Construction Risks

Construction projects, including the Project, are subject to a variety of risks, including but not limited to delays in issuance of required building permits or other necessary approvals or permits, strikes, shortages of materials and adverse weather conditions. Such events could delay occupancy. Cost overruns may occur due to change orders, delays in the construction schedule, scarcity of building materials and other factors. Cost overruns could cause the costs to exceed available fund allocated to the Project.

Other Risk Factors Affecting the Obligated Group

In the future, the following factors, among others, may adversely affect the future operations or financial performance of the Members of the Obligated Group and any future Members of the Obligated Group, to an extent that cannot be determined at this time:

(1) Employee strikes and other adverse labor actions that could result in a substantial reduction in revenues without corresponding decreases in costs, and shortage of skilled professionals, such as nurses and technicians.

(2) Reduced need for hospitalization, skilled or intermediate nursing care, elderly housing or other services arising from increased utilization management by third-party payors or from future medical and scientific advances.

(3) Reduced demand for the services provided by the Obligated Group that might result from decreases in population in its service area.

(4) Increased unemployment or other adverse economic conditions in the service area of the Obligated Group that would increase the proportion of patients who are unable to pay fully for the cost of their care.

(5) Any increase in the quantity of indigent care provided which is mandated by law or required due to increased needs of the community in order to maintain the charitable status of the Members of the Obligated Group.

(6) Regulatory actions that might limit the ability of the Members of the Obligated Group to undertake capital improvements to their facilities or to develop new institutional health services.

(7) Decrease in availability or receipt of grants, or in receipt of contributions or bequests.

(8) Inflation or other adverse economic conditions.

(9) Inability of the Members of the Obligated Group to meet or continue to comply with legal, regulatory, professional and private licensing and accreditation requirements, all or some of which may be subject to renewal based on inspection or other criteria.

(10) The attempted imposition of or the increase in taxes related to the property and operations of not for profit organizations.

(11) The occurrence of natural disasters, including floods and earthquakes, which may damage the facilities of the Obligated Group, interrupt utility service to the facilities, or otherwise impair the operation and generation of revenues from said facilities.

(12) Laws requiring particular staffing levels at hospitals.

(13) Competition from other hospitals and other competitive facilities now or hereafter located in the service areas of the facilities operated by the Obligated Group Members may adversely affect revenues of the Obligated Group. Development of health maintenance and other alternative health delivery programs could result in decreased usage of inpatient hospital facilities and other facilities operated by NMHC.

LITIGATION

The Authority

There is not now pending (as to which the Authority has received service of process) or, to the actual knowledge of the Authority, threatened, any litigation against the Authority restraining or enjoining the issuance or delivery of the Series 2017A Bonds or questioning or affecting the validity of the Series 2017A Bonds or the proceedings or authority under which the Series 2017A Bonds are to be issued. Neither the creation, organization or existence of the Authority nor the title of any of the present members or other officers of the Authority to their respective offices is being contested. There is no litigation pending (as to which the Authority has received service of process) or, to the actual knowledge of the Authority, threatened, which in any manner questions the right of the Authority to enter into the Bond Indenture, Loan Agreement or the Bond Purchase Agreement, as hereinafter defined, or to secure the Series 2017A Bonds in the manner provided in the Bond Indenture, the Authority resolutions and the Act.

The Obligated Group

The Obligated Group has determined that except as described herein (i) no litigation, proceedings or investigations are pending for which it has received service of process or written notice or, to its knowledge, threatened against it or its officers except litigation, proceedings or investigations in which the probable ultimate recoveries and the estimated costs and expenses of defense (a) will be entirely within applicable insurance policy limits (including, commercial insurance and self-insurance or captive insurance retentions), subject to applicable deductibles, or (b) will not have a materially adverse effect on the Obligated Group’s operations or condition, financial or otherwise; and (ii) no litigation, proceedings or investigations are pending for which it has received service of process or written notice or, to its knowledge, threatened which in any manner questions the validity of, or the right of the Obligated Group to effect the plan of finance described herein or use the proceeds of the Series 2017A Bonds for the purposes described herein.

TAX EXEMPTION

The Series 2017A Bonds and the Series 2017B Bonds will be treated as one issue for tax purposes.

Federal tax law contains a number of requirements and restrictions which apply to the Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of bond proceeds and the facilities financed therewith, and certain other matters. The Authority and NMHC have covenanted to comply with all requirements that must be satisfied in order for the interest on the Bonds to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest on the Bonds to become includible in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds.

Subject to compliance by the Authority and NMHC with the above-referenced covenants, under present law, in the opinion of Bond Counsel, interest on the Bonds is excludable from the gross income of the owners thereof for federal income tax purposes, and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, but Bond Counsel expresses no opinion as to whether interest on the Bonds is taken into account in computing adjusted current earnings, which is used in determining the federal alternative minimum tax for certain corporations.

In rendering its opinion, Bond Counsel will rely upon certifications of the Authority and NMHC with respect to certain material facts within the Authority’s and NMHC’s knowledge, will rely on an opinion of NMHC’s general counsel and an opinion of Dentons US LLP, special counsel to NMHC, that NMHC is a 501(c)(3) organization and certain other matters and will rely upon the computations of the yield on the Bonds and the yield on certain investments by the Verification Agent (as defined below), Certified Public Accountants. Bond Counsel’s opinion represents its legal judgment based upon its review of the law and the facts that it deems relevant to render such opinion and is not a guarantee of a result.

Ownership of the Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, corporations subject to the alternative minimum tax, corporations subject to the branch profits tax, financial institutions, certain insurance companies, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations. Prospective purchasers of the Bonds should consult their tax advisors as to applicability of any such collateral consequences.

The issue price for original issue discount (as further discussed below) and market discount purposes (the “OID Issue Price”) for each maturity of the Bonds is the price at which a substantial amount of such maturity of the Bonds is first sold to the public (excluding bond houses and brokers and similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The OID Issue Price of a maturity of the Bonds may be different from the price set forth, or the price corresponding to the yield set forth, on the cover page hereof.

If the OID Issue Price of a maturity of the Bonds is less than the principal amount payable at maturity, the difference between the OID Issue Price of each such maturity of the Bonds (the “OID Bonds”) and the principal amount payable at maturity is original issue discount.

For an investor who purchases an OID Bond in the initial public offering at the OID Issue Price for such maturity and who holds such OID Bond to its stated maturity, subject to the condition that the Authority and NMHC comply with the covenants discussed above, (a) the full amount of original issue discount with respect to such OID Bond constitutes interest which is excludable from the gross income of the owner thereof for federal income tax purposes; (b) such owner will not realize taxable capital gain or market discount upon payment of such OID Bond at its stated maturity; (c) such original issue discount is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Code, but owners of OID Bonds should consult their own tax advisors as to whether such original issue discount is taken into account in computing an adjustment used in determining the alternative minimum tax for certain corporations under the Code; and (d) the accretion of original issue discount in each year may result in an alternative minimum tax liability for corporations or certain other collateral federal income tax consequences in each year even though a corresponding cash payment may not be received until a later year. Based upon the stated position of the Illinois Department of Revenue, under Illinois income tax law, accreted original issue discount on such Bonds is subject to taxation as it accretes, even though there may not be a corresponding cash payment until a later year. Owners of OID Bonds should consult their own tax advisors with respect to the state and local tax consequences of original issue discount on such OID Bonds.

Owners of Bonds who dispose of Bonds prior to the stated maturity (whether by sale, redemption or otherwise), purchase Bonds in the public offering, but at a price different from the OID Issue Price or purchase Bonds subsequent to the initial public offering should consult their own tax advisors.

If a Bond is purchased at any time for a price that is less than the Bond’s stated redemption price at maturity (the “Revised Issue Price”), the purchaser will be treated as having purchased a Bond with market discount subject to the market discount rules of the Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a Bond is disposed of (to the extent such accrued discount does not exceed gain realized) or, at the purchaser’s election, as it accrues. Such treatment would apply to any purchaser who purchases an OID Bond for a price that is less than its Revised Issue Price. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of such Bond. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Bonds.

An investor may purchase a Bond at a price in excess of its stated principal amount. Such excess is characterized for federal income tax purposes as “bond premium” and must be amortized by an investor on a constant yield basis over the remaining term of the Bond in a manner that takes into account potential call dates and call prices. An investor cannot deduct amortized bond premium relating to a tax-exempt bond. The amortized bond premium is treated as a reduction in the tax-exempt interest received. As bond premium is amortized, it reduces the investor’s basis in the Bond. Investors who purchase a Bond at a premium should consult their own tax advisors regarding the amortization of bond

premium and its effect on the Bond’s basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of the Bond.

There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or affect the market value of the Bonds. For example, legislation has been introduced in the current session of Congress which would, among other things and if enacted, change the income tax rates for individuals and corporations and repeal the federal alternative minimum tax. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation.

The IRS has an ongoing program of auditing tax-exempt obligations to determine whether, in the view of the IRS, interest on such tax-exempt obligations is includible in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the IRS will commence an audit of the Bonds. If an audit is commenced, under current procedures the IRS may treat the Authority as a taxpayer and the Bondholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of the ultimate outcome.

Payments of interest on, and proceeds of the sale, redemption or maturity of, tax-exempt obligations, including the Bonds, are in certain cases required to be reported to the IRS. Additionally, backup withholding may apply to any such payments to any Bond owner who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or a substantially identical form, or to any Bond owner who is notified by the IRS of a failure to report any interest or dividends required to be shown on federal income tax returns. The reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes.

Bond Counsel expresses no opinion as to the treatment of interest expense for financial institutions owning the Bonds for purposes of Section 265(b)(7) of the Code. Financial institutions should consult their tax advisors concerning such treatment.

The interest on the Bonds is not exempt from present Illinois income taxes. Ownership of the Bonds may result in other state and local tax consequences to certain taxpayers. Bond Counsel expresses no opinion regarding any such collateral consequences arising with respect to the Bonds. Prospective purchasers of the Bonds should consult their tax advisors regarding the applicability of any such state and local taxes.

INDEPENDENT AUDITORS

The Consolidated Financial Statements and Supplementary Information of NMHC and Subsidiaries as of August 31, 2017 and 2016, and for the years then ended, included in APPENDIX B to this Official Statement, have been audited by Ernst & Young LLP, independent auditors, as stated in their report which appears in APPENDIX B.

FINANCIAL STATEMENTS

The Consolidated Financial Statements and Supplementary Information of NMHC and Subsidiaries included in APPENDIX B include financial information of certain entities which are not part

of the Obligated Group. The Supplementary Information includes a consolidating balance sheet and a consolidating statement of operations of NMHC as of and for the years ended August 31, 2017 and 2016.

RATINGS

S&P Global Ratings (“S&P”), has assigned its municipal bond rating of “AA+” with a stable outlook to the Series 2017A Bonds, and Moody’s Investors Service, Inc. (“Moody’s”) has assigned its municipal bond rating of “Aa2” with a stable outlook to the Series 2017A Bonds. Any further explanation of the significance of such ratings may only be obtained from S&P and Moody’s. Certain information and materials concerning the Obligated Group and the Series 2017A Bonds not included in this Official Statement were furnished to S&P and Moody’s. Generally, rating agencies base their ratings on such information and materials and on investigations, studies and assumptions by the rating agencies. There is no assurance that the ratings mentioned above will remain for any given period of time or that such ratings might not be lowered or withdrawn entirely by S&P or Moody’s, if in their judgment circumstances so warrant. Any such downward change in or withdrawal of such ratings may have an adverse effect on the market price of the Series 2017A Bonds. The Underwriters have no obligation to oppose or bring to the attention of the holders of the Series 2017A Bonds any proposed revision or withdrawal of the ratings on the Series 2017A Bonds. The Members of the Obligated Group have no obligation to oppose any proposed revision or withdrawal of the ratings on the Series 2017A Bonds. Any such downward change in or withdrawal of such rating might have an adverse effect on the market price for, and marketability of, the Series 2017A Bonds.

LEGAL MATTERS

Certain legal matters incident to the authorization, issuance and sale of the Series 2017A Bonds are subject to the approving legal opinion of Chapman and Cutler LLP, Chicago, Illinois, as Bond Counsel (“Bond Counsel”), who has been retained by, and acts as, Bond Counsel to the Authority but is compensated by the Obligated Group. Bond Counsel has not been retained or consulted on disclosure matters and has not undertaken to review or verify the accuracy, completeness or sufficiency of this Official Statement or other offering material relating to the Series 2017A Bonds and assumes no responsibility for the statements or information contained in or incorporated by reference in this Official Statement, except that in its capacity as Bond Counsel, Chapman and Cutler LLP has, at the request of the Authority, reviewed the information under the headings “THE SERIES 2017A BONDS” and “TAX EXEMPTION” and certain of the information under the heading “SECURITY FOR THE SERIES 2017A BONDS” and has supplied the information in APPENDICES C, D, E and F attached to this Official Statement. This review was undertaken, and the information in APPENDICES C, D, E and F was supplied, solely at the request and for the benefit of the Authority and did not include any obligation to establish or confirm factual matters set forth herein. Certain legal matters will be passed upon for the Authority by its special counsel, Katten Muchin Rosenman LLP., Chicago, Illinois; for the Obligated Group by its General Counsel and its special counsel, Dentons US LLP, Chicago, Illinois; and for the Underwriters by their special counsel, Nixon Peabody LLP, Chicago, Illinois.

FINANCIAL ADVISOR

The Obligated Group has retained Kaufman Hall & Associates, LLC, Skokie, Illinois, as financial advisor in connection with the issuance of the Series 2017A Bonds. Although Kaufman Hall & Associates, LLC has assisted in the preparation of this Official Statement, Kaufman Hall & Associates, LLC was not and is not obligated to undertake, and has not undertaken to make, an independent verification and assumes no responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement.

VERIFICATION AGENT

The mathematical accuracy of certain computations provided on behalf of the Obligated Group relating to the adequacy of the maturing principal and interest earned on the funds to be deposited with the Series 2002A-D Bond Trustee (as defined in the Bond Indenture), the Series 2003A-C Bond Trustee (as defined in the Bond Indenture), the Series 2009 Bond Trustee (as defined in the Bond Indenture), the Series 2009A/B Bond Trustee (as defined in the Bond Indenture), and the 2009B Bond Trustee (as defined in the Bond Indenture) to provide for the payment of the principal of and interest on the Refunded Bonds will be verified by Causey Demgen & Moore P.C., independent public accountants (the “Verification Agent”). Such computation was based solely on assumptions and information supplied by the Underwriters on behalf of the Obligated Group. The Verification Agent has restricted its procedures to verify the arithmetical accuracy of certain computations and has not made any study or evaluations of the assumptions and information on which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome.

RELATIONSHIP OF CERTAIN PARTIES

In connection with the issuance of the Series 2017A Bonds, the Authority, the Members of the Obligated Group and the Underwriters are being represented by the attorneys or law firms identified above under the heading “LEGAL MATTERS.” In other transactions not related to the Series 2017A Bonds, each of these attorneys or law firms may have acted as bond counsel or represented the Authority, the Members of the Obligated Group, the Underwriters or their affiliates, or other creditors of the Obligated Group, in each case in capacities different from those described under “LEGAL MATTERS,” and there will be no limitations imposed as a result of the issuance of the Series 2017A Bonds on the ability of any of these attorneys or law firms to act as bond counsel or represent any of these parties in any future transactions.

Potential purchasers of the Series 2017A Bonds should not assume that the Authority, the Members of the Obligated Group, the Underwriters or their affiliates, other creditors of the Obligated Group or their respective counsel or bond counsel has not previously engaged in, is not currently engaged in or will not, after the issuance of the Series 2017A Bonds, engage in other transactions with each other or with any affiliates of any of them, and no assurances can be given that there are or will be no past or future relationship or transactions between or among any of these parties or these attorneys or law firms.

UNDERWRITING

Pursuant to a purchase agreement (the “Bond Purchase Agreement”) by and among the Authority, the Obligated Group Agent on behalf of the Members of the Obligated Group and J.P. Morgan Securities LLC, as representative of the Underwriters named therein, the Underwriters will purchase the Series 2017A Bonds at the aggregate purchase price of $______(representing the principal amount of the Series 2017A Bonds, plus/less original issue premium/discount of $______, and less $______of Underwriters’ discount). The purchase agreement will provide that the Underwriters will purchase all of the Series 2017A Bonds if any are purchased. The Underwriters reserve the right to join with dealers and other underwriters in offering the Series 2017A Bonds to the public. The purchase agreement will provide for the Members of the Obligated Group to indemnify the Underwriters and the Authority under certain circumstances. The obligation of the Underwriters to accept delivery of the Series 2017A Bonds will be subject to various conditions of the purchase agreement.

The Underwriters may offer and sell the Series 2017A Bonds to certain dealers (including dealers depositing the Series 2017A Bonds into unit investment trusts) and others at prices lower or yields higher than the offering prices or yields set forth on the inside front cover page.

Each Underwriter and its respective affiliates comprise full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Such activities may involve or relate to assets, securities and/or instruments of the Obligated Group (whether directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with (or that are otherwise involved with transactions by) the Authority and/or the Obligated Group. Any Underwriter and its respective affiliates may have, from time to time, engaged, and may in the future engage, in transactions with, and performed and may in the future perform, various investment banking services for the Authority and/or the Obligated Group for which they received or will receive customary fees and expenses. Under certain circumstances, any Underwriter and its respective affiliates may have certain creditor and/or other rights against the Authority and/or the Obligated Group and any affiliates thereof in connection with such transactions and/or services. In addition, any Underwriter and its respective affiliates may currently have and may in the future have investment and commercial banking, trust and other relationships with parties that may relate to assets of, or be involved in the issuance of securities and/or instruments by, the Authority and/or the Obligated Group (including individual Members of the Obligated Group) and any affiliates thereof. An Underwriter and its respective affiliates also may communicate independent investment recommendations, market advice or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and at any time may hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.

J.P. Morgan Securities LLC, one of the Underwriters of the Series 2017A Bonds, has entered into negotiated dealer agreements (each, a “Dealer Agreement”) with each of Charles Schwab & Co., Inc. (“CS&Co.”) and LPL Financial LLC (“LPL”) for the retail distribution of certain securities offerings at the original issue prices. Pursuant to each Dealer Agreement, each of CS&Co. and LPL may purchase Bonds from J.P. Morgan Securities LLC at the original issue price less a negotiated portion of the selling concession applicable to any Bonds that such firm sells.

Wells Fargo Securities is the trade name for certain securities-related capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, N.A., which conducts its municipal securities sales, trading and underwriting operations through Wells Fargo Bank, NA Municipal Products Group, a separately identifiable department of Wells Fargo Bank, National Association, registered with the Securities and Exchange Commission as a municipal securities dealer pursuant to Section 15B(a) of the Securities Exchange Act of 1934. Wells Fargo Bank, N.A. is serving as the Master Trustee and Bond Trustee for the Bonds. Wells Fargo Bank, N.A. will be compensated separately for serving in each capacity.

Wells Fargo Bank, National Association, acting through its Municipal Products Group (“WFBNA”), has entered into an agreement (the “WFA Distribution Agreement”) with its affiliate, Wells Fargo Clearing Services, LLC (which uses the trade name “Wells Fargo Advisors") (“WFA”), for the distribution of certain municipal securities offerings, including the Bonds. Pursuant to the WFA Distribution Agreement, WFBNA will share a portion of its underwriting or remarketing agent compensation, as applicable, with respect to the Bonds with WFA. WFBNA has also entered into an agreement (the “WFSLLC Distribution Agreement”) with its affiliate, Wells Fargo Securities, LLC (“WFSLLC”), for the distribution of municipal securities offerings, including the Bonds. Pursuant to the WFSLLC Distribution Agreement, WFBNA pays a portion of WFSLLC's expenses based on its

municipal securities transactions. WFBNA, WFSLLC, and WFA are each wholly-owned subsidiaries of Wells Fargo & Company.

CONTINUING DISCLOSURE

In order to provide certain continuing disclosure with respect to the Series 2017A Bonds in accordance with Rule 15c2-12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (“Rule 15c2-12”), the Obligated Group Agent on behalf of the Members of the Obligated Group has entered into a Disclosure Dissemination Agreement (“Disclosure Agreement”) for the benefit of the Holders of the Series 2017A Bonds with Digital Assurance Certification, L.L.C. (“DAC”), pursuant to which the Obligated Group has designated DAC as Disclosure Dissemination Agent. The form of Disclosure Agreement is attached as APPENDIX F hereto; such form may transition to a master disclosure dissemination agreement in the future. The Authority has not made and will not make any provision to provide any annual financial statements or other credit information relating to NMHC or any other Member of the Obligated Group to investors on a periodic basis and has determined that no financial or operating data concerning the Authority is material to any decision to purchase, hold or sell the Series 2017A Bonds, and the Authority will not provide any such information.

Certain Members of the Obligated Group entered into prior continuing disclosure undertakings (collectively, the “Prior Undertakings”) in connection with the issuance of various other series of tax- exempt bonds issued prior to such Members joining the Obligated Group. Those Members obligated under the Prior Undertaking relating to the Delnor Bonds failed to file or timely file the following items required by such Prior Undertaking: (i) annual financial information for fiscal year 2012 and (ii) quarterly reports for certain quarters in fiscal years 2012 – 2014. Those Members obligated under the Prior Undertaking relating to the Illinois Finance Authority Hospital Revenue Refunding Bonds, Series 2008 (KishHealth System Obligated Group) (the “KishHealth Bonds”) failed to file or timely file the following items required by such Prior Undertaking: (i) annual financial information for fiscal years 2013 – 2015 and (ii) quarterly reports for certain quarters in fiscal years 2012 and 2015. The KishHealth Bonds were defeased in full on December 23, 2015. The failures to file or timely file occurred prior to the affiliation of relevant Members with NMHC. NMHC believes that its continuing disclosure process will assist in compliance by the Obligated Group with its continuing disclosure obligations.

MISCELLANEOUS

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

The summaries or descriptions of provisions of the Series 2017A Bonds, the Bond Indenture, the Loan Agreement, the Master Indenture and all references to other materials not purporting to be quoted in full, are only brief outlines of certain provisions thereof and do not purport to summarize or describe all the provisions thereof. Reference is hereby made to such instruments, documents and other materials for the complete provisions thereof.

It is anticipated that CUSIP identification numbers will be printed on the Series 2017A Bonds, but neither the failure to print such number on any Series 2017A Bonds nor any error in the printing of such number shall constitute cause for a failure or refusal by the purchaser thereof to accept delivery of and pay for any Series 2017A Bonds.

The Authority has furnished the information contained herein which relates to it. Except for the information concerning it under the captions “THE AUTHORITY” and “LITIGATION – The Authority” herein, none of the information in this Official Statement has been supplied or verified by the Authority, and no representation or warranty is made by or on behalf of the Authority, express or implied, as to the accuracy or completeness of such information. The Obligated Group has reviewed the information contained herein and has approved all such information for use within this Official Statement.

The use of this Official Statement has been authorized by the Authority and the use, execution and delivery of this Official Statement has been duly authorized by the Obligated Group Agent on behalf of the Obligated Group Members.

The execution and delivery of this Official Statement have been duly authorized by the Obligated Group Agent on behalf of the Obligated Group Members.

NORTHWESTERN MEMORIAL HEALTHCARE, as Obligated Group Agent

By:

Its: Senior Vice President, Chief Financial Officer and Treasurer

APPENDIX A

NORTHWESTERN MEMORIAL HEALTHCARE

The information contained in this Appendix A has been obtained from Northwestern Memorial HealthCare and from other sources as shown herein.

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TABLE OF CONTENTS

Page INTRODUCTION ...... A-1 ORGANIZATIONAL STRUCTURE ...... A-2 RECENT AWARDS AND RECOGNITION ...... A-7 RELATIONSHIP WITH NORTHWESTERN UNIVERSITY ...... A-8 RELATIONSHIP WITH MCGAW MEDICAL CENTER ...... A-9 RESEARCH ...... A-10 FUNDRAISING ...... A-12 STRATEGIC INITIATIVES ...... A-12 SERVICE AREA OVERVIEW ...... A-17 COMMUNITY BENEFIT ...... A-21 GOVERNANCE ...... A-21 EXECUTIVE LEADERSHIP ...... A-23 CLINICIANS ...... A-28 EMPLOYEES ...... A-28 HISTORICAL UTILIZATION OF SERVICES ...... A-30 SUMMARY OF FINANCIAL RESULTS ...... A-31 MANAGEMENT’S DISCUSSION OF FINANCIAL PERFORMANCE ...... A-36 LICENSES, ACCREDITATION, CERTIFICATIONS AND MEMBERSHIPS ...... A-37 INSURANCE ...... A-37 LITIGATION AND INVESTIGATIONS ...... A-38 CORPORATE COMPLIANCE AND INTEGRITY ...... A-39

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INTRODUCTION

Northwestern Memorial HealthCare (“NMHC”) is the not-for-profit parent corporation of an integrated academic healthcare system (the “Health System”).

The Health System together with Northwestern University Feinberg School of Medicine (“FSM”) face the market under the brand name Northwestern Medicine (“NM”). NM’s vision and values are deeply rooted in its Patients First mission. NM has expanded to meet the growing demand for quality health care close to where people live and work. The Health System has six acute care hospitals, one specialty hospital, and more than 100 diagnostic and ambulatory sites across Chicago, Illinois, and its surrounding counties. The Health System’s patient service area is approximately 7,000 square miles across Northern Illinois, Northwest Indiana and Southeast Wisconsin, encompassing a population of nearly 9.7 million people.

NM’s reputation for delivering excellence in outcomes and patient experience has fueled its ability to grow along many dimensions. More than 30,000 physicians, nurses, staff members and volunteers work together to provide care for patients. In fiscal year 2017, the Health System had more than 88,000 inpatient admissions and more than 2.3 million outpatient encounters. The Health System’s medical staff of more than 4,200 includes more than 1,800 employed physicians. NM also trains more than 1,100 residents and fellows. The Health System manages a diverse set of payment models and provides contracting and technology support to affiliated physicians.

Engagement initiatives with patients, physicians and employees drive the Health System’s improvement projects that have helped establish its reputation as a leader in patient care, attract world- renowned specialists, and retain 24,000 employees who are committed to its Patients First mission. NMHC’s affiliation with FSM brings access to the research and expertise of leaders across the spectrum of medical fields, which allows the Health System to remain on the leading edge of care. Neither Northwestern University (“NU”) nor FSM is a Member of the Obligated Group and neither has any liability with respect to the Series 2017 Bonds or any Obligation issued under the Master Indenture.

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The following timeline illustrates the Health System’s recent growth.

NMHC and each of its not-for-profit subsidiaries are corporations organized and existing under the laws of the State of Illinois and are exempt from federal income taxation pursuant to Section 501(a) of the Internal Revenue Code of 1986, as amended (the “Code”), as organizations described in Section 501(c)(3) of the Code and are not private foundations within the meaning of Section 509(a) of the Code. Capitalized terms used, but not defined in this Appendix A, have the meanings given in the front part of this Official Statement.

ORGANIZATIONAL STRUCTURE

NMHC is the Obligated Group Agent for the Northwestern Memorial HealthCare Obligated Group (the “Obligated Group”) as defined in the Amended and Restated Master Trust Indenture dated as of May 1, 2004, as supplemented and amended and as it may be further supplemented and amended from time to time (collectively, the “Master Indenture”), among the Obligated Group Members and Wells Fargo Bank, N.A., Chicago, Illinois, as master trustee (the “Master Trustee”). NMHC is the sole corporate member of CDH-Delnor Health System (“CDHS”), KishHealth System (“KHS”), Northwestern Memorial Hospital (“NMH”), Northwestern Medicine Lake Forest Hospital (“NM LFH”), Northwestern Medical Faculty Foundation (d/b/a Northwestern Medical Group)(“NMG”), Northwestern Memorial Foundation (the “Foundation” or “NMF”), and other subsidiaries not part of the Obligated Group as included in the organizational chart at the end of this Section.

The Obligated Group consists of NMHC, CDHS, KHS, NMH, NM LFH, NMG, NMF, Central DuPage Hospital Association (“NM CDH”), Delnor-Community Hospital (“NM Delnor”), Kishwaukee Community Hospital (“NM Kishwaukee”), Valley West Community Hospital (“NM Valley West”), Central DuPage Physician Group (d/b/a Northwestern Medicine Regional Medical Group)(“NM RMG”), Kishwaukee Physician Group, Inc. (“KPG”), Marianjoy Rehabilitation Hospital & Clinics, Inc. (“MRH”),

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Rehabilitation Medicine Clinic, Inc. (d/b/a Marianjoy Medical Group)(“MMG”), and Lake Forest Health and Fitness Institute (collectively, the “Members of the Obligated Group” and, individually, a “Member”). As of August 31, 2017, the Members of the Obligated Group accounted for approximately 99% of the consolidated net assets and approximately 98% of the consolidated operating revenue of the Health System.

Member Hospitals

Additional information on selected Members of the Obligated Group is provided below.

• Northwestern Memorial Hospital (“NMH”) owns an academic medical center in downtown Chicago, Illinois, that provides a complete range of adult inpatient and outpatient services in an educational and research environment. The 894-licensed-bed hospital is the primary teaching hospital for FSM with over 2,000 physicians on staff. NMH facilities include the Feinberg, Galter, Arkes, Lavin, Olson and Prentice Women’s Hospital Pavilions, which serve as the NMH primary patient care sites and also include medical office, administrative and retail space. NMH owns several other nearby buildings that provide additional health care, physician office space and administrative services. These NMH facilities, along with FSM and other NU medical research and support facilities, form what is known as the “Northwestern Medicine Chicago Campus.” NMH is affiliated with the Robert H. Lurie Comprehensive Cancer Center, which is a National Cancer Institute - Designated Comprehensive Cancer Center and a founding member of the National Comprehensive Cancer Network. NMH’s hospital serves as a regional referral center and was ranked 13th on the list of the nation’s “Best Hospitals” by U.S. News & World Report in its 2017 report. The report also ranked NMH first in both the Chicago metropolitan area and in Illinois for the sixth consecutive year. In addition, NMH was nationally ranked in 11 out of 16 specialties with one additional specialty and nine procedures deemed high performing.

• Northwestern Medicine Central DuPage Hospital (“NM CDH”) owns a 392-licensed-bed community hospital providing tertiary care, with its main campus located approximately 30 miles west of downtown Chicago. The primary patient care site for NM CDH is its main hospital campus in Winfield, Illinois. Patient care is provided at more than 16 additional locations primarily throughout DuPage County, Illinois, including Northwestern Medicine Cancer Center Warrenville and the Northwestern Medicine Chicago Proton Center, the first and only proton therapy center in Illinois. NM CDH has a longstanding joint operating agreement in pediatrics with the Ann and Robert H. Lurie Children’s Hospital of Chicago, originating in 2006. Services include a Pediatric Intensive Care Unit, Level III Neonatal Intensive Care Unit, Pediatric Infusion Center, and more than 30 other pediatric specialty outpatient clinics. More than 1,260 physicians practice with NM CDH. NM CDH was recognized in the July 2017 report on the list of the nation’s “Best Hospitals” by U.S. News & World Report, ranking 5th in the Chicago metropolitan area and Illinois, with national rankings in two specialties and one additional specialty and eight procedures named high performing.

• Northwestern Medicine Delnor Hospital (“NM Delnor”) owns a 159-licensed-bed acute care facility in Geneva, Illinois, approximately 45 miles west of downtown Chicago in the Fox Valley area. In addition to the hospital, the NM Delnor campus includes medical office buildings, a health and fitness center, and a cancer center and breast health center, through which NM Delnor offers patients care in specialized programs. With more than 680 physicians on its medical staff, NM A-3

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Delnor provides comprehensive care to patients in the region. In 2017, U.S. News & World Report ranked two procedures at NM Delnor as high performing.

• Marianjoy Rehabilitation Hospital (“MRH”) owns a 127-licensed-bed, physical medicine and rehabilitation facility in Wheaton, Illinois, approximately 30 miles west of downtown Chicago. MRH provides advanced care through both inpatient and outpatient services. With more than 80 physicians on its medical staff, MRH has offered rehabilitation programs for stroke, brain injury and pain management to the Chicagoland community for more than 40 years. Annually, more than 45,000 patients receive inpatient care, outpatient therapy and physician services at the hospital from specialists in stroke, brain and spinal cord injury. MRH’s facilities consist of a free-standing hospital built in 2006 and the original hospital building, which has been converted to outpatient and other clinical uses. MRH is located on 24 acres of a 60-acre wooded campus.

• Northwestern Medicine Lake Forest Hospital (“NM LFH”) owns a 114-licensed-bed, acute care community hospital, with its main campus located approximately 30 miles north of downtown Chicago. The primary patient care sites for NM LFH are at its main hospital campus in Lake Forest, Illinois and an outpatient campus, which includes a free-standing emergency room, in Grayslake, Illinois. NM LFH also operates at additional locations primarily throughout Lake County, Illinois. More than 850 physicians practice with NM LFH. In March 2018, NM LFH anticipates opening a new replacement hospital on its 160-acre Lake Forest campus, having opened the adjoining outpatient clinical pavilion in 2017. The new replacement hospital will include 114 private inpatient rooms, an eight bed clinical decision unit and 40 universal care beds for procedural recovery. The campus and hospital are designed for flexibility to allow for technology upgrades and future growth, and already include a health and fitness center and medical office buildings. NM LFH was recognized in the 2017 report on the nation’s “Best Hospitals” by U.S. News & World Report ranking 18th in the Chicago metropolitan area and 23rd in Illinois with two high performing specialties and two high performing procedures.

• Northwestern Medicine Kishwaukee Hospital (“NM Kishwaukee”) owns a 98-licensed-bed, acute care community hospital in DeKalb, Illinois, approximately 70 miles west of downtown Chicago. With more than 250 physicians on the medical staff, NM Kishwaukee provides 24-hour access to board-certified emergency medicine physicians in its Emergency Department. In addition to the hospital, the NM Kishwaukee campus includes medical office buildings and specialty practice facilities, including a specialized joint center and spine center, as well as an innovative breastfeeding center that is one of the first of its kind in Illinois. NM Kishwaukee is constructing on its campus a 110,000-square-foot health and fitness center that is scheduled to open in 2018.

• Northwestern Medicine Valley West Hospital (“NM Valley West”) owns a 25-licensed-bed, critical access community hospital in Sandwich, Illinois, approximately 60 miles west of downtown Chicago. The hospital has served the DeKalb County community for more than 70 years. With more than 150 physicians on the medical staff, NM Valley West provides 24-hour access to board-certified emergency medicine physicians in its Emergency Department. A dedicated patient wing, opened in 2013, provides private rooms with enhanced features for safety and comfort.

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Member Medical Groups

• Northwestern Medical Faculty Foundation (d/b/a Northwestern Medical Group)( “NMG”) has a multispecialty group practice that employs more than 1,360 physicians and 360 advanced practice providers. With more than 90 locations throughout Chicago and the northern suburbs, and six immediate care centers, NMG is the second largest physician group in Chicago’s surrounding seven counties1 and serves as the clinical faculty practice plan of FSM.

• Northwestern Medicine Regional Medical Group (“NM RMG”) has a multispecialty group practice that employs more than 425 physicians, including 335 specialists. NM RMG has 30 sites of care throughout DuPage, Kane, Lake, Will and DeKalb counties in Illinois and is the 11th largest physician group in Chicago’s surrounding seven counties.1

• Kishwaukee Physician Group (“KPG”) has a multispecialty group practice that employs a range of providers including 34 physicians. KPG has locations in Sandwich, Plano, DeKalb, Rochelle, Genoa and Waterman, Illinois.

• Marianjoy Medical Group (“MMG”) has a practice of 26 physiatrists serving the physical medicine and rehabilitation needs of adult and pediatric patients in rehabilitation care throughout Chicago’s western suburbs.

Northwestern Memorial Foundation

• Northwestern Memorial Foundation (“NMF”) conducts fundraising and other related development activities in support of the Health System’s hospitals and their mission, including providing funding for research, education and community service. NMF raises philanthropic funds from individuals, corporations and foundations, and through community fundraising organizations. NMF had approximately $500 million in investment assets as of August 31, 2017, which are managed by professional managers. See “FUNDRAISING” herein.

An organizational chart for the Health System is below. Members of the Obligated Group are shown in light purple.

1 The physician group ranking in this section was obtained from the Crain’s List for Chicago’s Largest Physician Groups which was compiled by Crain’s Chicago Business. The ranking is based on 2016 net revenue and covers physician groups that have offices in the seven counties that surround Chicago: Cook, DuPage, Kane, Lake, McHenry, or Will in Illinois or Lake County, Indiana. A-5

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RECENT AWARDS AND RECOGNITION

The Health System, its hospitals and clinical programs have received numerous awards and recognition from leading organizations that review, evaluate and rank healthcare institutions. Below are some recent highlights.

As noted, in July 2017, three Health System hospitals were recognized by U.S. News & World Report in its “2017/2018 Best Hospitals” rankings. For the 2017/2018 rankings, U.S. News & World Report evaluated more than 4,500 medical centers nationwide in 16 specialties, of which only roughly 3 percent were ranked in at least one specialty.

Four of the six NMHC acute care hospitals (NMH, NM CDH, NM LFH, and NM Delnor) have achieved Magnet® recognition for nursing excellence from the American Nurses Credentialing Center, the prestigious gold standard for nursing care.

MRH continues to maintain a five-star quality ranking from CMS for its inpatient skilled nursing unit. For more information about CMS overall hospital quality star ratings for Member hospitals, see “BONDHOLDERS’ RISKS - Regulation of the Health Care Industry - Hospital Star Ratings” in the front part of this Official Statement.

In October 2017, NM CDH, NM Delnor, NM LFH and NM Kishwaukee all earned “A” Hospital Safety Grade scores from the Leapfrog Group. The Hospital Safety Grade scores hospitals on how safe they keep their patients from errors, injuries, accidents and infections.

In September 2017, NMG was awarded the 2017 Vizient Ambulatory Care Quality and Accountability Award at the 2017 Clinical Connections Summit. NMG was ranked third out of 50 academic practice groups across the nation. The award measures the quality of outpatient care in five domains: access to care; capacity and throughput; quality and efficiency; continuum of care; and equity.

In March 2017, Truven Health Analytics named NMH among the 100 Top U.S. Hospitals based on overall organizational performance. The 100 Top Hospitals award winners demonstrate top performance in clinical care and business efficiency.

In February 2017, the National Association for Female Executives named NMHC among the Top 10 Nonprofits for Executive Women for the ninth consecutive year. The list recognizes organizations that have established policies to encourage women’s advancement and follow practices that demonstrate that commitment. NMHC has also been recognized as one of the 100 Best Companies for Working Mothers by Working Mother magazine for 17 consecutive years.

In January 2017, according to Medicare data from July 2012 through June 2015, the most recent data available, NMH ranked first nationwide for survival of patients with heart failure and second for survival of patients who have a heart attack or stroke, the three most common and dire cardiovascular health threats. In addition, NM LFH was recognized among the top 50 hospitals in the U.S. for lowest heart failure mortality.

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In January 2017, the NM Kishwaukee Joint Center earned The Joint Commission’s Gold Seal of Approval® for Advanced Certification for Total Hip and Total Knee Replacement. The advanced certification is for The Joint Commission-accredited hospitals, critical access hospitals and ambulatory surgery centers seeking to elevate the quality, consistency and safety of their services and patient care. The NM Kishwaukee Joint Center is the first in Illinois to receive this recognition.

In October 2016, NM Valley West and NM Kishwaukee achieved the designation of “Baby- Friendly” via the Baby-Friendly Hospital Initiative (“BFHI”). BFHI is a global program initiated in 1991 by the World Health Organization and UNICEF to recognize hospitals that offer quality bonding and breastfeeding support to mothers and babies. NM Valley West and NM Kishwaukee are among 13 designated “Baby-Friendly” hospitals in Illinois and 377 designated nationally.

RELATIONSHIP WITH NORTHWESTERN UNIVERSITY

There has been a long-standing relationship between NMHC (and its predecessor corporations) and NU. NU is an Illinois corporation that was organized by action of the Illinois Legislature in 1851. NU is exempt from federal income taxation pursuant to Section 501(a) of the Code as an organization described in Section 501(c)(3) of the Code and is not a private foundation within the meaning of Section 509(a) of the Code. While the principal campus of NU is in Evanston, Illinois, FSM, its graduate school of medicine, is part of the Northwestern Medicine Chicago Campus.

NMH was created on September 1, 1972 by the consolidation of two of Chicago’s oldest established hospitals—Passavant Memorial (founded 1865) and Wesley Memorial (founded 1888). Wesley Hospital and NU shared a common Methodist heritage, with the hospital and medical school becoming affiliated in 1890.

In 1914 Wesley Memorial received a $1 million gift to support free care and solidify the hospital’s relationship with NU’s medical school. Wesley agreed to join NU on its new North Side campus. NU offered Passavant Memorial an affiliation and a site for a new hospital, which opened in 1929. Wesley Memorial’s new facility was completed in 1941, and over the next 30 years the two institutions, located across the street from each other in the Streeterville community, served as the primary teaching hospitals for NU Medical School.

The relationship strengthened with the 1966 establishment of the McGaw Medical Center of Northwestern University (“McGaw”), a joint initiative focused on joint purchasing, shared facilities, graduate medical education, development of group practices, and furthering joint planning efforts towards a unified medical center. Passavant and Wesley responded by merging nursing schools, exchanging staff privileges, and combining clinical areas—culminating in the consolidation of the two hospitals in 1972.

NMHC, through its affiliates, and FSM share a mutual commitment to the tri-partite mission of clinical care, teaching and research. NU first established a faculty group practice in 1972. Known as the Northwestern Medical Faculty Foundation, the multi-specialty academic group provided financial support to NU in addition to its members’ in-kind contributions to the teaching and mentoring of medical students, residents and fellows. Pursuant to an affiliation agreement, NMH draws its entire medical staff from among the faculty of FSM. The chairs of the clinical departments of NMH correspond to those of FSM, subject to the approval of the respective Boards of Directors of NMH and NU. This affiliation A-8

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agreement defines NMH as a major university-based academic hospital. These principles governing the academic affiliation between NMHC and FSM were re-affirmed in the 2013 Clinical Affiliation Agreement, pursuant to which NMHC became the sole corporate member of NMG, and in the 2013 Amended and Restated Master Agreement, pursuant to which NMG providers with FSM faculty appointments conduct educational, research, and medical care activities exclusively in connection with FSM. This alignment gives patients seamless access to physicians practicing in more than 40 medical specialties and subspecialties. The entities comprising NM are able to better coordinate treatments across the Health System to provide a seamless patient experience and more importantly, a higher level of care.

NMH serves as the primary clinical training site for FSM, including the graduate medical education programs sponsored by McGaw. NMG is the primary faculty practice plan for FSM, and NMG providers with FSM faculty appointments participate in the coordination of clinical instruction to clinical trainees of FSM and the establishment of new residency programs. The Northwestern McGaw Family Medicine Residency at NM LFH welcomed its first class of residents in 2015 and aims to address the growing need for a larger primary care physician workforce by optimally training physicians and encouraging work in underserved communities. The Health System is currently establishing the foundations of a clinical practice and expects to launch a Family Medicine Residency at NM Delnor in 2019.

The faculty of FSM and NMHC also partner with affiliated hospitals such as Ann & Robert H. Lurie Children’s Hospital of Chicago and the Shirley Ryan AbilityLab (formerly the Rehabilitation Institute of Chicago) to connect discoveries to the point of care, accelerate scientific breakthroughs, and enable comprehensive training experiences.

Historically, NMHC has provided substantial financial support to NU to advance the academic missions of FSM. NMHC’s commitments to provide financial support to FSM are set forth in the 2013 Clinical Affiliation Agreement, the Amended and Restated Alignment Agreement, and the Amended and Restated Collaboration Agreement for the Northwestern Medicine Catalyst Fund, all executed in 2013. See Note 18 to the Consolidated Financial Statements and Supplementary Information of NMHC and Subsidiaries in Appendix B hereto.

Neither NU nor FSM is a Member of the Obligated Group and neither has any liability with respect to the Series 2017 Bonds or any Obligation issued under the Master Indenture.

RELATIONSHIP WITH MCGAW MEDICAL CENTER

McGaw is a charitable and educational consortium of independent hospitals and FSM. NMH is a member institution of McGaw. McGaw is an Illinois not-for-profit corporation, exempt from federal income taxation pursuant to Section 501(a) of the Code as an organization described in Section 501(c)(3) of the Code and is not a private foundation as defined in Section 509(a) of the Code. The current member institutions, in addition to FSM and NMH, are Ann & Robert H. Lurie Children’s Hospital of Chicago, Shirley Ryan AbilityLab and Jesse Brown VA Medical Center. NM LFH is an affiliate member of McGaw.

Through McGaw, the member institutions provide training to more than 1,100 residents and fellows during the typical academic year. NMH serves as the primary training site for 853 of those A-9

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residents and fellows across 99 Accreditation Council on Graduate Medical Education (“ACGME”) accredited and non-accredited programs.

Other Educational Programs

In addition to the graduate medical education programs described above, NMH has educational affiliation agreements to serve as a clinical site for training of allied health professionals from many universities, colleges and schools. NMH has implemented four schools in certain allied health professions leading to professional certification, including:

• School of Nuclear Medicine Technology • School of Radiation Therapy • School of Diagnostic Medical Sonography • School of Radiography

McGaw is not a Member of the Obligated Group and has no liability with respect to the Series 2017 Bonds or any Obligation issued under the Master Indenture.

RESEARCH

NMHC has provided long-standing support to FSM for research. Approximately 2,900 clinical research studies took place across NM during fiscal year 2017, and approximately 825 new research studies are approved annually. These studies are primarily led by FSM and aim to introduce new diagnostic and therapeutic techniques, treatments, technologies and assessments of care delivery for safety and quality. NM’s recent geographic expansion has improved the diversity of the studies’ patient populations, which increases the value of research conducted. In support of NM’s vision to become a premier integrated academic health system, the expansion and growth of clinical research across the Health System is one of the key elements of NMHC’s strategic plan.

Clinical Research Unit

NMH has operated the Clinical Research Unit (“CRU”) for 48 years and has also fully funded the construction and equipment for the current space in Feinberg Pavilion, which opened in May 1999. The CRU is dedicated to supplying services required for the implementation of clinical research projects and facilitates studies of new treatments and drugs, as well as investigations of the causes of disease. The outpatient satellite opened in 2010 with the main unit in an inpatient pavilion. The core laboratory provides clinical and research assays, as well as specimen processing, shipment and storage capacity where the bionutrition core provides the scientifically controlled dietary regimens required for inpatient and outpatient research studies. CRU operations are funded by the National Institutes of Health (the “NIH”), a Clinical and Translational Sciences Award (“CTSA”) and institutional funding from FSM. Additionally, NMH has provided necessary resources to support CRU operational research needs not met through grant funding.

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Funding Support

In addition to Health System facilities serving as a physical site for translational research, NMHC provides significant funding for research and academic support on the Northwestern Medicine Chicago Campus. Donor-restricted funding and intramural awards provide available funding in excess of $20 million annually to researchers advancing medical science. Grants and academic support recorded as nonoperating expense for the periods from fiscal years 2012 through 2017 included donor-restricted and intramural awards; support of CTSA; development of clinical genetics research and research activities within the Bluhm Cardiovascular Research Institute and the Robert H. Lurie Cancer Center; development of a certified Cellular Therapy laboratory; academic program development and numerous other initiatives.

All of Us Research Program

NM has been recognized as one of a select few regional medical centers for the All of Us Research Program, a key component of the Precision Medicine Initiative funded by the NIH and awarded to FSM. The All of Us Research Program is a historic five-year effort to gather data from one million or more people living in the United States to accelerate research and improve health. By taking into account individual differences in lifestyle, environment and biology, researchers will seek to uncover paths toward delivering precision medicine.

Clinical and Translational Science Institute

In addition to physical research facilities that include the Robert H. Lurie Medical Research Center of NU on the Northwestern Medicine Chicago Campus, NU established the Clinical and Translational Science Institute (the “NUCATS Institute”). The NUCATS Institute capitalizes on the latest advances in biomedical research and is dedicated to facilitating, promoting, and catalyzing translational and clinical research. The NUCATS Institute is composed of a number of distinct but highly interactive units that work together to transform how translational research is performed on the Northwestern Medicine Chicago Campus. These units cover all aspects of biomedical research, including clinical trials, community engagement, biomedical informatics, regulatory support, core resources and pilot programs to promote both leading-edge research and the development of new technologies. The NUCATS Institute was created to directly respond to the new strategic priorities of the NIH. A Steering and Governance Committee provides oversight and direction for the NUCATS Institute. The president and Chief Executive Officer (“CEO”) of NMHC is a member of this committee. In May 2008, NU received a CTSA award from the NIH for approximately $29 million, which was paid over five years; in August 2015, the NIH renewed the NUCATS CTSA grant for approximately $27 million over four years. The vision elaborated in the renewed grant builds upon the substantial transformation that occurred as a result of the initial grant, and aligns with the strategic goals of Northwestern Medicine to speed transformative research discoveries and improve patient health.

NMHC is actively participating in the biomedical informatics portion of the CTSA, helping to maximize the interoperability of information systems throughout the NUCATS Institute and the Northwestern Medicine affiliated care community through the adoption and development of national standards. As a founding member of the Northwestern Medicine Enterprise Data Warehouse, NMHC provides approximately $1 million per year for maintenance and enhancement of the data warehouse with the mission to create a single, comprehensive and integrated repository of all clinical and research data A-11

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sources on the Northwestern Medicine Chicago Campus to facilitate research, clinical quality, healthcare operations and medical education reporting.

FUNDRAISING

Founded in 1982, NMF is a not-for-profit affiliate of NMHC that raises funds to support the mission and strategic goals of Northwestern Medicine. NMF philanthropic initiatives support patient care programs, critical research and clinical training, and also provide resources to improve access to care for the communities that the Health System serves.

NMF raised more than $239 million in the last five years. It is currently focused on a $150 million campaign called Our Legacy; Our Future to build the new replacement NM LFH hospital. To date, NMF has raised 83 percent of its $75 million goal for capital and programs and another 18 percent towards the $75 million goal to build an endowment and support long-term success for the NM LFH hospital and its community.

In fiscal year 2017, employees and physicians contributed $2.1 million to support Health System hospital and community initiatives.

STRATEGIC INITIATIVES

Overall Strategic Plan The Health System’s Patients First mission drives strategy and operations and has remained a core value throughout NM’s evolution. In 2010, NMH, NU and NMFF adopted the Northwestern Medicine Strategic Plan (the “Plan”), seeking to transform health care and be among the nation’s top academic medical centers through innovation and excellence. After making significant progress against the Plan objectives ahead of schedule, the Plan was refreshed in 2015 to accommodate strategies for building an integrated academic and community health system.

The current Plan positions the health system to enhance patient access to care at NM, differentiate its capabilities and integrate care delivery in order to serve a broad community and to bring patients the best possible care. The Health System is uniquely positioned to achieve these objectives because of its affiliation with FSM. The goals of the Plan remain the same as the 2010 Plan: 1) Deliver Exceptional Care; 2) Advance Medical Science and Knowledge; and 3) Develop People, Culture and Resources. Each strategic goal is supported by tactics that ultimately help enhance, strengthen and/or grow the integrated academic Health System. The following subsections include select highlights describing how the Health System has operationalized these strategies and tactics.

Deliver Exceptional Care Expanding Access: In furtherance of NM’s objective to provide access to NM care closer to where patients live and work, the Health System has materially expanded its geographic reach. This is evidenced by the affiliation with NM CDH, NM Delnor and NM RMG in September 2014, and KHS, including NM Kishwaukee, NM Valley West and KPG, in December 2015. With these new affiliated entities, the Health System is better positioned to provide patients throughout DuPage, Kane and DeKalb counties with access to all of the capabilities of an integrated academic health system. As part of this

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growth, the Health System has supported specialty program expansion, and hired or deployed more than 100 physicians to practice at these Health System locations. MRH joined the Health System in March 2016, enhancing the range of post-acute care and rehabilitation services offered and improving the experience of patients stepping down from inpatient acute care.

In April 2016, NMHC and Centegra Health System (“Centegra”) executed a nonbinding letter of intent that provides for a period of exclusive discussions regarding a potential affiliation between NMHC and Centegra. Pursuant to the proposed transaction, NMHC would become the sole member of Centegra. Centegra serves McHenry County and operates three hospitals located in Northern Illinois in McHenry, Woodstock and Huntley. Any definitive agreement would be subject to both parties’ governing bodies and applicable regulatory approvals. Certain financial and operating data for Centegra are available on the Municipal Securities Rulemaking Board’s (“MSRB”) Electronic Municipal Market Access system (“EMMA”), found at emma.msrb.org but are not included herein by reference. There is no assurance regarding if or when this transaction may be consummated.

As part of and in connection with its ongoing strategic planning process, from time to time NMHC actively considers potential joint ventures, affiliations, acquisitions, divestitures and similar transactions. Such transactions may result in additional entities becoming part of the Obligated Group or affiliates thereof in the future, expansion of service lines, renovations to existing facilities, or certain existing facilities no longer being part of the Health System.

In addition to relationships with other hospitals or physician groups, NMHC also considers investments, ventures, affiliations, development and acquisition of other healthcare-related entities. These may include other healthcare entities that support the overall operations of the Obligated Group. In addition, NMHC may pursue transactions with health insurers, third-party administrators and other businesses related to health insurance. Because of ongoing integration throughout the healthcare field, management will consider these arrangements if they may have strategic or operational benefits for the provision of care. Any initiative may involve significant capital commitments and/or capital or operating risk (including, potentially, insurance risk) in a business in which NMHC may have less expertise than in hospital operations. There can be no assurance as to the impact that any such transaction would have on the financial results or operations of the Obligated Group. Currently, NMHC is engaged in active and ongoing discussions regarding the investment in, and affiliation with, certain healthcare entities.

Growing and aligning the physician platform: More than 4,200 providers are members of the Health System’s medical staffs. The 1,360 physicians employed by NMG primarily care for patients near the Health System’s downtown and Lake Forest campuses. 425 physicians employed by NM RMG, along with the 34 physicians employed by KPG and the 26 physicians employed by MMG, primarily care for patients near the Health System locations in the western Chicago region. Since joining the Health System, each of the physician groups have benefited from support in filling sub-specialty service gaps in their respective communities. Since February 2010, 186 physicians have been recruited or deployed to practice at NM LFH. 153 physicians have been added to NMG since it joined the Health System in September 2013. 105 new physicians have been deployed to NM CDH and NM Delnor since September 2014. Eight new physicians have been added to provide services at NM Kishwaukee and NM Valley West since December 2015. One new physician has been added to MMG since March 2016. Future efforts will focus on forming an aligned approach to planning and executing clinical physician recruitment and leveraging

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the Health System’s relationship with FSM to create a physician talent pipeline for needs throughout the Health System.

In addition, independent physicians are represented in four physician alignment platforms: Northwestern HealthCare Corporation formed in 1985, Kishwaukee Health Network formed in 1997, Lake Forest Managed Care Association formed in 1998 and Northwestern Medicine Physician Partners (“NMPP”) formed in 2013.

Creating integrated cardiac care across the Health System: Delivering exceptional care as an integrated academic Health System requires the expansion of select specialty programs across the health system. The Bluhm Cardiovascular Institute (“BCVI”) is a nationally recognized destination for highly specialized care, ranked 7th best Cardiology and Heart Surgery program in the nation by U.S. News & World Report. Integration initiatives are directed by the BCVI Steering Committee and Regional teams, where physicians from multiple regions discuss the best way to align and expand access to specialized care. Recent initiatives have brought the expertise of BCVI’s high acuity services such as Transcatheter Aortic Valve Replacement (“TAVR”) to NM CDH and protocols for advanced heart failure management to NM LFH. As a result of the Health System’s approach to expanding the BCVI platform, recruitment for talent has been further enhanced at the community hospitals that are part of the Health System.

Formation of a post-acute division: Providers from the home health, hospice, rehabilitation, and skilled nursing facility programs participated in a study to determine the optimal organization and program plan for post-acute entities, including MRH. The study identified five imperatives: (1) dedicate and centralize post-acute care (“PAC”) management; (2) optimize the owned assets and our relationships with preferred providers; (3) improve and standardize the care model; (4) support performance improvement by organization of the data; and (5) leverage technology to engage patients and connect them with providers across the continuum. In furtherance of the first imperative, NMHC has developed a post-acute care division at the Health System level. This newly formed division is headed by a physician executive and is supported by executive leadership representing finance and nursing. The division includes an NM Post-Acute Care Executive Committee responsible for system level strategic planning, budgeting, integration and oversight. The division will focus on the remaining PAC imperatives, ensuring the smooth transition to services and standardizing the delivery of care across the Health System.

Investing in seamless care: The Health System expects to complete implementation of a single electronic medical record in spring 2018. This large-scale implementation will result in one clinical history, one patient portal, one set of workflows, one point of coordinated scheduling, one consolidated bill and one procedure list for each patient. This investment is intended to create consistency, improve the caregiver experience, increase efficiency and enhance patient care.

Developing population health and value-based care capabilities: The Health System operates NMPP, a population health management program built on the foundation of a shared physician-hospital platform that is designed to meet the future demands of health care through collaboration and leadership. To date, the health system has built a strong population health IT management infrastructure, allowing for the easy collection and analysis of claims data from providers across the Health System to enhance performance on value-based contracts.

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Administrative functions that support physician alignment, clinical integration and managed care contracting portfolios for physician networks are being consolidated under a new NMHC Value Based Care corporate function. Value Based Care supports the strategic and operational aspects of managing partial risk-based contracts. Over time, through foundational investments and development of competencies across the shared organizational assets, Value Based Care has acquired capabilities to manage the health and healthcare spend of defined populations. These capabilities include a system-wide governance model to operationalize value based payment and delivery models, a dedicated population health analytics infrastructure to support informatics strategy and performance monitoring of the portfolio, and an ambulatory nurse and pharmacy care coordination program to help effectuate necessary care model enhancements across the delivery system.

Over the last several years, there has been a growing number of covered lives (and “episodes”) in a diverse set of models and programs with limited downside risk, including fee-for-service with pay-for- performance incentives, shared savings models with upside potential only, partial risk capitation, bundled payments for episodes of care, and full risk in the Health System’s self-insured group health plan for NMHC employees and dependents. Population health management at NM has grown at a substantial rate since fiscal year 2015, closing fiscal year 2017 with more than 200,000 lives covered under risk-model contracts. This portfolio has been developed in response to evolving market dynamics, and has allowed the Health System to gain population health and risk-based management experience across a diverse set of clinical scenarios while limiting financial exposure.

Clinical care redesign efforts to support the clinical integration activities and emerging risk-based portfolio at the Health System have focused on improvements in quality of care outcomes for patients and overall efficiencies in care delivery, both from a total cost of care and internal institutional profitability perspective. As an example, NMH’s participation in Medicare’s Bundled Payment for Care Improvement initiative and several employer-based Centers of Excellence programs accelerated comprehensive efforts around orthopaedic care including the creation and management of a post-acute preferred network, design and implementation of pre- and post-hospital transitional care processes and patient engagement through technology-based solutions. Alignment of financial incentives in these risk models has encouraged care enhancements that have yielded sustained decreases in readmissions, skilled nursing facility utilization metrics and inpatient hospital length of stay.

Tech-enabled care: In 2016, the Health System created an Innovation function to focus on tech- enabled care, digital patient experience, and clinical task automation and delegation. Recent activities include the development of My NM, a consumer mobile application to improve patient experience. The Health System is also piloting the use of eHealth technologies to streamline the record-collection process for new patients and to give providers additional time to focus on patient care. In addition to these select initiatives, a Northwestern Medicine Innovation Challenge Grant is offered to NM providers, empowering and motivating members of the NM community to directly impact patient care through innovative practices. Outside of the Innovation team, the Health System created a telestroke network four years ago. NMH neurologists currently provide e-consults for stroke patients at seven hospitals throughout Northern Illinois. The telestroke program brings the expertise of stroke specialists to community hospitals, reducing the time to treatment and saving brain tissue. Nearly 900 e-consults are provided annually, leading to more than 250 transfers to NMH or NM CDH per year through this program.

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Advance Medical Science and Knowledge

Research for developing breakthroughs: NMHC’s relationship with NU enables providers to bring leading-edge technologies and practices to patients throughout the Health System. In fiscal year 2017, FSM ranked 16th nationally in the NIH funding and received $471 million in research funding. Three hundred seventy-five investigator faculty members, 45 team scientists and 315 research faculty members are dedicated to developing tomorrow’s cures. In 2018, the Simpson Querrey Biomedical Research Center will open and house scientists from NU and Ann & Robert H. Lurie Children’s Hospital. The center will provide an additional 300,000 square feet of lab space.

Connecting patients with clinical trials: More than 4,500 clinical research studies are open with more than 27,000 participants at FSM. Health System growth has enhanced the patient pool for clinical trials, increasing access to advanced, novel therapies for patients throughout NM. Since fiscal year 2013, the number of clinical research studies offered through FSM has increased by 9 percent, while total participants enrolled has increased by 68 percent.

Teaching the next generation of caregivers: FSM is ranked 17th in the nation by U.S. News & World Report for research-oriented medical schools. More than 3,300 FSM students and trainees learn from world-renowned faculty and have unique opportunities to practice in both the academic and community settings throughout the Health System. Family Medicine residency programs at NM Delnor and NM LFH bring education and training into the community. Simulation labs at NMH, NM CDH and NM Delnor provide hands-on training in a controlled environment for medical students and other providers seeking to learn and refine new techniques.

Develop People, Culture and Resources

Benchmarking quality performance: The Health System benchmarks its performance and targets top-decile performance in key metrics and functions. Operating units actively monitor performance through use of dashboards. The Health System monitors projected quality performance using the Centers for Medicare and Medicaid Services (“CMS”) star rating system for hospitals. This work is supported by an analytics function that leverages NM’s electronic data warehouse, which was created through partnership with FSM.

Patient, employee and physician engagement: The Health System seeks to be the provider of choice for patients, and the workplace of choice for both physicians and employees. The Health System has developed a five-year plan to achieve top-decile performance for all three stakeholder groups, and has resourced these efforts by creating or augmenting operations and performance improvement teams. In collaboration with operating leaders, dedicated performance improvement teams work with front-line staff and leaders to track performance and hardwire the customized engagement strategy. A consistent third-party vendor executes all surveys, providing transparency into comparative performance across other providers in the country. Engagement is of such strategic importance that goals are aligned system- wide.

Investing in world class facilities: NMHC is committed to investing in world-class facilities to ensure the optimal care environments for patients. Most recently, this included the development of a state- of-the-art replacement hospital for NM LFH. This 114-bed replacement hospital will feature eight A-16

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operating rooms and 72 outpatient spaces. Ambulatory pavilions opened in September of 2017 and the inpatient units are expected to open in March 2018. In addition to the replacement hospital in Lake Forest, the NM Grayslake Outpatient center received a three-story, 90,000 square foot addition in early 2014 and the Health System has invested $45 million in a 130,000 square foot outpatient center in Glenview, Illinois. Other notable examples of new and refreshed facilities include the one million square foot NM Lavin Family Pavilion. Opened in October 2014, this outpatient facility houses physician clinics, outpatient surgery, pre-admission testing, and diagnostic and imaging center in the heart of the downtown campus. Newer or refreshed facilities in the Western suburbs include the $20 million NM Delnor Cancer Center and the 170,000 square foot MRH opened in 2006, which is located in Wheaton, Illinois.

Developing Corporate Shared Services: To further advance performance, corporate services such as finance, purchasing, legal and strategy are establishing a formal shared services model. The shared services model will focus on collective efficiency and automation; designing simplified, scalable models; applying best practices; achieving excellent customer satisfaction; and engaging the workforce. Corporate shared services will strengthen integrated systems and better position NM to advance care for patients.

SERVICE AREA OVERVIEW2

System Service Area The Health System’s locations provide access to care for patients within Chicago and the surrounding counties. The Health System’s service area encompasses roughly 7,000 square miles, spanning east to Northwest Indiana, west to Ogle County, Illinois, north to Kenosha, Wisconsin, and south to Kankakee County, Illinois. The market has a population of 9,659,403 and is projected to grow 0.7 percent over the next five years, driven by a projected increase of 2.2 percent in the 65 and older age cohort.

Approximately 94 hospitals operate within the Health System market. Patient care is increasingly shifting from the inpatient to the outpatient setting. As part of this trend, many more market cases are shifting to observation status. When looking at combined inpatient discharges and observation cases in fiscal year 2016, Advocate Health Care ranks first with 17.5 percent market share; the Health System ranks second with 10.3 percent share, tied with Presence Health at 10.3 percent share; AMITA Health has 7.3 percent, followed by Rush University Medical Center with 5.3 percent, NorthShore University HealthSystem with 4.7 percent and Edward-Elmhurst Health with 4.5 percent.

NMHC divides the overall market into five regions: Central, North, Northwest, West and South. NMH operates within the Central Region; NM LFH operates within the North Region; NM CDH, NM Delnor, NM Kishwaukee, NM Valley West and MRH operate within the West Region. The Health System does not operate hospitals in the Northwest or South regions at this time. The following map shows the Health System service area and regions and each of the Health System hospitals is designated with a yellow star.

2 The market share information in this section was obtained from the Illinois Hospital Association’s COMPdata system covering Northwestern Medicine’s fiscal year 2014 through fiscal year 2016, which was the last full year available. The data is based on discharge data that Member hospitals are required to file with the State of Illinois. Population figures and projections are based on Sg2 Market Demographics tool, using Claritas Pop-Facts® 2017 data. Information on number of hospitals is from the Illinois Department of Public Health website. A-17

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Member Hospital Primary Service Areas Each Health System acute care hospital has a distinct primary service area (“PSA”) comprised of contiguous ZIP codes. The following map shows each acute care hospital PSA within the market and each hospital is designated with a yellow star.

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NMH primary service area: The NMH PSA consists of 125 ZIP codes extending north to Evanston, south to Interstate 80, east to Lake Michigan and west to Interstate 294. The NMH PSA has a population of 3,773,384, and 69 percent of NMH discharges came from the NMH PSA in fiscal year 2016. NMH is one of five academic medical centers located in the NMH PSA, four of which are located within the City of Chicago, including Rush University Medical Center and the University of Illinois at Chicago Medical Center on the west side, The University of Chicago Medical Center on the south side, and NMH. The fifth academic medical center, Loyola University Medical Center, is located west of Chicago. An additional 49 acute care, pediatric, rehabilitation and psychiatric hospitals operate within the NMH PSA.

NM LFH primary service area: The NM LFH PSA consists of 17 ZIP codes extending from just south of the Wisconsin border to U.S. Route 41 to the south, from Lake Michigan to the east and to McHenry County to the west. The NM LFH PSA has a population of 456,168, and 73 percent of NM LFH discharges came from the NM LFH PSA in fiscal year 2016. An additional four acute care, pediatric, rehabilitation and psychiatric hospitals operate within the NM LFH PSA.

NM CDH primary service area: The NM CDH PSA consists of 23 ZIP codes extending east past Interstate 355, west to the border of DuPage County, north to the southern border of Elgin and south to the southern border of Naperville. The CDH PSA has a population of 788,814, and 70 percent of NM CDH discharges came from the NM CDH PSA in fiscal year 2016. In addition to NM CDH and MRH, an additional four acute care and psychiatric hospitals operate within the NM CDH PSA. In the service area, the Health System also operates the only proton center in the region, Northwestern Medicine Chicago Proton Center, adjacent to the Northwestern Medicine Cancer Center in Warrenville, Illinois. NM Delnor primary service area: The NM Delnor PSA consists of nine ZIP codes extending east to the eastern border of Kane County, west past Illinois Route 47, north to the southern border of Elgin and south to the southern border of Kane County. The NM Delnor PSA has a population of 234,363, and 73 percent of NM Delnor discharges came from the NM Delnor PSA in fiscal year 2016. One additional acute care hospital operates within the NM Delnor PSA. NM Kishwaukee primary service area: The NM Kishwaukee PSA consists of four ZIP codes extending east to the eastern border of Sycamore, west to the western border of DeKalb, north to Genoa and south to the southern border of DeKalb. The NM Kishwaukee PSA has a population of 79,672, and 74 percent of NM Kishwaukee discharges came from the NM Kishwaukee PSA in fiscal year 2016. No other acute-care, pediatric, rehabilitation and psychiatric hospitals operate within the NM Kishwaukee PSA. NM Valley West primary service area. The NM Valley West PSA consists of four ZIP codes located on the border of Kendall and LaSalle counties, including the towns of Sandwich, Plano, Leland and Somonauk on U.S. Route 34. The NM Valley West PSA has a population of 32,131, and 72 percent of NM Valley West discharges came from the NM Valley West PSA in fiscal year 2016.

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The table below summarizes each acute care hospital and its respective PSA combined inpatient and observation market share information.

Fiscal Year 2016 Fiscal Year 2016 System Hospital PSA Other Top Hospitals System Hospital Market Share and Rank PSA Market Share

NMH 7.9% (1st) Advocate Christ (6.7%) Rush University (5.2%)

NM LFH 17.0% (2nd) Advocate Condell (30.3%) Vista East (15.4%)

NM CDH 24.8% (1st) Edward (14.3%) Elmhurst (7.6%)

NM Delnor 31.2% (1st) Presence Mercy (21.1%) NM CDH (10.6%)

NM Kishwaukee 62.6% (1st) NM Delnor (5.7%) NM CDH (5.2%)

NM Valley West 21.6% (2nd) Rush-Copley (27.9%) Edward (9.1%)

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COMMUNITY BENEFIT

With a mission-driven commitment to providing quality medical care regardless of the patient’s ability to pay, the Health System maintains its dedication to improving the health of the communities it serves. In fiscal year 2016, the Health System provided more than $747.4 million in community benefit, including charity care, unreimbursed cost of Medicaid and Medicare, research, education and other community benefit to the residents of Chicago, its north and west suburbs, and Northern Illinois.

The breakdown of community benefit investments in fiscal year 2016 is set forth in the following chart:

The Annual Nonprofit Hospital Community Benefits Plan Report for fiscal year 2017 will be filed with the Illinois Attorney General on February 28, 2018.

GOVERNANCE

NMHC Board of Directors and Hospital Boards The NMHC Board of Directors (the “NMHC Board”) is authorized to consist of 19 to 24 members (“Directors”), and currently includes 20 Directors. Per the NMHC bylaws, NMHC’s president and CEO, the dean of FSM, and the president of NU serve as voting ex-officio members. In addition, following NMHC’s affiliation with NMG, NMHC committed to representation of at least three directors who concurrently serve as members of the NU Board of Trustees, as well as at least one physician on the NMHC Board of Directors. Following NMHC’s affiliations with CDHS and KHS, NMHC committed to A-21

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time-limited (five years and three years, respectively) representation of these legacy health systems on the NMHC Board of Directors.

Understanding that it is of foremost importance that the corporate parent have the appropriate authorities to steward the mission and assets of the Health System, in 2016, the bylaws of the hospitals, medical groups and foundations were aligned to provide NMHC with reserved powers and allow NMHC to take action for the benefit of the Health System when necessary. In addition to state law and regulatory requirements, the local subsidiary boards act in an advisory role to NMHC, the corporate parent. Management continues to work through other subsidiaries’ bylaws to ensure uniform alignment of NMHC reserved powers across the Health System.

All Directors on the NMHC Board and the Member hospital boards (other than the ex-officio members) may be elected to four three-year terms for a total of 12 consecutive years. Directors serve without remuneration, except for reimbursement of expenses actually occurred. Per the NMHC bylaws, an automatic resignation is triggered if there is a material change in a director’s business or civic position, or when a director turns 75 years of age. It is at the discretion of the board to accept or decline the resignation. The NMHC Board and Member hospital boards all meet four times per year.

The standing committees of the NMHC Board of Directors include Audit, Executive, Executive Compensation, Finance, Investment, Nominating & Corporate Governance, Physician Compensation and Quality Committees. The Audit, Investment and Compensation Committees are comprised of entirely independent directors. Each Member hospital board has a Professional Standards Committee that oversees the appointments, reappointments, privileges and other actions relevant to the medical staff and advanced practice providers of its hospital.

The following is a list of individuals who currently serve on the NMHC Board of Directors, their occupation and their years of service on the NMHC Board:

Cumulative Years Director Business Affiliation of Service W. James McNerney, Jr., Former Chairman, President and Chief Executive 10 Chair of NMHC Officer The Boeing Company John A. Canning, Jr., Chairman 26 Vice Chair of NMHC Madison Dearborn Partners, LLC William P. Flesch, Executive Vice President 3 Vice Chair of NMHC Gordon Flesch Company, Inc. William A. Osborn, Former Chairman and Chief Executive Officer 17 Vice Chair of NMHC Northern Trust Corporation Carol L. Bernick Chief Executive Officer 7 Polished Nickel Capital Management LLC Nicholas D. Chabraja Former President and Chief Executive Officer 7 General Dynamics, Inc.

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Cumulative Years Director Business Affiliation of Service Michael Cullen President and Chief Executive Officer 2 National Bank and Trust Manny Favela Former Chief Financial Officer – Latin America 3 McDonald’s Corporation Dean M. Harrison President and CEO 16 Northwestern Memorial HealthCare Michael J. Kachmer President and CEO 3 Duravant Thomas Matya Vice President, Development 2 Zea Mays Holdings, LLC Timothy P. Moen Former Executive Vice President 3 Northern Trust Corporation Eric G. Neilson, MD Vice President for Medical Affairs 5 Lewis Landsberg Dean Feinberg School of Medicine Northwestern University J. Christopher Reyes Co-Chairman 15 Reyes Holdings LLC Matthew J. Ross, MD Midwest Neurosurgery & Spine Specialist 3 Morton O. Schapiro President 4 Northwestern University Timothy P. Sullivan Managing Director 9 Madison Dearborn Partners, LLC Glenn F. Tilton Former Chairman of the Board 8 United Continental Holdings, Inc. Douglas E. Vaughan, MD Chair, Medicine 7 Feinberg School of Medicine Northwestern University Patricia A. Woertz Former Chairman, President and CEO 2 Archer Daniels Midland

EXECUTIVE LEADERSHIP

NMHC’s executive leadership team is led by the CEO and a team of 20 executives who report directly to the CEO. This executive leadership team oversees all Health System hospitals, medical groups and all other clinical and corporate operations. Average years of service for NMHC’s full leadership team, comprised of vice presidents, senior vice presidents and presidents is thirteen years. Forty-five percent of the executive leadership team is made up of women and persons of color and nineteen percent are physicians.

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The following is a brief biographical sketch of members of NMHC’s executive team:

Dean M. Harrison, MBA – President and Chief Executive Officer, NMHC Mr. Harrison is president and CEO of NMHC, and CEO of all Health System hospitals and NMF. Mr. Harrison has served as the president and CEO of NMHC since 2006. Before joining NMHC in 1998, he was president and chief operating officer of the University of Chicago Health System.

Mr. Harrison serves on the Boards of Directors of the Center for Medical Interoperability, Economic Club of Chicago, Executives’ Club of Chicago, Illinois Hospital Association, Northern Trust, Northwestern University, United Way of Metropolitan Chicago and World Business Chicago. He is a member of the Commercial Club of Chicago, its Civic Committee and the Institute of Medicine of Chicago.

Mr. Harrison earned a Bachelor of Science degree from Indiana University and a Master of Business Administration from St. Francis College.

James Adams, MD – Senior Vice President and Chief Medical Officer, NMHC Dr. Adams has been SVP and CMO of NMHC since 2013. Dr. Adams joined NMHC in 2000 as a physician and chair of Emergency Medicine, and he continues to serve as chair for that department. Dr. Adams was previously Assistant Professor at Harvard Medical School, Vice Chair of the Department of Emergency Medicine at Brigham and Women’s Hospital in Boston, and a founding faculty member of the Harvard Affiliated Emergency Medicine residency. Prior to that, he was Chair of the Department of Emergency Medicine at Wilford Hall Medical Center at Lackland Air Force Base, Texas, and a Major in the United States Air Force. Dr. Adams received his medical degree from Georgetown University School of Medicine in 1988, and completed his residency at University of Pittsburgh Medical Center/Presbyterian in 1991.

William Bower, JD - Senior Vice President, Administration, NMHC Mr. Bower provides executive leadership and sponsorship of priority IT-intensive projects including Cyber Security and the implementation of one system-wide electronic medical record. Mr. Bower has served in this role since May 2017. Prior to this role, Mr. Bower served as Chief Risk Executive beginning in 2009 and was promoted to Vice President in 2011. Mr. Bower originally joined NMHC in 2005 as Executive Director of Claims & Litigation. Before joining NMHC, Mr. Bower was Vice President of Claims at CNA. Mr. Bower completed his undergraduate degree from the University of Illinois. He completed his Juris Doctor from Loyola University of Chicago.

Howard Chrisman, MD, MBA – Senior Vice President, NMHC, and President of NMG Dr. Chrisman has been both SVP of NMHC and president of NMG since 2015. Dr. Chrisman originally joined the NMH medical staff in 1997 as an interventional radiologist. He completed his undergraduate degree at Cornell University and medical school at State University New York – Syracuse. Following medical school, Dr. Chrisman completed an internship in the Boston City Hospital System followed by his residency in Diagnostic Imaging at the University of Virginia. He obtained his MBA with a special emphasis on Health Care Administration from the University of Colorado.

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Carl Christensen, MS - Senior Vice President and Chief Information Officer, NMHC Mr. Christensen oversees NMHC’s Information Technology division. Mr. Christensen has served in this role since February, 2015. Mr. Christensen joined NMHC in September, 2013 when he served as Vice President and Chief Information Officer for Northwestern Medical Faculty Foundation. Prior to this role, he was Chief Information Officer for Marshfield Clinic. Mr. Christensen earned his bachelor’s degree from the University of Wisconsin Madison and a Master of Science degree from Syracuse University.

Robert Christie - Senior Vice President, External Affairs, NMHC Mr. Christie oversees NMHC’s External Affairs, Community, and Government Relations division. Mr. Christie has served in this role since 2013. Mr. Christie joined NMH in May of 2001 as Vice President of Government and Legislative Relations. Prior to joining NMH, he spent 14 years as the director of public affairs at FMC Corporation and 6 years as director of state government relations at Atlantic Richfield Company (ARCO). Prior to his career in the private sector, he spent four years on the Illinois State Senate Staff. Mr. Christie earned his bachelor’s degree in Political Science from Western Illinois University.

Julie Creamer, MS – Senior Vice President, NMHC, and President of NMH Ms. Creamer has been President of NMH since 2015 and has served as SVP since 2008 overseeing various portfolios including strategy, quality and revenue cycle. Ms. Creamer originally joined NMH in 1981, as a nurse in the neurological intensive care unit. She received her Bachelor of Science degree in nursing from Marquette University in 1980 and a Master of Science degree from the University of Chicago in 1991.

Daniel Derman, MD - Senior Vice President, Administration, NMHC Dr. Derman oversees NMHC’s Innovation Department, International Department, Executive Health, and Immediate Care and Convenient Care sites. Dr. Derman has served in this role since 2015, most recently adding responsibility of the Immediate Care and Convenient Care sites since September 2017. Prior to this role, Dr. Derman served as President of Northwestern Memorial Physicians Group, which was acquired by NMHC in 1995. Dr. Derman earned his medical degree from the University of Illinois College Of Medicine in 1984. Dr. Derman trained in Internal Medicine from 1984 to 1987 at NMH and served as Chief Medical Resident from 1987 to 1988.

Connie Falcone, JD, MBA - President, Northwestern Memorial Foundation Ms. Falcone oversees NMHC’s philanthropic division. Ms. Falcone has served in this role since June 2017. Prior to this role, Ms. Falcone was Executive Director and Director of Community Affairs of Chicago Cubs Charities from 2011 to 2017. Ms. Falcone earned her bachelor’s degree from Colorado College. She completed her Juris Doctor from the University of Notre Dame Law School and her MBA from the University of Chicago Booth School of Business.

James Giblin, MD – Senior Vice President, Administration, NMHC Dr. Giblin oversees NMHC’s Health Information Management and Post-Acute services including Home Care, Hospice and Marianjoy Rehabilitation Hospital Post-Acute Care division. Dr. Giblin has

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served in this role since May 2017. Prior to this role, Dr. Giblin served as Senior Vice President of NMHC’s Value-Based care division beginning in March 2016. Dr. Giblin joined the Central DuPage Hospital Medical Staff in 1995, and was a practicing board-certified urologist until he joined the Cadence Health executive leadership team in 2013 as Chief Medical Officer for Cadence Health and later as the Chief Medical Officer for the West Region of NMHC. Dr. Giblin earned his bachelor’s degree in pre- professional studies from the University of Notre Dame, and received his medical degree from Georgetown University School of Medicine in Washington, D.C. He served as a captain in the U.S. Army Medical Corps for four years and was awarded the Meritorious Service Medal in 1990.

Emily Kozak, JD – Vice President, Governance and Chief of Staff, NMHC Ms. Kozak oversees NMHC’s Governance division. Prior to this role, Ms. Kozak served as Director of Governance and Special Projects from 2014 to 2016. Ms. Kozak originally joined NMH as Senior Staff in the Office of the CEO in 2010 after serving as Manager of Professional Affairs with the Northwestern Medical Faculty Foundation from 2008 to 2010. Prior to this role, Ms. Kozak was a law clerk for Community Development Advocates, LLC. Ms. Kozak earned her bachelor’s degree in Journalism and Mass Communications from the University of Wisconsin Milwaukee and her Juris Doctor from Marquette University Law School.

Thomas McAfee, MHA – Senior Vice President, NMHC; President of Northwestern Medicine North Region; and President of NM LFH Mr. McAfee has been president of NM LFH since 2006 and has served as SVP since 2010, when NM LFH affiliated with NMHC. Prior to joining NM LFH, Mr. McAfee spent ten years in leadership positions at the Cleveland Clinic; serving as a senior executive for operations at Hillcrest Hospital and vice president of Cleveland Clinic’s East Region Oncology Service. Mr. McAfee has a Bachelor of Science degree from Wright State University and a master’s degree in hospital and health administration from Xavier University.

Gary Noskin, MD – Senior Vice President, Quality, NMHC and Chief Medical Officer, NMH Dr. Noskin oversees NMHC’s Quality division in addition to his role as Chief Medical Officer of NMH. Dr. Noskin has served in this role since September, 2013, most recently adding responsibility of NMHC’s Quality division since September 2017. Prior to this role, Dr. Noskin served as Associate Chief Medical Officer and Chief of Staff at NMH beginning in 2006. Dr. Noskin first joined the NMH medical staff in 1991. Dr. Noskin earned his Bachelor of Arts degree in Biology from Washington University in St. Louis and his medical degree from Chicago Medical School. He is board certified in Internal Medicine and Infectious Disease. In addition, Dr. Noskin has served as Professor of Medicine at FSM since 2008.

John Orsini, CPA – Senior Vice President and Chief Financial Officer, NMHC Mr. Orsini has been CFO of NMHC since 2014, following the CDHS affiliation with NMHC. Prior to the affiliation, he served as the CFO of CDHS beginning in 2013. Prior to joining Cadence Health, Mr. Orsini was the CFO of Presence Health, a 12-hospital system created by the merger of Resurrection Health Care and Provena Health. He has more than 30 years of healthcare finance experience, with the last seven being a health system CFO. Mr. Orsini has a bachelor’s degree in Accounting from Arizona State University in Phoenix and is a Certified Public Accountant.

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Kevin Poorten, MHSA – Senior Vice President, NMHC, and President of Northwestern Medicine West Region Mr. Poorten served as president and CEO of KHS from November 2002 until KHS became part of NMHC in December 2015. Before joining KHS, he served as a regional vice president for Province Healthcare in Nashville where he was responsible for overseeing numerous facilities throughout the country. He earned a bachelor’s degree in Business Administration from Marquette University and Master of Health Services Administration degree from Arizona State University.

Danae Prousis, JD – Senior Vice President and General Counsel, NMHC Ms. Prousis has served as general counsel of NMHC since April 2017. Ms. Prousis served as the vice president and general counsel of NMFF from 1993 until 2013, when she became the vice president and deputy general counsel of NMHC. Prior to this experience, she was a partner at the law firm of Winston & Strawn. Ms. Prousis earned a Bachelor of Arts degree from NU and Juris Doctor degree from Duke University School of Law.

Elizabeth Rosenberg, MBA – Senior Vice President, Strategy, NMHC Ms. Rosenberg has been SVP of Strategy at NMHC since 2014 following the affiliation of CDHS and NMHC. Ms. Rosenberg oversees strategic planning, access, engagement, and marketing and communications. Prior to joining NMHC, she served in various leadership roles at CDHS. Ms. Rosenberg began her career in health care at the Advisory Board Company, a Washington, DC based healthcare research firm. Ms. Rosenberg earned her Bachelor of Arts degree from Harvard College and an MBA from The Wharton School, University of Pennsylvania.

Mark Schumacher, MS - Senior Vice President, Performance and Analytics, NMHC Mr. Schumacher oversees NMHC’s Analytics division, Process Improvement Office, Project Management Office, and Risk Management. Mr. Schumacher most recently added responsibility of NMHC’s Analytics and Risk Management divisions and has served in this capacity since September 2017. Prior to this role, Mr. Schumacher served as Vice President of Performance for NMHC beginning in 2014. Prior to joining the Health System, Mark worked as a consultant for Huron Consulting, a national healthcare consultancy. Mr. Schumacher earned his bachelor’s degree in Business from the University of Michigan and his master’s degree in Predictive Analytics from Northwestern University.

Patrick Towne, MD – President, Northwestern Medicine Regional Medical Group Dr. Towne oversees the Regional Medical Group in the West Region. Dr. Towne has served in this role since 2014. Prior to this role, Dr. Towne served as President of the Cadence Physician Group beginning in 2013. Prior to this, he served as Medical Director with the Cadence Physician Group from 2007 to 2012. Dr. Towne joined the Cadence Physician Group in 1999 after completing a year as Chief Resident in Internal Medicine at Loyola. Dr. Towne earned his bachelor’s degree in Biology, Summa Cum Laude, from the University of Illinois in 1991. He earned his medical degree, Magna Cum Laude, from Loyola Stritch School of Medicine in 1995.

Michael Vivoda, MBA – Senior Vice President, Administration, NMHC Mr. Vivoda oversees NMHC’s Human Resources division. Mr. Vivoda assumed his current role in early 2017. Prior to that, he became president of the West Region when legacy CDHS combined with A-27

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NMHC in 2014. Prior to joining Cadence Health, Mr. Vivoda served as President and Chief Executive Officer for Loyola University Physician Foundation at Loyola University Medical Center. He holds a bachelor’s degree in Business from the University of Illinois at Champaign-Urbana and a Master’s of Management degree through the Executive MBA program at the Kellogg School of Management of Northwestern University.

Gina Weldy, MBA – Senior Vice President, Administration, NMHC Ms. Weldy oversees NMHC’s Construction and Real Estate division, as well as Security, Facilities, and Integration. In addition, Ms. Weldy provides executive leadership and sponsorship of the NM Shared Services Center. Ms. Weldy has led the Real Estate division since 2007, taking on additional responsibility for post-merger integration of new hospital partners as of 2015 and most recently adding responsibility of the NM Shared Services Center since September 2017. Prior to joining NMHC, she spent seven years in consulting at Ernst & Young, LLP and Cap Gemini Ernst & Young. Ms. Weldy received a Bachelor of Arts Degree from Indiana University in 1997 and a MBA from NU’s Kellogg School of Management in 2009.

Douglas Young, CPA - Senior Vice President, Administration, NMHC Mr. Young oversees NMHC’s Internal Audit, Corporate Integrity, and Project Management Integrity divisions. Mr. Young has served in this role since May 2017, most recently adding responsibility of NMHC’s Project Management Integrity division since September 2017. Prior to this role, Mr. Young served as Vice President of Finance for NMHC beginning in 2006. Mr. Young first joined NMHC in 1979 as Director of Accounting. He earned his Bachelor of Science degree in Accounting from DePaul University and is a Certified Public Accountant.

CLINICIANS

The Health System’s medical staffs consist of more than 4,200 physicians including more than 1,800 employed physicians who are part of either NMG, NM RMG, KPG or MMG. NM also trains more than 1,100 residents and fellows.

Each hospital has a separate medical staff. The members of each medical staff are appointed by the Professional Standards Committee of each hospital in accordance with the appointment and reappointment procedures in the respective medical staff bylaws and according to the respective hospital’s governance procedures. The categories of membership for each hospital’s medical staff are determined by each hospital’s medical staff bylaws.

The physicians practice across all major clinical specialties and subspecialties including cardiovascular care, oncology, neurology and neurosurgery, solid organ and soft tissue transplants, orthopaedics, and women’s health. More than 94 percent of the Health System’s medical staffs are board certified.

EMPLOYEES

As of August 31, 2017, NMHC had more than 24,000 employees representing more than 21,000 full-time equivalents. NMHC ranked seventh on a list of Chicago’s largest employers compiled by

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Crain’s Chicago Business. 3 On a full-time equivalent basis, approximately 6 percent of NMHC employees were represented by a collective bargaining agreement.

The Service Employees International Union – Healthcare - Illinois/Indiana represents NMH’s service employees. This union has a three-year contract that expires January 27, 2020. There has been no work stoppage by the unions at NMH since 1976. NMH is the only Health System entity that employs unionized employees. In addition, certain security and maintenance services provided by companies under contract with the Obligated Group are represented by employee organizations.

Effective in fiscal year 2013, other than time-off benefits, all of the Health System’s non-union and union employees are covered under the same benefit plans. All existing defined benefit pension plans (the “Plans”) have been amended to implement a hard freeze, such that no participant will earn any additional or new benefits under the Plans on or after January 1, 2013. Also effective January 1, 2013, all of NMH’s union and non-union employees are covered under one defined contribution plan. See Note 7 of the Audited Financial Statements in Appendix B hereto.

3 The employer ranking data was obtained from the Crain’s List for Chicago’s Largest Employers, which is a list that ranks employers by full-time local employees in Cook, DuPage, Kale, Lake (Illinois), Lake (Indiana), McHenry and Will counties as of December 31, 2016. A-29

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HISTORICAL UTILIZATION OF SERVICES

The following table summarizes certain historical utilization statistics for the Obligated Group for the fiscal years ended August 31, 2017, 2016 and 2015. Utilization statistics for the Obligated Group are filed with and available from the MSRB through EMMA found at emma.msrb.org. The disclosures can also be obtained from Digital Assurance Certification, L.L.C. (“DAC Bond”) at www.dacbond.com.

Fiscal Year Ended August 31, 2017 2016* 2015 Utilization of Services Inpatient Admissions 88,810 84,988 80,443 Observation Cases 39,849 41,543 33,834 Equivalent Admissions1 208,204 195,736 178,355 Average Length of Stay (days) 4.9 4.6 4.4 Patient Days 432,705 395,167 355,123

Average Occupancy2 77.2% 71.5% 74.5% Deliveries 18,200 18,460 17,998 Emergency Room Visits: Inpatient3 41,085 39,647 40,170 Outpatient 246,215 239,890 207,767 Total 287,300 279,537 247,937

Outpatient Registrations (excluding Emergency Room) 2,347,538 2,191,629 1,756,078 Surgeries: Inpatient 22,247 21,885 22,765 Outpatient 48,549 45,553 42,622 Total 70,796 67,438 65,387

Beds Licensed – Total 1,809 1,893 1,562 Staffed – Total4 1,744 1,734 1,476

* KHS became a subsidiary of NMHC on December 1, 2015 and Marianjoy, Inc. became a subsidiary of NMHC on March 1, 2016. The historical utilization of services includes KHS for the nine months ended August 31, 2016, and includes Marianjoy, Inc. for the six months ended August 31, 2016. 1 Inpatient admissions adjusted to reflect outpatient activity. 2 Calculated based on Patient Days (as shown in this chart) plus outpatient observation days divided by staffed beds. 3 Emergency Room visits resulting in inpatient admissions. 4 Staffed beds include all adult inpatient and observation (unlicensed) beds available for patient care. NICU bassinets are not included in the staffed bed calculation.

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SUMMARY OF FINANCIAL RESULTS

Summary of Revenue, Expenses, and Changes in Unrestricted Net Assets

The following condensed consolidated summary of revenue, expenses, and changes in unrestricted net assets is derived from the consolidated financial statements of NMHC and subsidiaries for the years ended August 31, 2017, 2016 and 2015. The data should be read in conjunction with the consolidated financial statements, related notes, and supplementary information included in Appendix B hereto and available from the MSRB through EMMA found at emma.msrb.org.

NMHC and Subsidiaries Fiscal Year Ended August 31, 2017 2016 2015 (000’s omitted) Net patient service revenue after provision for $ 4,547,386 $ 4,081,581 $3,702,986 uncollectible accounts Other operating revenue 283,610 278,292 182,644 Total revenue 4,830,996 4,359,873 3,885,630

Total expenses 4,529,827 4,120,502 3,671,766 Operating income 301,169 239,371 213,864

Investment return 655,269 155,708 (53,758) Grants and academic support provided (20,172) (26,748) (51,072) Contribution of Cadence Health unrestricted net - - 1,781,068 assets Contribution of KishHealth unrestricted net - 347,003 - assets Contribution of Marianjoy unrestricted net assets - 42,964 - Other, net 46,596 (39,450) (10,608) Total nonoperating gains, net 681,693 479,477 1,665,630

Excess of revenue over expenses* 982,862 718,848 1,879,494

Net assets released from restrictions used for property and equipment additions 6,279 15,858 8,193 Post retirement-benefit-related changes other than net periodic pension costs 64,884 (81,400) (16,884) Other, net* (1,098) (239) (2,039) Increase in unrestricted net assets* $ 1,052,927 $ 653,067 $1,868,764

* Includes non-controlling interest amounts. See APPENDIX B hereto.

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Debt Service Coverage

The following table sets forth actual coverage and pro forma coverage of estimated maximum annual debt service on the Series 2017 Obligations in the amount set forth in the front part of this Official Statement, as well as all other long-term outstanding indebtedness of the Obligated Group secured by Obligations (excluding Obligations issued by Members in connection with interest rate swap agreements or to direct bank purchasers to secure obligations under bank covenant agreements or to providers of credit or liquidity enhancement). The pro forma calculation of maximum annual debt service below assumes as of August 31, 2017, the issuance of the Series 2017 Bonds, the refinancing of the Refunded Bonds with the proceeds of the Series 2017 Bonds and the cash defeasance of the Defeased Bonds (capitalized terms as defined in the front part of this Official Statement). All amounts and calculations relate only to the Obligated Group except as set forth in the footnotes.

As discussed under the caption “SECURITY FOR THE SERIES 2017A OBLIGATION” in the forepart of this Official Statement, the Master Indenture will become effective upon receipt of consent of the holders of at least a majority in aggregate principal amount of Obligations then Outstanding under the Existing Master Indenture (and for certain provisions of the Master Indenture, the consent of at least a majority in aggregate principal amount of Obligations then Outstanding of each series is required). Although the holders of the Series 2017A Bonds and the Series 2017B Bonds will be deemed to have consented to the amendment and restatement of the Existing Master Indenture pursuant to the terms of the Master Indenture, additional consents necessary for the Master Indenture to become effective are expected to be received after the issuance of the Series 2017A Bonds and the Series 2017B Bonds. Pursuant to the terms of the Master Indenture, the Obligated Group will be permitted to elect to show compliance with various financial covenants based on either the Obligated Group or the Health System. Pursuant to the terms of the Continuing Disclosure Agreement, at all times after the Master Indenture becomes effective, NMHC may provide updated disclosure in accordance with what is required under the Master Indenture. See “Appendix C - Summary of the Master Indenture.”

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Estimated Pro Forma Maximum Annual Debt Service Coverage* (Reflective of Obligated Group Structure as of August 31, 2017)

Obligated Group** Fiscal Year Ended August 31, 2017 2016 2015 (000’s omitted) Excess of revenue over expenses $ 1,007,121 $ 717,208 $1,832,591

Adjustments to reconcile excess of revenue over expenses to income available for debt service Contribution of Cadence Health unrestricted assets - - (1,781,068) Contribution of KishHealth unrestricted net assets - (336,954) - Contribution of Marianjoy unrestricted net assets - (42,964) - Unrealized (gain) loss (458,506) (98,935) 209,644 Change in fair value of interest rate swaps (36,596) 38,739 22,055 Loss on extinguishment of long-term debt 216 4,030 - Loss attributable to noncontrolling interest - 407 - Depreciation and amortization 278,091 263,685 282,455 Interest on funded indebtedness 44,125 53,270 57,257 Income available for debt service 834,451 598,486 622,934 Maximum annual debt service (MADS) 100,819 95,055 93,105 Actual MADS coverage ratio 8.3x 6.3x 6.7x Pro forma MADS 84,616 - - Pro forma MADS coverage ratio 9.9x - -

* The calculations of estimated maximum debt service requirements set forth in this table were calculated in accordance with the Master Indenture. Totals may not add due to rounding. NMH previously entered into interest rate exchange agreements associated with its Series 2007A Bonds. As a result, these calculations take into account the amounts payable by NMH pursuant to such interest rate exchange agreements. For purposes of these calculations, (i) NMH’s outstanding Series 2007A Bonds bear interest at a fixed rate of 3.889%, (ii) NMH’s outstanding Series 2008A Bonds bear interest at the assumed variable rate of 0.65% per annum, (iii) the Obligated Group’s Series 2011A-C and Series 2015A-B Bonds bear interest at an assumed tax-exempt projected rate of 3.38% per annum, and (iv) the Obligated Group’s taxable bank term loan and taxable commercial paper amortize over 30 years on a level debt service basis at an assumed taxable projected rate of 3.79% per annum. Actual interest rates may vary from the assumed rates . ** For the fiscal year ended August 31, 2017, the Health System had income available for debt service of $819,712 with MADS of $100,819 for an actual MADS coverage ratio of 8.1x and with pro forma MADS of $84,616 for a pro forma MADS coverage ratio of 9.7x.

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Capitalization

The following table reflects the Obligated Group’s historical long-term indebtedness as a percentage of total capitalization as of August 31, 2017, 2016 and 2015 and pro forma historical long- term indebtedness as a percentage of total capitalization as of August 31, 2017, assuming the issuance of the Series 2017 Bonds, the refinancing of the Refunded Bonds with the proceeds of the Series 2017 Bonds and the cash defeasance of the Defeased Bonds. All amounts and calculations relate only to the Obligated Group except as set forth in the footnotes.

As discussed under the caption “SECURITY FOR THE SERIES 2017A OBLIGATION” in the forepart of this Official Statement, the Master Indenture will become effective upon receipt of consent of the holders of at least a majority in aggregate principal amount of Obligations then Outstanding under the Existing Master Indenture (and for certain provisions of the Master Indenture, the consent of at least a majority in aggregate principal amount of Obligations then Outstanding or each series is required). Although the holders of the Series 2017A Bonds and the Series 2017B Bonds will be deemed to have consented to the amendment and restatement of the Existing Master Indenture pursuant to the terms of the Master Indenture, additional consents necessary for the Master Indenture to become effective are expected to be received after the issuance of the Series 2017A Bonds and the Series 2017B Bonds. Pursuant to the terms of the Master Indenture, the Obligated Group will be permitted to elect to show compliance with various financial covenants based on either the Obligated Group or the Health System. Pursuant to the terms of the Continuing Disclosure Agreement, at all times after the Master Indenture becomes effective, NMHC may provide updated disclosure in accordance with what is required under the Master Indenture. See “Appendix C - Summary of the Master Indenture.”

Historical and Pro Forma Long-Term Capitalization (Reflective of Obligated Group Structure as of August 31, 2017)

Obligated Group* Fiscal Year Ended August 31, 2017 Pro Forma 2017 2016 2015 (000’s omitted) Long-term indebtedness (excluding current portion)** $1,438,844 $ 1,324,446 $1,395,975 $1,414,209 Unrestricted net assets 6,696,347 6,731,762 5,639,525 4,982,389 Total capitalization 8,135,191 8,056,208 7,035,500 6,396,598 Long-term indebtedness as a percentage of total capitalization 17.7% 16.4% 19.8% 22.1%

* For the fiscal year ended August 31, 2017, the Health System had long-term indebtedness (excluding current portion) of $1,324,776 with total capitalization of $8,153,616 for long-term indebtedness as a percentage of total capitalization of 16.2% and with pro forma long-term indebtedness (excluding current portion) of $1,439,108 and pro forma total capitalization of $8,232,533 for pro forma long-term indebtedness as a percentage of total capitalization of 17.5%.

** Includes long-term debt and long-term debt subject to short-term remarketing agreements. Excludes current maturities, commercial paper and amounts drawn on line of credit. A-34

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Investments and Investment Policy

NMHC’s investment policy provides a structure and process that enables maintenance of a diversified, sound and prudent investment portfolio with appropriate liquidity and growth potential without assuming undue risk to the Health System. The portfolio is structured to outperform a passive 80 percent equity and 20 percent fixed income portfolio (“80%/20% portfolio”) in a declining investment market and to participate in a rising market with less volatility. The structure includes a liquidity pool to meet cash requirements that are not met by operating cash flow or debt financing. These cash requirements cover a wide range, including, but not limited to, self-insurance payouts, working capital and capital expenditures.

The investment portfolio is primarily invested in a diversified portfolio of global public and private equities. The portfolio is protected against unanticipated inflation and deflation via significant exposure to real assets and fixed income, respectively. A sizable investment in marketable alternatives provides diversification against a prolonged or steep decline in global equities.

The investment allocation, manager selection and policy guidelines are recommended by NMHC’s management and the investment advisor (currently, Monticello Associates), and approved and monitored by the Investment Committee of the NMHC Board of Directors. At present, the asset guidelines target 45 percent in equities; 45 percent in alternative investments such as private equity, hedge funds and real assets; and 10 percent in fixed income. The Investment Committee meets quarterly, and the investment policy targets are reviewed annually for continued appropriateness.

The portfolio’s return for the fiscal year ended August 31, 2017 was 13.7 percent, as compared to a 13.6 percent return for an 80%/20% portfolio. The five-year annualized return for the portfolio as of August 31, 2017 was 9.0 percent, compared to an 8.9 percent return for an 80%/20% portfolio. Prior performance is not any guaranty or indication of future performance.

Sources of Revenue

The majority of revenue received by the Health System is attributable to billed services provided to its patients. Most of the payments made on behalf of these patients are from Medicare, Medicaid, commercial insurance carriers and managed care organizations.

The following is a summary of net patient service revenue, net of contractual allowances and discounts, but before the provision for uncollectible accounts, by payor type for the last three fiscal years for NMHC and subsidiaries.

Fiscal Year Ended August 31, 2017 2016 2015 Managed care 66.2% 67.7% 68.0% Medicare 24.8 23.6 18.3 Medicaid* 4.3 4.4 8.3 Charged-based 4.7 4.3 5.4 Total 100.0% 100.0% 100.0% *Excludes revenue from the Illinois Hospital Assessment Program and provision for uncollectible accounts.

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See the information under the caption heading “BONDHOLDERS’ RISKS” in the front part of this Official Statement for a discussion of the risks associated with these sources of revenue.

MANAGEMENT’S DISCUSSION OF FINANCIAL PERFORMANCE

Financial Management

NMHC’s Board of Directors and senior management have established policies and procedures that govern the Health System’s financial affairs. The Finance Committee of the NMHC Board of Directors (the “Finance Committee”) oversees the financial affairs of the Health System, approves the budget, and makes recommendations to NMHC and its subsidiary boards concerning certain capital expenditures and the incurrence of debt. The financial and operating performance of NMHC, including accounts receivable activity and variance from the operating budget, is also reviewed by the Finance Committee.

NMHC has developed a long-range financial plan (the “LRFP”) to support its strategic plan. Progress toward goals and objectives set forth in the LRFP receives periodic review by the Finance Committee, and the LRFP is periodically revised. The annual budget, including statements of operations, balance sheets, and key financial and operating indicators, supports the LRFP. The budget and supporting financial statements are reviewed in detail and approved by NMHC and each entity’s board. Before giving approval, the Health System’s hospitals’ boards evaluate proposed rate increases for their impact on the community’s cost of health care and the competitive standing of each hospital.

NMHC management conducts monthly analyses of its financial and operating performance, as well as periodic trend analyses of key ratios for liquidity, capital structure, asset performance and profitability. Additionally, peer group comparisons with local, regional and national competitors are conducted. Summaries of these analyses are reviewed with the Finance Committee on a regular basis.

Fiscal years ended August 31, 2017, and August 31, 2016 – NMHC and subsidiaries

Consolidated operating income for the fiscal year ended August 31, 2017 was $301.2 million, compared to $239.4 million for the prior year. This increase was due primarily to higher outpatient volumes partially offset by increased expenses. Operating margin for the fiscal year ended August 31, 2017 was 6.2 percent, compared to 5.5 percent for the prior year.

The consolidated excess of revenue over expenses for the year was $982.9 million compared to $718.9 million for the prior year. This increase was due primarily to higher investment return, increased operating income, and increased unrealized gain for the change in fair value of interest rate swaps partially offset by contribution of net assets related to two acquisitions in the prior year.

Equivalent admissions for the fiscal year ended August 31, 2017 of 208,204 increased by 12,468, or 6.4 percent, from the prior year. Inpatient admissions, excluding observation cases, of 88,810 increased by 4.5 percent from the prior year. The inpatient admission increase was due primarily to higher medical and surgical admissions. Observation cases decreased for the year ended August 31, 2017, by 4.1 percent, to 39,849, resulting in total patient days, including observations, of 432,705, which was 9.5 percent higher than the prior year.

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Total operating revenue for the fiscal year ended August 31, 2017 of $4,831.0 million exceeded the prior year by $471.1 million, or 10.8 percent. Net patient service revenue after provision for uncollectible accounts for the year was $4,547.4 million, an increase of $465.8 million or 11.4 percent.

Total expenses for the fiscal year ended August 31, 2017 of $4,529.8 million exceeded the prior year by $409.3 million or 9.9 percent. The increased salaries of $200.2 million reflect an ongoing initiative to expand the Health System’s primary care physician practices, resulting in a higher head count. Supplies expenses increased by $117.2 million or 15.4 percent, which is consistent with the increased net patient service revenue. Purchased services increased by $62.3 million as a result of a number of one-time projects that were undertaken in 2017.

The nonoperating gain of $681.7 million for the fiscal year ended August 31, 2017 was $202.2 million higher than the prior year’s $479.5 million. This increase was due primarily to a higher investment return of $499.6 million compared to the prior year, and an increase in the fair value of interest rate swaps of $37.5 million compared to a decrease in fair value of interest rate swaps in the prior year of $37.2 million, partially offset by contributions of unrestricted net assets from KishHealth and Marianjoy of $390.0 million in the prior year.

Earnings before interest, depreciation and amortization (“EBIDA”) was $1,314.8 million for the fiscal year ended August 31, 2017. Operating cash flow of $632.4 million increased $66.0 million or 11.7%. The related operating cash flow margin was 13.1 percent compared to 13.0 percent for the prior year.

LICENSES, ACCREDITATION, CERTIFICATIONS AND MEMBERSHIPS

All NMHC hospitals are fully licensed by the State of Illinois and are fully accredited by The Joint Commission (“TJC”), which has received deemed status from CMS to determine that Medicare participating hospitals meet or exceed CMS requirements.

NMHC hospitals hold numerous certifications, including TJC’s Ventricular Assist Device at NMH; TJC’s Advanced Comprehensive Stroke Center Certification at NMH and NM CDH; TJC’s Primary Stroke Certification at NM Delnor and NM LFH; TJC’s Stroke Rehabilitation Certification at MRH; and the first hospital in Illinois to have TJC’s Gold Seal of Approval® for Advanced Certification for Total Hip and Total Knee Replacement, NM Kishwaukee.

The Health System holds memberships in many organizations, including the American Hospital Association and the Illinois Hospital Association.

INSURANCE

Prior to 2002, NMH managed its professional and general liability exposures utilizing a trust (the “Self-insurance Trust”) established by NMH and administered by a bank (currently The Northern Trust Company) as corporate trustee. In September 2002, NMH formed Northwestern Memorial Insurance Company (“NMIC”), an offshore risk-financing vehicle, for purposes of funding professional and general liability losses of the organization. Effective March 1, 2017, ownership of all NMIC shares was transferred from NMH to NMHC to become better aligned with system-level functions, including clinical

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risk management, claim and litigation management, and corporate insurance management. NMIC is not a Member of the Obligated Group and has no liability with respect to the Series 2017 Bonds or Obligations issued under the Master Indenture.

NMIC issued initial coverage to NMH on October 1, 2002, which extends to claims made and arising from occurrences on or after that date. On November 1, 2004, NMH and NMFF established a joint insurance program under which the entities began sharing professional liability coverage, enabling the benefits of joint defense and eliminating coverage redundancies and associated costs. The NMIC program has subsequently been extended to all System entities as each became affiliated with NMHC. Aggregate coverage limits are shared among all NMIC insureds, serving to enhance risk management and risk financing activities across the Health System.

To preserve the financial integrity of NMIC, excess reinsurance coverage is maintained at levels deemed appropriate and that are available in the commercial reinsurance market. NMIC’s self-insured retention levels, as well as excess reinsurance, are, in the opinion of management, in compliance with the requirements of the Master Indenture. Further, NMIC is subject to the regulatory oversight of the Cayman Islands Monetary Authority (“CIMA”) including, but not limited to, compliance with investment restrictions, and minimum equity and surplus requirements.

The ongoing funding needs of both the Self-insurance Trust and of NMIC are determined and maintained at levels supported through annual reviews and analysis conducted by independent professional actuarial consultants. In accordance with CIMA requirements, NMIC seeks to maintain assets at a level needed to cover liabilities, including loss reserves, actuarially measured at a 75 percent confidence level. Actual funding of NMIC occurs through an arrangement under which the covered entities pay initial deposits equal to estimated annual fixed costs (i.e., NMIC operating expenses and reinsurance premiums) while additional funding is made, subject to maximum limitations, as needed to allow NMIC to reimburse insureds for losses paid, by those insureds, for claims made against them. NMHC maintains onshore reserves to fund these future payment obligations.

NMHC also operates a self-insurance program for workers’ compensation risks, as permitted under Illinois law. This program extends to all System entities with the exception of various physician groups and Lake Forest Health and Fitness Institute, for which traditional, commercially written workers’ compensation coverage is separately maintained for each. Specific excess liability coverage is maintained, in addition to self-insured retentions, at levels deemed appropriate and that are available in the commercial market. Funding for retained amounts is actuarially determined annually and is maintained in the Self-insurance Trust.

In addition to the coverages described above, NMHC maintains commercial insurance coverages with respect to its property and operations in amounts believed to be adequate to protect its property and operations, or as are customary for entities engaged in the same, or similar, activities and similarly situated.

LITIGATION AND INVESTIGATIONS

Members of the Obligated Group are named defendants in numerous professional malpractice and general liability lawsuits, and receive numerous claims of employment discrimination in the normal A-38

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course of its business. No litigation, investigations or proceedings are pending for which service of process or written notice has been received by a Member, or, to the knowledge of NMHC management, threatened against a Member except (i) litigation, proceedings or claims involving professional liability or general liability claims in which the probable ultimate recoveries and the estimated costs and expenses of defense, in the opinion of NMHC management, based upon consultation with its counsel and reports prepared by an independent actuarial firm, will be within applicable insurance and self-insurance limits, and (ii) litigation, investigations, proceedings or other types of claims that, in the opinion of NMHC management, based upon consultation with its counsel, will not have a material adverse effect on the Obligated Group’s operations, financial condition or cash flows.

CORPORATE COMPLIANCE AND INTEGRITY

NMHC has established the Office of Corporate Compliance and Integrity which supports the Health System in meeting its responsibility with regard to applicable laws, regulations, payor requirements and institutional policies. The compliance program’s goal is to maintain an organization that fosters and maintains the highest ethical standards among its personnel and those working within its facilities, including officers, directors, members of committees with board-delegated authority, employees, members of the medical staff, house staff, researchers, volunteers, students and contractors. The Office of Corporate Compliance and Integrity and the compliance program are designed and administered consistent with the elements and objectives of the Office of Inspector General’s (“OIG”) Compliance Program Guidance and the U.S. Federal Sentencing Guidelines.

The Office of Corporate Compliance and Integrity implements the NMHC Conflict of Interest Policy, which requires that all personnel, including any board members, disclose any actual or potential conflict of interest. Disclosed outside interests are reviewed by the Office of Corporate Compliance and Integrity, and if it is determined that a conflict exists, conflict management plans are put in place. Any board member with a financial interest in a transaction or arrangement discloses such interest to the applicable board and follows an appropriate conflict management plan, which may include abstaining from voting on such a matter.

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APPENDIX B

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION OF NORTHWESTERN MEMORIAL HEALTHCARE AND SUBSIDIARIES

FOR THE YEARS ENDED AUGUST 31, 2017 AND 2016

[THIS PAGE INTENTIONALLY LEFT BLANK] C ONSOLIDATED F INANCIAL S TATEMENTS AND S UPPLEMENTARY I NFORMATION

Northwestern Memorial HealthCare and Subsidiaries Years Ended August 31, 2017 and 2016 With Reports of Independent Auditors

Ernst & Young LLP Northwestern Memorial HealthCare and Subsidiaries

Consolidated Financial Statements and Supplementary Information

Years Ended August 31, 2017 and 2016

Contents

Report of Independent Auditors...... 1

Consolidated Financial Statements

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

Supplementary Information

Report of Independent Auditors on Supplementary Information ...... 59 Consolidating Balance Sheet ...... 60 Consolidating Statement of Revenues and Expenses ...... 62 Note to the Supplementary Information ...... 63

1710-2430046 Ernst & Young LLP Tel: +1 312 879 2000 155 North Wacker Drive Fax: +1 312 879 4000 Chicago, IL 60606-1787 ey.com

Report of Independent Auditors

The Board of Directors Northwestern Memorial HealthCare

We have audited the accompanying consolidated financial statements of Northwestern Memorial HealthCare and Subsidiaries which comprise the consolidated balance sheets as of August 31, 2017 and 2016, and the related consolidated statements of operations and changes in net assets and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

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

Auditor’s Responsibility

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

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

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

1710-2430046

A member firm of Ernst & Young Global Limited 1

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Northwestern Memorial HealthCare and Subsidiaries at August 31, 2017 and 2016, and the consolidated results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. November 30, 2017

1710-2430046 2 A member firm of Ernst & Young Global Limited Northwestern Memorial HealthCare and Subsidiaries

Consolidated Balance Sheets (In Thousands)

August 31 2017 2016 Assets Current assets: Cash and cash equivalents $ 258,463 $ 218,163 Short-term investments 30,685 10,474 Current portion of investments, including assets limited as to use 136,352 296,029 Patient accounts receivable, net of estimated allowances for uncollectible accounts of $223,411 and $174,234 in 2017 and 2016, respectively 716,277 599,772 Current portion of pledges and grants receivable, net 24,561 20,121 Current portion of insurance recoverable 14,186 11,716 Inventories 64,443 60,338 Other current assets 154,752 139,159 Total current assets 1,399,719 1,355,772

Investments, including assets limited as to use, less current portion 5,490,526 4,843,924

Property and equipment, at cost: Land 347,036 348,841 Buildings 3,465,273 3,339,542 Equipment and furniture 1,166,884 1,017,617 Construction in progress 539,340 349,738 5,518,533 5,055,738 Less accumulated depreciation 2,059,946 1,821,853 3,458,587 3,233,885

Prepaid pension cost 118,562 43,488 Insurance recoverable, less current portion 69,706 64,339 Other assets, net 189,222 170,778 Total assets $ 10,726,322 $ 9,712,186

3 1710-2430046 August 31 2017 2016 Liabilities and net assets Current liabilities: Accounts payable $ 230,588 $ 237,282 Accrued salaries and benefits 314,163 304,521 Grants and academic support payable, current portion 38,753 50,753 Accrued expenses and other current liabilities 115,254 164,279 Due to third-party payors 434,965 406,123 Current accrued liabilities under self-insurance programs 94,256 89,789 Current maturities of long-term debt 30,239 29,565 Short-term debt 87,299 – Long-term debt subject to short-term remarketing agreements – 318,795 Total current liabilities 1,345,517 1,601,107

Long-term debt, net, less current maturities 1,324,776 1,077,180 Accrued liabilities under self-insurance programs, less current portion 495,709 495,352 Grants and academic support payable, less current portion 79,469 98,937 Interest rate swaps 112,586 150,107 Other liabilities 143,428 139,910 Total liabilities 3,501,485 3,562,593

Net assets: Unrestricted: Undesignated 6,602,984 5,556,407 Board-designated 229,455 221,750 Noncontrolling interest in consolidated venture (3,599) (2,244) Total unrestricted 6,828,840 5,775,913 Temporarily restricted 220,917 211,769 Permanently restricted 175,080 161,911 Total net assets 7,224,837 6,149,593 Total liabilities and net assets $ 10,726,322 $ 9,712,186

See accompanying notes to consolidated financial statements.

1710-2430046 4 Northwestern Memorial HealthCare and Subsidiaries

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

Year Ended August 31 2017 2016 Revenue Net patient service revenue $ 4,749,433 $ 4,236,441 Provision for uncollectible accounts 202,047 154,860 Net patient service revenue after provision for uncollectible accounts 4,547,386 4,081,581 Rental and other revenue 256,362 251,852 Net assets released from donor restrictions and federal and state grants 27,248 26,440 Total revenue 4,830,996 4,359,873

Expenses Salaries 1,969,531 1,769,381 Employee benefits 297,842 296,776 Supplies 877,030 759,795 Purchased services 538,642 476,344 Depreciation and amortization 287,149 273,778 Insurance 104,578 108,793 Rent and utilities 91,307 83,612 Repairs and maintenance 88,331 87,377 Interest 44,106 53,243 Illinois Hospital Assessment 103,362 84,484 Other 127,949 126,919 Total expenses 4,529,827 4,120,502 Operating income 301,169 239,371

Nonoperating gains (losses) Investment return 655,269 155,708 Change in fair value of interest rate swaps 37,521 (37,212) Contribution of KishHealth unrestricted net assets – 347,003 Contribution of Marianjoy unrestricted net assets – 42,964 Loss on extinguishment of long-term debt (216) (4,030) Grants and academic support provided (20,172) (26,748) Other 9,291 1,792 Total nonoperating gains, net 681,693 479,477 Excess of revenue over expenses 982,862 718,848 Net (loss) gain attributable to noncontrolling interest in subsidiaries (703) 698 Excess of revenue over expenses attributable to NMHC and subsidiaries 983,565 718,150

1710-2430046 5 Northwestern Memorial HealthCare and Subsidiaries

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

Year Ended August 31 2017 2016 Total Controlling Noncontrolling Total Controlling Noncontrolling Unrestricted net assets Excess (deficiency) of revenue over expenses $ 982,862 $ 983,565 $ (703) $ 718,848 $ 718,150 $ 698 Net assets released from restrictions used for property and equipment additions 6,279 6,279 – 15,858 15,858 – Postretirement benefit-related changes other than net periodic pension cost 64,884 64,884 – (81,400) (81,400) – Initial value of noncontrolling interests in acquired companies –––1,141 – 1,141 Distribution to noncontrolling interest (785) – (785) (1,787) – (1,787) Other (313) (446) 133 407 1,132 (725) Increase (decrease) in unrestricted net assets 1,052,927 1,054,282 (1,355) 653,067 653,740 (673) Temporarily restricted net assets Contributions 44,892 44,892 – 39,411 39,411 – Investment return 14,051 14,051 – 12,585 12,585 – Net assets released from restrictions used for: Operating expenses, charity care, and research and education (34,859) (34,859) – (28,873) (28,873) – Property and equipment additions (6,279) (6,279) – (15,858) (15,858) – Change in fair value of split-interest agreements 147 147 – 261 261 – Contribution of KishHealth restricted net assets –––788 788 – Contribution of Marianjoy restricted net assets –––3,365 3,365 – Other (8,804) (8,804) – (1,339) (1,339) – Increase in temporarily restricted net assets 9,148 9,148 – 10,340 10,340 – Permanently restricted net assets Contributions 5,609 5,609 – 1,330 1,330 – Change in fair value of split-interest agreements 775 775 – (778) (778) – Contribution of KishHealth restricted net assets –––601 601 – Other 6,785 6,785 – (17) (17) – Increase in permanently restricted net assets 13,169 13,169 – 1,136 1,136 – Change in total net assets 1,075,244 1,076,599 (1,355) 664,543 665,216 (673) Net assets, beginning of year 6,149,593 6,151,837 (2,244) 5,485,050 5,486,621 (1,571) Net assets, end of year $ 7,224,837 $ 7,228,436 $ (3,599) $ 6,149,593 $ 6,151,837 $ (2,244) See accompanying notes to consolidated financial statements.

1710-2430046 6 Northwestern Memorial HealthCare and Subsidiaries

Consolidated Statements of Cash Flows (In Thousands)

Year Ended August 31 2017 2016 Operating activities Change in net assets $ 1,075,244 $ 664,543 Adjustments to reconcile change in net assets to net cash provided by operating activities: Postretirement benefit-related changes other than net periodic pension cost (64,884) 81,400 Change in fair value of interest rate swaps (37,521) 37,212 Loss on extinguishment of long-term debt 216 4,030 Net investment return and net change in unrealized investment gains (657,573) (156,791) Restricted contributions, change in fair value of split-interest agreements, and realized investment return (63,170) (51,848) Contribution of KishHealth net assets less noncontrolling interest – (349,533) Contribution of Marianjoy net assets – (46,329) Depreciation and amortization 287,149 273,778 Provision for uncollectible accounts 202,047 154,860 Changes in operating assets and liabilities: Patient accounts receivable (318,552) (217,814) Due to third-party payors 29,161 8,169 Grants and academic support payable (31,468) (50,753) Other operating assets and liabilities (38,764) 38,494 Net cash provided by operating activities 381,885 389,418

Investing activities Purchases of trading securities (2,501,222) (1,653,436) Sales of trading securities 2,456,759 1,595,003 Cash received from contribution of KishHealth – 40,535 Cash paid for Marianjoy – (35,412) Net unrestricted realized investment return 194,902 63,123 Capital expenditures, net (512,804) (461,614) Net cash used in investing activities (362,365) (451,801)

Financing activities Proceeds from line of credit 45,000 59,750 Proceeds from commercial paper 87,299 – Proceeds from issuance of long-term debt – 80 Payments of line of credit (104,750) – Payments of long-term debt (69,939) (89,445) Restricted contributions, change in fair value of split-interest agreements, and realized investment return 63,170 51,848 Net cash provided by financing activities 20,780 22,233

Net increase (dcrease) in cash and cash equivalents 40,300 (40,150) Cash and cash equivalents, beginning of year 218,163 258,313 Cash and cash equivalents, end of year $ 258,463 $ 218,163

See accompanying notes to consolidated financial statements.

1710-2430046 7 Northwestern Memorial HealthCare and Subsidiaries

Notes to Consolidated Financial Statements (In Thousands)

As of and for the Years Ended August 31, 2017 and 2016

1. Organization and Summary of Significant Accounting Policies

Northwestern Memorial HealthCare (NMHC) is the parent of an integrated nonprofit health care organization, anchored by Northwestern Memorial Hospital (NMH) and Northwestern Medical Group (NMG), that provides health care services to communities in northern Illinois. NMHC partners with Northwestern University’s Feinberg School of Medicine (FSM) to form an academic medical center, branded as Northwestern Medicine, that is shaping the future of medicine through outstanding patient care, research and training of resident physicians.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of NMHC and its subsidiaries (collectively referred to herein as Northwestern Memorial). All significant intercompany transactions and balances have been eliminated in consolidation.

Charity Care and Community Benefit

Northwestern Memorial provides care to patients regardless of their ability to pay. Northwestern Memorial developed a Free and Discounted Care Policy (the Policy) for both the uninsured and the underinsured. Under the Policy, patients are offered discounts of up to 100% of charges on a sliding scale, which is based on income as a percentage of the federal poverty level guidelines (up to 600%). The Policy also contains provisions that are responsive to those patients subject to catastrophic health care expenses and uninsured patients not covered by the provisions above. Since Northwestern Memorial does not pursue collection of these amounts, they are not reported as Net patient service revenue, and the cost of providing such care is recognized within operating expenses.

Northwestern Memorial estimates the direct and indirect costs of providing charity care by applying a cost to gross charges ratio to the gross uncompensated charges associated with providing charity care to patients. The cost of providing charity care was $61,258 and $59,643 for the years ended August 31, 2017 and 2016, respectively. Northwestern Memorial also received certain funds of $342 and $437 for the years ended August 31, 2017 and 2016, respectively, to offset or subsidize charity care services provided. These funds are primarily received from investment return on free care endowment funds. In the Annual Non Profit Hospital Community Benefits Plan Report filed with the Illinois Attorney General for the year ended August 31, 2016, Northwestern Memorial reported total community benefit of $747,373 (unaudited), including

1710-2430046 8 Northwestern Memorial HealthCare and Subsidiaries

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

1. Organization and Summary of Significant Accounting Policies (continued) unreimbursed cost of charity care of $80,459 (unaudited), which is calculated using a different methodology than that used for the consolidated financial statements. Management is currently collecting the information needed to file the 2017 report; however, it does not expect a material change from prior year.

Use of Estimates

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

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid short-term investments with maturities of 90 days or less from the date of purchase.

Patient Accounts Receivable

Patient accounts receivable are stated at net realizable value. Northwestern Memorial maintains allowances for uncollectible accounts and for estimated losses resulting from a payor’s inability to make payments on accounts. Northwestern Memorial estimates the allowance for uncollectible accounts based on management’s assessment of historical and expected net collections, considering historical and current business and economic conditions, trends in health care coverage, and other collection indicators. Patient accounts receivable are charged to the provision for uncollectible accounts when they are deemed uncollectible.

Assets Limited as to Use

Assets limited as to use consist primarily of investments designated for certain medical education and health care programs. The particular Northwestern Memorial corporation that controls these investments makes such designations and may, at its discretion, subsequently use them for other purposes. In addition, assets limited as to use include investments held by trustees under debt agreements and for self-insurance and collateral related to interest rate swaps.

1710-2430046 9 Northwestern Memorial HealthCare and Subsidiaries

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

1. Organization and Summary of Significant Accounting Policies (continued)

Investments

Investments in equity securities with readily determinable fair values and all investments in debt securities are reported at fair value based on quoted market prices. Unless in pension plan assets, alternative investments are reported using the equity method. Alternative investments can include common collective trusts, commingled funds, 103-12 entities and other limited partnership interests in hedge funds, private equity, venture capital and real estate funds. Alternative investments in the pension plan are reported at fair value based on net asset value (NAV) per share or equivalent.

Derivative Instruments

Derivative instruments, specifically interest rate swaps, are recorded in the accompanying consolidated balance sheets at fair value. The change in the fair value of derivative instruments is recorded in Nonoperating gains (losses).

Inventories

Inventories, consisting primarily of pharmaceuticals and other medical supplies, are stated at the lower of cost on the first-in, first-out method or fair value.

Property and Equipment

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Generally, buildings and building service equipment have a composite life of approximately 40 years and equipment and furniture have useful lives of 3-20 years. Interest incurred on borrowed funds during the period of construction of capital assets is capitalized as a component of the cost of acquiring those assets.

Other Intangible Assets

Intangible assets are stated at fair value at time of purchase and are amortized using the straight-line method over the estimated life based on terms of the underlying agreement giving rise to the intangible.

1710-2430046 10 Northwestern Memorial HealthCare and Subsidiaries

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

1. Organization and Summary of Significant Accounting Policies (continued)

Asset Impairment

Northwestern Memorial considers whether indicators of impairment are present and performs the necessary tests to determine if the carrying value of an asset is appropriate. Impairment write-downs are recognized in operating income at the time the impairment is identified. There were no impairments of long-lived assets in 2017 or 2016.

Deferred Charges

Deferred finance charges and bond discounts or premiums are amortized or accreted using the effective interest method or the bonds outstanding method, which approximates the effective interest method, over the life of the related debt.

Net Assets

Resources are classified for reporting purposes as unrestricted, temporarily restricted and permanently restricted, according to the absence or existence of donor-imposed restrictions. In addition, unrestricted net assets are further classified as general unrestricted or board-designated unrestricted. Board-designated net assets are unrestricted net assets that have been set aside by the Board for specific purposes. Temporarily restricted net assets are those assets, including contributions and accumulated investment returns, whose use has been limited by donors for a specific purpose or time period. Permanently restricted net assets are those for which donors require the principal of the gifts to be maintained in perpetuity to provide a permanent source of income.

Any changes in donor restrictions that change the net asset category of previously recorded contributions are recorded as other in the accompanying consolidated statements of operations and changes in net assets in the period communicated by the donor.

1710-2430046 11 Northwestern Memorial HealthCare and Subsidiaries

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

1. Organization and Summary of Significant Accounting Policies (continued)

Net Patient Service Revenue

Northwestern Memorial has agreements with third-party payors that provide for payments to Northwestern Memorial at amounts different from its established rates. Payment arrangements include prospectively determined rates per admission or visit, reimbursed costs, discounted charges and per diem rates. Net patient service revenue is reported at the estimated net amount due from patients and third-party payors for services rendered, including estimated adjustments under reimbursement agreements with third-party payors, certain of which are subject to audit by administering agencies. These adjustments are accrued on an estimated basis and are adjusted, as needed, in future periods.

Contributions

Unrestricted gifts, other than long-lived assets, are included within Other in Nonoperating gains (losses) in the accompanying consolidated statements of operations and changes in net assets. Unrestricted gifts of long-lived assets, such as land, buildings or equipment, are recorded at fair value as an increase in unrestricted net assets. Contributions are reported as either temporarily or permanently restricted net assets if they are received with donor restrictions. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, Temporarily restricted net assets are reclassified as unrestricted net assets and reported in the accompanying consolidated statements of operations and changes in net assets as net assets released from restrictions.

Unconditional promises to give cash or other assets are reported as pledges receivable and contributions within the appropriate net asset category. An allowance for uncollectible pledges receivable is estimated based on historical experience and other collection indicators. Pledges receivable with payment terms extending beyond one year are discounted using market rates of return reflecting the terms and credit of the pledges at the time a pledge is made.

Northwestern Memorial is a beneficiary of several split-interest agreements, primarily perpetual trusts held by others, and recognizes its interest in these perpetual trusts as temporarily or permanently restricted net assets based on its percentage of the fair value of the trusts’ assets.

1710-2430046 12 Northwestern Memorial HealthCare and Subsidiaries

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

1. Organization and Summary of Significant Accounting Policies (continued)

Nonoperating Gains (Losses)

Nonoperating gains (losses) consist primarily of investment returns (including realized and unrealized gains and losses, changes in Northwestern Memorial’s equity interest in alternative investments, interest and dividends), contributions of unrestricted net assets in excess of consideration paid (where applicable), unrestricted contributions received, grants and academic support provided to external organizations, net assets released from restrictions and used for grants and academic support, changes in fair value of interest rate swaps and loss on extinguishment of debt.

Excess of Revenue Over Expenses

The accompanying consolidated statements of operations and changes in net assets include the Excess of revenue over expenses. Changes in unrestricted net assets, which are excluded from the Excess of revenue over expenses, consist primarily of contributions of long-lived assets (including assets acquired using contributions, which, by donor restriction, are to be used for the purposes of acquiring such assets), transfers between net asset categories based on changes in donor restrictions and Postretirement benefit-related changes other than net periodic pension cost.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 converged and replaced existing revenue recognition guidance, including industry specific guidance, and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should disclose sufficient information to enable the financial statement users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14, which defers the effective date to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. This ASU allows two alternative methods for application, either retrospectively to each reporting period presented or a modified retrospective approach with a cumulative effect adjustment to net assets at the date of initial application. Northwestern Memorial expects to use the modified retrospective

1710-2430046 13 Northwestern Memorial HealthCare and Subsidiaries

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

1. Organization and Summary of Significant Accounting Policies (continued) approach. Northwestern Memorial expects substantially all of its current provision for uncollectible accounts to qualify as a price concession under the new guidance and therefore be netted along with charity care and contractual discounts in Net patient service revenue. Northwestern Memorial expects expanded disclosures to also be made. Northwestern Memorial is currently evaluating the additional impacts this guidance will have on its consolidated financial statements.

In May 2015, the FASB issued new guidance on short-duration insurance contracts ASU 2015-09, Financial Services – Insurance (Topic 944): Disclosures about Short-Duration Contracts). The amendments in this new guidance are effective for annual periods beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2017. The new guidance should be applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. The new guidance requires insurance entities to provide users of financial statements with more transparent information about initial claim estimates and subsequent adjustments to these estimates, including reconciling from the claim development table to the balance sheet liability; methodologies and judgments in estimating claims; and the timing, and frequency of claims. Northwestern Memorial is currently evaluating the impact of this guidance on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will require lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to existing accounting standards. This guidance also eliminates current real estate- specific provisions for all entities. This new guidance is effective for Northwestern Memorial for the fiscal years and interim periods within those fiscal years beginning after December 15, 2018, with early adoption permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited. Northwestern Memorial is currently evaluating the effect this guidance will have on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. ASU 2016-14 will change certain financial statement requirements for not-for-profit (NFP) entities in the scope of Topic 958 in an effort to make the information more meaningful to users and make reporting less complex. NFP entities will no longer be required to distinguish between resources with temporary and permanent restrictions on the face of the financial statements. Additionally, NFP entities will be required to

1710-2430046 14 Northwestern Memorial HealthCare and Subsidiaries

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

1. Organization and Summary of Significant Accounting Policies (continued) present expenses by their natural and functional classification and present investment returns net of external and direct internal investment expenses. This new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. This guidance is to be applied retrospectively and early adoption is permitted. Northwestern Memorial is currently evaluating the effect this guidance will have on its consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07), which changes the presentation of periodic benefit cost components. Under ASU 2017-07, present service costs will continue to be presented within operating expenses but present amortization of prior service credits and other components of our net periodic benefit cost in Nonoperating gains (losses) in the consolidated statements of operation. ASU 2017-07 is effective for annual reporting periods beginning after December 15, 2017. Northwestern Memorial is currently evaluating the impact of this guidance on its consolidated financial statements.

2. Reclassifications

Certain reclassifications have been made to the 2016 consolidated financial statement disclosures to conform with classifications used in 2017. The reclassifications had no effect on total assets, total liabilities, total revenue or total revenue in excess of expenses previously reported.

3. Acquisitions

Affiliation With KishHealth

On December 1, 2015, KishHealth System (KishHealth) became a wholly owned subsidiary of NMHC pursuant to an affiliation agreement between NMHC and KishHealth. This affiliation positions Northwestern Memorial, under the Northwestern Medicine brand, to expand its integrated academic health delivery system to DeKalb County, offering patients access to leading- edge care closer to where they live and work.

1710-2430046 15 Northwestern Memorial HealthCare and Subsidiaries

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

3. Acquisitions (continued)

The affiliation was effected through a membership substitution with no consideration paid. For accounting purposes, this transaction is considered an acquisition under Accounting Standards Codification Topic (ASC) 958-805, Not-for-Profit Entities: Business Combinations, and a contribution was recorded for the fair value of assets, net of liabilities of KishHealth. No goodwill has been recorded as a result of this transaction.

The acquisition-date fair value of identifiable assets and liabilities of KishHealth at December 1, 2015, consisted of the following:

Fair value of identifiable net assets: Cash and cash equivalents $ 40,535 Other current assets 210,407 Property and equipment 166,399 Other long-term assets 83,812 Current liabilities (66,218) Long-term debt (74,025) Other long-term liabilities (11,377) Non-controlling interest in unrestricted net assets (1,141) Temporarily restricted net assets (788) Permanently restricted net assets (601) Contribution of unrestricted net assets $ 347,003

The valuation of property and equipment; other current and long-term assets, including identifiable intangible assets and current and long-term liabilities has been completed. In valuing these assets and liabilities, fair values were based on, but not limited to, independent appraisals, discounted cash flows, replacement costs and actuarially determined values.

Operating expenses for the year ended August 31, 2016, include costs related to the integration of KishHealth into Northwestern Memorial, including transition costs of benefit plans, incentive plans and operating programs with other health practitioners, as well as costs of valuation and integration consulting.

1710-2430046 16 Northwestern Memorial HealthCare and Subsidiaries

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

3. Acquisitions (continued)

Affiliation Agreement With Marianjoy

On March 1, 2016, Marianjoy, Inc. (Marianjoy) became a wholly owned subsidiary of NMHC pursuant to a Member Substitution Agreement and Real Estate Purchase Agreement (collectively, the acquisition) between NMHC and Marianjoy’s corporate parent, Wheaton Franciscan Services, Inc. (WFSI). This acquisition expands the offerings of Northwestern Memorial, under the Northwestern Medicine brand, to include physical medicine and rehabilitation care in DuPage County and surrounding areas.

Under these agreements, NMHC transferred $35,412 to WFSI in exchange for Marianjoy’s unrestricted net assets at the time of closing less Marianjoy’s debt and cash, which were not acquired, and land purchased from WFSI. For accounting purposes, this transaction is considered an acquisition under ASC 958-805.

The acquisition-date fair value of identifiable assets and liabilities of Marianjoy at March 1, 2016, consisted of the following:

Fair value of identifiable net assets: Other current assets $ 13,385 Property and equipment 68,996 Other long-term assets 3,921 Current liabilities (4,561) Temporarily restricted net assets (3,365) 78,376 Less consideration paid (35,412) Contribution of unrestricted net assets $ 42,964

The valuation of property and equipment, other current and long-term assets, including identifiable intangible assets, current and long-term liabilities and noncontrolling interest has been completed. In valuing these assets and liabilities acquired, fair values were based on, but not limited to, independent appraisals, discounted cash flows, replacement costs and actuarially determined values.

1710-2430046 17 Northwestern Memorial HealthCare and Subsidiaries

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

3. Acquisitions (continued)

Operating expenses for the year ended August 31, 2016, include costs related to the integration of Marianjoy into Northwestern Memorial, including transition costs of benefit plans, incentive plans and operating programs with other health practitioners, as well as costs of valuation and integration consulting.

The following are the operating results and changes in net assets attributable to KishHealth and Marianjoy since the dates of acquisition included in the accompanying consolidated statement of operations and changes in net assets for the year ended August 31, 2017:

Total operating revenue $ 375,624 Excess of revenue over expenses 37,410 Change in unrestricted net assets 43,521 Change in temporarily restricted net assets (126)

The following are the unaudited supplemental pro forma operating results of Northwestern Memorial as if the KishHealth and Marianjoy affiliations had occurred on September 1, 2015:

Year Ended August 31, 2016

Total operating revenue $ 4,470,588 Operating income 244,997 Excess of revenue over expenses attributable to NMHC and subsidiaries 329,608

The pro forma information provided should not be construed to be indicative of Northwestern Memorial’s results of operations had the acquisitions been consummated on September 1, 2015, and is not intended to project Northwestern Memorial’s results of operations for any future period.

1710-2430046 18 Northwestern Memorial HealthCare and Subsidiaries

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

4. Investments and Other Financial Instruments

The composition of investments, including assets limited as to use, and cash and cash equivalents and short-term investments, at August 31 is as follows:

2017 2016 Measured at fair value: Cash and short-term investments $ 321,507 $ 351,099 Mutual funds 228,599 415,364 Corporate bonds 312,980 143,740 U.S. government and agency issues 268,858 264,074 Equity securities 220,543 234,344 Other fixed income 13,393 202 1,365,880 1,408,823 Investments using net asset value as practical expedient: Common collective trusts and commingled funds 685,948 703,072 Interest in 103-12 investment entities 291,304 232,998 977,252 936,070 Accounted for under the equity method: Alternative investments 3,572,894 3,023,697 $ 5,916,026 $ 5,368,590

Investments, including assets limited as to use, and cash and cash equivalents and short-term investments, consist of the following at August 31:

2017 2016 Assets limited as to use: Trustee-held funds $ 67,082 $ 90,473 Self-insurance programs 579,780 572,661 Board-designated funds 181,417 176,268 Total assets limited as to use 828,279 839,402 Donor-restricted funds 337,025 319,544 Unrestricted, undesignated funds 4,461,574 3,981,007 Total investments, excluding short-term investments 5,626,878 5,139,953 Other financial instruments: Cash and cash equivalents and short-term investments 289,148 228,637 $ 5,916,026 $ 5,368,590

1710-2430046 19 Northwestern Memorial HealthCare and Subsidiaries

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

4. Investments and Other Financial Instruments (continued)

The composition and presentation of investment returns are as follows for the years ended August 31:

2017 2016

Interest and dividend income $ 25,135 $ 39,222 Investment expenses (5,613) (4,516) Realized gains on alternative investments, net 123,759 34,924 Realized gains on other investments, net 62,870 4,565 Net change in unrealized gains on alternative investments 348,167 18,886 Net increase in unrealized gains on other investments 115,062 76,705 Change in value of joint ventures 497 428 $ 669,877 $ 170,214 Reported as: Rental and other revenue $ 557 $ 1,921 Nonoperating investment return 655,269 155,708 Temporarily restricted – investment return 14,051 12,585 $ 669,877 $ 170,214

Northwestern Memorial’s investments measured at fair value include mutual funds; common equities; corporate and U.S. government debt issues; state, municipal and foreign government debt issues; commingled funds; common collective trusts and 103-12 entities.

Commingled investments, common collective trusts and 103-12 entities are commingled funds formed from the pooling of investments under common management. Unlike a mutual fund, these investments are not registered investment companies; therefore, are exempt from registering with the Securities and Exchange Commission.

The investment strategy for the mutual funds, commingled funds, common collective trusts and 103-12 entities involves maximizing the overall long-term return by investing in a wide variety of assets, including domestic large cap equities, domestic small cap equities, international developed equities, blended equities (i.e., a mix of domestic and international equities), natural resources and private investment limited partnerships (LPs).

1710-2430046 20 Northwestern Memorial HealthCare and Subsidiaries

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

4. Investments and Other Financial Instruments (continued)

Northwestern Memorial’s non-pension plan investments measured under the equity method of accounting include absolute return hedge funds, equity long/short hedge funds, real estate, natural resources and LPs, collectively referred to as alternative investments. Alternative investments in the pension plan assets are measured at fair value.

Absolute return hedge funds include funds with the ability to opportunistically allocate capital among several strategies. Generally, these funds diversify across strategies in an effort to deliver consistently positive returns regardless of the movement within global markets, exhibit relatively low volatility and are redeemable quarterly with a 60-day notice period. Equity long/short hedge funds include hedge funds that invest both long and short in U.S. and international equities. These funds typically focus on diversifying or hedging across particular sectors, regions, or market capitalizations and are generally redeemable quarterly with a 60-day notice period. Absolute return and equity long/short managers are redeemable quarterly or annually with a 45- to 90-day notice period.

Real estate includes LPs that invest in land and buildings and seek to improve property level operations by increasing lease rates, recapitalizing properties, rehabilitating aging/distressed properties and repositioning properties to maximize revenues. Real estate LPs typically use moderate leverage. Natural resources include a diverse set of LPs that invest in oil and natural gas- related companies, commodity-oriented companies and timberland. Private equity includes LPs formed to make equity and debt investments in operating companies that are not publicly traded. These LPs typically seek to influence decision-making within the operating companies. Investment strategies in this category may include venture capital, buyouts and distressed debt. These three categories of investments cannot be redeemed with the funds. Distributions from each fund will be received as the underlying assets of the fund are expected to be liquidated periodically over the lives of the LPs, which generally run 10 to 12 years.

Because of the timing of the preparation and delivery of financial statements for limited partnership investments, the use of the most recently available financial statements provided by the general partners results in a two month delay in the inclusion of the limited partnership results in Northwestern Memorial’s consolidated statements of operations and changes in net assets due to results recorded based on June 30 investment statements. Due to this delay, these consolidated financial statements do not yet reflect the market conditions experienced in the last two months of the fourth quarter of fiscal 2017 or 2016 for the limited partnership investments.

1710-2430046 21 Northwestern Memorial HealthCare and Subsidiaries

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

4. Investments and Other Financial Instruments (continued)

As of August 31, 2017, $2,732,171 of alternative investments are subject to various redemption limits and lockup provisions, of which $2,172,743 expires within one year and $559,428 expires after one year from the balance sheet date.

At August 31, 2017, Northwestern Memorial had commitments to fund approximately an additional $945,000 to alternative investment entities, which is expected to occur over the next 12 years.

5. Fair Value Measurements

Northwestern Memorial follows the requirements of ASC 820, Fair Value Measurements,in regard to measuring the fair value of certain assets and liabilities, as well as disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received for an asset or paid for a transfer of a liability in an orderly transaction on the measurement date.

The methodologies used to determine fair value of assets and liabilities reflect market participant objectives and are based on the applications of a three-level valuation hierarchy that prioritizes observable market inputs over unobservable inputs. The three levels are defined as follows:

• Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2 – Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Examples of Level 2 inputs are quoted prices for similar assets or liabilities in inactive markets or pricing models with inputs that are observable for substantially the full term of the asset or liability.

• Level 3 – Inputs to the valuation methodology are significant to the fair value of the asset or the liability and less observable. These inputs reflect the assumptions market participants would use in the estimation of the fair value of the asset or the liability.

1710-2430046 22 Northwestern Memorial HealthCare and Subsidiaries

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

5. Fair Value Measurements (continued)

Fair Values

A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following table presents the financial instruments measured at fair value on a recurring basis as of August 31, 2017:

Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 258,463 $ – $ – $ 258,463

Investments: Short-term investments: Currency 27 ––27 Fixed income 30,658 ––30,658 Total short-term investments 30,685 ––30,685

Mutual funds: Fixed income 98,130 ––98,130 U.S. equities 130,469 ––130,469 Total mutual funds 228,599 ––228,599 Other fixed income – 13,393 – 13,393 Bonds: Corporate bonds – 312,980 – 312,980 U.S. government and agencies’ issues – 268,858 – 268,858 Total bonds – 581,838 – 581,838

Equity securities 220,037 506 – 220,543 Cash equivalents in investment accounts 32,359 ––32,359 Total investments 511,680 595,737 – 1,107,417 Beneficial interests in trusts – 14,203 – 14,203 Total assets measured on a recurring basis at fair value $ 770,143 609,940 $ – 1,380,083

Investments recorded at fair value based on NAV 977,252 Total assets measured at fair value $ 2,357,335

Liabilities Interest rate swaps $ – $ 112,586 $ – $ 112,586

1710-2430046 23 Northwestern Memorial HealthCare and Subsidiaries

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

5. Fair Value Measurements (continued)

The following table presents the financial instruments measured at fair value on a recurring basis as of August 31, 2016:

Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 218,163 $ – $ – $ 218,163

Investments: Short-term investments: Currency 27 – – 27 Fixed income 10,447 – – 10,447 Total short-term investments 10,474 – – 10,474

Mutual funds: Fixed income 212,714 – – 212,714 International equities 9,431 – – 9,431 U.S. equities 193,219 – – 193,219 Total mutual funds 415,364 – – 415,364 Other fixed income – 202 – 202 Bonds: Corporate bonds – 143,740 – 143,740 U.S. government and agencies’ issues – 264,074 – 264,074 Total bonds – 407,814 – 407,814

Equity securities 233,927 417 – 234,344 Cash equivalents in investment accounts 122,462 – – 122,462 Total investments 782,227 408,433 – 1,190,660 Beneficial interests in trusts – 13,181 – 13,181 Total assets measured on a recurring basis at fair value $ 1,000,390 $ 421,614 $ – 1,422,004

Investments recorded at fair value based on NAV 936,070 Total assets measured at fair value $ 2,358,074

Liabilities Interest rate swaps $ – $ 150,107 $ – $ 150,107

1710-2430046 24 Northwestern Memorial HealthCare and Subsidiaries

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

5. Fair Value Measurements (continued)

There were no transfers into or out of Level 1 or Level 2 during the years ended August 31, 2017 or 2016.

Reconciliation to the Consolidated Balance Sheets

A reconciliation of the fair value of the assets to the consolidated balance sheets at August 31 is as follows:

2017 2016

Short-term investments measured at fair value $ 30,685 $ 10,474 Investments, including assets limited as to use measured at fair value 2,053,984 2,116,256 Total investments at fair value 2,084,669 2,126,730 Alternative investments accounted for under equity method included in investments, including assets limited as to use 3,572,894 3,023,697 Total investments $ 5,657,563 $ 5,150,427

Other long-term assets: Beneficial interests in trusts at fair value $ 14,203 $ 13,181 Other long-term assets, net 175,018 157,597 Total other long-term assets, net $ 189,221 $ 170,778

Valuation Techniques and Inputs

Beneficial Interests in Trusts

The fair value of beneficial interests in trusts is based on Northwestern Memorial Foundation’s (the Foundation) percentage of the fair value of the trusts’ assets adjusted for any outstanding liabilities (discounted using a rate per Internal Revenue Service (IRS) regulations), based on each trust arrangement.

1710-2430046 25 Northwestern Memorial HealthCare and Subsidiaries

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

5. Fair Value Measurements (continued)

Interest Rate Swaps

The fair value of interest rate swaps is based on generally accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative and quoted prices from dealer counterparties and other independent market sources. The valuation incorporates observable interest rates and yield curves for the full term of the swaps. The valuation is also adjusted to incorporate nonperformance risk for Northwestern Memorial or the respective counterparty. The adjustment is based on the credit spread for entities with similar credit characteristics as Northwestern Memorial or market-related data for the respective counterparty. Northwestern Memorial pays various fixed rates and receives cash flows based on rates equal to a percentage of the London Interbank Offered Rate (LIBOR) plus a spread for certain interest rate swaps.

Investments

The fair value of Level 1 investments, which consist of equity securities and mutual funds, is based on quoted market prices that are valued on a daily basis. Level 2 investments consist of U.S. government securities, corporate bonds, commingled funds, common collective trusts, interest in 103-12 entities and fixed income instruments issued by municipalities and foreign government agencies. The fair value of the U.S. government and agency securities and corporate bonds is established based on values obtained from nationally recognized pricing services that value the investments based on similar securities and matrix pricing of similar quality and maturity securities. The fair values of commingled funds, common collective trusts and 103-12 entities are based on either the fair value of the underlying investments of the fund, as determined by the fund, or on the ownership interest in the NAV per share or its equivalent, of the respective fund.

Northwestern Memorial’s investments are exposed to various kinds and levels of risk. Equity securities and equity mutual funds expose Northwestern Memorial to market risk, performance risk and liquidity risk. Market risk is the risk associated with major movements of the equity markets. Performance risk is the risk associated with a company’s operating performance. Fixed income securities and fixed income mutual funds expose Northwestern Memorial to interest rate risk, credit risk and liquidity risk. As interest rates change, the value of many fixed income securities is affected, including those with fixed interest rates. Credit risk is the risk that the obligor of the security will not fulfill its obligations. Liquidity risk is affected by the willingness of market participants to buy and sell particular securities. Liquidity risk tends to be higher for equities

1710-2430046 26 Northwestern Memorial HealthCare and Subsidiaries

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

5. Fair Value Measurements (continued) related to small capitalization companies and certain alternative investments. Due to the volatility in the capital markets, there is a reasonable possibility of subsequent changes in fair value, resulting in additional gains and losses in the near term.

The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities and short-term borrowings are reasonable estimates of their fair values due to their short-term nature.

The fair value of the long-term debt portfolio, including the current portion, was $1,414,681 and $1,527,365 at August 31, 2017 and 2016, respectively. The fair value of this Level 2 liability is based on quoted market prices for the same or similar issues and the relationship of those bond yields with various market indices. The market data used to determine yield and calculate fair value represents Aa/AA-rated tax-exempt municipal health care bonds. The effect of third-party credit valuation adjustments, if any, is immaterial.

The fair value of pledges receivable, a Level 2 asset, is based on discounted cash flow analysis and approximates the carrying value of $42,241 and $40,343 at August 31, 2017 and 2016, respectively.

6. Investment in Joint Ventures

Northwestern Memorial has joint venture and operating partnership investment interests ranging from 30.0% to 50.0% in health-related businesses, as well as a 33.3% restricted interest in two non-health-related businesses that were donated to Northwestern Memorial. These investment interests are accounted for under the equity method of accounting, as Northwestern Memorial holds a 20% or more voting interest. The carrying value of the non-health-related investments of $7,811 and $8,455 at August 31, 2017 and 2016, respectively, is included in Investments, including assets limited to use, less current portion in the accompanying consolidated balance sheets.

The carrying value of the health-related investments of $23,144 and $23,841 at August 31, 2017 and 2016, respectively, is included in Other assets, net in the accompanying consolidated balance sheets. Net equity earnings from the health-related investments totaled $446 and $403 for the years ended August 31, 2017 and 2016, respectively, and are included in Investment return in the accompanying consolidated statements of operations and changes in net assets. The carrying value of these investments exceeds the underlying equity in net assets by $5,926, reflecting the fair value change recorded at the time of acquisition of Cadence and KishHealth.

1710-2430046 27 Northwestern Memorial HealthCare and Subsidiaries

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

6. Investment in Joint Ventures (continued)

The following is a summary of financial information as of and for the years ended August 31 relating to these investments:

2017 2016

Current assets $ 77,343 $ 93,904 Current liabilities 31,834 28,212 Net working capital 45,509 65,692 Property, plant, and equipment 36,192 37,825 Other long-term assets 3,192 3,348 Long-term liabilities 32,950 40,905 Net assets $ 51,943 $ 65,960 Revenue $ 37,869 $ 46,413 Expenses 29,821 37,162 Excess of revenue over expenses $ 8,048 $ 9,251

Net equity earnings from the non-health-related investments totaled $2,304 and $1,083 for the years ended August 31, 2017 and 2016, respectively, and are included in Temporarily restricted net assets investment return in the accompanying consolidated statements of operations and changes in net assets. Northwestern Memorial made no capital contributions to such joint ventures for the years ended August 31, 2017 or 2016. Northwestern Memorial received cash distributions from such joint ventures of $4,067 and $3,759 for the years ended August 31, 2017 and 2016, respectively.

7. Self-Insurance Liabilities and Related Insurance Recoverables

Northwestern Memorial retains certain levels of professional and general liability risks. Northwestern Memorial also retain certain levels of workers’ compensation risks through State of Illinois sanctioned self-insurance arrangements and through commercial insurance programs subject to large deductibles. For those self-insured risks, Northwestern Memorial has established revocable trust funds and a captive insurance company to pay claims and related costs. In addition, various insurance policies have been purchased to provide coverage in excess of self-insured limits.

1710-2430046 28 Northwestern Memorial HealthCare and Subsidiaries

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

7. Self-Insurance Liabilities and Related Insurance Recoverables (continued)

Northwestern Memorial’s self-insurance liability and related amounts recoverable from reinsurers are reported in the accompanying consolidated balance sheets at present value based on an annual discount rate of 1.5% as of August 31, 2017 and 2016. This discount rate is based on several factors, including rolling averages of risk-free rates based on estimated payment patterns of the underlying liability. The undiscounted gross liabilities for the self-insured programs were $614,884 and $613,265 at August 31, 2017 and 2016, respectively. The undiscounted amounts recoverable from reinsurers were $88,543 and $80,149 at August 31, 2017 and 2016, respectively. Provisions for the professional and general liability risks are based on an actuarial estimate of losses using actual loss data adjusted for industry trends and current conditions and on an evaluation of claims by Northwestern Memorial’s legal counsel. The provision for estimated self- insured claims includes estimates of ultimate costs for both reported claims and claims incurred but not reported.

In the opinion of management, based in part on the advice of outside actuaries, adequate provision has been made at August 31, 2017, for all claims incurred to date. Although there is considerable variability inherent in such estimates, management further believes that the ultimate disposition of these claims will not have a material adverse effect on the consolidated financial position of Northwestern Memorial.

8. Employee Benefits Obligations

There are two noncontributory defined benefit pension plans: Northwestern Memorial Hospital and Lake Forest Hospital (the Plans), maintained within Northwestern Memorial that cover specified employee groups. The sponsors for the Plans approved resolutions to amend the Plans effective at the end of the day on December 31, 2012. The amendments implemented a hard freeze, such that no participant will earn any additional or new benefits under the Plans on and after January 1, 2013.

1710-2430046 29 Northwestern Memorial HealthCare and Subsidiaries

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

8. Employee Benefits Obligations (continued)

The following table summarizes the change in the projected benefit obligation for the years ended August 31:

2017 2016

Projected benefit obligation, beginning of year $ 646,693 $ 585,369 Interest cost 19,130 26,120 Net actuarial (gain) loss (9,648) 60,776 Benefits paid (26,400) (25,572) Projected benefit obligation, end of year $ 629,775 $ 646,693

The net actuarial gain in 2017 was caused primarily by the change in the discount rate used compared to prior years as well as an updated mortality table.

The following table summarizes the changes in the Plans’ assets for the years ended August 31:

2017 2016

Plan assets at fair value, beginning of year $ 679,342 $ 679,761 Actual return on the Plans’ assets, net of expenses 95,395 25,153 Benefits paid (26,400) (25,572) Plan assets at fair value, end of year $ 748,337 $ 679,342

The following table sets forth the Plans’ funded status, as well as recognized amounts in the accompanying consolidated balance sheets as of August 31:

2017 2016

Plan assets at fair value $ 748,337 $ 679,342 Projected benefit obligation 629,775 646,693 Funded status recognized as prepaid pension cost $ 118,562 $ 32,649

1710-2430046 30 Northwestern Memorial HealthCare and Subsidiaries

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

8. Employee Benefits Obligations (continued)

The funded status of the Northwestern Memorial Hospital plan was $111,015 and $43,488 for the years ended August 31, 2017 and 2016, respectively. The funded status for the Northwestern Lake Forest Hospital plan was $7,547 and $(10,839) for the years ended August 31, 2017 and 2016, respectively. When the projected benefit obligation is greater than the plan assets, the net liability is recorded in Other liabilities.

Included in unrestricted net assets are the Plans’ amounts that have not yet been recognized in net periodic pension cost at August 31, as follows:

2017 2016

Unrecognized actuarial loss $ 132,539 $ 196,424

Changes in the Plans’ assets and benefit obligations recognized in unrestricted net assets for the years ended August 31 include the following:

2017 2016

Current year actuarial gain (loss) $ 60,122 $ (78,126) Recognized actuarial loss 3,763 1,459 $ 63,885 $ (76,667)

The Plans’ prior service cost and net actuarial gain included in unrestricted net assets expected to be recognized in net periodic pension cost during the year ending August 31, 2018 are $0 and $1,860, respectively.

Net periodic pension benefit included in operating results for the years ended August 31 consists of the following:

2017 2016

Plan expenses $ 1,407 $ 1,686 Interest cost of projected benefit obligation 19,130 26,120 Expected return on the Plans’ assets (46,330) (46,517) Recognized actuarial loss 3,763 1,459 Net periodic pension benefit $ (22,030) $ (17,252)

1710-2430046 31 Northwestern Memorial HealthCare and Subsidiaries

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

8. Employee Benefits Obligations (continued)

The following table sets forth the discount rate assumptions used to determine the projected benefit obligation and benefit cost as of August 31:

2017 2016 Used to determine projected benefit obligation Discount rate – Northwestern Memorial Hospital 3.86% 3.67% Discount rate – Northwestern Lake Forest Hospital 3.90 3.73

Used to determine benefit cost Discount rate – Northwestern Memorial Hospital 3.67% 4.55% Discount rate – Northwestern Lake Forest Hospital 3.73 4.55 Expected long-term rate of return on the Plans’ assets 7.00 7.00

The expected long-term rate of return on assets is determined based on a capital market asset model, which assumes that future returns are based on long-term, historical performance as adjusted for contemporary dividend yields. The adjusted historical returns were weighted by the current long-term asset allocation targets and reduced by 100 basis points to produce a more normal risk premium. Northwestern Memorial’s investment advisor assisted with the analysis.

At August 31, 2016, Northwestern Memorial changed the discount rate method used to measure the service and interest cost starting in fiscal 2017 to the spot rate approach from the yield curve methodology used historically. This change had no impact on the fiscal 2016 projected benefit obligation. This method does not apply to the service cost as both plans have been frozen, but results in different discount rates utilized for purposes of measuring the interest cost of the two plans as shown above. Northwestern Memorial has made this change to provide a more precise measurement of interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. The future impact of this change is expected to be nominal.

The Plans’ asset allocation and investment strategies are designed to earn returns on plan assets consistent with a reasonable and prudent level of risk. Investments are diversified across classes, sectors and manager style to minimize the risk of loss. Northwestern Memorial uses professional investment managers specializing in each asset category and, where appropriate, provides the investment managers with specific guidelines that include allowable and/or prohibited investment types. Northwestern Memorial regularly monitors manager performance and compliance with investment guidelines.

1710-2430046 32 Northwestern Memorial HealthCare and Subsidiaries

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

8. Employee Benefits Obligations (continued)

The target allocation of the Plans’ assets as of August 31 is as follows:

2017 2016

Equity securities 51% 49% Alternative investments 37 41 Fixed income 12 10 100% 100%

The following table presents the Plans’ financial instruments as of August 31, 2017, measured at fair value on a recurring basis by the valuation hierarchy described in Note 5:

Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 508 $ – $ – $ 508 U.S. government securities – 8,358 – 8,358

Corporate debt: Preferred – 839 – 839 Other – 12,881 – 12,881 Total corporate debt – 13,720 – 13,720

Equity securities: U.S. equities 18,971 155 – 19,126

Mutual funds: Fixed income 64,103 ––64,103 U.S. equities 18,484 ––18,484 Total mutual funds 82,587 ––82,587 Total assets measured on recurring basis at fair value $ 102,066 $ 22,233 $ – 124,299

Investments recorded at fair value based on NAV 624,038 Total assets measured at fair value $ 748,337

1710-2430046 33 Northwestern Memorial HealthCare and Subsidiaries

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

8. Employee Benefits Obligations (continued)

The following table presents the Plans’ financial instruments as of August 31, 2016, measured at fair value on a recurring basis by the valuation hierarchy described in Note 5:

Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 232 $ – $ – $ 232 U.S. government securities – 8,597 – 8,597

Corporate debt: Preferred – 354 – 354 Other – 10,633 – 10,633 Total corporate debt – 10,987 – 10,987

Equity securities: U.S. equities 24,420 125 – 24,545

Mutual funds: Fixed income 54,717 – – 54,717 International equities 1,084 – – 1,084 U.S. equities 35,583 – – 35,583 Total mutual funds 91,384 – – 91,384 Total assets measured on recurring basis at fair value $ 116,036 $ 19,709 $ – 135,745

Investments recorded at fair value based on NAV 543,597 Total assets measured at fair value $ 679,342

1710-2430046 34 Northwestern Memorial HealthCare and Subsidiaries

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

8. Employee Benefits Obligations (continued)

The fair value of Level 1 investments, which consist of equity securities and certain mutual funds, is based on quoted market prices that are valued on a daily basis. Level 2 investments consist of U.S. government securities, corporate bonds and U.S. equities. The fair value of the U.S. government securities and corporate bonds is established based on values obtained from nationally recognized pricing services that value the investments based on similar securities and matrix pricing of similar quality and maturity securities.

Included in the other pension investments are commingled funds, common collective trusts, 103-12 entities and alternative investments (principally limited partnership interests in hedge, private equity, real estate and natural resources funds) for which the fair values are based on NAV. The fair values of the commingled funds, common collective trusts, and 103-12 entities are based on the Master Trust’s ownership interest in the NAV per share of its equivalent of the respective fund.

The fair values of the securities held by limited partnerships that do not have readily determinable fair values are determined by the general partner taking into consideration, among other things, the financial performance of underlying investments, recent sales prices of underlying investments and other pertinent information. In addition, actual market exchanges at period-end provide additional observable market inputs of the exit price. NAV is calculated by the investment’s management monthly for all of the Master Trust’s alternative investments other than limited partnerships, whose NAV is calculated on a quarterly basis. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plans’ valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Investments in LPs, which cannot be redeemed on request, totaled $69,911 as of August 31, 2017. Certain marketable alternative investments are subject to various redemption restrictions. As of August 31, 2017, $414,620 of alternative investments is subject to various redemption limits and lockup provisions, of which $369,338 expires within one year and $45,282 expires after one year from the balance sheet date.

1710-2430046 35 Northwestern Memorial HealthCare and Subsidiaries

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

8. Employee Benefits Obligations (continued)

The Plans’ assets are managed solely in the interest of the Plans’ participants and their beneficiaries. The assets are invested with the investment objective of funding the accumulated and projected retirement benefit obligations of the Plans consistent with the Plans’ long-term rate- of-return assumption. A time horizon of greater than five years is assumed; therefore, interim volatility in returns is regarded with appropriate perspective.

Northwestern Memorial has no current plans to contribute to the Plans during the year ending August 31, 2018.

Benefit payments, which reflect future service, as appropriate, are expected to be paid as follows:

Year ending August 31: 2018 $ 33,814 2019 30,162 2020 31,464 2021 32,580 2022 33,112 20232027 177,910

Northwestern Memorial also maintains defined contribution plans covering substantially all of its full-time and part-time employees. Participants can make voluntary tax-deferred contributions to the plans, subject to certain IRS limitations. Northwestern Memorial contributes a specified percentage of eligible compensation to the plans on behalf of each participant. Participants are always fully vested in their own tax-deferred contributions and related earnings and become fully vested in Northwestern Memorial contributions and related earnings upon completion of vesting service. Employer contributions related to these defined contribution plans, included in Employee benefits expense in the accompanying consolidated statements of operations and changes in net assets totaled $100,388 and $88,042 in 2017 and 2016, respectively.

NMHC also maintains other noncontributory postretirement benefit plans (the Noncontributory Plans) for certain executive employees.

Included in unrestricted net assets is an unrecognized actuarial loss of $998 and $1,369 at August 31, 2017 and 2016, respectively, for the Noncontributory Plans that has not yet been recognized in net periodic pension cost.

1710-2430046 36 Northwestern Memorial HealthCare and Subsidiaries

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

8. Employee Benefits Obligations (continued)

Changes in the Noncontributory Plans’ assets and benefit obligations recognized in unrestricted net assets include the following:

2017 2016

Current year actuarial loss $ (643) $ (1,485) Recognized actuarial net loss (gain) 1,642 (919) $ 999 $ (2,404)

As of August 31, 2017 and 2016, the Noncontributory Plans’ unfunded projected benefit obligation amounted to $21,328 and $20,390, respectively, and is included in Other liabilities in the accompanying consolidated balance sheets. The Noncontributory Plans’ actuarial loss included in unrestricted net assets expected to be recognized in net periodic pension cost during 2017 is $399.

The following table sets forth the discount rate assumptions used to determine the projected benefit obligation as of August 31:

2017 2016 Used to determine projected benefit obligation Discount rate – Supplemental Retirement Plan 1.60% 1.74% Discount rate – Executive Postretirement Health and Dental Plan 3.20 2.88

1710-2430046 37 Northwestern Memorial HealthCare and Subsidiaries

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

9. Long-Term Debt

Long-term debt consists of the following at August 31:

2017 2016 Revenue Bonds, Series 2015A and 2015B (KishHealth System), payable in monthly installments through March 1, 2035 (fixed coupon rate of 2.80%) $ 11,158 $ 11,642 Revenue Bonds, Series 2013 (NMHC), payable in annual installments beginning August 15, 2031 through August 15, 2043 (fixed coupon rates from 4.00% to 5.00%) 111,235 111,235 Revenue Bonds, Series 2011A and 2011B (CDH), with interest at a variable rate payable in annual installments through November 1, 2038 (weighted average interest rate of 0.98% and 0.67% for the twelve months ended August 31, 2017 and 2016, respectively) 116,300 117,950 Revenue Bonds, Series 2011C (Delnor), with interest at a variable rate payable in annual installments through November 1, 2038 (weighted average interest rate of 0.92% and 0.78% for the twelve months ended August 31, 2017 and 2016, respectively) 56,595 57,070 Revenue Bonds, Series 2009A (NMH), payable in annual installments through August 15, 2039 (fixed coupon rates range from 5.00% to 6.00%) 291,760 299,220 Revenue Bonds, Series 2009B (NMH), payable in annual installments through August 15, 2030 (fixed coupon rates range from 5.00% to 5.75%) 37,700 39,930 Revenue Bonds, Series 2009 (CDH) payable in annual installments through November 1, 2039 (fixed coupon rates range from 5.00% to 5.25%) 84,165 86,255 Revenue Bonds, Series 2009B (CDH) payable in annual installments through November 1, 2039 (fixed coupon rates range from 4.00% to 5.75%) 215,330 221,565 Variable Rate Demand Revenue Bonds, Series 2008A (NMH), payable in annual installments through August 15, 2038 (weighted average interest rate was 0.68% and 0.15% for the twelve months ended August 31, 2017 and 2016, respectively) 74,250 78,775 Variable Rate Demand Revenue Bonds, Series 2007A (NMH), payable in annual installments through August 15, 2042 (weighted average interest rate was 0.73% and 0.19% for the twelve months ended August 31, 2017 and 2016, respectively) 204,700 206,000

1710-2430046 38 Northwestern Memorial HealthCare and Subsidiaries

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

9. Long-Term Debt (continued)

2017 2016 Revenue Bonds, Series 2003A–Series 2003C (Delnor) payable in annual installments through May 15, 2033 (fixed coupon rates range from 5.00%–5.25%) $ 19,950 $ 22,350 Variable Rate Demand Revenue Bonds, Series 2002C (NMH) (weighted average interest rate was 0.15% for the twelve months ended August 31, 2016), paid off on October 4, 2016 – 27,450 Revenue Bonds, Series 2002A–Series 2002D (Delnor) payable in annual installments beginning May 15, 2020 through May 1, 2032 (fixed coupon rate of 5.25%) 35,000 35,000 Delnor medical office building loan, interest fixed at 6.34%, paid off on July 3, 2017 – 13,548 NMHC variable rate note dated October 4, 2016, matures October 4, 2019 (weighted average interest rate of 1.31% and 0.95% for the twelve months ended August 31, 2017 and 2016, respectively) 105,000 105,000 The Midland Surgical Center, LLC line of credit due July 10, 2019, interest payments required monthly at a variable rate not less than 3.75%, and loan with maturity date of December 10, 2018 357 449 NMHC line of credit (weighted average interest rate of 1.08% for the twelve months ended August 31, 2016) – 59,750 NMHC commercial paper dated October 4, 2016 (weighted average interest rate of 0.97% for the ten months ended August 31, 2017) 87,299 – 1,450,799 1,493,189 Less: Unamortized discount, net and debt issuance costs 8,485 7,899 Current maturities 30,239 29,565 Long-term debt subject to short-term remarketing agreements – 318,795 Line of credit, included in Accrued expenses and other current liabilities – 59,750 Commercial paper, included in Short-term debt 87,299 – $ 1,324,776 $ 1,077,180

1710-2430046 39 Northwestern Memorial HealthCare and Subsidiaries

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

9. Long-Term Debt (continued)

Per the Amended and Restated Master Trust Indenture dated as of May 1, 2004, as supplemented and amended (the NMHC Master Indenture), the Obligated Group includes NMHC, NMH, Northwestern Lake Forest Hospital (NLFH), Central DuPage Hospital (CDH), Cadence, Delnor- Community Hospital (Delnor), Cadence Physician Group (CPG), the Foundation, Northwestern Medical Faculty Foundation d/b/a Northwestern Medical Group (NMG), Northwestern Foundation for Research and Education d/b/a Northwestern Medical Group Management Services (NMGMS), and Lake Forest Health and Fitness Institute (HFI), with Wells Fargo Bank, N.A., as master trustee. Supplemental Master Trust Indentures were issued so that all the debt as of November 30, 2014, is either secured or guaranteed by the NMHC Obligated Group.

Effective December 18, 2015, KishHealth, Kishwaukee Community Hospital, Valley West Community Hospital and Kishwaukee Physician Group, Inc. became members of the Obligated Group created under the NMHC Master Indenture. The Series 2015A and Series 2015B Bonds were restructured and secured by direct note obligations within the NMHC Obligated Group. The KishHealth system’s Illinois Finance Authority Hospital Revenue Refunding Bonds, Series 2008, were legally defeased by placing sufficient assets in escrow funded by a debt reserve fund and a draw of $59,750 on a Northwestern Memorial line of credit, resulting in a loss on extinguishment of $4,030 for the year ended August 31, 2016.

Effective May 31, 2016, Marianjoy Inc., Marianjoy Rehabilitation Hospital & Clinic, Inc., Rehabilitation Medicine Clinic, Inc. and Marianjoy Foundation, Inc. became members of the Obligated Group created under the NMHC Master Indenture.

On September 1, 2017, NMHC implemented a number of actions to streamline its organization structure; some of which impacted members of the Obligated Group. LivingWell Cancer Resource Center was merged into CPG; Marianjoy, Inc. was merged into NMHC; NMGMS was merged into NMG; Delnor-Community Residential Living, Inc. d/b/a Delnor Glen merged into Delnor; Marianjoy Foundation was dissolved, transferring assets to the Foundation; and Tri-Cities Surgery Center, LLC was dissolved, transferring assets to Delnor. None of these actions had a material impact on the Obligated Group or any impact on the accompanying consolidated financial statements.

Northwestern Memorial had lines of credit of $50,000 and $80,000 that were to expire in May 2019 and September 2018, respectively. At August 31, 2016, Northwestern Memorial had drawn $59,750 on the $80,000 line of credit and restricted $467 of the $50,000 line to secure a letter of

1710-2430046 40 Northwestern Memorial HealthCare and Subsidiaries

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

9. Long-Term Debt (continued) credit. The remaining amounts were available for operations. In October 2016, the lines of credit in the amounts of $50,000 and $80,000 were replaced with two $65,000 lines of credit. At August 31, 2017, Northwestern Memorial had restricted $1,556 of one of the $65,000 lines of credit to secure a letter of credit. Northwestern Memorial has the option to borrow at various rates expressed as an adjustment to LIBOR, prime rate or other bank-offered rates. At August 31, 2017, no amounts were borrowed under the lines of credit.

Northwestern Memorial has standby bond purchase agreements (SBPAs) with multiple banks that cover all of its variable rate demand revenue bonds (VRDBs). The short-term credit rating for each series of VRDBs is based on the respective bank’s short-term credit rating. The long-term credit rating for each series of VRDBs is based on Northwestern Memorial’s long-term credit rating. Changes in credit ratings may impact the interest paid on or remarketing of the VRDBs. The banks provide liquidity support in the event of a failed remarketing as follows:

Expiration Par Value Date

Series 2007A-2, 2007A-4 $ 102,350 October 2019 Series 2008A 74,250 October 2020 Series 2007A-1, 2007A-3 102,350 October 2020

The SBPAs include reporting and financial requirements and other covenants. If an SBPA is not renewed or replaced prior to its expiration, or if some portion, or all, of the related VRDBs are not successfully remarketed (failed remarketing) during the term of the SBPAs, the related VRDBs convert to a term loan at the earlier of the expiration date of the related SBPA or after 90 consecutive days of failed remarketing. The principal payment on the term loan would then be payable over a three-year term. The earliest principal payment on any term loan associated with the bonds is 367 days from the initial failed remarketing date. Therefore, the VRDBs, all SBPAs with maturities greater than one year less any current portion, are classified as long-term debt in the accompanying consolidated balance sheets.

CDH and Delnor Series 2011A, 2011B, and 2011C Revenue Bonds, which are classified as long- term due to their long-term amortization periods, have one-year remarketing periods that occur at staggered dates throughout the year. The bondholders are required to hold the bonds for additional one year periods, unless notice of their intent to put the bonds to the NMHC Obligated Group is

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

9. Long-Term Debt (continued) given not less than 150 days prior to the end of the remarketing date. To the extent that bondholders may, under the terms of the debt, put their bonds within a maximum of 12 months after August 31, 2017, the principal amount of such bonds has been classified as a current obligation in the accompanying consolidated balance sheets. Management believes the likelihood of a material amount of bonds being put to the NMHC Obligated Group is remote.

Scheduled principal repayments for the next five years, assuming remarketing of variable rate debt, on long-term debt are as follows:

Year ending August 31: 2018 $ 30,239 2019 31,570 2020 33,125 2021 34,731 2022 36,536

The provisions under the respective debt agreements require the Obligated Group to maintain reporting, financial, and other covenants. At August 31, 2017, the Obligated Group was in compliance with these provisions.

Northwestern Memorial paid interest of $49,475 and $47,897 in 2017 and 2016, respectively (which includes $7,266 and $8,884, respectively, for net swap payments included in Interest expense in the accompanying consolidated statements of operations and changes in net assets). Northwestern Memorial capitalized interest of $18,703 and $10,772 in 2017 and 2016, respectively.

In October 2016, the SBPAs for the $103,000 Illinois Finance Authority Variable Rate Demand Revenue Bonds, Subseries 2007A-1 and Subseries 2007A-3 (NMH) and for the $78,775 Illinois Finance Authority Variable Rate Demand Revenue Bonds, Series 2008A (NMH) were each extended for four years. The SBPA for the $103,000 Illinois Finance Authority Variable Rate Demand Revenue Bonds, Subseries 2007A-2 and Subseries 2007A-4 was replaced by a new standby bond purchase agreement provider. At August 31, 2016, the expiration date for these SBPAs was less than one year from the consolidated balance sheet date and as such the related debt was classified as short-term.

1710-2430046 42 Northwestern Memorial HealthCare and Subsidiaries

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

9. Long-Term Debt (continued)

In October 2016, the Illinois Finance Authority Variable Rate Demand Revenue Bonds, Series 2011A, 2011B, and 2011C (CDH-Delnor Health System) in the aggregate amount of $175,020 were purchased by different banks at variable rates for a period of seven years, five years, and three years, respectively.

In October 2016, the existing $105,000 CDH-Delnor Health System variable rate note was replaced with a $105,000 NMHC variable rate note with a different lender and extended to 2019.

In October 2016, NMHC issued commercial paper in the aggregate amount of $87,299. Proceeds were used to redeem all outstanding $27,450 NMH Series 2002C Bonds and pay down a $59,750 NMHC line of credit.

In July 2017, Northwestern Memorial paid Morton Bank $13,534 to extinguish the existing Delnor medical office building loan.

On August 30, 2017, Northwestern Memorial gave notice that it was evaluating the refunding of all or a portion of the outstanding bonds issued for the benefit of the Obligated Group through the issuance of tax-exempt or taxable bonds, other indebtedness or other funds (collectively, the Bonds). On November 30, 2017, a Preliminary Official Statement (POS) was circulated in which such a refunding of certain bonds and a plan of finance is outlined. There is no assurance that the proposed transaction will occur in the format outlined in the POS or at all. 10. Derivatives Northwestern Memorial’s only derivative financial instruments are interest rate swaps approximately equal to its Series 2007A and Series 2011A-C variable rate bonds for the sole purpose of risk management. These bonds expose Northwestern Memorial to variability in interest payments due to changes in interest rates. To manage fluctuations in cash flows resulting from interest rate risk, Northwestern Memorial entered into various interest rate swap agreements. These swaps limit the variable rate cash flow exposure on the variable rate bonds to synthetically fixed cash flows. By using interest rate swaps to manage the risk of changes in interest rates, Northwestern Memorial exposes itself to credit risk and market risk. Credit risk is the risk that a counterparty will fail to perform under the terms of a derivative contract. When the fair value of a swap is positive, the counterparty owes Northwestern Memorial, which creates credit risk for Northwestern Memorial. When the fair value of a swap is zero or negative, the counterparty does not owe Northwestern Memorial. Northwestern Memorial minimizes the credit risk in its swap contracts by entering into transactions that require the counterparty to post collateral for the benefit of Northwestern Memorial based on the credit rating of the counterparty and the fair value of the swap contract or whose cash flows are insured by a third party. The aggregate fair value liability of the swaps in the accompanying consolidated balance sheets

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

10. Derivatives (continued) as of August 31, 2017 and 2016, reflects a reduction of $3,555 and $4,707, respectively, for nonperformance risk. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest rate changes is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. Management also mitigates risk through periodic reviews of its swap positions in the context of their total blended cost of capital.

The following is a summary of the outstanding positions under existing interest rate swap agreements at August 31:

2017 2016 Maturity Rate Paid Rate Received

$ 102,350 $ 103,000 Aug-42 3.89% 63% of 1-Month LIBOR + 28 bps 102,350 103,000 Aug-42 3.89 63% of 1-Month LIBOR + 28 bps 61,650 62,175 Nov-38 3.82 67% of 3-Month LIBOR 61,650 62,175 Nov-38 3.52 67% of 3-Month LIBOR 35,000 35,000 May-32 4.18 67% of 1-Month LIBOR 19,950 22,350 May-33 2.89 67% of 1-Month LIBOR $ 382,950 $ 387,700

The fair value of derivative instruments at August 31 is as follows:

Balance Sheet Liabilities Location 2017 2016 Derivatives not designated as hedging instruments: Interest rate contracts Interest rate swaps $ 112,586 $ 150,107

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

10. Derivatives (continued)

The effects of derivative instruments on the accompanying consolidated statements of operations and changes in net assets for August 31 are as follows:

Amount of Loss Recognized in Excess of Revenue Over Expenses on Derivatives Interest Rate Contracts 2017 2016

Derivatives not designated as hedging instruments: Operating expense – interest $ (7,266) $ (8,884) Nonoperating change in fair value of interest rate swaps 37,521 (37,212)

Northwestern Memorial’s derivative instruments contain provisions that require Northwestern Memorial’s debt to maintain an A- or better credit rating from Standard & Poor’s and an A3 or better rating from Moody’s. If Northwestern Memorial’s debt were to fall below those levels, it would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. Northwestern Memorial has posted collateral of $330 and $24,203 as of August 31, 2017 and 2016, respectively. If the credit risk-related contingent features underlying these agreements were triggered to the fullest extent on August 31, 2017, Northwestern Memorial would be required to post $115,811 of collateral to its counterparties.

In October 2016, three of the four interest rate swaps were novated under the same notional amounts and contract terms to a new counterparty. As a result of this transaction, none of the novated swaps require collateral, leaving only one remaining swap subject to a collateral requirement.

11. Goodwill and Other Intangible Assets

Goodwill has been recorded for the excess of purchase price over fair value of assets purchased in business acquisitions of several medical practices. Northwestern Memorial has goodwill of $25,115 and $24,701 included in Other assets, net at August 31, 2017 and 2016, respectively. There were no impairments of goodwill in the years ended August 31, 2017 or 2016.

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

11. Goodwill and Other Intangible Assets (continued)

The fair value of in-place leases is the present value associated with re-leasing the in-place lease as if the property was vacant. The value of at market in-place leases is amortized as amortization expense over the expected life of the lease. Above-market and below-market lease values for acquired properties are recorded based upon the present value of the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimates of the fair market lease rates for comparable leases. The values of above- and below-market leases are recorded as an adjustment to rental revenue over the remaining terms of the leases.

The following table summarizes Northwestern Memorial’s identifiable intangible asset balances as of August 31, which are included in Other assets, net on the accompanying consolidated balance sheets:

2017 Gross Carrying Accumulated Net Carrying Value Amortization Amount Amortized intangible assets: In-place leases $ 14,580 $ (9,736) $ 4,844 Above-market leases 308 (192) 116 Total intangible assets $ 14,888 $ (9,928) $ 4,960

Below-market lease intangibles $ (7,861) $ 4,690 $ (3,171)

2016 Gross Carrying Accumulated Net Carrying Value Amortization Amount Amortized intangible assets: In-place leases $ 14,604 $ (6,949) $ 7,655 Above-market leases 309 (294) 15 Total intangible assets $ 14,913 $ (7,243) $ 7,670

Below-market lease intangibles $ (7,861) $ 3,268 $ (4,593)

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

11. Goodwill and Other Intangible Assets (continued)

Amortization expense, which is included in Depreciation and amortization, was $2,632 and $3,375 for the years ended August 31, 2017 and 2016, respectively. The estimated amortization expense for intangible assets subject to amortization for each of the years ending August 31, 2018 through 2022 is as follows: $2,246, $1,727, $540, $199 and $76.

12. Income Tax Status

Each of the NMHC not-for-profit entities is qualified under the Internal Revenue Code (the Code) as a tax-exempt organization and is exempt from tax on income related to its tax-exempt purposes under Section 501(a) of the Code. Accordingly, no income taxes are provided for the majority of the income in the accompanying consolidated financial statements for these corporations. Certain corporations had unrelated business income (UBI) generated primarily from the sale of certain services that are not directly related to patient care and through limited partnerships within the investment portfolio. Certain corporations have unused net operating loss carryforwards available to offset the UBI tax. The net operating loss carryforwards expire through 2036. The deferred tax assets associated with these net operating loss carryforwards of $6,802 and $6,186 at August 31, 2017 and 2016, respectively, are offset by valuation allowances on the accompanying consolidated balance sheets of $6,802 and $6,186, respectively. The total net operating loss carryforwards at August 31, 2017 and 2016 were $16,938 and $15,469, respectively.

NMHC calculates income taxes for its taxable subsidiaries. Taxable income differs from pretax book income principally due to certain income and deductions for tax purposes being recorded in the consolidated financial statements in different periods. Deferred income tax assets and liabilities are recorded for the tax effect of these differences using enacted tax rates for the years in which the differences are expected to reverse.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible.

The Cayman Islands government imposes no tax on income or capital gains. However, such corporations are subject to U.S. federal corporate taxation to the extent that they generate net income that is effectively connected with a U.S. trade or business. These corporations were not engaged in any such trade or business in the U.S. during fiscal years 2017 or 2016. Therefore, no income tax provision has been recorded related to these corporations and their operations.

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

12. Income Tax Status (continued)

Provisions for federal and state income taxes of $13,010 and $8,897 for the years ended August 31, 2017 and 2016, respectively, are included within Other in Nonoperating gains (losses) in the accompanying consolidated statements of operations and changes in net assets.

13. Temporarily and Permanently Restricted Net Assets

Temporarily restricted net assets are available for the following purposes at August 31:

2017 2016 Health care services: Purchase of property and equipment $ 26,273 $ 30,228 Operating expenses and charity care 96,462 89,874 Research, education, and other 98,182 91,667 $ 220,917 $ 211,769

Net assets were released from donor restrictions by incurring expenditures for the following purposes in the years ended August 31:

2017 2016 Health care services: Purchase of property and equipment $ 6,279 $ 15,858 Clinical expenses and charity care 16,167 10,612 Research, education, and other 18,692 18,261 $ 41,138 $ 44,731

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

13. Temporarily and Permanently Restricted Net Assets (continued)

Net assets released from donor restrictions reported in the statements of operations and changes in net assets were recorded as follows for the years ended August 31:

2017 2016 Net assets released from donor restrictions and federal and state grants $ 17,916 $ 17,452 Nonoperating other 16,943 11,421 $ 34,859 $ 28,873

Permanently restricted net assets are summarized below, the income from which is expendable to support the following for the years ended August 31:

2017 2016 Health care services: Purchase of property and equipment $ 14,304 $ 14,387 Operating expenses and charity care 64,412 76,001 Research, education, and other 96,364 71,523 $ 175,080 $ 161,911

Northwestern Memorial’s endowment consists of individual donor-restricted funds established for a variety of purposes. Net assets associated with endowment funds are classified and reported based on the donor-imposed restrictions.

Northwestern Memorial has interpreted the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA), as adopted by the state of Illinois, as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, Northwestern Memorial classifies as permanently restricted net assets the original value of gifts donated to the permanent endowment, the original value of subsequent gifts to the permanent endowment, and accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time. The remaining portion of the donor-restricted endowment fund that is not classified as permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure, consistent with the donor intent or, where silent, the standard of prudence prescribed by UPMIFA.

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

13. Temporarily and Permanently Restricted Net Assets (continued)

In accordance with UPMIFA, Northwestern Memorial considers the following factors in making a determination to appropriate or accumulate donor-restricted funds:

• The duration and preservation of the fund

• The purposes of Northwestern Memorial and the endowment fund

• General economic conditions

• The possible effects of inflation and deflation

• The expected total return from investment income

• Other resources of Northwestern Memorial

• The investment policies of Northwestern Memorial

Northwestern Memorial has adopted investment and spending policies for endowment assets designed to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that must be held in perpetuity or for a donor-specified period. Under this policy, endowment assets are allocated a fixed annual return, which is currently set at 6%.

Northwestern Memorial has a policy that generally limits annual spending from endowment funds to 4% of the endowment fund balance at the midpoint of the preceding fiscal year. In establishing this policy, Northwestern Memorial considered the long-term expected return on its endowment. Accordingly, over the long term, Northwestern Memorial expects the spending policy to allow its endowment to grow at an average annual rate of 2%. This is consistent with its objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specific term, as well as to provide additional real growth through new gifts and investment return.

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

13. Temporarily and Permanently Restricted Net Assets (continued)

The changes in endowment net assets for the years ended August 31, 2017 and 2016 are summarized below:

Temporarily Permanently Restricted Restricted Total Endowment net assets, September 1, 2015 $ 55,431 $ 160,775 $ 216,206 Contributions 225 1,330 1,555 Contribution – KishHealth net assets 601 601 Change in value of trusts (23) (778) (801) Investment return 7,812 7,812 Appropriation for expenditure (5,989) (5,989) Other (140) (17) (157) Endowment net assets, August 31, 2016 57,316 161,911 219,227 Contributions 460 5,609 6,069 Change in value of trusts 775 775 Investment return 7,353 7,353 Appropriation for expenditure (5,602) (5,602) Other (705) 6,785 6,080 Endowment net assets, August 31, 2017 $ 58,822 $ 175,080 $ 233,902

14. Pledges Receivable

As of August 31, 2017, donor-restricted pledges, which are included in Current portion of pledges and grants receivable, net and Other assets, are expected to be realized as follows:

Less than one year $ 20,851 One to five years 21,607 Thereafter 8,175 Total pledges receivable 50,633 Less allowances (2,011) Less present value discount (6,353) Net pledges receivable $ 42,269

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

15. Net Patient Service Revenue

Northwestern Memorial recognizes net patient service revenue associated with services provided to patients who have third-party payment coverage with Medicare, Medicaid, Blue Cross, other managed care programs and other third-party payors on the basis of the contractual rates for the services rendered at the time services are provided. Payment arrangements with those payors include prospectively determined rates per admission or visit, reimbursed costs, discounted charges and per diem rates. Reported costs and/or services provided under certain of the arrangements are subject to retroactive audit and adjustment. Net patient service revenue increased by $33,843 and $ 16,462 in 2017 and 2016, respectively, as a result of changes in estimates due to the prior fiscal year’s cost report settlements and the disposition of other payor audits and settlements. Changes in Medicare and Medicaid programs and reduction in funding levels could have an adverse effect on Northwestern Memorial.

Northwestern Memorial also provides care to self-pay patients. Under its Free and Discounted Care Policy, Northwestern Memorial provides medically necessary care to patients in its community with inadequate financial resources at discounts of up to 100% of charges using a sliding scale that is based on patient household income as a percentage (up to 600%) of the federal poverty level guidelines. The Policy also contains a catastrophic financial assistance provision that limits a patient’s total financial responsibility to Northwestern Memorial. Since Northwestern Memorial does not pursue collection of these amounts, they are not reported as net patient service revenue. The Policy has not changed in fiscal year 2017 or 2016. Northwestern Memorial implemented presumptive eligibility screening procedures for free care in fiscal year 2014. Northwestern Memorial recognizes net patient service revenue on services provided to these patients at the discounted rate at the time services are rendered.

Net patient service revenue, net of contractual allowances and discounts, is reduced by the provision for uncollectible accounts, and net patient accounts receivable are reduced by an allowance for uncollectible accounts. These amounts are based primarily on management’s assessment of historical and expected write-offs and net collections, along with the aging status for each major payor source. Management regularly reviews data about these major payor sources of revenue in evaluating the sufficiency of the estimated allowances for uncollectible accounts. Based on historical experience, a portion of Northwestern Memorial’s self-pay patients who do not qualify for charity care will be unable or unwilling to pay for the services provided. Thus, a provision is recorded for uncollectible accounts in the period services are provided related to these patients. After all reasonable collection efforts have been exhausted in accordance with Northwestern Memorial’s policies, accounts receivable are written off and charged against the estimated allowances for uncollectible accounts.

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

15. Net Patient Service Revenue (continued)

For receivables associated with self-pay patients, Northwestern Memorial records estimated allowances for uncollectible accounts in the period of service on the basis of past experience. These adjustments are accrued on an estimated basis and are adjusted as needed in future periods.

Net patient service revenue (including patient co-pays and deductibles), net of contractual allowances and discounts (but before the provision for uncollectible accounts) by primary payor source was as follows for the years ended August 31:

2017 2016

Third-party payors $ 4,643,685 $ 4,180,832 Patients 105,748 55,609 $ 4,749,433 $ 4,236,441

Northwestern Memorial grants credit without collateral to its patients, most of whom are local residents and are insured under third-party payor agreements. Patient accounts receivable, by major primary payor source, including related patient co-pays and deductibles, before deducting estimated uncollectibles, were as follows at August 31:

2017 2016

Medicare 14% 15% Medicaid 11 9 Blue Cross 16 16 Other managed care 32 33 Other third-party payors 8 11 Patients 19 16 100% 100%

The estimated allowances for uncollectible accounts was $223,411 and $174,234, or 24.3% and 22.4%, of the related patient accounts receivable, net of contractual adjustments as of August 31, 2017 and 2016, respectively. The significant variance was caused primarily due to the aging of outstanding accounts receivable.

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

16. Illinois Hospital Assessment Program

In December 2008, the Illinois Hospital Assessment Program was approved by the Federal Centers for Medicare and Medicaid Services (CMS) for the period from July 1, 2008 through June 30, 2013. In July 2012, this program was extended to December 31, 2014, as part of the Save Medicaid Access and Resources Together (SMART) Act. In June 2014, this program was extended to June 30, 2018 as part of the Omnibus Medicaid Bill Senate Bill 741. In October 2013, the Enhanced Illinois Hospital Assessment Program as authorized under Illinois Public Act 97-688 was approved by CMS retroactive to June 10, 2012. (Collectively referred to herein as HAP). Under HAP, the state receives additional federal Medicaid funds for the State’s healthcare system, administered by the Illinois Department of Healthcare and Family Services. HAP includes payments to Northwestern Memorial hospitals from the state and assessments against Northwestern Memorial hospitals, which are paid to the state in the same year.

In June 2014, Omnibus Medicaid Bill Senate Bill 741 authorized a new supplemental program (Access Program) to cover new Medicaid beneficiaries under the Affordable Care Act (ACA), which was approved by CMS in January 2015. In May 2016, the State of Illinois passed HB 4678 (Expanded Access Program) which implemented a framework to increase ACA access funds to Illinois hospitals. The new ACA access funds are attributable to the ACA adults enrolled in managed care products. In September 2016, the Illinois Department of Family and Healthcare Services submitted its certification of the new Medicaid managed care organization rates to CMS. After agreements between managed care organizations and providers were executed, payments for this new program and an adjustment to the assessments began in November 2016 and were retroactive to January 1, 2016.

A summary of the amounts recognized for the HAP and Access programs is as follows:

2017 2016 Net patient service revenue: HAP $ 112,813 $ 109,208 Access Program 20,418 20,292 Expanded Access Program 42,557 175,788 129,500 Illinois Assessment Program 103,362 84,484 Net excess of HAP and ACA revenue over Illinois assessment $ 72,426 $ 45,016

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

16. Illinois Hospital Assessment Program (continued)

The Expanded Access Program Revenue and Illinois Hospital Assessment expense for the twelve months ended August 31, 2017 includes retroactive portions from January 1, 2016 through August 31, 2016 of $16,728 and $2,004, respectively.

17. Functional Expenses

Northwestern Memorial provides general health care services primarily to residents within its geographic location and supports research and education programs. Expenses related to providing these services were as follows for the years ended August 31:

2017 2016

Health care services $ 3,310,405 $ 3,024,091 Research and education 138,425 142,795 Fundraising 13,559 12,982 General, administrative, and other 1,067,438 940,634 $ 4,529,827 $ 4,120,502

The research and education costs include $3,317 and $2,873 of expenses supported by federal, state, and corporate grants and $15,279 and $15,174 of expenses supported by other donor- restricted funds in 2017 and 2016, respectively.

18. Commitments and Contingencies

Academic, Program, and Other Support

Consistent with its mission, Northwestern Memorial provides academic, program, and other support to other not-for-profit entities. The present value of the total remaining commitments related to this support is $118,222 and $149,690 at August 31, 2017 and 2016, respectively, which is reported as Grants and academic support payable, current portion and Grants and academic support payable, less current portion in the accompanying consolidated balance sheets.

Northwestern Memorial will provide continuing funding to Northwestern University in support of the research and education mission of the FSM. The continuing funding is based on the average net patient service revenue and operating results of Northwestern Memorial, with the minimum

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

18. Commitments and Contingencies (continued) annual amount of such funding being $39,500, plus inflation based on the Consumer Price Index, for fiscal years 2014 through 2016 and no minimum thereafter. The expense incurred of $63,898 and $57,864 for the years ended August 31, 2017 and 2016, respectively, is recorded in Other expense in the accompanying consolidated statements of operations and changes in net assets, and a related liability of $452 and $52 is reported in Accrued expenses and other current liabilities in the accompanying consolidated balance sheets as of August 31, 2017 and 2016, respectively.

Other

As of August 31, 2017, approximately 6% of Northwestern Memorial employees, on a full time equivalent basis, were represented by a collective bargaining agreement. This collective bargaining agreement expires on January 27, 2020.

Capital and Leases

Various capital projects are currently being constructed that are expected to be placed in service over the next three years. The total estimated cost of these projects is $1,699,000 (unaudited). As of August 31, 2017, project commitments totaled $1,160,600 of which $916,118 has been incurred. These commitments include the construction of a replacement hospital on the Lake Forest Campus as agreed to in the 2010 affiliation agreement with Lake Forest Hospital. All governmental reviews, approvals and building permits have been received. Construction began in February 2015. Building occupancy and hospital opening is to be staggered in fiscal 2018.

Certain Northwestern Memorial buildings are located on land leased from Northwestern University under various lease agreements. The principal lease requires annual payments of $314 through 2075. At August 31, 2017, minimum future rental payments under other noncancelable operating leases, which consist primarily of leases for office space and equipment, some of which include renewal options, are as follows:

Year ending August 31: 2018 $ 29,360 2019 25,391 2020 21,373 2021 19,200 2022 16,545 Thereafter 79,733

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

18. Commitments and Contingencies (continued)

Regulatory

Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. As a result, there is a reasonable possibility that recorded amounts will change by a material amount in the near term. During the last few years, as a result of nationwide investigations by governmental agencies, various health care organizations have received requests for information and notices regarding alleged noncompliance with those laws and regulations, which, in some instances, have resulted in organizations entering into significant settlement agreements. Compliance with such laws and regulations may also be subject to future government review and interpretation, as well as significant regulatory action, including fines, penalties and potential exclusion from the Medicare and Medicaid programs.

In addition, an increasing number of the operations or practices of not-for-profit health care providers has been challenged or questioned to determine whether they are consistent with the regulatory requirements for nonprofit, tax-exempt organizations. These challenges are broader than concerns about compliance with federal and state statutes and regulations of core business practices of the health care organizations. The laws and regulations regarding these practices are also subject to interpretation and challenge. Areas that have come under examination have included pricing practices, billing and collection practices, charity care, community benefit, executive compensation, exemption of property from real property taxation and others. Northwestern Memorial expects that the level of review and audit to which it and other health care providers are subject will increase. There can be no assurance that regulatory authorities will not challenge Northwestern Memorial’s compliance with these laws and regulations or that the laws and regulations themselves will not be subject to challenge, and it is not possible to determine the effect, if any, such claims, penalties or challenges would have on Northwestern Memorial.

Northwestern Memorial is aware of, has investigated, and made disclosure to the United States Department of Health and Human Services Office of Civil Rights (OCR) of certain privacy breaches. OCR has requested information for these breaches. NMHC has responded to OCR’s requests for information from OCR with respect to one breach related to the theft of a password- protected, unencrypted laptop that contained patient identifiable health information. OCR has also requested information on a separate matter relating to whether an NMHC affiliate had a Business Associate Agreement with a vendor that has been implicated in privacy breaches not involving Northwestern Memorial records. OCR has been taking a more aggressive enforcement position relating to similar privacy matters by comparable health care organizations, including multiple seven-figure settlements against the disclosing party. NMHC is unable to determine which, if any,

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

18. Commitments and Contingencies (continued) fines might be imposed by OCR or other actions that might be taken as a result of any privacy breaches or OCR investigations. Northwestern Memorial is a defendant in various other lawsuits arising in the ordinary course of business. Although the outcome of these lawsuits cannot be predicted with certainty, management believes the ultimate disposition of such matters will not have a material effect on Northwestern Memorial’s consolidated financial condition or results of operations.

In March 2016, a settlement was reached with various vendors and insurance companies over costs incurred and to be incurred to remediate certain facility issues. Costs incurred related to these issues have been expensed as incurred in operating expenses. The settlement amount of $50,000 is recorded in Rental and other revenue in the consolidated statement of operations and changes in net assets for the year ended August 31, 2016.

19. Centegra Letter of Intent

In April 2016, NMHC and Centegra Health System (Centegra) executed a nonbinding letter of intent that provides for a period of exclusive discussions regarding a potential affiliation between NMHC and Centegra. NMHC cannot predict whether these discussions will result in an agreement between the two organizations. Any definitive agreement would be subject to both parties’ governing bodies and applicable regulatory approvals.

20. Subsequent Events

Northwestern Memorial evaluated events and transactions occurring subsequent to August 31, 2017 through November 30, 2017, the date of issuance of the accompanying consolidated financial statements. There were no recognized subsequent events and no unrecognized subsequent events requiring disclosure other than those disclosed in Note 9.

1710-2430046 58 Supplementary Information

1710-2430046 Ernst & Young LLP Tel: +1 312 879 2000 155 North Wacker Drive Fax: +1 312 879 4000 Chicago, IL 60606-1787 ey.com

Report of Independent Auditors on Supplementary Information

The Board of Directors Northwestern Memorial HealthCare

Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying Northwestern Memorial HealthCare consolidating balance sheet and consolidating statement of revenue and expenses are presented for purposes of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. November 30, 2017

1710-2430046

A member firm of Ernst & Young Global Limited 59 Northwestern Memorial HealthCare and Subsidiaries

Consolidating Balance Sheet (In Thousands)

August 31, 2017 Obligated Non-Obligated Group Group Eliminations Consolidated Assets Current assets: Cash and cash equivalents $ 241,033 $ 67,644 $ (50,214) $ 258,463 Short-term investments 30,685 – – 30,685 Current portion of investments, including assets limited as to use 65,876 70,476 – 136,352 Patient accounts receivable, net of estimated allowances for uncollectible accounts 697,931 18,346 – 716,277 Current portion of pledges and grants receivable, net 23,924 637 – 24,561 Current portion of insurance recoverable 82,107 7,225 (75,146) 14,186 Inventories 64,395 48 – 64,443 Other current assets 141,017 76,293 (62,558) 154,752 Due from affiliates 61,017 10,645 (71,662) – Total current assets 1,407,985 251,314 (259,580) 1,399,719

Investments, including assets limited as to use, less current portion 5,396,767 104,438 (10,679) 5,490,526

Property and equipment, at cost: Land 346,047 989 – 347,036 Buildings 3,406,672 58,601 – 3,465,273 Equipment and furniture 1,108,999 57,885 – 1,166,884 Construction in progress 538,612 728 – 539,340 5,400,330 118,203 – 5,518,533 Less accumulated depreciation 2,035,152 24,794 – 2,059,946 3,365,178 93,409 – 3,458,587

Prepaid pension cost 118,562 – – 118,562 Insurance recoverable, less current portion 332,063 64,966 (327,323) 69,706 Other assets, net 337,820 316,788 (465,386) 189,222 Total assets $ 10,958,375 $ 830,915 $ (1,062,968) $ 10,726,322

1710-2430046 60 Northwestern Memorial HealthCare and Subsidiaries

Consolidating Balance Sheet (In Thousands)

August 31, 2017 Obligated Non-Obligated Group Group Eliminations Consolidated Liabilities and net assets Current liabilities: Accounts payable $(230,595 $–7)$ $ 230,588 Accrued salaries and benefits 308,617 5,546 – 314,163 Grants and academic support payable, current portion 38,753 – – 38,753 Accrued expenses and other current liabilities 101,318 90,596 (76,660) 115,254 Due to third-party payors 431,133 3,832 – 434,965 Current accrued liabilities under self-insurance programs 158,231 70,476 (134,451) 94,256 Due to cash pool 50,214 – (50,214) – Current maturities of long-term debt 30,212 27 – 30,239 Short-term debt 87,299 – – 87,299 Due to affiliates 10,645 61,017 (71,662) – Total current liabilities 1,447,017 231,487 (332,987) 1,345,517

Long-term debt, net, less current maturities 1,324,446 116,097 (115,767) 1,324,776 Accrued liabilities under self-insurance programs, less current portion 715,961 349,247 (569,499) 495,709 Grants and academic support payable, less current portion 79,469 – – 79,469 Interest rate swaps 112,586 314 (314) 112,586 Due to investment pool participants 10,679 – (10,679) – Other liabilities 142,565 863 – 143,428 Total liabilities 3,832,723 698,008 (1,029,246) 3,501,485

Net assets: Unrestricted: Undesignated 6,505,527 129,959 (32,502) 6,602,984 Board-designated 229,452 3 – 229,455 Noncontrolling interest in consolidated joint venture (3,217) 838 (1,220) (3,599) Total unrestricted 6,731,762 130,800 (33,722) 6,828,840 Temporarily restricted 219,411 1,506 – 220,917 Permanently restricted 174,479 601 – 175,080 Total net assets 7,125,652 132,907 (33,722) 7,224,837 Total liabilities and net assets $ 10,958,375 $ 830,915 $ (1,062,968) $ 10,726,322

1710-2430046 61 Northwestern Memorial HealthCare and Subsidiaries

Consolidating Statement of Revenue and Expenses (In Thousands)

August 31, 2017 Obligated Non-Obligated Group Group Eliminations Consolidated Revenue Net patient service revenue $ 4,667,024 $ 98,765 $ (16,356) $ 4,749,433 Provision for uncollectible accounts 192,670 9,377 – 202,047 Net patient service revenue after provision for uncollectible accounts 4,474,354 89,388 (16,356) 4,547,386 Rental and other revenue 240,698 94,227 (78,563) 256,362 Net assets released from donor restrictions and federal and state grants 24,603 2,645 – 27,248 Total revenue 4,739,655 186,260 (94,919) 4,830,996

Expenses Salaries 1,918,812 50,719 – 1,969,531 Employee benefits 285,608 12,567 (333) 297,842 Supplies 867,104 9,926 – 877,030 Purchased services 521,629 47,002 (29,989) 538,642 Depreciation and amortization 278,091 9,058 – 287,149 Insurance 95,363 68,754 (59,539) 104,578 Rent and utilities 87,705 7,435 (3,833) 91,307 Repairs and maintenance 81,194 7,142 (5) 88,331 Interest 44,125 6,741 (6,760) 44,106 Illinois Hospital Assessment 103,362 – – 103,362 Other 125,751 3,417 (1,219) 127,949 Total expenses 4,408,744 222,761 (101,678) 4,529,827 Operating income (loss) 330,911 (36,501) 6,759 301,169

Nonoperating gains (losses) Investment return 650,845 13,190 (8,766) 655,269 Change in fair value of interest rate swaps 36,596 925 – 37,521 Loss on extinguishment of long-term debt (216) – – (216) Grants and academic support provided (20,172) – – (20,172) Other 9,157 134 – 9,291 Total nonoperating gains, net 676,210 14,249 (8,766) 681,693 Excess (deficit) of revenue over expenses 1,007,121 (22,252) (2,007) 982,862 Net gain (loss) attributable to noncontrolling interest in subsidiaries – 272 (975) (703) Excess (deficit) of revenue over expenses attributable to NMHC and subsidiaries $ 1,007,121 $ (22,524) $ (1,032) $ 983,565

1710-2430046 62 Northwestern Memorial HealthCare and Subsidiaries

Note to the Supplementary Information (In Thousands)

August 31, 2017

1. Obligated Group

The supplementary financial information for the Obligated Group is in accordance with the Amended and Restated Master Trust Indenture between NMHC, as the Obligated Group Agent, and Wells Fargo Bank, N.A., as successor Master Trustee to J.P. Morgan Trust Company, National Association, dated as of May 1, 2004, as amended and supplemented by each Supplemental Master Trust Indenture thereto through and including the Twenty-Sixth Supplemental Master Trust Indenture dated as of May 31, 2016.

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APPENDIX C

SUMMARY OF THE MASTER INDENTURE

TABLE OF CONTENTS

HEADING PAGE

SUMMARY OF THE MASTER INDENTURE ...... C-1

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

SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE ...... C-20 The Obligations; Payment of the Obligations ...... C-20 Accounting Principles ...... C-20 Entrance into the Obligated Group ...... C-21 Cessation of Status as a Member of the Obligated Group ...... C-23 Substitute Obligations Upon Withdrawal of a Member of the Obligated Group ...... C-24 Liens on Property ...... C-24 Additional Indebtedness...... C-25 Calculation of Debt Service and Debt Service Coverage ...... C-25 Rates and Charges ...... C-28 Insurance ...... C-29 Sale, Lease or Other Disposition of Property ...... C-30 Merger, Consolidation, Sale or Conveyance ...... C-33 Additions to Excluded Property ...... C-34 Other Covenants of the Members ...... C-35 Financial Statements ...... C-35 Defaults and Remedies ...... C-37 Direction of Proceedings...... C-39 Rights and Remedies of Obligation Holders ...... C-39 Waiver of Events of Default ...... C-40 Supplemental Master Indentures ...... C-41 Resignation or Removal of the Master Trustee ...... C-42 Obligation Holders ...... C-43 Right to Consent ...... C-43

SUMMARY OF CERTAIN SPRINGING AMENDMENTS TO THE MASTER INDENTURE ...... C-44 Definitions...... C-44 Entrance Into the Obligated Group ...... C-46 Cessation of Status as a Member of the Obligated Group ...... C-48 Financial Statements ...... C-49 Defaults and Remedies ...... C-49 Rights and Remedies of Obligation Holders ...... C-50 Supplemental Master Indentures ...... C-51

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SUMMARY OF THE MASTER INDENTURE

Brief descriptions of the Existing Master Indenture, as amended and restated by the provisions of the Second Amended and Restated Master Indenture, are included in this Appendix C. Additionally, each of the provisions summarized herein that will be amended by the Springing Amendments include a summary of each such amendment under “SUMMARY OF CERTAIN PROVISIONS OF THE SPRINGING AMENDMENTS TO THE MASTER INDENTURE” below. Such descriptions do not purport to be comprehensive or definitive. All references herein to the Existing Master Indenture and the Second Amended and Restated Master Indenture are qualified in their entirety by reference to such respective documents, copies of which are available for review at the offices of the Master Trustee.

DEFINITIONS OF CERTAIN TERMS

The following are definitions of certain terms used in the Master Indenture. The definitions of “Expenses” and “Revenues” as summarized below will be amended upon the effective date of the Springing Amendments. See “SUMMARY OF CERTAIN SPRINGING AMENDMENTS TO THE MASTER INDENTURE” below.

“Accelerable Instrument” means any Obligation or any mortgage, indenture, loan agreement or other instrument under which there has been issued or incurred, or by which there is secured, any Indebtedness evidenced by an Obligation, which Obligation or instrument provides that, upon the occurrence of an event of default under such Obligation or instrument, the holder thereof may request that the Master Trustee declare such Obligation or Indebtedness due and payable prior to the date on which it would otherwise become due and payable.

“Additional Indebtedness” means Indebtedness incurred by any Member subsequent to the Effective Date.

“Additional Obligations” means any evidence of Indebtedness, evidence of any repayment obligation under an Interest Rate Hedge or evidence of a reimbursement obligation arising as a result of the issuance of a surety bond or other instruments guaranteeing or in effect guaranteeing any payments under an Interest Rate Hedge issued after the Effective Date of the Master Indenture and authorized to be issued by a Member pursuant to the Master Indenture which has been authenticated by the Master Trustee pursuant to the provisions of the Master Indenture.

“Affiliate” means a corporation, partnership, joint venture, association, limited liability company, business trust or similar entity (a) which controls, is controlled by or is under common control with, directly or indirectly, a Member; or (b) a majority of the members of the Directing Body of which are members of the Directing Body of a Member. For the purposes of this definition, “control” means with respect to: (a) a corporation having stock, the ownership, directly or indirectly, of more than 50% of the securities (as defined in Section 2(1) of the Securities Act of 1933, as amended) of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the directors of such corporation; (b) a not for profit corporation not having stock, having the power to elect or appoint, directly or indirectly, a majority of the members of the Directing Body of such corporation; or (c) any other entity, the power to

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direct the management of such entity through the ownership of at least a majority of its voting securities or the right to designate or elect at least a majority of the members of its Directing Body, by contract or otherwise. For the purposes of this definition, “Directing Body” means with respect to: (a) a corporation having stock, such corporation’s board of directors and the owners, directly or indirectly, of more than 50% of the securities (as defined in Section 2(1) of the Securities Act of 1933, as amended) of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporation’s directors (both of which groups shall be considered a Directing Body); (b) a not for profit corporation not having stock, such corporation’s members if the members have complete discretion to elect the corporation’s directors, or the corporation’s directors if the corporation’s members do not have such discretion; and (c) any other entity, its governing board or body. For the purposes of this definition, all references to directors and members shall be deemed to include all entities performing the function of directors or members however denominated.

“Balloon Indebtedness” means Long-Term Indebtedness, 25% or more of the original principal of which matures during any consecutive twelve-month period, if such maturing principal amount is not required to be amortized below such percentage by mandatory redemption or prepayment prior to such twelve-month period. Balloon Indebtedness does not include Indebtedness which otherwise would be classified as Put Indebtedness.

“Book Value,” when used with respect to Property of a Member, means the value of such Property, net of accumulated depreciation and amortization, as reflected in the most recent audited financial statements of such Member which have been prepared in accordance with GAAP and, when used with respect to Property of all Members, means the aggregate of the values of such Property, net of accumulated depreciation and amortization, as reflected in the most recent audited combined/consolidated financial statements of the Obligated Group prepared in accordance with GAAP, provided that such aggregate shall be calculated in such a manner that no portion of the value of any Property of any Member is included more than once.

“Business Day” means a day which is not (a) a Saturday, Sunday or legal holiday on which banking institutions in the State of Illinois or the State of New York are authorized by law to close or (b) a day on which the New York Stock Exchange is closed or the payment system of the Federal Reserve System is not operational.

“Capitalized Lease” means any lease of real or personal property which, in accordance with GAAP, is required to be capitalized on the balance sheet of the lessee.

“Capitalized Rentals” means, as of the date of determination, the amount at which the aggregate Net Rentals due and to become due under a Capitalized Lease under which a Person is a lessee would be reflected as a liability on a balance sheet of such Person.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Commitment Indebtedness” means the obligation of any Member to repay amounts disbursed pursuant to a commitment from a financial institution to refinance or purchase when due, when tendered or when required to be purchased (a) other Indebtedness of such Member or

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(b) Indebtedness of a Person who is not a Member, which Indebtedness is guaranteed by a Guaranty of such Member or secured by or payable from amounts paid on Indebtedness of such Member, and the obligation of any Member to pay interest payable on amounts disbursed for such purposes, plus any fees, costs or expenses payable to such financial institution for, under or in connection with such commitment, in the event of disbursement pursuant to such commitment or in connection with enforcement thereof, including without limitation any penalties payable in the event of such enforcement.

“Consultant” means a professional consulting or banking firm selected by the Obligated Group Agent and reasonably acceptable to the Master Trustee, having the skill and experience necessary to render the particular report required and having a favorable and nationally recognized reputation for such skill and experience, which firm does not control any Member of the Obligated Group or any Affiliate thereof and is not controlled by or under common control with any Member of the Obligated Group or an Affiliate thereof.

“Contributions” means the aggregate amount of all contributions, grants, gifts, bequests and devises actually received in cash or marketable securities by any Person in the applicable fiscal year of such Person and any such contributions, grants, gifts, bequests and devises originally received in a form other than cash or marketable securities by any Person which are converted in such fiscal year to cash or marketable securities.

“Counsel” means any attorney duly admitted to practice law before the highest court of any state and, without limitation, may include any attorney who is an employee of any Related Issuer, any Member, the Master Trustee or any Related Bond Trustee.

“Current Value” means (i) with respect to Property, Plant and Equipment: (a) the aggregate fair market value of such Property, Plant and Equipment as reflected in the most recent written report of an appraiser selected by the Obligated Group Agent and acceptable to the Master Trustee and, in the case of real property, who is a member of the American Institute of Real Estate Appraisers (MAI), delivered to the Master Trustee (which report shall be dated not more than three years prior to the date as of which Current Value is to be calculated) increased or decreased by a percentage equal to the aggregate percentage increase or decrease in the Index from the date of such report to the date as of which Current Value is to be calculated; plus (b) the Book Value of any Property, Plant and Equipment acquired since the last such report increased or decreased by a percentage equal to the aggregate percentage increase or decrease in the Index from the date of such acquisition to the date as of which Current Value is to be calculated; minus (c) the greater of the Book Value or the fair market value (as reflected in such most recent appraiser’s report) of any Property, Plant and Equipment disposed of since the last such report increased or decreased by a percentage equal to the aggregate percentage increase or decrease in the Index from the date of such report to the date as of which Current Value is to be calculated, and (ii) with respect to any other Property, the fair market value of such Property, which fair market value shall be evidenced in a manner satisfactory to the Master Trustee.

“Debt Service Requirements” means, with respect to the period of time for which calculated, the aggregate of the payments required to be made during such period in respect of principal (whether at maturity, as a result of mandatory sinking fund redemption, mandatory

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prepayment or otherwise) and interest on outstanding Funded Indebtedness of each Person or a group of Persons with respect to which calculated; provided that: (a) interest shall be excluded from the determination of the Debt Service Requirements to the extent that Escrowed Interest is available to pay such interest; (b) principal of Indebtedness shall be excluded from the determination of Debt Service Requirements to the extent that amounts are on deposit in an irrevocable escrow and such amounts (including, where appropriate, the earnings or other increment to accrue thereon) are required to be applied to pay such principal and such amounts so required to be applied are sufficient to pay such principal; and (c) in calculating Debt Service Requirements for any completed period, the principal amount of any Indebtedness included in such calculation which is paid during such period shall be excluded to the extent such principal amount is paid from the proceeds of other Indebtedness (including a rollover of the principal amount of Indebtedness consisting of commercial paper) or, in the case of Balloon Indebtedness, (1) from amounts deposited to provide for such payment pursuant to and in accordance with an amortization schedule established by a Member in an Officer’s Certificate filed with the Master Trustee for such Balloon Indebtedness, which Certificate: (i) contains an amortization schedule that provides for payments of principal and interest for each Fiscal Year that are not less than the amounts required to make any actual payments required to be made in such Fiscal Year by the terms of such Balloon Indebtedness; and (ii) contains such Member’s agreement to deposit for each Fiscal Year with a bank or trust company (pursuant to an agreement between such Member and such bank or trust company, which agreement has been deemed satisfactory as to form and substance by the Master Trustee) the amount of principal shown on such amortization schedule net of any amount of principal actually paid on such Balloon Indebtedness during such Fiscal Year (other than from amounts on deposit with such bank or trust company) which deposits have been made prior to any such required actual payment during such Fiscal Year if the amounts so on deposit were intended to be the source of such actual payments or (2) from amounts to provide such payments which represent board-designated funds.

“Defaulted Interest” means interest on any Related Bond of a particular series that is payable but not duly paid on the date due.

“Effective Date” means December 19, 2017.

“Escrowed Interest” means amounts irrevocably deposited in escrow to pay interest on Funded Indebtedness or Related Bonds and interest earned on amounts irrevocably deposited in escrow to the extent such interest earned is required to be applied to pay interest on Funded Indebtedness or Related Bonds.

“Escrow Obligations” means, (i) with respect to any Obligation which secures a series of Related Bonds, the obligations permitted to be used to refund or advance refund such series of Related Bonds under the Related Bond Indenture, or (ii) in all other cases (a) United States Government Obligations, (b) obligations of any agency or instrumentality of the United States Government, (c) certificates of deposit issued by a bank or trust company which are (1) fully insured by the Federal Deposit Insurance Corporation, Federal Savings and Loan Insurance Corporation or similar corporation chartered by the United States or (2) secured by a pledge of any United States Government Obligations having an aggregate market value, exclusive of accrued interest, equal at least to the principal amount of the certificates so secured, which security is held

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in a custody account by a custodian satisfactory to the Master Trustee, (d)(1) evidences of a direct ownership in future interest or principal payments on obligations of the type described in (a) above, which obligations are held in a custody account by a custodian satisfactory to the Master Trustee pursuant to the terms of a custody agreement or (2) obligations issued by any state of the United States or any political subdivision, public instrumentality or public authority of any state, which obligations are not callable before the date the principal thereof will be required and which obligations are fully secured by and payable solely from obligations of the type described in (a) above, which securities are held pursuant to an agreement in form and substance acceptable to the Master Trustee, (e) obligations of, or obligations fully guaranteed by, any state of the United States of America or any political subdivision thereof which obligations are not subject to redemption, whether optional or mandatory, prior to the stated maturity date thereof and are rated by a Rating Agency in the highest rating category (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by such agencies to obligations of that nature which rating has been assigned thereto without regard to any credit enhancement or escrow securing such obligations, or (f) after 30 days’ prior written notice to each Rating Agency then maintaining a rating on any Obligations or Related Bonds, shares or certificates in any short-term investment fund which is maintained by the Master Trustee or a Related Bond Trustee.

“Excluded Property” means any assets of “employee pension benefit plans” as defined in the Employee Retirement Income Security Act of 1974, as amended, the real estate described in Exhibit C to the Master Indenture, as amended from time to time pursuant to the related provisions of the Master Indenture, and all improvements and fixtures located thereon and used in connection therewith and gifts or bequests of real property received after the Effective Date; provided, however, that Excluded Property may not include any Property consisting of real property (together with fixtures attached thereto) constituting acute care hospital facilities, or Property consisting of real property upon which Facilities that, in the aggregate, generate in excess of 20% of the Revenues of the Obligated Group are located or on which any Property financed or refinanced with proceeds of outstanding Related Bonds are located.

“Existing Master Indenture” means the Amended and Restated Master Trust Indenture dated as of May 1, 2004, as supplemented and amended including as amended and supplemented by the Twenty-Eighth Supplemental Master Indenture, which amended and restated the Master Trust Indenture dated as of November 1, 1989, as supplemented and amended, among the Members of the Obligated Group and the Master Trustee

“Existing Obligations” means the Direct Note Obligations originally issued pursuant to the Existing Master Indenture that are currently outstanding as of the Effective Date.

“Expenses” means, for any period, the aggregate of all expenses calculated under GAAP, including without limitation any taxes, incurred by the Person or group of Persons involved during such period, minus (i) interest on Funded Indebtedness, (ii) depreciation and amortization, (iii) extraordinary expenses, (iv) any expenses resulting from (a) the extinguishment of debt, (b) any disposition of capital assets not made in the ordinary course of business, (c) any discontinued operations or (d) adjustments to the value of assets or liabilities resulting from changes in GAAP, (v) any expenses resulting from a forgiveness of or the establishment of reserves against Indebtedness of an Affiliate which does not constitute an extraordinary expense,

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(vi) losses resulting from any reappraisal, revaluation or write-down of assets (including without limitation intangibles), (vii) any loss or change in the value of an Interest Rate Hedge (including any change in the value of the termination value thereof) which loss or change in value is the result of the expiration or termination (including early termination) of such Interest Rate Hedge, (viii) any loss or change in value of investment securities which is not the result of the sale, transfer or disposition of such investment securities, (ix) any nonrecurring items which do not involve the expenditure or transfer of assets and (x) if such calculation is being made with respect to the Obligated Group, excluding any such expenses attributable to transactions between any Member and another Member, provided, however, that the provisions of (i) through (x) notwithstanding, no amount shall be subtracted from expenses more than once. “Expenses,” for the purposes of the various calculations required to be made under the Master Indenture, of the Obligated Group shall be deemed to include the above items of a person whose Indebtedness is guaranteed by a Member of the Obligated Group to the extent provided under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Calculation of Debt Service and Debt Service Coverage.”

“Facilities” means all land, leasehold interests and buildings and all fixtures and equipment (as defined in the Uniform Commercial Code or equivalent statute in effect in the state where such fixtures or equipment are located) of a Person. Facilities shall not include the land, leasehold interests, buildings, fixtures or equipment constituting Excluded Property.

“Fiscal Year” means any twelve-month period beginning on September 1 of any calendar year and ending on August 31 of the following calendar year, or such other consecutive twelve-month period selected by the Obligated Group Agent as the fiscal year for the Members.

“Fitch” means Fitch Ratings, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Fitch” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Obligated Group Agent by written notice to the Master Trustee.

“Funded Indebtedness” means, with respect to any Person, (i) all Indebtedness of such Person for money borrowed or credit extended which is not Short-Term; (ii) all Indebtedness of such Person incurred or assumed in connection with the acquisition or construction of Property which is not Short-Term; (iii) all Short-Term Indebtedness incurred by the Person with respect to which there is in effect a binding commitment (including without limitation letters or lines of credit or insurance) which may be subject only to commercially reasonable contingencies, by a financial institution generally regarded as responsible, which commitment and institution are acceptable to the Master Trustee, to provide financing sufficient to pay such Short-Term Indebtedness at its maturity; (iv) the Person’s Guaranties of Indebtedness which is not Short-Term; and (v) Capitalized Rentals under Capitalized Leases entered into by the Person; provided, however, that Indebtedness that could be described by more than one of the foregoing categories shall not in any case be considered more than once for the purpose of any calculation made pursuant to the Master Indenture.

“Funded Indebtedness Ratio” means the ratio consisting of (i) a numerator equal to the amount determined by dividing the Obligated Group’s total Funded Indebtedness by the sum of

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(a) such Funded Indebtedness and (b) the Obligated Group’s total unrestricted net assets (as reflected in or derived from the most recent audited combined/consolidated financial statements of the Obligated Group prepared in accordance with GAAP) and (ii) a denominator of one.

“GAAP” means generally accepted accounting principles at the time in effect for organizations whose primary place of business is the United States of America, to the extent applicable, and consistently applied.

“Governing Body” means, with respect to a Member, the board of directors, board of trustees or similar group in which the right to exercise the powers of corporate directors or trustees is vested.

“Government Obligations” means securities which consist of (a) United States Government Obligations or (b) evidences of a direct ownership in future interest or principal payments on obligations of the type described in subparagraph (a) above, which obligations are held in a custody account by a custodian satisfactory to the Master Trustee pursuant to the terms of a custody agreement.

“Guaranty” means all obligations of a Person guaranteeing, or in effect guaranteeing, any Indebtedness, dividend or other obligation of any Primary Obligor in any manner, whether directly or indirectly, including but not limited to obligations incurred through an agreement, contingent or otherwise, by such Person: (1) to purchase such Indebtedness or obligation or any Property constituting security therefore; (2) to advance or supply funds: (i) for the purchase or payment of such Indebtedness or obligation, or (ii) to maintain working capital or other balance sheet condition; (3) to purchase securities or other Property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the Primary Obligor to make payment of the Indebtedness or obligation; or (4) otherwise to assure the owner of such Indebtedness or obligation against loss in respect thereof.

“Historical Debt Service Coverage Ratio” means, for any period of time, the ratio consisting of a numerator equal to the amount determined by dividing Income Available for Debt Service for that period for the Debt Service Requirements for such period and a denominator of one; provided that, when such calculation is being made with respect to the Obligated Group, Income Available for Debt Service and Debt Service Requirements shall be determined only with respect to those Persons who are Members of the Obligated Group at the time of such calculation.

“Historical Pro Forma Debt Service Coverage Ratio” means, for any period of time, the ratio consisting of a numerator equal to the amount determined by dividing Income Available for Debt Service for that period by the Maximum Annual Debt Service Requirement for the Funded Indebtedness then outstanding (other than any Funded Indebtedness being refunded with the Funded Indebtedness then proposed to be issued) and the Funded Indebtedness then proposed to be issued and a denominator of one provided that, when such calculation is being made with respect to the Obligated Group, Income Available for Debt Service and Maximum Annual Debt Service Requirement shall be determined only with respect to those Persons who are Members of the Obligated Group at the time of such calculation.

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“Income Available for Debt Service” means, for any period, the excess of Revenues over Expenses of the Person or group of Persons involved.

“Indebtedness” means, for any Person, (a) all Guaranties by such Person, (b) all liabilities (exclusive of reserves such as those established for deferred taxes or litigation) recorded or required to be recorded as such on the audited financial statements of such Person in accordance with GAAP, and (c) all obligations for the payment of money incurred or assumed by such Person (i) due and payable in all events or (ii) if incurred or assumed primarily to assure the repayment of money borrowed or credit extended, due and payable upon the occurrence of a condition precedent or upon the performance of work, possession of Property as lessee, rendering of services by others or otherwise, and shall include, without limitation, Non-Recourse Indebtedness; provided that Indebtedness shall not include any Interest Rate Hedge, Indebtedness of one Member to another Member, the joint and several liability of any Member on Indebtedness issued by another Member or any obligation to repay moneys deposited by patients or others with a Member as security for or as prepayment of the costs of patient care or any rights of residents of life care, elderly housing or similar facilities to endowment or similar funds deposited by or on behalf of such residents.

“Independent Counsel” means an attorney duly admitted to practice law before the highest court of any state which is not an employee of any Related Issuer, any Member, any Affiliate of any Member, any entity controlled by or under common control with any Member or any Affiliate of any Member, the Master Trustee, any Related Bond Trustee or any other entity which could benefit, directly or indirectly, from the opinion of such attorney delivered under or in accordance with the provisions of the Master Indenture and, without limitation, may include independent legal counsel for any Related Issuer, any Member, the Master Trustee or any Related Bond Trustee.

“Index” means then current health care component of the implicit price deflator for the gross national product as most recently reported by the United States Department of Commerce or its successor agency, or, if such index is no longer published, such other index as is certified to be comparable and appropriate by the Obligated Group Agent in an Officer’s Certificate delivered to the Master Trustee, which other index is not objected to by the Master Trustee.

“Interest Rate Hedge” means an agreement, expressly identified in an Officer’s Certificate delivered to the Master Trustee as being entered into in order to hedge or manage the interest payable on all or a portion of any Indebtedness, which agreement may include, without limitation, an interest rate swap, a forward or futures contract or an option (e.g., a call, put, cap, floor or collar) and which agreement does not constitute an obligation to repay money borrowed, credit extended or the equivalent thereof.

“Interim Indebtedness” means Indebtedness having a term of one to five years with respect to which an Officer’s Certificate of the Obligated Group Agent is delivered stating that permanent funding of the facilities to be financed with such Interim Indebtedness is expected to be completed within five years of the date of issuance of such Interim Indebtedness.

“Lien” means any mortgage, pledge or lease of, security interest in or lien, charge, restriction or encumbrance on any Property of the Person involved in favor of, or which secures

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any obligation to, any Person other than any Member, and any Capitalized Lease under which any Member is lessee and the lessor is not another Member.

“Long-Term Indebtedness” means Indebtedness (which also may constitute Balloon Indebtedness or Put Indebtedness) having an original stated maturity or term greater than one year or renewable at the option of the debtor for a period greater than one year from the date of original issuance.

“Master Indenture” means the Existing Master Indenture, as supplemented and amended by the Second Amended and Restated Master Indenture.

“Master Trustee” means Wells Fargo Bank, National Association, or any successor trustee under the Master Indenture.

“Maximum Annual Debt Service Requirement” means the largest total Debt Service Requirements for all Indebtedness outstanding for the current or any succeeding Fiscal Year; provided that in calculating Debt Service Requirements for the purposes of applying such provisions, the principal amount of any Indebtedness included in such calculation which is paid during the current year shall be excluded to the extent such principal amount is paid from the proceeds of other Indebtedness; and provided further that principal and interest payments on Indebtedness due on the first day or first Business Day of a month shall be deemed payable during the preceding month if they are required to be fully deposited with a trustee for such Indebtedness during such preceding month.

“Member” or “Member of the Obligated Group” means any Person designated as a Member of the Obligated Group pursuant to the terms of the Master Indenture subject to the right of such Person to cease being a Member pursuant to the provisions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE— Cessation of Status as a Member of the Obligated Group.”

“Moody’s” means Moody’s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Obligated Group Agent by written notice to the Master Trustee.

“Net Proceeds” means, when used with respect to any insurance or condemnation award or sale consummated under threat of condemnation, the gross proceeds from the insurance or condemnation award or sale with respect to which that term is used less all expenses (including attorney’s fees, adjuster’s fees and any expenses of the Master Trustee) incurred in the collection of such gross proceeds.

“Net Rentals” means all fixed rents (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the Property other than upon termination of the lease for a default thereunder) payable under a lease or sublease of real or personal Property excluding any amounts required to be paid by the lessee (whether or not

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designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. Net Rentals for any future period under any so-called “percentage lease” shall be computed on the basis of the amount reasonably estimated to be payable thereunder for such period, but in any event not less than the amount paid or payable thereunder during the immediately preceding period of the same duration as such future period; provided that the amount estimated to be payable under any such percentage lease shall in all cases recognize any change in the applicable percentage called for by the terms of such lease.

“NMHC” means Northwestern Memorial HealthCare, an Illinois not for profit corporation, and its successors and assigns, any surviving or resulting corporation or transferee corporation if all or substantially all of the assets of NMHC have been transferred to such transferee corporation.

“NMHC Controlled Affiliate” means any entity controlled, directly or indirectly, by NMHC. For the purposes of this definition, control shall have the same meaning as in the definition of “Affiliate.”

“Non-Recourse Indebtedness” means any Indebtedness the liability for which is effectively limited to Property, Plant and Equipment and the income therefrom not less than 80% of the cost of which Property, Plant and Equipment shall have been financed solely with the proceeds of such Indebtedness with no recourse, directly or indirectly, to any other Property of any Member.

“Obligated Group” means the Members of the Obligated Group.

“Obligated Group Agent” means NMHC or such other Member as may be designated from time to time pursuant to written notice to the Master Trustee and each Related Issuer executed by the President or Chair of the Governing Body of NMHC or, if NMHC is no longer a Member of the Obligated Group, of each Member of the Obligated Group.

“Obligation” means any evidence of Indebtedness or an Interest Rate Hedge issued by a Member of the Obligated Group pursuant to the Master Indenture which has been authenticated by the Master Trustee pursuant to the Master Indenture.

“Obligation holder,” “holder” or “owner of the Obligation” means the registered owner of any fully registered or book entry Obligation unless alternative provision is made in the Supplemental Master Indenture pursuant to which such Obligation is issued for establishing ownership of such Obligation in which case such alternative provision shall control.

“Officer’s Certificate” means a certificate signed, in the case of a certificate delivered by a corporation, by the President, any Vice President or any other officer authorized to sign by resolution of the Governing Body of such corporation, in the case of a certificate delivered by any other Person, the chief executive or chief financial officer of such other Person in either case whose authority to execute such Certificate shall be evidenced to the satisfaction of the Master Trustee.

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“Opinion of Bond Counsel” means an opinion of nationally recognized municipal bond counsel, which counsel and opinion, including without limitation the scope, form, substance and other aspects thereof, are acceptable to the Master Trustee.

“Outstanding” means, in the case of Indebtedness of a Person other than Related Bonds or Obligations, all such Indebtedness of such Person which has been issued except any such portion thereof cancelled after purchase on the open market or surrendered for cancellation or because of payment at or redemption prior to maturity, any such Indebtedness in lieu of which other Indebtedness has been duly issued and any such Indebtedness which is no longer deemed outstanding under its terms and with respect to which such Person is no longer liable under the terms of such Indebtedness.

“Outstanding Obligations” or “Obligations Outstanding” means all Obligations which have been duly authenticated and delivered by the Master Trustee under the Master Indenture, except:

(a) Obligations cancelled after purchase in the open market or because of payment at or prepayment or redemption prior to maturity;

(b) (i) Obligations for the payment or redemption of which cash or Escrow Obligations shall have been theretofore deposited with the Master Trustee (whether upon or prior to the maturity or redemption date of any such Obligations); provided that if such Obligations are to be prepaid or redeemed prior to the maturity thereof, notice of such prepayment or redemption shall have been given or irrevocable arrangements satisfactory to the Master Trustee shall have been made therefor, or waiver of such notice satisfactory in form to the Master Trustee shall have been filed with the Master Trustee and (ii) Obligations securing Related Bonds for the payment or redemption of which cash or Escrow Obligations shall have been theretofore deposited with the Related Bond Trustee (whether upon or prior to the maturity or redemption date of any such Obligations); provided that if such Related Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given or arrangements satisfactory to the Related Bond Trustee shall have been made thereafter, or waiver of notice satisfactory in form to the Related Bond Trustee shall have been filed with the Related Bond Trustee;

(d) Obligations held by a Member.

Notwithstanding the foregoing, any Obligation securing Related Bonds shall be deemed outstanding if such Related Bonds are Outstanding.

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“Permitted Encumbrances” means the Master Indenture, any Related Loan Document, any Related Bond Indenture and, as of any particular time:

(a) Liens arising by reason of good faith deposits with or by a Member in the ordinary course of such Member’s business in connection with tenders, leases of real estate, bids or contracts (other than contracts for the payment of money), deposits by any Member to secure public or statutory obligations, or to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or other similar charges; any Lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation for any purpose at any time as required by law or governmental regulation as a condition to the transaction of any business or the exercise of any privilege or license, or to enable any Member to maintain self-insurance or to participate in any funds established to cover any insurance risks or in connection with workmen’s compensation, unemployment insurance, pensions or profit sharing plans or other Social Security plans or programs, or to share in the privileges or benefits available to corporations participating in such arrangements;

(b) any Lien on Property acquired by a Member, which Lien secures Indebtedness issued, incurred or assumed by any Member in connection with and to effect such acquisition or existing Indebtedness which will remain outstanding after such acquisition but will not be assumed by a Member, if in any such case the aggregate principal amount of such Indebtedness does not exceed the fair market value of the Property subject to such Lien as determined in good faith by the Governing Body of the Member;

(c) Liens on Property of a Person existing at the time such Person is merged into or consolidated with a Member, or at the time of a sale, lease or other disposition of the properties of a Person as an entirety or substantially as an entirety to a Member, provided, that no such Lien may be increased, extended, renewed or modified after such date to apply to any Property of a Member not subject to such Lien on such date unless such Lien as so increased, extended, renewed or modified is otherwise permitted under the Master Indenture;

(d) any Lien on the Property of any Member granted in favor of or securing Indebtedness to any other Member;

(e) Liens on any Property of a Member to secure any Indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of constructing, improving or acquiring Property subject to such Liens; provided, that such Liens shall not apply to any Property theretofore owned by a Member, other than any theretofore unimproved real property on which the Property so constructed or improved is located;

(f) any Lien on Property if such Lien equally and ratably secures all of the Obligations and only the Obligations;

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(g) leases, licenses or similar use agreement which relate to Property of the Obligated Group which is of a type that is customarily the subject of such leases, licenses or use agreements, such as office space for physicians and educational institutions, food service facilities, gift shops and radiology or other hospital-based specialty services, pharmacy and similar departments; leases entered into in accordance with the disposition of Property provisions of the Master Indenture; leases, licenses or similar rights to use Property to which a Member is a party existing as of the Effective Date and any renewals and extensions thereof; and any leases, licenses or similar rights to use Property whereunder a Member is lessee, licensee or the equivalent thereof upon fair and reasonable terms no less favorable to the lessee or licensee than would obtain in a comparable arm’s-length transaction;

(h) Liens for taxes and special assessments which are not then delinquent, or if then delinquent are being contested in accordance with the provisions of the Master Indenture;

(i) utility, access and other easements and rights-of-way, restrictions, encumbrances and exceptions which do not materially interfere with or materially impair the operation of the Property affected thereby (or, if such Property is not being then operated, the operation for which it was designed or last modified);

(j) any mechanic’s, laborer’s, materialman’s, supplier’s or vendor’s Lien or right in respect thereof (1) if payment is not yet due under the contract in question or (2) if such Lien is being contested in accordance with the provisions of the Master Indenture or (3) if such Lien does not materially interfere with or materially impair the operation of the Property affected thereby;

(k) such Liens, defects, irregularities of title and encroachments onto adjoining property as normally exist with respect to property similar in character to the Property involved and which do not materially adversely affect the value of, or materially impair, the Property affected thereby for the purpose for which it was acquired or is held by the owner thereof, including without limitation statutory liens granted to banks or other financial institutions, which liens have not been specifically granted to secure Indebtedness and which do not apply to Property which has been deposited as part of a plan to secure Indebtedness;

(l) zoning laws and similar restrictions which are not violated by the Property affected thereby;

(m) statutory rights under Section 291, Title 42 of the United States Code, as a result of what are commonly known as Hill-Burton grants, and similar rights under other federal statutes or statutes of the state in which the Property involved is located;

(n) all right, title and interest of the state where the Property involved is located, municipalities and the public in and to tunnels, bridges and passageways over, under or upon a public way;

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(o) Liens on or in Property given, granted, bequeathed or devised by the owner thereof existing at the time of such gift, grant, bequest or devise, provided that (i) such Liens consist solely of restrictions on the use thereof or the income therefrom, or (ii) such Liens secure Indebtedness which is not assumed by any Member and such Liens attach solely to the Property (including the income therefrom) which is the subject of such gift, grant, bequest or devise;

(p) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which any Member shall at any time in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall be in existence;

(q) Liens on moneys deposited by patients or others with a Member as security for or as prepayment of the cost of patient care or any rights of residents of life care, elderly housing or similar facilities to endowment or similar funds deposited by or on behalf of such residents;

(r) the Liens listed on Exhibit C to the Master Indenture on the Effective Date;

(s) Liens on Property due to rights of third party payors for recoupment of excess reimbursement paid;

(t) any security interest in any rebate fund, depreciation reserve, debt service or interest reserve, debt service fund or any similar fund established pursuant to the terms of any Supplemental Master Indenture, Related Bond Indenture or Related Loan Document in favor of the Master Trustee, a Related Bond Trustee, a Related Issuer or the holder of the Indebtedness issued pursuant to such Supplemental Master Indenture, Related Bond Indenture or Related Loan Document or the holder of any related Commitment Indebtedness;

(u) any Lien on any Related Bond or any evidence of Indebtedness of any Member acquired by or on behalf of any Member which secures Commitment Indebtedness and only Commitment Indebtedness;

(v) Liens on accounts receivable arising as a result of the sale, purported sale or other transfer or financing of or involving accounts receivable; provided, that the principal amount of Indebtedness secured by such Lien does not exceed the aggregate amount of accounts receivable of a Member so sold, purportedly sold or otherwise transferred or financed;

(w) any Liens on Property of a Person which are existing on the date such Person becomes a Member of the Obligated Group; provided that no such Lien (or the amount of Indebtedness secured thereby) may be increased or modified to apply to any Property of any Member not previously subject to such Lien on such date, unless such Lien

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following such increase or modification otherwise qualifies as a Permitted Encumbrance under the Master Indenture;

(x) such Liens, covenants, conditions and restrictions, if any, which do not secure Indebtedness and which (i) in the case of Property owned by a Member on the Effective Date, do not and will not, so far as can reasonably be foreseen, materially adversely affect the value of the Property currently affected thereby or materially impair the same, and (ii) in the case of any other Property, do not materially impair or materially interfere with the operation or usefulness thereof for the purpose for which such Property was acquired or is held by a Member;

(y) Liens securing the obligation of a Member to repay amounts owing under an Interest Rate Hedge;

(z) any Lien consisting of a covenant, condition or restriction (including reversionary interest or possibility of reverter) that the Property be predominantly used for health care or related purposes;

(aa) any Lien securing Non-Recourse Indebtedness;

(bb) any Lien if after giving effect to such Lien and all other Liens classified as Permitted Encumbrances under this clause (bb), the dollar amount of such Lien, or if such Lien cannot be valued, the Book Value or, at the option of the Obligated Group Agent, the Current Value of the Property of the Obligated Group which is subject to such Liens is not at any time more than 20% of the value of all of the Property of the Obligated Group (calculated on the same basis as the value of the encumbered Property);

(cc) [reserved]; and

(dd) with respect to any Property in which a Member holds a leasehold interest as lessee, Liens arising upon the lessor’s title not caused by any action of the Member and in respect of which the Member has not assumed any obligation.

“Person” means any natural person, firm, joint venture, association, partnership, business trust, corporation, limited liability company, public body, agency or political subdivision thereof or any other similar entity.

“Primary Obligor” means the Person who is primarily obligated on an obligation which is guaranteed by another Person.

“Projected Debt Service Coverage Ratio” means, for any future period, the ratio consisting of a numerator equal to the amount determined by dividing the projected Income Available for Debt Service for that period by the Maximum Annual Debt Service Requirement for the Funded Indebtedness expected to be outstanding during such period and a denominator of one.

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“Projected Rate” means, at the option of the Obligated Group Agent, (i) in the case of obligations the interest on which is expected to be exempt from federal income taxes, the higher of (a) the interest rate which equals the most recently available tax-exempt variable rate demand obligations, as produced by Municipal Market Data and published or made available by SIFMA or any Person acting in cooperation with or under the sponsorship of SIFMA (the “SIFMA Index”) and effective from such date, or if the SIFMA index is no longer available, an index recommended by a banking or investment banking institution knowledgeable in matters of health care finance which index is reasonably comparable to the SIFMA Index and is acceptable to the Obligated Group Agent and (b) the average rate for the most recent 12 months of the Indebtedness in question, (ii) for taxable indebtedness, the rate on U.S. Treasuries with a maturity as close as available to the proposed indebtedness plus a spread provided by a Consultant which spread will result in a Projected Rate that is reasonably comparable in the view of the Consultant to the current market rate for other similar taxable indebtedness or (iii) the projected yield at par of an obligation as set forth in the report of a Consultant (which Consultant and report, including without limitation the scope, form, substance and other aspects thereof, are not objected to by the Master Trustee). Such report shall state that in determining the Projected Rate such Consultant reviewed the yield evaluations at par of not less than three obligations (or such lesser number as the Consultant shall deem appropriate, but in no event less than one) selected by such Consultant, the interest on which is entitled to the exemption from federal income tax afforded by Section 103(a) of the Code or any successor thereto (or, if it is not expected that it will be reasonably possible to issue such tax-exempt obligations or if the interest on the Indebtedness for which the Projected Rate is being calculated is not entitled to such exemption, then obligations the interest on which is subject to federal income taxation) which obligations such Consultant states in its report are reasonable comparators for utilizing in developing such Projected Rate and which obligations: (i) were outstanding on a date selected by the Consultant which date so selected occurred during the 90-day period preceding the date of the calculation utilizing the Projected Rate in question, (ii) to the extent practicable, are obligations of Persons engaged in operations similar to those of the Obligated Group and having a credit rating similar to that of the Obligated Group, (iii) are not entitled to the benefits of any credit enhancement, including without limitation any letter or line of credit or insurance policy unless the Indebtedness for which the Projected Rate is calculated is entitled to the benefits of similar credit enhancement, and (iv) to the extent practicable, have a remaining term and amortization schedule substantially the same as the obligation with respect to which such Projected Rate is being developed.

“Property” means any and all rights, titles and interests in and to any and all property, whether real or personal, tangible (including cash) or intangible, wherever situated and whether now owned or hereafter acquired, other than Excluded Property. “Property” in the case of a Member shall be deemed to include all bridges and tunnels connecting one part of the Facilities to another part thereof if owned by such Member.

“Property, Plant and Equipment” means all Property of each Member that is classified as property, plant and equipment under GAAP.

“Put Date” means (i) any date on which an owner of Put Indebtedness may elect to have such Put Indebtedness paid, purchased or redeemed by or on behalf of the underlying obligor prior to its stated maturity date or (ii) any date on which Put Indebtedness is required to be paid,

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purchased or redeemed from the owner by or on behalf of the underlying obligor (other than at the option of the owner) prior to its stated maturity date, other than pursuant to any mandatory sinking fund or other similar fund or other than by reason of acceleration upon the occurrence of an event of default.

“Put Indebtedness” means Indebtedness which is (i) payable or required to be purchased or redeemed by or on behalf of the underlying obligor, at the option of the owner thereof, prior to its stated maturity date or (ii) payable or required to be purchased or redeemed from the owner by or on behalf of the underlying obligor (other than at the option of the owner) prior to its stated maturity date, other than pursuant to any mandatory sinking fund or other similar fund or other than by reason of acceleration upon the occurrence of an event of default.

“Qualified Accountant” means (i) Ernst & Young LLP, (ii) a firm of certified public accountants of the size and type commonly referred to as nationally known certified public accountants and (iii) a firm of independent public accountants selected by the Obligated Group Agent and not objected to by the Master Trustee.

“Qualified Provider” means any financial institution or insurance company which is a party to an Interest Rate Hedge, the long-term unsecured debt of such financial institution or insurance company (or of the parent or a subsidiary of such financial institution or insurance company if such parent or subsidiary guarantees the performance of such financial institution or insurance company under such Interest Rate Hedge), or obligations secured or supported by a letter of credit, contract, guarantee, agreement, insurance policy or surety bond issued by such financial institution or insurance company (or such guarantor parent or subsidiary) which is rated by a Rating Agency is rated at the time of the execution and delivery of the Interest Rate Hedge, (i) in one of the three highest rating categories of a Rating Agency (without regard to any refinements of gradation of rating category by numerical modifier or otherwise) or (ii) at least as high as the then current rating assigned by such Rating Agency to the long-term unsecured unenhanced debt of the Obligated Group.

“Rating Agency” means Moody’s, Standard & Poor’s or Fitch and their respective successors and assigns.

“Related Bond Trustee” means any trustee under any Related Bond Indenture and any successor trustee thereunder or, if no trustee is appointed under a Related Bond Indenture, the Related Issuer.

“Related Bonds” means any revenue bonds or similar obligations issued by any state of the United States or any municipal corporation or other political subdivision formed under the laws thereof or any constituted authority, agency or instrumentality of any of the foregoing empowered to issue obligations on behalf thereof, the proceeds of which are loaned or otherwise made available to any Member in consideration, whether in whole or in part, of the execution, authentication and delivery of an Obligation or Obligations to such governmental issuer.

“Related Bond Indenture” means any indenture, bond resolution or similar instrument pursuant to which any series of Related Bonds is issued.

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“Related Bond Trustee” means any trustee under any Related Bond Indenture and any successor trustee thereunder or, if no trustee is appointed under a Related Bond Indenture, the Related Issuer.

“Related Issuer” means any issuer of a series of Related Bonds.

“Related Loan Document” means any document or documents (including without limitation any lease, sublease or installment sales contract) pursuant to which any proceeds of any Related Bonds are advanced to any Member (or any Property financed or refinanced with such proceeds is leased, subleased or sold to a Member).

“Revenues” means, for any period, (i) in the case of any Person providing health care services, the sum of (a) gross patient service revenues less contractual allowances and provisions for free care and discounted care, plus (b) other operating revenues, plus (c) non-operating revenues (other than Contributions, income derived from the sale of assets not in the ordinary course of business or any gain from the extinguishment of debt or any extraordinary item or earnings which constitute Escrowed Interest or earnings on amounts which are irrevocably deposited in escrow to pay the principal of or interest on Indebtedness), plus (d) Unrestricted Contributions, all as determined in accordance with GAAP; and (ii) in the case of any other Person, gross revenues less sale discounts and sale returns and allowances, as determined in accordance with GAAP; but excluding for purposes of both clause (i) and (ii) above (A) any gains on the sale or other disposition of investments or fixed or capital assets not in the ordinary course and any gains on the extinguishment of debt, (B) earnings resulting from any reappraisal, revaluation or write-up of assets, (C) gains or changes in the valuation of an Interest Rate Hedges which gain or change in value is the result of the expiration or termination (including early termination) of such Interest Rate Hedge, (D) gains or changes in the valuation of investment securities other than as the result of the sale, transfer or other disposition of such investment security and (E) any nonrecurring items of an extraordinary nature which do not involve the receipt of assets; provided, however, that if such calculation is being made with respect to the Obligated Group, such calculation shall be made in such a manner so as to exclude any revenues attributable to transactions between any Member and any other Member; provided, further, that the provisions of (A) through (E) notwithstanding, no amount shall be added to revenues more than once. “Revenues,” for the purposes of the various calculations required to be made under the Master Indenture, of the Obligated Group shall be deemed to include the above items of a person whose Indebtedness is guaranteed by a Member of the Obligated Group to the extent provided in the provisions summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Calculation of Debt Service and Debt Service Coverage.”

“Second Amended and Restated Master Indenture” means the Second Amended and Restated Master Trust Indenture dated as of December 1, 2017, among the Members of the Obligated Group and the Master Trustee, as it may be amended and/or supplemented from time to time in accordance with its terms.

“Series 2017 Obligations” means the Series 2017A Obligation and the Series 2017B Obligation.

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“Series 2017A Obligation” means the Direct Note Obligation, Series 2017A (Illinois Finance Authority), issued pursuant to the terms of the Existing Master Indenture.

“Series 2017B Obligation” means the Direct Note Obligation, Series 2017B (Illinois Finance Authority), issued pursuant to the terms of the Existing Master Indenture.

“Short-Term” means, when used in connection with Indebtedness, having an original maturity less than or equal to one year and not renewable at the option of the debtor for a term greater than one year beyond the date of original issuance.

“Springing Amendments” has the meaning set forth under “SUMMARY OF CERTAIN SPRINGING AMENDMENTS TO THE MASTER INDENTURE” below.

“Standard & Poor’s” means Standard & Poor’s Global Ratings, a corporation organized and existing under the laws of the State of New York, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Standard & Poor’s” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Obligated Group Agent by written notice to the Master Trustee.

“Supplemental Master Indenture” means an indenture amending or supplementing the Master Indenture entered into pursuant to the provisions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Supplemental Master Indentures.”

“System” means, collectively, all entities which, in accordance with GAAP, are included in the audited consolidated financial statements of NMHC (or of the Obligated Group Agent, if NMHC is no longer the Obligated Group Agent) and which group includes all of the Members of the Obligated Group.

“Tax-Exempt Organization” means a Person organized under the laws of the United States of America or any state thereof which is an organization described in Section 501(c)(3) of the Code, which is exempt from federal income taxes under Section 501(a) of the Code and which is not a “private foundation” within the meaning of Section 509(a) of the Code, or corresponding provisions of federal income tax laws from time to time in effect.

“Twenty-Eighth Supplemental Master Indenture” means the Twenty-Eighth Supplemental Master Trust Indenture dated as of December 1, 2017 between NMHC, as the Obligated Group Agent, and the Master Trustee, which supplements and amends the Existing Master Indenture.

“United States Government Obligations” means non-callable direct obligations of, or obligations the timely payment of the principal of and interest on which is fully guaranteed by, the United States of America.

“University” means Northwestern University, an Illinois corporation, and its successors and assigns.

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“Unrestricted Contributions” means Contributions which are not restricted in any way that would prevent their application to the payment of debt service on Indebtedness of the Person receiving such Contributions.

SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE

The Master Indenture contains various covenants, security provisions, terms and conditions, certain of which are summarized below. Reference is made to the Master Indenture for a full and complete statement of the Master Indenture’s provisions.

THE OBLIGATIONS; PAYMENT OF THE OBLIGATIONS

The total principal amount of Obligations, the number of Obligations and the series of Obligations that may be created under the Master Indenture is not limited except as is set forth with respect to any other series of Obligations in the Supplemental Master Indenture providing for the issuance thereof.

Each Member unconditionally and irrevocably (subject to the right of such Member to cease its status as a Member of the Obligated Group pursuant to the terms and conditions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Cessation of Status as a Member of the Obligated Group” below), jointly and severally covenants that it will promptly pay the principal of, premium, if any, and interest on every Obligation issued under the Master Indenture at the place, on the dates and in the manner provided in the Master Indenture and in said Obligations according to the true intent and meaning thereof. Notwithstanding any schedule of payments upon the Obligations set forth in the Master Indenture or in the Obligations, each Member unconditionally and irrevocably (subject to the right of such Member to cease its status as a Member of the Obligated Group pursuant to the terms and conditions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Cessation of Status as a Member of the Obligated Group” below), jointly and severally agrees to make payments upon each Obligation and be liable therefor at the times and in the amounts (including principal, interest and premium, if any) equal to the amounts to be paid as interest, principal at maturity or by mandatory sinking fund redemption, or premium, if any, upon any Related Bonds from time to time outstanding.

ACCOUNTING PRINCIPLES

Unless stated otherwise in the Master Indenture, where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation, combination or other accounting computation is required to be made for the purposes of the Master Indenture or any agreement, document or certificate executed and delivered in connection with or pursuant to the Master Indenture, such determination or computation shall be done in accordance with GAAP in effect on, at the sole option of the Obligated Group Agent, (i) the date such determination or computation is made for any purpose of the Master Indenture or (ii) the date of execution and delivery of the Second Amended and Restated Master Indenture if the Obligated Group Agent delivers an Officer’s Certificate to the Master Trustee describing why then-current

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GAAP is inconsistent with the intent of the parties on the date of execution and delivery of the Second Amended and Restated Master Indenture. Any operating lease, as defined by the Financial Accounting Standards Board on the date of execution and delivery of the Second Amended and Restated Master Indenture, and any renewal of any such operating lease, shall be governed in accordance with GAAP in effect on the date of execution and delivery of the Second Amended and Restated Master Indenture and shall not be treated as the incurrence of Funded Indebtedness or Funded Indebtedness for the purpose of any calculation under the Master Indenture or the disposition of Property, unless otherwise elected by the Obligated Group Agent. If there is any change in GAAP which results in a material change in the method of calculation of any covenant or obligation in the Master Indenture, and, as a result thereof, the Obligated Group Agent notifies the Master Trustee that the Obligated Group wishes to amend any covenant to eliminate the effect of any such change on the operation of such covenant, then the Obligated Group and the Master Trustee shall amend the Master Indenture so as to equitably reflect such change, with the desired result that the criteria for calculating such covenant shall be the same after such change as if such change had not been made and, until such notice is withdrawn or such covenant is amended in a manner satisfactory to the Obligated Group Agent, the Obligated Group’s compliance with such covenant shall be determined on the basis of GAAP in the United States in effect immediately before the relevant change became effective.

ENTRANCE INTO THE OBLIGATED GROUP

Upon the effective date of the Springing Amendments, the provisions of the Master Indenture as summarized under subparagraphs (b) and (c) under this subheading will be deleted in their entirety and replaced as described under “SUMMARY OF CERTAIN SPRINGING AMENDMENTS TO THE MASTER INDENTURE – ENTRANCE INTO THE OBLIGATED GROUP” below.

Any Person may become a Member of the Obligated Group if:

(a) Such Person shall execute and deliver to the Master Trustee a Supplemental Master Indenture acceptable to the Master Trustee which shall be executed by the Master Trustee and each then current Member, containing (i) the agreement of such Person (A) to become a Member of the Obligated Group and thereby to become subject to compliance with all provisions of the Master Indenture and (B) unconditionally and irrevocably (subject to the right of such Person to cease its status as a Member of the Obligated Group pursuant to the terms and conditions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Cessation of Status as a Member of the Obligated Group” below) to jointly and severally make payments upon each Obligation at the times and in the amounts provided in each such Obligation and (ii) representations and warranties by such Person substantially similar to those set forth in the Master Indenture other than those relating to tax-exempt status if such person is not a Tax-Exempt Organization (but with such deviations as are not objected to by the Master Trustee, including, but not limited to any deviations as a result of such Person not being a not for profit corporation or formed under the laws of the State of Illinois);

(b) The Obligated Group Agent shall, by appropriate action of its Governing Body, have approved the admission of such Person to the Obligated Group and each of the

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Members shall have taken such action, if any, required to approve the admission of such Person to the Obligated Group;

(c) The Master Trustee shall have received (1) a certificate of the Obligated Group Agent which demonstrates that, immediately upon such Person becoming a Member of the Obligated Group (A) the Members would not, as a result of such transaction, be in default in the performance or observance of any covenant or condition to be performed or observed by them under the Master Indenture including without limitation the provisions summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Liens on Property” below, and (B) assuming such Person had been a Member of the Obligated Group during the most recent Fiscal Year of the Obligated Group with respect to which audited financial statements are available, the Income Available for Debt Service of the Obligated Group either (x) would have been no less than 100% of the Debt Service Requirements of the Obligated Group for such Fiscal Year if it were assumed that such Person was a Member of the Obligated Group during such Fiscal Year or (y) if the Income Available for Debt Service of the Obligated Group was less than 100% of the Debt Service Requirements of the Obligated Group during such Fiscal Year, such Income Available for Debt Service would be a larger percentage of such Debt Service Requirements if it were assumed that such Person was a Member of the Obligated Group during such Fiscal Year, which conclusions shall, if required by the Master Trustee, be accompanied by a concurring report, opinion or verification of a Qualified Accountant selected by the Obligated Group Agent and satisfactory to the Master Trustee, (2) an opinion of Counsel to the effect that (x) the instrument described in subparagraph (a) above has been duly authorized, executed and delivered and constitutes a legal, valid and binding agreement of such Person, enforceable in accordance with its terms, subject to customary exceptions for bankruptcy, insolvency and other laws generally affecting enforcement of creditors’ rights and application of general principles of equity and to the exceptions set forth in Exhibit B to the Master Indenture and (y) the addition of such Person to the Obligated Group will not adversely affect the status as a Tax-Exempt Organization of any Member which otherwise has such status and (3) if all amounts due or to become due on all Related Bonds have not been paid to the holders thereof and provision for such payment has not been made in such manner as to have resulted in the defeasance of all Related Bond Indentures, an Opinion of Bond Counsel, to the effect that under then existing law the consummation of such transaction, whether or not contemplated on the date of delivery of any such Related Bond, would not adversely affect the validity of any Related Bond or any exemption from federal or state income taxation of interest payable on such Bond otherwise entitled to such exemption; provided that in making the calculation called for by subparagraph (c)(1)(B) above, (i) there shall be excluded from Revenues (a) any Revenues generated by Property of such Person transferred or otherwise disposed of by such Person since the beginning of the Fiscal Year during which such Person’s entry into the Obligated Group occurs and (b) any Revenues generated by Property of the new Member which at the time of such Member’s entry into the Obligated Group will be categorized as Excluded Property and (ii) there shall be excluded from Expenses (a) any Expenses related to Property of such Person transferred or otherwise disposed of by such Person since the beginning of the Fiscal Year during which such Person’s entry into the Obligated Group occurs and (b) any Expenses related to Property of the new Member which at the time of

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such Member’s entry into the Obligated Group will be categorized as Excluded Property; and

(d) (i) Exhibit C to the Master Indenture is amended to include a description of the Property of the Person becoming a Member which is to be considered Excluded Property and (ii) Exhibit A to the Master Indenture is amended to add such Person as a Member.

Each successor, assignee, surviving, resulting or transferee corporation of a Member must agree to become, and satisfy the above-described conditions to becoming, a Member of the Obligated Group prior to any such succession, assignment or other change in such Member’s corporate status.

CESSATION OF STATUS AS A MEMBER OF THE OBLIGATED GROUP

Upon the effective date of the Springing Amendments, the provisions of the Master Indenture as summarized under subparagraphs (c) and (e) under this subheading will be deleted in their entirety and replaced as described under “SUMMARY OF CERTAIN SPRINGING AMENDMENTS TO THE MASTER INDENTURE – CESSATION OF STATUS AS A MEMBER OF THE OBLIGATED GROUP” below.

Each Member covenants that it will not take any action, corporate or otherwise, which would cause it or any successor thereto into which it is merged or consolidated under the terms of the Master Indenture to cease to be a Member of the Obligated Group unless:

(a) if such Member proposing to withdraw from the Obligated Group is a party to any outstanding Obligation securing Related Loan Documents with respect to Related Bonds which remain outstanding (i) another Member of the Obligated Group has executed and delivered a replacement Obligation and (ii) there is delivered an Opinion of Independent Counsel to the effect that such replacement Obligation has been duly authorized, executed and delivered and is enforceable in accordance with its terms against such other Member;

(b) prior to cessation of such status, there is delivered to the Master Trustee an Opinion of Bond Counsel to the effect that, under then existing law, the cessation by the Member of its status as a Member will not adversely affect the validity of any Related Bond or any exemption from federal or state income taxation of interest payable thereon to which such Bond would otherwise be entitled;

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Obligated Group) for such Fiscal Year or, if the Income Available for Debt Service of the Obligated Group was less than 100% of the Debt Service Requirements of the Obligated Group during such Fiscal Year, such Income Available for Debt Service would be a larger percentage of the Debt Service Requirements of the Obligated Group (with such exclusions) if it were assumed that such Person was not a Member of the Obligated Group during such Fiscal Year, which conclusions shall, if requested by the Master Trustee, be accompanied by a concurring report, opinion or verification of a Qualified Accountant selected by the Obligated Group Agent and satisfactory to the Master Trustee; and (ii) prior to and immediately after such cessation, no event of default exists under the Master Indenture, including, without limitation, the provisions summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Liens on Property” below and no event shall have occurred which with the passage of time or the giving of notice, or both, would become such an event of default;

(d) prior to such cessation there is delivered to the Master Trustee an opinion of Counsel (which Counsel and opinion, including without limitation the scope, form, substance and other aspects thereof, are acceptable to the Master Trustee) to the effect that the cessation by such Member of its status as a Member will not adversely affect the status as a Tax-Exempt Organization of any Member which otherwise has such status; and

(e) prior to cessation of such status, each Member of the Obligated Group consents in writing to the withdrawal by such Member.

Upon such cessation in accordance with the foregoing provisions, (i) Exhibit C to the Master Indenture shall be amended to delete therefrom any Excluded Property of the Member which has ceased being a Member and (ii) Exhibit A to the Master Indenture shall be amended to delete therefrom the name of such Person.

Upon such withdrawal, a former Member shall no longer be obligated to make payment, on any Obligation except those which it has executed in a capacity other than as agent for another Member or Members, the remaining Members shall remain obligated to make payment on all outstanding Obligations including those issued by or for the benefit of the former Member.

SUBSTITUTE OBLIGATIONS UPON WITHDRAWAL OF A MEMBER OF THE OBLIGATED GROUP

In the event any Member of the Obligated Group which has issued an Obligation ceases to be a Member of the Obligated Group and another Member of the Obligated Group issues an Obligation under the Master Indenture in exchange therefor, the original Obligation shall be surrendered to the Master Trustee in exchange for such substitute Obligation (without, in the case of any Obligation issued to secure a series of Related Bonds, notice to or consent of any Related Bondholder), provided that such substitute Obligation provides for payments of principal, interest, premium, tender price and other amounts identical to the surrendered Obligation.LIENS ON PROPERTY

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Each Member covenants not to create or permit to be created or remain and, at its cost and expense, to promptly discharge or terminate all Liens on its Property or any part thereof which are not Permitted Encumbrances.

ADDITIONAL INDEBTEDNESS

The ability of the Members of the Obligated Group to incur Additional Indebtedness, including Additional Indebtedness evidenced by Additional Obligations, and the amount and terms of such Additional Indebtedness, is not limited by the provisions of the Master Indenture.

CALCULATION OF DEBT SERVICE AND DEBT SERVICE COVERAGE

The various calculations of the amount of Indebtedness of a Person and the debt service payable with respect to such Indebtedness required under certain provisions of the Master Indenture shall be made in a manner consistent with the provisions of the Master Indenture summarized under this caption.

Interim Indebtedness shall be deemed to mature over 30 years from the final maturity date of such Indebtedness, bear interest on the unpaid principal balance thereof at a Projected Rate and be payable either (i) on a level annual debt service basis over a 30 year period or (ii) the period of time set forth in an Officer’s Certificate of the Obligated Group Agent, dated within 90 days of the date of any calculation under the Master Indenture stating that financing of a stated term (which shall not extend beyond 30 years after the date of such calculation) and amortization is reasonably attainable to refund or otherwise directly or indirectly to refinance any amount of the related Indebtedness. If the Obligated Group Agent elects in writing delivered to the Master Trustee, Balloon Indebtedness shall be deemed to mature over 30 years from the date on which 25% or more of the original principal amount of such Balloon Indebtedness becomes due during a consecutive twelve month period, bear interest on the unpaid principal balance thereof at a Projected Rate and be payable either (i) on a level annual debt service basis over a 30 year period or (ii) the period of time set forth in an Officer’s Certificate of the Obligated Group Agent, dated within 90 days of the date of any calculation under the Master Indenture stating that financing of a stated term (which shall not extend beyond 30 years after the date of such calculation) and amortization is reasonably attainable to refund or otherwise directly or indirectly to refinance any amount of the related Indebtedness. In the alternative, if the Obligated Group Agent elects in writing delivered to the Master Trustee, Balloon Indebtedness shall be deemed to be payable in accordance with the amortization schedule hereinafter referred to if: (a) a Member establishes in an Officer’s Certificate filed with the Master Trustee an amortization schedule for such Balloon Indebtedness; which amortization schedule shall provide for payments of principal and interest for each Fiscal Year that are not less than the amounts required to make any actual payments required to be made in such Fiscal Year by the terms of such Balloon Indebtedness; and (b) such Member agrees in such Officer’s Certificate to deposit for each Fiscal Year with a bank or trust company (pursuant to an agreement between such Member and such bank or trust company, which agreement shall be satisfactory in form and substance to the Master Trustee) the amount of principal shown on such amortization schedule net of any amount of principal actually paid on such Balloon Indebtedness during such Fiscal Year (other than from amounts on deposit with such bank or trust company) which deposit shall be made prior to any such required actual payment

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during such Fiscal Year if the amounts so on deposit are intended to be the source of such actual payments. If the Obligated Group Agent elects in writing delivered to the Master Trustee, Put Indebtedness shall be deemed to mature over 30 years from the next succeeding Put Date, bear interest on the unpaid principal balance thereof at a Projected Rate and be payable either (i) on a level annual debt service basis over a 30 year period or (ii) the period of time set forth in an Officer’s Certificate of the Obligated Group Agent, dated within 90 days of the date of any calculation under the Master Indenture stating that financing of a stated term (which shall not extend beyond 30 years after the date of such calculation) and amortization is reasonably attainable to refund or otherwise directly or indirectly to refinance any amount of the related Indebtedness. If the Obligated Group Agent elects in writing delivered to the Master Trustee, Short-Term Indebtedness shall be deemed to be Funded Indebtedness which matures over 30 years from the date of maturity of such Indebtedness, bear interest on the unpaid principal balance thereof at a Projected Rate and be payable either (i) on a level annual debt service basis over a 30 year period or (ii) the period of time set forth in an Officer’s Certificate of the Obligated Group Agent, dated within 90 days of the date of any calculation under the Master Indenture stating that financing of a stated term (which shall not extend beyond 30 years after the date of such calculation) and amortization is reasonably attainable to refund or otherwise directly or indirectly to refinance any amount of the related Indebtedness if a commitment of the type described below is in effect. Such Indebtedness shall only be deemed payable on such basis if there is in place a binding commitment (including without limitation letters or lines of credit) to provide financing sufficient to pay the principal of such Short-Term Indebtedness on the maturity date referred to above which commitment is subject to commercially reasonable contingencies and is issued by a financial institution generally regarded as responsible, which commitment and institution are acceptable to the Master Trustee.

When a particular calculation utilizing the assumptions referred to above is to be made with respect to a future period, it shall be assumed that Balloon Indebtedness and Put Indebtedness that is the subject of such assumptions is being issued simultaneously with such calculation.

With respect to Put Indebtedness, if the option of the holder to require that such Indebtedness be paid, purchased or redeemed prior to its stated maturity date, or if the requirement that such Indebtedness be paid, purchased or redeemed prior to its stated maturity date (other than at the option of such holder and other than pursuant to any mandatory sinking fund or any similar fund), has expired or lapsed as of the date of calculation, such Put Indebtedness shall be deemed payable in accordance with its terms.

In determining the amount of debt service payable on Indebtedness in the course of the various calculations required under certain provisions of the Master Indenture, if the terms of the Indebtedness being considered are such that interest thereon for any future period of time is expressed to be calculated at a varying rate per annum, a formula rate or a fixed rate per annum based on a varying index, then for the purpose of making such determination of debt service, interest on such Indebtedness for such period (the “Determination Period”) shall be computed by assuming that the rate of interest applicable to the Determination Period is equal to the average of the rate of interest (calculated in the manner in which the rate of interest for the Determination Period is expressed to be calculated) which was in effect on the last date of each of any six consecutive calendar months occurring in the nine full calendar months immediately preceding the

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month in which such calculation is made; provided that if the index or other basis for calculating such interest was not in existence for at least six full calendar months next preceding the date of calculation, the rate of interest for such portion of such period shall be deemed to be the rate of interest borne by such Indebtedness when issued; and, provided further, that such rate shall be adjusted to take into consideration any Interest Rate Hedge associated with such Indebtedness pursuant to the provisions of the last paragraph under this caption.

No debt service shall be deemed payable with respect to Commitment Indebtedness until such time as funding occurs under the commitment that gave rise to such Commitment Indebtedness. From and after such funding, the amount of such debt service shall be calculated in accordance with the actual amount required to be repaid on such Commitment Indebtedness and the actual interest rate and amortization schedule applicable thereto.

Commitment Indebtedness shall be deemed to be incurred at the time a Member enters into a contract with a financial institution obligating such financial institution to refinance or purchase when due, when tendered or when required to be purchased Indebtedness in the manner described in the definition of Commitment Indebtedness in the Master Indenture and not when funding occurs under the commitment which gave rise to such Commitment Indebtedness. No Additional Indebtedness shall be deemed to arise when any funding occurs under any such commitment or any such commitment is renewed upon terms which provide for substantially the same terms of repayment of amounts disbursed pursuant to such commitment as obtained prior to such renewal. In addition, no Additional Indebtedness shall be deemed to arise when Indebtedness which bears interest at a variable rate of interest is converted to Indebtedness which bears interest at a fixed rate or the method of computing the variable rate on such Indebtedness is changed or the terms upon which Indebtedness, if Put Indebtedness, may be or is required to be tendered for purchase are changed, if such conversion or change is in accordance with the provisions applicable to such variable rate Indebtedness or Put Indebtedness in effect immediately prior to such conversion or change.

No debt service shall be deemed to be payable by the guarantor on Indebtedness guaranteed; provided, however, that if the guarantor has been required by reason of its guaranty to make a payment in respect of such Indebtedness within the immediately preceding 24 months, the guarantor shall be considered liable for 100% of the annual debt service requirement on the Indebtedness guaranteed and the Revenues and Expenses of the guarantor shall be deemed to include the Revenues and Expenses of the guaranteed party provided that interest on the Indebtedness guaranteed shall be subtracted from Expenses during a calculation period only in an amount equal to the interest actually paid by the guaranteed party on such guaranteed Indebtedness during such period and depreciation and amortization attributable to property financed or refinanced with the proceeds of the guaranteed Indebtedness shall only be subtracted from Expenses during a calculation period in an amount equal to the principal actually paid by the guaranteed party on such guaranteed Indebtedness during such period. For the purposes of the various calculations required under the Master Indenture, the Capitalized Rentals under a Capitalized Lease at the time of such calculation shall be deemed to be the principal payable thereon.

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Anything in the Master Indenture to the contrary notwithstanding, any portion of any Indebtedness of any Member for which an Interest Rate Hedge has been obtained by such Member from a Qualified Provider shall be deemed to bear interest for the period of time that such Interest Rate Hedge is in effect at a net rate which takes into account the interest payments made by such Member on such Indebtedness and the payments made or received by such Member on such Interest Rate Hedge. In addition, so long as any Indebtedness is deemed to bear interest at a rate taking into account an Interest Rate Hedge, any payments made by a Member on such Interest Rate Hedge shall be excluded from Expenses and any payments received by a Member on such Interest Rate Hedge shall be excluded from Revenues, in each case, for all purposes of the Master Indenture.

RATES AND CHARGES

Each Member covenants and agrees to operate its Facilities in the aggregate on a revenue producing basis and to charge such fees and rates for its Facilities and services and to exercise such skill and diligence as to provide income from its Property together with other available funds sufficient to pay promptly all payments of principal and interest on its Indebtedness, all expenses of operation, maintenance and repair of its Property and all other payments required to be made by it under the Master Indenture to the extent permitted by law. Each Member further covenants and agrees that it will from time to time as often as necessary and to the extent permitted by law, revise its rates, fees and charges in such manner as may be necessary or proper to comply with the requirements of the Master Indenture summarized under this caption.

The Members covenant and agree that they will cause to be delivered with the report of the Qualified Accountant referred in subparagraph (B) under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE — Financial Statements” herein and the Officer’s Certificate required to be delivered pursuant to the provisions of the Master Indenture summarized in subparagraph (C) under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Financial Statements” herein.

If in any Fiscal Year the Income Available for Debt Service of the Obligated Group is less than 100% of the Debt Service Requirements of the Obligated Group for such Fiscal Year, the Master Trustee shall require the Obligated Group at its expense to retain a Consultant to make recommendations with respect to the rates, fees and charges of the Members and the Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase such Income Available for Debt Service to at least 100% of the Debt Service Requirements of the Obligated Group for the next succeeding Fiscal Year.

A copy of the Consultant’s report and recommendations, if any, shall be filed with each Member, the Master Trustee, each Related Bond Trustee and each Related Issuer. Each Member shall follow each recommendation of the Consultant applicable to it to the extent feasible (as determined by such Member) and permitted by law. The provisions of the Master Indenture summarized under this caption shall not be construed to prohibit any Member from serving indigent patients to the extent required for such Member to continue its qualification as a Tax-Exempt Organization or from serving any other class or classes of patients without charge or

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at reduced rates so long as such service does not prevent the Obligated Group from satisfying the other requirements summarized under this caption.

The failure of the Obligated Group to maintain its Income Available for Debt Service at 100% or more of the Debt Service Requirements of the Obligated Group for a Fiscal Year shall not constitute an event of default under the Master Indenture if all of the following conditions have been met: (a) Income Available for Debt Service of the Obligated Group for the immediately preceding Fiscal Year to the Fiscal Year for which such calculation is being made was greater than or equal to 100% of the Debt Service Requirements of the Obligated Group for such Fiscal Year; and (b) the Consultant’s report delivered pursuant to the provisions described in the third and fourth paragraphs under this caption following such Fiscal Year is delivered within six (6) months of the end of the Fiscal Year in which Income Available for Debt Service is less than 100% of the Debt Service Requirements of the Obligated Group and is delivered by a Consultant acceptable to the Master Trustee (it being agreed that such report shall be accepted by and be acceptable to the Master Trustee if it contains the conclusions and information required to be set forth therein described below) and either (i) contains an opinion of such Consultant that applicable laws or regulations have prevented the Obligated Group from generating Income Available for Debt Service during such Fiscal Year in an amount sufficient to equal or exceed 100% of its Debt Service Requirements for such Fiscal Year and, if requested by the Master Trustee, such report is accompanied by a concurring opinion of Independent Counsel (which opinion, including without limitation the scope, form, substance and other aspects thereof, are acceptable to the Master Trustee) as to any conclusions of law supporting the opinion of such Consultant and the report of such Consultant indicates that the rates charged by the Obligated Group are such that, in the opinion of the Consultant, the Obligated Group has generated the maximum amount of Revenues reasonably practicable given such laws or regulations, or (ii) states that the Projected Debt Service Coverage Ratio of the Obligated Group for the Fiscal Year immediately following the Fiscal Year in which Income Available for Debt Service is less than 100% of the Debt Service Requirements of the Obligated Group is not less than 1.00:1 which report shall include forecasted balance sheets and statements of operations for such following Fiscal Year and a statement of the assumptions upon which such forecasted statements are based, which financial statements must indicate that sufficient revenue and cash flow could be generated to pay the operating expenses of the Obligated Group’s proposed and existing Facilities and the debt service on the Obligated Group’s other existing Indebtedness during such Fiscal Year; and (c) such report states that in the opinion of such Consultant, the Members have sufficient unrestricted assets available to pay the Debt Service Requirements on the Indebtedness of the Members of the Obligated Group during the current Fiscal Year; and (d) the Members comply with the other requirements of the Master Indenture summarized under this caption.

If any of the preceding conditions are not satisfied, such failure will constitute an event of default under the Master Indenture.

INSURANCE

Each Member of the Obligated Group covenants in the Master Indenture to maintain or cause to be maintained at its sole cost and expense, insurance (which may be self-insurance) with respect to its Property, the operation thereof and its business against such casualties, contingencies

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and risks and in amounts not less than is customary in the case of entities engaged in the same or similar activities and similarly situated or is adequate to protect its Property and operations.

SALE, LEASE OR OTHER DISPOSITION OF PROPERTY

Each Member agrees that it will not, in any consecutive 12-month period, sell, lease or otherwise dispose (including without limitation any involuntary disposition) of Property except:

(A) Property, the Book Value of which (together with the Book Value of any other Property sold, leased or disposed of pursuant to this paragraph (A) during such 12-month period) is not in excess of 10% of the total value of the Property of the Obligated Group (calculated on the basis of the Book Value of the assets shown on the assets side of the balance sheet in the combined/consolidated financial statements of the Obligated Group for the Fiscal Year next preceding the date of such sale, lease or other disposition for which combined/consolidated financial statements of the Obligated Group reported on by independent certified public accountants are available or, if the Obligated Group Agent so elects, on the basis of Current Value);

(B) Transfers or other dispositions in the ordinary course of business;

(D) To any Person, if such Property has, or within the next succeeding 24 calendar months is reasonably expected to, become inadequate, obsolete, worn out, unsuitable, unprofitable, undesirable or unnecessary and the sale, lease or other disposition thereof will not impair the structural soundness, efficiency or economic value of the remaining Property;

(E) To another Member;

(F) To NMHC or any NMHC Controlled Affiliate; provided that the recipient of such disposition or transfer agrees in writing that the Property which it receives in such disposition or transfer will not be transferred, directly or indirectly, to any other Person which is not a Member, NMHC or an NMHC Controlled Affiliate unless such transfer or disposition is for other Property of equal or greater value and any new Property received is subject to the agreement not to dispose of or transfer such new Property to a Person other than a Member, NMHC or an NMHC Controlled Affiliate;

(G) Upon fair and reasonable terms no less favorable to the Member than would obtain in a comparable arm’s-length transaction;

(H) To any Person, if such Property consists solely of assets which are specifically restricted by the donor or grantor to a particular purpose which is inconsistent with their use for payment on the Obligations; or

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(I) To any Person if: (i) there is delivered to the Master Trustee, an Officer’s Certificate of the Obligated Group Agent which demonstrates that, immediately after such disposition the Members would not, as a result of such disposition, be in default in the performance or observance of any covenant or condition to be performed or observed by them under the Master Indenture, including, without limitation, those summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Liens on Property” and (ii) there is delivered to the Master Trustee:

(a) An Officer’s Certificate of the Obligated Group Agent (which certificate, including, without limitation, the scope, form, substance and other aspects thereof, is acceptable to the Master Trustee) stating that the Funded Indebtedness Ratio of the Obligated Group, after giving effect to the disposition, would not exceed 0.65:1; or

(b) An Officer’s Certificate of the Obligated Group Agent (which certificate, including, without limitation, the scope, form, substance and other aspects thereof, is acceptable to the Master Trustee) stating that, taking such disposition into account, the Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group for the most recent Fiscal Year preceding the date of delivery of the report for which combined/consolidated financial statements reported upon by independent certified public accountants are available would not have been less than 1.25:1; or

(c) (I) An Officer’s Certificate of the Obligated Group Agent (which certificate, including, without limitation, the scope, form, substance and other aspects thereof, is acceptable to the Master Trustee) stating that, taking such disposition into account, the Historical Debt Service Coverage Ratio of the Obligated Group for the Fiscal Year next preceding the disposition for which combined/consolidated financial statements reported upon by independent certified public accountants are available would not be less than 1.10:1; and (II) (1) a written Consultant’s report (which report, including, without limitation, the scope, form, substance and other aspects thereof, is acceptable to the Master Trustee) to the effect that, taking such disposition into account, the Projected Debt Service Coverage Ratio of the Obligated Group for each of the next two succeeding Fiscal Years would not be less than 1.50:1, provided that such report shall include forecast balance sheets, statements of revenues and expenses and statements of changes in financial position for each of such two Fiscal Years and a statement of the relevant assumptions upon which such forecasted statements are based, which financial statements must indicate that sufficient revenues and cash flow could be generated to pay the operating expenses of the Obligated Group’s proposed and existing Facilities and the debt service on the Obligated Group’s other existing Indebtedness during such two Fiscal Years; provided that the requirements of the foregoing subparagraph (c)(I) or (II), as the case may be, shall be deemed satisfied if (x) there is delivered to the Master Trustee the report of a Consultant (which report, including without limitation the scope, form, substance and other aspects thereof, is acceptable to the Master Trustee and which contains the information required by

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the proviso to subparagraph (c)(II) in the case of projections) which contains an opinion of such Consultant that applicable laws or regulations have prevented or will prevent the Obligated Group from generating the amount of Income Available for Debt Service required to be generated by subparagraph (c)(I) or (II), as the case may be, as a prerequisite to the disposition, and, if requested by the Master Trustee, such report is accompanied by a concurring opinion of Independent Counsel (which Counsel and opinion, including without limitation the scope, form, substance and other aspects thereof, are acceptable to the Master Trustee) as to any conclusions of law supporting the opinion of such Consultant, (y) the report of the Consultant indicates that the rates charged or to be charged by the Obligated Group are or will be such that, in the opinion of such Consultant, the Obligated Group has generated or will generate the maximum amount of Revenues reasonably practicable given such laws or regulations, and (2) the Historical Debt Service Coverage Ratio of the Obligated Group and the Projected Debt Service Coverage Ratio of the Obligated Group after taking into account such disposition referred to in the applicable subparagraph are at least 1.00:1; or

(d) A written report from a Consultant stating that the Projected Debt Service Coverage Ratio of the Obligated Group for each of the two full Fiscal Years immediately following the date of such report, taking into account such disposition, would not be less than the Projected Debt Service Coverage Ratio for the Obligated Group which would have been estimated or forecasted if it were assumed such disposition would not occur.

The Master Indenture provides that the making of any guaranty upon fair and reasonable terms no less favorable to the guarantor than would obtain in a comparable arm’s length transaction shall not be deemed to be a transfer or disposition subject to the foregoing provisions.

The foregoing provisions of the Master Indenture notwithstanding, each Member further agrees that it will not sell, lease, donate or otherwise dispose of Property (a) which could reasonably be expected at the time of such sale, lease, donation or disposition to result in a reduction of the ratio of Income Available for Debt Service to Debt Service Requirements for the Obligated Group for a succeeding period such that the Master Trustee could or would be obligated to require the Obligated Group to retain a Consultant pursuant to the provisions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Rates and Charges,” or (b) if a Consultant has been retained in the circumstances described in the provisions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Rates and Charges,” such action, in the opinion of such Consultant, will have an adverse effect on the Income Available for Debt Service of the Obligated Group. The parties to the Master Indenture agree that the rendering of any service, the making of any loan to, the extension of any credit, the making of any guarantee for the benefit of or any other transaction with any Affiliate (other than a Member, NMHC or an NMHC Controlled Affiliate) except pursuant to the reasonable requirements of such Member’s activities and upon fair and reasonable terms no less favorable to it than would obtain in a comparable arm’s-length transaction with a person not an Affiliate is and shall be subject to, and shall be permitted only if there is compliance with, the provisions described under this caption. Dividends

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and distributions (except when made with respect to shares of stock of a Member with additional shares of stock of such Member), purchases, redemptions or retirements of the stock of a Member or any warrants, rights or options to purchase or acquire any shares of stock and similar transactions shall be treated as transfers subject to the provisions described under this caption unless the recipient or beneficiary thereof is a Member, NMHC or an NMHC Controlled Affiliate.

MERGER, CONSOLIDATION, SALE OR CONVEYANCE

Each Member agrees that it will not merge (within the meaning of the statutes of the state under which such Member is incorporated) into, or consolidate (within the meaning of the statutes of the state under which such Member is incorporated) with, one or more Persons which are not Members, or allow one or more of such Persons to merge (within the meaning of the statutes of the state under which such Member is incorporated) into it, or sell or convey all or substantially all of its Property to any Person who is not a Member, unless:

(A) Any successor to such Member (including without limitation any purchaser of all or substantially all the Property of such Member) is a Person organized and existing under the laws of the United States of America or a state thereof and shall execute and deliver to the Master Trustee an appropriate instrument, satisfactory to the Master Trustee, containing the agreement of such successor to assume, jointly and severally, the due and punctual payment of the principal of, premium, if any, and interest on all Obligations according to their tenor and the due and punctual performance and observance of all the covenants and conditions of the Master Indenture to be kept and performed by such Member;

(B) Prior to such merger, consolidation, sale or conveyance, there is delivered to the Master Trustee a certificate of the Obligated Group Agent which demonstrates that: (i) assuming that any Indebtedness of any successor or acquiring entity is Indebtedness of such Member and that the Revenues and Expenses of the Member for the most recent Fiscal Year of the Obligated Group for which audited financial statements are available include the Revenues and Expenses of such other corporation, the Income Available for Debt Service of the Obligated Group would have been no less than 100% of the Debt Service Requirements of the Obligated Group for such Fiscal Year or, if the Income Available for Debt Service of the Obligated Group was less than 100% of the Debt Service Requirements of the Obligated Group during such Fiscal Year, such Income Available for Debt Service would be a larger percentage of such Debt Service Requirements utilizing such assumptions concerning the Indebtedness of the successor or acquiring entity, which conclusions shall, if requested by the Master Trustee, be accompanied by a concurring report, opinion or verification of a Qualified Accountant selected by the Obligated Group Agent and satisfactory to the Master Trustee; and (ii) immediately after such merger or consolidation, or such sale or conveyance, no Member would be in default in the performance or observance of any covenant or condition of any Related Loan Document or the Master Indenture including without limitation those summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Liens on Property”; and

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(C) If all amounts due or to become due on all Related Bonds have not been fully paid to the holders thereof or fully provided for, there shall be delivered to the Master Trustee an Opinion of Bond Counsel to the effect that under then existing law the consummation of such merger, consolidation, sale or conveyance, whether or not contemplated on the original date of delivery of such Related Bonds would not adversely affect the validity of such Related Bonds or any exemption otherwise available from federal or state income taxation of interest payable on such Related Bonds.

In case of any such consolidation, merger, sale or conveyance and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for its predecessor, with the same effect as if it had been named in the Master Indenture as such Member. Any successor corporation to such Member thereupon may cause to be signed and may issue in its own name Obligations under the Master Indenture and the predecessor corporation shall be released from its obligations under the Master Indenture and under any Obligations, if such predecessor corporation shall have conveyed all Property owned by it (or all such Property shall be deemed conveyed by operation of law) to such successor corporation. All Obligations so issued by such successor corporation under the Master Indenture shall in all respects have the same legal rank and benefit under the Master Indenture as Obligations theretofore or thereafter issued in accordance with the terms of the Master Indenture as though all of such Obligations had been issued under the Master Indenture by such prior Member without any such consolidation, merger, sale or conveyance having occurred.

In case of any such consolidation, merger, sale or conveyance such changes in phraseology and form (but not in substance) may be made in Obligations thereafter to be issued as may be appropriate.

The Master Trustee may rely upon an opinion of Counsel as conclusive evidence that any such consolidation, merger, sale or conveyance, and any such assumption, complies with the provisions of the Master Indenture summarized under this caption and that it is proper for the Master Trustee under the provisions of the Master Indenture to join in the execution of any instrument required to be executed and delivered by the provisions of the Master Indenture summarized under this caption.

For purposes of the provisions of the Master Indenture summarized under this subheading, the replacement or substitution of any sole corporate member or controlling entity of a Member shall not be treated as a sale or conveyance of all or substantially all of such Member’s Property so long as such Member maintains its existence as a separate legal entity within the meaning of the statutes of the state under which such Member was formed.

ADDITIONS TO EXCLUDED PROPERTY

Exhibit C to the Master Indenture which describes the Excluded Property may be amended to include additional real property and all improvements, fixtures, tangible personal property and equipment located thereon and used in connection therewith upon the receipt by the Master Trustee of an Officer’s Certificate of such Member stating that either (A) such Property does not constitute Property described in the proviso to the definition of Excluded Property and (B) either (1) the total

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value of such Property does not exceed 10% of the total value of Property of the Obligated Group (calculated on the basis of the Book Value of the assets shown on the asset side of the balance sheet in the combined/consolidated financial statements of the Obligated Group for the most recent Fiscal Year next preceding the date of such amendment to such Exhibit C to the Master Indenture for which combined/consolidated financial statements reported on by independent certified public accountants are available or, if the Obligated Group Agent so elects, on the basis of Current Value) or (2) such Member could have transferred such Property to a non-Member pursuant to the provisions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Sale, Lease or Other Disposition of Property” above.

OTHER COVENANTS OF THE MEMBERS

Each Member covenants in the Master Indenture to, among other things, (a) pay or cause to be paid all taxes, levies, assessments and charges, and comply with all present and future laws, ordinances, orders, decrees, decisions, rules, regulations and requirements of every duly constituted governmental authority, commission and court and the officers thereof, relating to it or any of its affairs, business, operations and Property provided that such Member has the right and privilege to contest, in good faith any of the foregoing so long as such contest will not subject the Master Trustee, any Obligation holder or any Related Issuer to the risk of any liability, and that the Members will save all Related Bond Trustees, the Master Trustee, all Obligation holders and all Related Issuers harmless from and against all losses as a result of such contest; (b) maintain, preserve and keep all of its Property and each part thereof in good condition, repair and working order, and from time to time make all necessary and proper repairs and replacements thereto; (c) procure and maintain all necessary licenses and permits, and (d) file certain financial information periodically with the Master Trustee.

FINANCIAL STATEMENTS

Upon the effective date of the Springing Amendments, the provisions of the Master Indenture as summarized under this subheading in the last paragraph will be deleted in their entirety and replaced as described under “SUMMARY OF CERTAIN SPRINGING AMENDMENTS TO THE MASTER INDENTURE – FINANCIAL STATEMENTS” below.

The Members covenant in the Master Indenture that they will keep or cause to be kept proper books of records and accounts in which full, true and correct entries will be made of all dealings or transactions of or in relation to the business and affairs of the Obligated Group in accordance with GAAP consistently applied (i) except to the extent required by the provisions of the Master Indenture summarized under “ACCOUNTING PRINCIPLES” above and (ii) except as may be disclosed in the notes to the audited financial statements referred to in subparagraph (A) below. The Members further covenant in the Master Indenture that they will furnish to the Master Trustee and any Related Bond Trustees:

(A) As soon as practicable after they are available (but in no event more than 60 days after the expiration of each of the first three quarterly fiscal periods and 75 days after the expiration of the final quarterly fiscal period of each Fiscal Year) a financial report of the System for such

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quarterly fiscal period, which include a combined/consolidated balance sheet and statements of operations, changes in net assets and cash flows.

(B) As soon as practicable after they are available, but in no event more than 150 days after the last day of each Fiscal Year of the System, a financial report of the System for such Fiscal Year certified by a Qualified Accountant which includes an audited combined/consolidated balance sheet and statements of operations, changes in net assets and cash flows for such Fiscal Year.

(C) At the time of delivery of the financial report referred to in subparagraph (B) above, a certificate of the Obligated Group Agent signed by its President or any Vice President, (i) certifying for such Fiscal Year what percentage of the consolidated total operating revenues and consolidated total unrestricted net assets of the System are represented by the total operating revenues and the total unrestricted net assets, respectively, of the Members of the Obligated Group for such Fiscal Year, (ii) setting forth a calculation for such Fiscal Year of the Historical Debt Service Coverage Ratio of the Obligated Group, and (iii) stating that the Obligated Group Agent has made a review of the activities of each Member during the preceding Fiscal Year for the purpose of determining whether or not the Members have complied in all material respects with all of the terms, provisions and conditions of the Master Indenture and that each Member has kept, observed, performed and fulfilled in all material respects each and every covenant, provision and condition of the Master Indenture on its part to be performed and is not in default in the performance or observance of any of the terms, covenants, provisions or conditions of the Master Indenture, or if any Member shall be in default such certificate shall specify all such defaults and the nature thereof.

(D) Such additional information as the Master Trustee, any Related Issuer or any Related Bond Trustee may reasonably request concerning any Member in order to enable the Master Trustee, such Related Issuer or such Related Bond Trustee to determine whether the covenants, terms and provisions of the Master Indenture have been complied with by the Members.

For the purpose of preparing the financial report referenced in subparagraphs (A) and (B) above, if the total operating revenues and the total unrestricted net assets of the Members collectively represent less than eighty (80%) of the consolidated total operating revenues and the consolidated total unrestricted net assets, respectively, such financial report shall include supplemental schedules reflecting the financial position and results of operations of the Members of the Obligated Group.

For the purpose of determining compliance with all financial covenants and ratios pursuant to and under the Master Indenture (other than any financial covenants and ratios for purposes of the provisions of the Master Indenture concerning the conditions precedent to a Person becoming a Member, the conditions precedent to cessation of status as a Member, the maintenance of the Obligated Group’s Property free and clear of Liens other than Permitted Encumbrances, the definition of Permitted Encumbrances or transactions with or transfers to Members and other entities), the Obligated Group Agent may elect, in connection with each such calculation, to use (i) financial information derived from the financial report of the System, provided that the total operating revenues and the total unrestricted net assets of the Members represent at least eighty

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(80%) of the consolidated total operating revenues and the consolidated total unrestricted net assets, respectively, of the System for the Fiscal Year covered by the financial report or (ii) financial information derived from the Obligated Group supplemental schedules included in the financial report; provided that if the total operating revenues or the total unrestricted net assets of the Members represent less than eighty (80%) of the consolidated total operating revenues and the consolidated total unrestricted net assets, respectively, of the System for the Fiscal Year covered by the financial report, all financial covenants and ratios required to be calculated for such Fiscal Year shall be calculated based upon the Obligated Group supplemental schedules, and any and all references to the terms “System” in such covenants and all related defined terms shall be replaced with the term “Obligated Group” and “Members of the Obligated Group,” respectively.

DEFAULTS AND REMEDIES

Upon the effective date of the Springing Amendments, the provisions of the Master Indenture as summarized in the penultimate paragraph under this subheading will be deleted in their entirety and replaced as described under “SUMMARY OF CERTAIN SPRINGING AMENDMENTS TO THE MASTER INDENTURE – DEFAULTS AND REMEDIES” below.

Each of the following events is an “event of default” under the Master Indenture:

(a) failure of the Obligated Group to pay any installment of interest or principal, or any premium, on any Obligation when the same shall become due and payable, whether at maturity, upon any date fixed for prepayment or by acceleration or otherwise and the continuance of such failure for five days; or

(b) material failure of any Member to comply with, observe or perform any of the covenants, conditions, agreements or provisions contained in the Master Indenture and to remedy such default within 30 days after written notice thereof to such Member and the Obligated Group Agent from the Master Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Obligations; provided, that if such default cannot with due diligence and dispatch be wholly cured within 30 days but can be wholly cured, the failure of the Member to remedy such default within such 30-day period shall not constitute a default under the Master Indenture if the Member shall immediately upon receipt of such notice commence with due diligence and dispatch the curing of such default and, having so commenced the curing of such default, shall thereafter prosecute and complete the same with due diligence and dispatch; or

(c) any representation or warranty made by any Member in the Master Indenture or in any statement or certificate furnished to the Master Trustee or the purchaser of any Obligation in connection with the sale of any Obligation or furnished by any Member pursuant to the Master Indenture proves untrue in any material respect as of the date of the issuance or making thereof and shall not be corrected or brought into compliance within 30 days after written notice thereof to the Obligated Group Agent by the Master Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Obligations; or

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(d) default in the payment of the principal of, premium, if any, or interest on any Indebtedness for borrowed money (other than Non-Recourse Indebtedness) of any Member, including without limitation any Indebtedness created by any Related Loan Document, as and when the same shall become due, or an event of default as defined in any mortgage, indenture, loan agreement or other instrument under or pursuant to which there was issued or incurred, or by which there is secured, any such Indebtedness (including any Obligation) of any Member, and which default in payment or event of default entitles the holder thereof to declare or, in the case of any Obligation, to request that the Master Trustee declare, such Indebtedness due and payable prior to the date on which it would otherwise become due and payable; provided, however, that if such Indebtedness is not evidenced by an Obligation or issued, incurred or secured by or under a Related Loan Document, a default in payment thereunder shall not constitute an “event of default” under the Master Indenture unless the unpaid principal amount of such Indebtedness, together with the unpaid principal amount of all other Indebtedness so in default, exceeds 5% of the unrestricted net assets of the Obligated Group as shown on or derived from the then latest available audited combined/consolidated financial statements of the Obligated Group; or

(e) any judgment, writ or warrant of attachment or of any similar process shall be entered or filed against any Member or against any Property of any Member and remains unvacated, unpaid, unbonded, unstayed or uncontested in good faith for a period of 30 days; provided, however, that none of the foregoing shall constitute an event of default unless the amount of such judgment, writ, warrant of attachment or similar process, together with the amount of all other such judgments, writs, warrants or similar processes so unvacated, unpaid, unbonded, unstayed or uncontested, exceeds 5% of the unrestricted net assets of the Obligated Group as shown on or derived from the then latest available audited combined/consolidated financial statements of the Obligated Group; or

(f) any Member admits insolvency or bankruptcy or its inability to pay its debts as they mature, or is generally not paying its debts as such debts become due, or makes an assignment for the benefit of creditors or applies for or consents to the appointment of a trustee, custodian or receiver for such Member, or for the major part of its Property; or

(g) a trustee, custodian or receiver is appointed for any Member or for the major part of its Property and is not discharged within 30 days after such appointment; or

(h) bankruptcy, dissolution, reorganization, arrangement, insolvency or liquidation proceedings, proceedings under Title 11 of the United States Code, as amended, or other proceedings for relief under any bankruptcy law or similar law for the relief of debtors are instituted by or against any Member (other than bankruptcy proceedings instituted by any Member against third parties), and if instituted against any Member are allowed against such Member or are consented to or are not dismissed, stayed or otherwise nullified within 60 days after such institution; or

(i) payment of any installment of interest or principal, or any premium, on any Related Bond shall not be made when the same shall become due and payable under the provisions of any Related Bond Indenture; or

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(j) failure of the Obligated Group to comply with provisions summarized in the fifth paragraph under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Rates and Charges.”

If an event of default has occurred and is continuing, the Master Trustee may, and if requested by either the holders of not less than 25% in aggregate principal amount of outstanding Obligations or the holder of any Accelerable Instrument under which Accelerable Instrument an event of default exists (which event of default permits the holder thereof to request that the Master Trustee declare such Indebtedness evidenced by an Obligation due and payable prior to the date on which it would otherwise become due and payable) shall, by notice in writing delivered to the Obligated Group Agent, declare the entire principal amount of all Obligations then outstanding under the Master Indenture and the interest accrued thereon immediately due and payable, and the entire principal and such interest shall thereupon become immediately due and payable, subject, however, to the provisions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Waiver of Events of Defaults” below.

Upon the occurrence of any event of default, the Master Trustee may pursue any available remedy including a suit, action or proceeding at law or in equity to enforce the payment of the principal of, premium, if any, and interest on the Obligations outstanding under the Master Indenture and any other sums due under the Master Indenture and may collect such sums in the manner provided by law out of the Property or the Excluded Property of any Member wherever situated.

DIRECTION OF PROCEEDINGS

The holders of a majority in aggregate principal amount of the Obligations then outstanding which have become due and payable in accordance with their terms or have been declared due and payable as a result of acceleration and have not been paid in full in the case of remedies exercised to enforce such payment, or the holders of a majority in aggregate principal amount of the Obligations then outstanding in the case of any other remedy, have the right under the Master Indenture at any time by an instrument or instruments in writing executed and delivered to the Master Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Master Indenture or for the appointment of a receiver or any other proceedings under the Master Indenture; provided, that such direction shall not be otherwise than in accordance with the provisions of law and of the Master Indenture and that the Master Trustee shall have the right to decline to comply with any such request if the Master Trustee is advised by counsel (who may be its own counsel) that the action so directed may not lawfully be taken or the Master Trustee in good faith determines that such action would be unjustly prejudicial to the holders of the Obligations not parties to such direction.

RIGHTS AND REMEDIES OF OBLIGATION HOLDERS

Upon the effective date of the Springing Amendments, the provisions of the Master Indenture as summarized under this subheading will be deleted in their entirety and replaced

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as described under “SUMMARY OF CERTAIN SPRINGING AMENDMENTS TO THE MASTER INDENTURE—RIGHTS AND REMEDIES OF OBLIGATION HOLDERS” below.

No holder of any Obligation shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of the Master Indenture or for the execution of any trust under the Master Indenture or for the appointment of a receiver or any other remedy under the Master Indenture, unless a default shall have become an event of default and (a) the holders of 25% or more in aggregate principal amount (i) of the Obligations which have become due and payable in accordance with their terms or have been declared due and payable pursuant to the Master Indenture and have not been paid in full in the case of powers exercised to enforce such payment or (ii) the Obligations then outstanding in the case of any other exercise of power or (b) the holder of an Accelerable Instrument upon whose request pursuant to the Master Indenture the Master Trustee has accelerated the Obligations, shall have made written request to the Master Trustee and shall have offered it reasonable opportunity either to proceed to exercise the powers granted by the Master Indenture or to institute such action, suit or proceeding in its own name, and unless also, in each case, such holders have offered to the Master Trustee indemnity as provided in the Master Indenture, and unless the Master Trustee shall thereafter fail or refuse to exercise the powers granted pursuant to the Master Indenture, or to institute such action, suit or proceeding in its own name; and such notification, request and offer of indemnity are hereby declared in every case at the option of the Master Trustee to be conditions precedent to the execution of the powers and trusts of the Master Indenture and to any action or cause of action for the enforcement of the Master Indenture, or for the appointment of a receiver or for any other remedy under the Master Indenture; it being understood and intended that no one or more holders of the Obligations shall have any right in any manner whatsoever to affect, disturb or prejudice the lien of the Master Indenture by such holder’s action or to enforce any right under the Master Indenture except in the manner provided in the Master Indenture, and that all proceedings at law or in equity shall be instituted, had and maintained in the manner provided for in the Master Indenture and for the equal benefit of the holders of all Obligations outstanding. Nothing in the Master Indenture shall, however, affect or impair the right of any holder to enforce the payment of the principal of, premium, if any, and interest on any Obligation at and after the maturity thereof, or the obligation of the Members to pay the principal, premium, if any, and interest on each of the Obligations issued under the Master Indenture to the respective holders thereof at the time and place, from the source and in the manner in said Obligations expressed.

WAIVER OF EVENTS OF DEFAULT

If, at any time after the principal of all Obligations shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided and before the acceleration of any Related Bond, any Member shall pay or shall deposit with the Master Trustee a sum sufficient to pay all matured installments of interest upon all such Obligations and the principal and premium, if any, of all such Obligations that shall have become due otherwise than by acceleration (with interest on overdue installments of interest and on such principal and premium, if any, at the rate borne by such Obligations to the date of such payment or deposit to the extent permitted by law) and the expenses of the Master Trustee, and any and all events of default under the Master Indenture, other than the nonpayment of principal of and accrued interest on such Obligations that shall have become due

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by acceleration, shall have been remedied, then and in every such case the holders of a majority in aggregate principal amount of all Obligations then outstanding and the holder of each Accelerable Instrument who requested the giving of notice of acceleration, by written notice to the Obligated Group Agent and to the Master Trustee, may waive all events of default and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or affect any subsequent event of default, or shall impair any right consequent thereon.

SUPPLEMENTAL MASTER INDENTURES

Upon the effective date of the Springing Amendments, the provisions of the Master Indenture as summarized in the second paragraph under this subheading will be deleted in its entirety and replaced as described under “SUMMARY OF CERTAIN SPRINGING AMENDMENTS TO THE MASTER INDENTURE – SUPPLEMENTAL MASTER INDENTURES” below.

Subject to the limitations set forth in the next paragraph, the Members and the Master Trustee may, without the consent of, or notice to, any of the Obligation holders, amend or supplement the Master Indenture for any one or more of the following purposes: (a) to cure any ambiguity or defective provision in or omission from the Master Indenture in such manner as is not inconsistent with and does not impair the security of the Master Indenture or adversely affect the holder of any Obligation; (b) to grant to or confer upon the Master Trustee for the benefit of the Obligation holders any additional rights, remedies, powers or authority that may lawfully be granted to or conferred upon the Obligation holders and the Master Trustee, or either of them, to add to the covenants of the Members for the benefit of the Obligation holders or to surrender any right or power conferred under the Master Indenture upon any Member; (c) to assign and pledge under the Master Indenture any additional revenues, properties or collateral; (d) to evidence the succession of another corporation to the agreements of a Member or the Master Trustee, or the successor of any thereof under the Master Indenture; (e) to permit the qualification of the Master Indenture under the Trust Indenture Act of 1939, as then amended, or under any similar federal statute hereafter in effect or permit the qualification of any Obligations for sale under the securities laws of any state of the United States; (f) to provide for the refunding or advance refunding of any Obligation; (g) to provide for the issuance of Additional Obligations; to reflect the addition to or withdrawal of a Member from the Obligated Group; (h) to reflect the addition to or withdrawal of a Member from the Obligated Group; (i) to provide for the issuance of Obligations with original issue discount, provided such issuance would not materially adversely affect the holders of outstanding Obligations; (j) to permit an Obligation to be secured by security which is not extended to all Obligation holders; (k) to permit the issuance of Obligations which are not in the form of a promissory note; (l) to amend any Exhibit to the Master Indenture in accordance with the provisions of the Master Indenture; (m) to provide for amendments resulting from changes to GAAP as described under “ACCOUNTING PRINCIPLES” above; and (n) to make any other change which, in the opinion of the Master Trustee, does not materially adversely affect the holders of any of the Obligations and, in the opinion of each Related Bond Trustee, does not materially adversely affect the holders of the Related Bonds with respect to which it acts as trustee, including without limitation any modification, amendment or supplement to the Master Indenture or any indenture supplemental thereto in such a manner as to establish or maintain exemption of interest on any Related Bonds under a Related Bond Indenture from federal income taxation under applicable provisions of the Code.

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The holders of not less than a majority in aggregate principal amount of the Obligations which are outstanding under the Master Indenture at the time of the execution of such Supplemental Master Indenture or, in case less than all of the several series of Obligations outstanding are affected thereby, the holders of not less than a majority in aggregate principal amount of the Obligations of each series affected thereby which are outstanding under the Master Indenture at the time of the execution of such Supplemental Master Indenture, shall have the right, from time to time, anything contained in the Master Indenture to the contrary notwithstanding, to consent to and approve the execution by the Members and the Master Trustee of such Supplemental Master Indentures as shall be deemed necessary and desirable by the Members for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Master Indenture or in any Supplemental Master Indenture; provided, however, that nothing contained in the Master Indenture shall permit, or be construed as permitting, (a) an extension of the stated maturity or reduction in the principal amount of or reduction in the rate or extension of the time of paying of interest on or reduction of any premium payable on the redemption of, any Obligation, without the consent of the holder of such Obligation, (b) a reduction in the aforesaid aggregate principal amount of Obligations the holders of which are required to consent to any such Supplemental Master Indenture, without the consent of the holders of all the Obligations at the time outstanding which would be affected by the action to be taken, (c) except as otherwise permitted by the provisions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Cessation of Status as a Member of the Obligated Group” above, modification of the joint and several obligation of the Members to make payment on or provide funds for the payment of any Obligation without the consent of the holder of such Obligation or (d) modification of the rights, duties or immunities of the Master Trustee, without the written consent of the Master Trustee; provided further that no such modification shall be made if it materially adversely affects the provisions of the Master Indenture concerning the conditions precedent to a Person becoming a Member, the conditions precedent to cessation of status as a Member, the maintenance of the Obligated Group’s Property free and clear of Liens other than Permitted Encumbrances, the definition of Permitted Encumbrances or transactions with or transfers to Members and other entities without the written approval or consent of the holders of not less than a majority in aggregate principal amount of the Obligations of each series affected thereby.

If the holders of not less than a majority in aggregate principal amount of the Obligations or the Obligations of each series affected thereby, as the case may be, which are outstanding under the Master Indenture at the time of the execution of any such Supplemental Master Indenture shall have consented to and approved the execution thereof as described in the Master Indenture, no holder of any Obligation shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Master Trustee or the Members from executing the same or from taking any action pursuant to the provisions thereof.

RESIGNATION OR REMOVAL OF THE MASTER TRUSTEE

The Master Trustee and any successor Master Trustee may at any time resign from the trusts created pursuant to the Master Indenture by giving thirty days’ written notice to the Obligated Group Agent and by registered or certified mail to each registered owner of Obligations

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then outstanding and to each holder of Obligations as shown by the list of Obligation holders required by the Master Indenture to be kept at the office of the Master Trustee. Such resignation shall take effect at the end of such thirty days or when a successor Master Trustee has been appointed and has assumed the trusts created pursuant to the Master Indenture, whichever is later, or upon the earlier appointment of a successor Master Trustee by the Obligation holders or by the Obligated Group.

The Master Trustee may be removed at any time, by an instrument or concurrent instruments in writing delivered to the Master Trustee and to the Obligated Group Agent, and signed by the owners of a majority in aggregate principal amount of Obligations then outstanding; provided that, if any Related Issuer so elects, it may sign such an instrument as the owner of the Obligation or Obligations pledged to secure the Related Bonds issued by such Related Issuer. So long as no event of default has occurred and is continuing under the Master Indenture or any Related Bond Indenture or Related Loan Document, the Master Trustee may be removed with or without cause at any time by an instrument in writing signed by the Obligated Group Agent, delivered to the Master Trustee. The Obligated Group Agent shall give written notice of the removal of the Master Trustee to the holders of all Obligations outstanding under the Master Indenture and to each Related Issuer.

OBLIGATION HOLDERS

For the purposes of the Master Indenture, unless a Related Bond Trustee elects to the contrary or contrary provision is made in a Related Bond Indenture, each Related Bond Trustee shall be deemed the holder of the Obligation or Obligations pledged to secure the Related Bonds with respect to which such Related Bond Trustee is acting as trustee. If such a Related Bond Trustee so elects or the Related Bond Indenture so provides, the holders of each series of Related Bonds shall be deemed the holders of the Obligations to the extent of the principal amount of the Obligations to which their Bonds relate. In addition, each Related Issuer is entitled to exercise the rights granted to obligation holders under the provisions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Defaults and Remedies” and other related provisions of the Master Indenture.

RIGHT TO CONSENT

Each Member shall have the right to agree in any Related Bond Indenture, Related Loan Document or Supplemental Master Indenture pursuant to which an Obligation is issued that, so long as any Related Bonds remain outstanding under such Related Bond Indenture or such Obligation remains outstanding, any or all provisions of the Master Indenture which provide for approval, consent, direction or appointment by the Master Trustee, provide that anything must be satisfactory or acceptable to the Master Trustee, allow the Master Trustee to request anything or contain similar provisions granting discretion to the Master Trustee shall be deemed to also require or allow, as the case may be, the approval, consent, appointment, satisfaction, acceptance, request or like exercise of discretion by the Related Issuer or the Related Bond Trustee, or any one thereof, and that all items required to be delivered or addressed to the Master Trustee under the Master Indenture shall also be delivered or addressed to the Related Issuer and the Related Bond Trustee, or any one thereof, unless waived thereby. If a Member enters into any such agreements in a

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Related Bond Indenture, Related Loan Document or Supplemental Master Indenture, such agreements shall be deemed to be included in the Master Indenture as if set forth therein.

SUMMARY OF CERTAIN SPRINGING AMENDMENTS TO THE MASTER INDENTRE

Certain provisions of the Amended and Restated Master Indenture summarized below are amendments to the Existing Master Indenture (the “Springing Amendments”) which shall be effective upon receipt of the written consent of not less than a majority in aggregate principal amount of each series of the Existing Obligations and not less than a majority in aggregate principal amount of each series of the Series 2017 Obligations in accordance with the terms of the Existing Master Indenture. The holders of the Series 2017 Obligations shall be deemed to have consented to the Springing Amendments by virtue of their acceptance of the Series 2017 Obligations. It is not expected that the written consent from a majority in aggregate principal amount of the Existing Obligations will be delivered prior to the issuance date of the Series 2017 Obligations. Therefore, the Springing Amendments will not become effective until after the issuance date of the Series 2017 Obligations upon the earlier of (i) the payment of the obligations that are secured by the Existing Obligations or (ii) a written consent to the effectiveness of the Springing Amendments delivered to the Master Trustee by the holders of not less than a majority in aggregate principal amount of each series of the Existing Obligations.

DEFINITIONS

The definitions of “Expenses” and “Revenues” in “DEFINITIONS OF CERTAIN TERMS” above will be deleted in their entirety and replaced as follows:

“Expenses” means, for any period, the aggregate of all operating and non-operating expenses calculated under GAAP, including without limitation any taxes, incurred by the Person or group of Persons involved during such period, minus (i) interest on Funded Indebtedness (taking into account all Interest Rate Hedges as provided under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE — Calculation of Debt Service and Debt Service Coverage”), (ii) depreciation and amortization, (iii) extraordinary expenses, (iv) any expenses resulting from (a) the extinguishment of debt or termination of pension plans, (b) any disposition of capital assets not made in the ordinary course of business, (c) any discontinued operations or (d) adjustments to the value of assets or liabilities resulting from changes in GAAP, (v) any expenses resulting from a forgiveness of or the establishment of reserves against Indebtedness of an Affiliate which does not constitute an extraordinary expense, (vi) losses resulting from any reappraisal, revaluation or write-down of assets (including without limitation intangibles), (vii) any loss or change in the value

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of an Interest Rate Hedge (including any change in the value of the termination value thereof) which loss or change in value is the result of the expiration or termination (including early termination) of such Interest Rate Hedge, (viii) any loss or change in value of investment securities which is not the result of the sale, transfer or disposition of such investment securities, (ix) asset retirement obligations (except in the year paid), (x) any nonrecurring items which do not involve the expenditure or transfer of assets and (xi) if such calculation is being made with respect to the Obligated Group, excluding any such expenses attributable to transactions between any Member and another Member, provided, however, that the provisions of (i) through (xi) notwithstanding, no amount shall be subtracted from expenses more than once. “Expenses,” for the purposes of the various calculations required to be made under the Master Indenture, of the Obligated Group shall be deemed to include the above items of a person whose Indebtedness is guaranteed by a Member of the Obligated Group to the extent provided under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Calculation of Debt Service and Debt Service Coverage.”

“Revenues” means, for any period, (i) in the case of any Person providing health care services, the sum of (a) net patient service revenues, plus (b) other operating revenues, plus (c) non-operating revenues (other than Contributions, income derived from the sale of assets not in the ordinary course of business or any gain from the extinguishment of debt or any extraordinary item or earnings which constitute Escrowed Interest or earnings on amounts which are irrevocably deposited in escrow to pay the principal of or interest on Indebtedness) including Contributions (taking into account all Interest Rate Hedges as provided under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Calculation of Debt Service and Debt Service Coverage,” and other than Restricted Contributions, income derived from the sale of assets not in the ordinary course of business or any gain from the extinguishment of debt or other extraordinary item or earnings which constitute Capitalized Interest or earnings on amounts which are irrevocably deposited in escrow to pay the principal of or interest on Indebtedness), all as determined in accordance with GAAP, plus (d) Unrestricted Contributions, all as determined in accordance with GAAP; and (ii) in the case of any other Person, gross revenues less sale discounts and sale returns and allowances, as determined in accordance with GAAP; but excluding for purposes of both clauses (i) and (ii) above (A) any gains on the sale or other disposition of investments or fixed or capital assets not in the ordinary course and any gains on the extinguishment of debt,

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(B) earnings resulting from any reappraisal, revaluation or write-up of assets (including, without limitation, intangibles and pension adjustments related to market value fluctuations and discount rates), (C) gains or changes in the valuation of Interest Rate Hedges which gain or change in value is the result of the expiration or termination (including early termination) of such Interest Rate Hedge, (D) gains or changes in the valuation of investment securities other than as the result of the sale, transfer or other disposition of such investment security, (E) adjustments to the value of assets or liabilities resulting from changes in GAAP, and (F) any nonrecurring items of an extraordinary nature which do not involve the receipt of assets; provided, however, that if such calculation is being made with respect to the Obligated Group, such calculation shall be made in such a manner so as to exclude any revenues attributable to transactions between any Member and any other Member; provided, further, that the provisions of (A) through (F) notwithstanding, no amount shall be added to revenues more than once. “Revenues,” for the purposes of the various calculations required to be made under the Master Indenture, of the Obligated Group shall be deemed to include the above items of a person whose Indebtedness is guaranteed by a Member of the Obligated Group to the extent provided under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Calculation of Debt Service and Debt Service Coverage.”

ENTRANCE INTO THE OBLIGATED GROUP

The provisions of the Master Indenture summarized in subparagraphs (b) and (c) under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE — Entrance Into the Obligated Group” above will be deleted in their entirety and replaced as follows:

(b) The Obligated Group Agent shall, by appropriate action of its Governing Body, have approved the admission of such Person to the Obligated Group and each of the Members shall have taken any action necessary to approve the admission of such Person to the Obligated Group;

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(B) assuming such Person had been a Member of the Obligated Group during the most recent Fiscal Year of the Obligated Group with respect to which audited financial statements are available, the Income Available for Debt Service of the Obligated Group either (x) would have been no less than 100% of the Debt Service Requirements of the Obligated Group for such Fiscal Year if it were assumed that such Person was a Member of the Obligated Group during such Fiscal Year or (y) if the Income Available for Debt Service of the Obligated Group was less than 100% of the Debt Service Requirements of the Obligated Group during such Fiscal Year, such Income Available for Debt Service would be equal to or a larger percentage of such Debt Service Requirements if it were assumed that such Person was a Member of the Obligated Group during such Fiscal Year, which conclusions shall, if required by the Master Trustee, be accompanied by a concurring report, opinion or verification of a firm of nationally recognized independent certified public accountants selected by the Obligated Group Agent and satisfactory to the Master Trustee, (2) an opinion of Counsel to the effect that (x) the instrument described in subparagraph (a) above has been duly authorized, executed and delivered and constitutes a legal, valid and binding agreement of such Person, enforceable in accordance with its terms, subject to customary exceptions for bankruptcy, insolvency and other laws generally affecting enforcement of creditors’ rights and application of general principles of equity and to the exceptions set forth in Exhibit B to the Master Indenture and (y) the addition of such Person to the Obligated Group will not adversely affect the status as a Tax-Exempt Organization of any Member which otherwise has such status and (3) if all amounts due or to become due on all Related Bonds have not been paid to the holders thereof and provision for such payment has not been made in such manner as to have resulted in the defeasance of all Related Bond Indentures, an Opinion of Bond Counsel to the effect that under then existing law the consummation of such transaction, whether or not contemplated on the date of delivery of any such Related Bond, would not adversely affect the validity of any Related Bond or any exemption from federal or state income taxation of interest payable on such Bond otherwise entitled to such exemption; provided that in making the calculation called for by subparagraph (c)(l)(B) above, (i) there shall be excluded from Revenues (a) any Revenues generated by Property of such Person transferred or otherwise disposed of by such Person since the beginning of the Fiscal Year during which such Person’s entry into the Obligated Group occurs and (b) any Revenues generated by Property of the new Member which at the time of such Member’s entry into the Obligated Group will be categorized as Excluded Property and (ii) there shall be excluded from Expenses

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(a) any Expenses related to Property of such Person transferred or otherwise disposed of by such Person since the beginning of the Fiscal Year during which such Person’s entry into the Obligated Group occurs and (b) any Expenses related to Property of the new Member which at the time of such Member’s entry into the Obligated Group will be categorized as Excluded Property; and

CESSATION OF STATUS AS A MEMBER OF THE OBLIGATED GROUP

The provisions of the Master Indenture summarized in subparagraphs (c) and (e) under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE — Cessation of Status as a Member of the Obligated Group” above will be deleted in their entirety and replaced as follows:

(c) prior to such cessation there is delivered to the Master Trustee a certificate of the Obligated Group Agent which demonstrates that: (i) assuming such Person had not been a Member of the Obligated Group during the most recent Fiscal Year of the Obligated Group with respect to which audited financial statements are available, the Income Available for Debt Service of the Obligated Group would have been no less than 100% of the Debt Service Requirements of the Obligated Group (excluding such Person and the Indebtedness of such Person to be paid in connection with such Person’s exit from the Obligated Group) for such Fiscal Year or, if the Income Available for Debt Service of the Obligated Group was less than 100% of the Debt Service Requirements of the Obligated Group during such Fiscal Year, such Income Available for Debt Service would be an equal or a larger percentage of the Debt Service Requirements of the Obligated Group (with such exclusions) if it were assumed that such Person was not a Member of the Obligated Group during such Fiscal Year, which conclusions shall, if requested by the Master Trustee, be accompanied by a concurring report, opinion or verification of a Qualified Accountant selected by the Obligated Group Agent and satisfactory to the Master Trustee; and (ii) prior to and immediately after such cessation, no event of default exists under the Master Indenture, including without limitation the provisions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Liens on Property” below, and no

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event shall have occurred which with the passage of time or the giving of notice, or both, would become such an event of default;

(e) prior to cessation of such status, the Obligated Group Agent consents in writing to the withdrawal by such Member.

FINANCIAL STATEMENTS

The provisions of the Master Indenture summarized in the last paragraph under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE — Financial Statements” above are deleted and repalced as follows:

For the purpose of determining compliance with all financial covenants and ratios pursuant to and under the Master Indenture, the Obligated Group Agent may elect, in connection with each such calculation, to use (i) financial information derived from the financial report of the System, provided that the total operating revenues and the total unrestricted net assets of the Members represent at least eighty (80%) of the consolidated total operating revenues and the consolidated total unrestricted net assets, respectively, of the System for the Fiscal Year covered by the financial report or (ii) financial information derived from the Obligated Group supplemental schedules included in the financial report; provided that if the total operating revenues or the total unrestricted net assets of the Members represent less than eighty (80%) of the consolidated total operating revenues and the consolidated total unrestricted net assets, respectively, of the System for the Fiscal Year covered by the financial report, all financial covenants and ratios required to be calculated for such Fiscal Year shall be calculated based upon the Obligated Group supplemental schedules, and any and all references to the terms “System” in such covenants and all related defined terms shall be replaced with the term “Obligated Group” and “Members of the Obligated Group,” respectively.

DEFAULTS AND REMEDIES

The provisions of the Master Indenture summarized in the penultimate paragraph under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Defaults and Remedies” above will be deleted in their entirety and replaced as follows:

If an event of default has occurred and is continuing, the Master Trustee may, and if requested by the holders of not less than 35% in aggregate principal amount of (i) Obligations of any series then Outstanding, if such event of default arises by reason of the

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failure of any Member of the Obligated Group to pay the principal of, or premium or interest on, any Obligation of such series or by reason of the acceleration of the maturity of any Indebtedness evidenced, collateralized or secured by such Obligation, or (ii) all Obligations then Outstanding, if such event of default arises for any other reason, shall, by notice in writing delivered to the Obligated Group Agent, declare the entire principal amount of all Obligations then outstanding under the Master Indentures and the interest accrued thereon immediately due and payable, and the entire principal and such interest shall thereupon become immediately due and payable, subject, however, to the provisions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Waiver of Events of Defaults” below.

RIGHTS AND REMEDIES OF OBLIGATION HOLDERS

The provisions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Rights and Remedies of Obligation Holders” above will be deleted in their entirety and replaced as follows:

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remedy under the Master Indenture; it being understood and intended that no one or more holders of the Obligations shall have any right in any manner whatsoever to affect, disturb or prejudice the lien of the Master Indenture by such holder’s action or to enforce any right under the Master Indenture except in the manner provided for in the Master Indenture, and that all proceedings at law or in equity shall be instituted, had and maintained in the manner provided in the Master Indenture and for the equal benefit of the holders of all Obligations outstanding. Nothing in the Master Indenture shall, however, affect or impair the right of any holder to enforce the payment of the principal of, premium, if any, and interest on any Obligation at and after the maturity thereof, or the obligation of the Members to pay the principal, premium, if any, and interest on each of the Obligations issued under the Master Indenture to the respective holders thereof at the time and place, from the source and in the manner in said Obligations expressed.

SUPPLEMENTAL MASTER INDENTURES

The provisions of the Master Indenture summarized in the second paragraph under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE — Supplemental Master Indentures” above will be deleted in their entirety and replaced as follows:

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which are required to consent to any such Supplemental Master Indenture, without the consent of the holders of all the Obligations at the time outstanding which would be affected by the action to be taken, (c) except as otherwise permitted by the provisions of the Master Indenture summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—Cessation of Status as a Member of the Obligated Group,” modification of the joint and several obligation of the Members to make payment on or provide funds for the payment of any Obligation without the consent of the holder of such Obligation or (d) modification of the rights, duties or immunities of the Master Trustee, without the written consent of the Master Trustee.

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APPENDIX D

SUMMARY OF THE BOND INDENTURE AND THE LOAN AGREEMENT

TABLE OF CONTENTS

PAGE

SUMMARY OF THE BOND INDENTURE AND LOAN AGREEMENT ...... D-1

DEFINITIONS OF CERTAIN TERMS ...... D-1

SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE ...... D-20 Funds; Disposition of Revenues ...... D-22 Investment of Funds ...... D-26 Arbitrage ...... D-27 Supplemental Bond Indentures ...... D-27 Release and Substitution of Series 2017A Obligation upon Delivery of Replacement Master Indenture ...... D-30 Defeasance ...... D-32 Defaults and Remedies ...... D-33 Bondholder’s Control of Proceedings ...... D-38 Waiver of Events of Default ...... D-38 Application of Revenues and Other Funds After Default ...... D-39 Removal of the Bond Trustee ...... D-40 Bond Trustee as Holder of Series 2017A Obligation ...... D-41

SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT ...... D-41 Loan of Series 2017A Bond Proceeds ...... D-41 Representations ...... D-41 Assignment of Rights under the Loan Agreement and the Obligations Pledged under the Bond Indenture ...... D-42 Payments in Respect of the Series 2017A Obligation ...... D-42 Arbitrage; Tax Exemption Agreement ...... D-42 Corporation’s Obligations Are Unconditional ...... D-43 Certain Covenants of NMHC Relating to the Use and Operation of Certain of Its Property ...... D-43 Transfer of Bond Financed Property ...... D-44 Indemnity ...... D-44 Maintenance of Corporate Existence ...... D-46 Accreditation and Licensure ...... D-47 Rates and Charges ...... D-47 Amendments to the Loan Agreement ...... D-47 Defaults and Remedies ...... D-48 Exchange of Bonds ...... D-50 Financial Statements ...... D-50 Discharge of Orders ...... D-51

D--i

SUMMARY OF THE BOND INDENTURE AND LOAN AGREEMENT

Brief descriptions of the Bond Indenture and Loan Agreement are included hereafter in the Official Statement. Such descriptions do not purport to be comprehensive or definitive. All references herein to the Bond Indenture and Loan Agreement are qualified in their entirety by reference to such documents, copies of which are available for review prior to the issuance and delivery of the Series 2017A Bonds at the office of the Authority and thereafter at the office of the Bond Trustee. All references to the Series 2017A Bonds are qualified in their entirety by reference to the definitive forms thereof and the information with respect thereto included in the Bond Indenture.

DEFINITIONS OF CERTAIN TERMS

The following are definitions of certain terms used in the Bond Indenture, the Loan Agreement and the Official Statement.

“Act” means the Illinois Finance Authority Act of the State of Illinois, as from time to time amended, until such time as it may be repealed, and from and after any such repeal, any successor act thereto.

“Alternate Credit Facility” means a Credit Facility issued to replace an Existing Credit Facility in accordance with the Bond Indenture; provided, however, that any amendment, extension, renewal or substitution of the Credit Facility then in effect for the purpose of extending the Expiration Date of such Credit Facility or modifying such Credit Facility pursuant to its terms shall not be deemed to be an Alternate Credit Facility for purposes of the Bond Indenture.

“Alternate Liquidity Facility” means a Liquidity Facility issued to replace an existing Liquidity Facility in accordance with the Bond Indenture and any amendment or assignment of a Liquidity Facility which results in a change in the Liquidity Facility Provider; provided, however, that any amendment or extension of the Liquidity Facility for the purpose of extending the Expiration Date of such Liquidity Facility or changing the fees paid to a Liquidity Facility Provider under a Liquidity Facility shall not constitute an Alternate Liquidity Facility under the Bond Indenture.

“Authority” means Illinois Finance Authority created pursuant to, and as defined in, the Act, and its successors.

“Authorized Denominations” means with respect to any (i) Long-Term Period, FRN Period or Fixed Period, $5,000 and any integral multiple thereof; (ii) Short-Term Period, Two-Day Period, VRO Interest Rate Period, Window Period, Weekly Period, Daily Period, or Flexible Rate Period, $100,000 and any integral multiple of $5,000 in excess of $100,000; and (iii) Direct Purchase Period, $250,000 and any integral multiple of $100,000 in excess of $250,000.

“Authorized Representative” means, with respect to NMHC, its President, or any Vice President, or any other person designated as an Authorized Representative of NMHC in a Certificate of the Borrower signed by any two of its President, Senior Vice President, Vice

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President, Secretary or Assistant Secretary and filed with the Bond Trustee and the Direct Purchaser, if any, and with respect to the Authority, the Chairperson, Vice Chairperson, Executive Director, Secretary or Treasurer of the Authority or any other person designated as an Authorized Representative in a Certificate of the Authority signed by any two members of the Board of Directors of the Authority.

“Beneficial Owner” means any Person which (a) has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any of the Series 2017A Bonds (including any Person holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bond for federal income tax purposes.

“Bond Counsel” means any nationally recognized municipal bond counsel not objected to by the Authority.

“Bond Indenture” means the Bond Indenture, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Bond Indenture.

“Bond Purchase Fund” means the fund by that name established pursuant to the Bond Indenture.

“Bond Sinking Fund” means the fund by that name established pursuant to the Bond Indenture and summarized under “SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE — FUNDS; DISPOSITION OF REVENUES” herein.

“Bond Trustee” means Wells Fargo Bank, National Association, a national banking association organized and existing under and by virtue of the laws of the United States, or its successor, as Bond Trustee under the Bond Indenture as provided in the Bond Indenture.

“Bondholder Agreement” means during any Direct Purchase Period, any continuing covenant agreement, bondholder agreement or similar agreement between NMHC and a Direct Purchaser that is designated in writing by NMHC and delivered to the Bond Trustee and the Authority as the Bondholder Agreement.

“Bonds” or “Series 2017A Bonds” means Illinois Finance Authority Revenue Bonds, Series 2017A (Northwestern Memorial HealthCare), authorized by, and at any time Outstanding pursuant to, the Bond Indenture.

“Business Day” means any day on which banks located in Chicago, Illinois, New York, New York, the city in which draws on a Credit Facility, if any, or a Liquidity Facility, if any, are to be presented, the city in which the Principal Office of the Bond Trustee is located or, with respect to Bonds in the Direct Purchase Mode, the FRN Mode or the Window Mode, the city in which the Calculation Agent is located, are not required or authorized to be closed and on which The New York Stock Exchange is open.

“Calculation Agent” means (i) during the Direct Purchase Period, the Direct Purchaser or any affiliate thereof during any Direct Purchase Period, or any Person, financial institution or

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financial advisory firm appointed by NMHC, with the consent of the Direct Purchaser, if any, to serve as Calculation Agent for the Series 2017A Bonds, and (ii) during the FRN Mode or the Window Mode, any Person, financial institution or financial advisory firm appointed by NMHC prior to a Conversion to any such interest rate mode to serve as Calculation Agent for the Series 2017A Bonds.

“Certificate,” “Statement,” “Request” and “Requisition” of the Authority or NMHC means, respectively, a written certificate, statement, request or requisition signed in the name of the Authority or NMHC by an Authorized Representative. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument.

“Code” means the Internal Revenue Code of 1986, as amended from time to time. Each reference to a section of the Code herein shall be deemed to include the United States Treasury Regulations, including temporary and proposed regulations, relating to such section which are applicable to a series of Bonds or the use of the proceeds thereof.

“Continuing Disclosure Agreement” means any continuing disclosure agreement or certificate executed by NMHC with respect to the Series 2017A Bonds and which complies with S.E.C. Rule 15c2-12.

“Conversion” means a conversion of all or a portion of the Series 2017A Bonds from one Interest Rate Mode to one or more other Interest Rate Modes in accordance with the terms and provisions of the Bond Indenture, and shall also include (i) a change from any Direct Purchase Period to the next Direct Purchase Period, (ii) a continuation of the FRN Bonds in a new FRN Interest Rate Period and (iii) a conversion from one Fixed Period to a new Fixed Period.

“Conversion Date” means the effective date of a Conversion of the Series 2017A Bonds or a portion of the Series 2017A Bonds to a different Interest Rate Mode.

“Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the Authority or NMHC and related to the authorization, issuance, sale and delivery of the Series 2017A Bonds, including but not limited to advertising and printing costs, costs of preparation and reproduction of documents, filing and recording fees, initial fees and charges of the Bond Trustee, initial and ongoing fees and charges of the Authority, fees of the Credit Facility Provider, if any, fees of the Liquidity Facility Provider, if any, legal fees and charges, fees and disbursements of consultants and professionals, Rating Agency fees, fees and charges for preparation, execution, transportation and safekeeping of the Series 2017A Bonds, and any other cost, charge or fee in connection with the original issuance of the Series 2017A Bonds.

“Credit Facility” means a letter of credit, loan, guarantee, bond insurance policy, or similar credit facility for the Series 2017A Bonds issued by a commercial bank, bond insurer or other financial institution and delivered to the Bond Trustee in accordance with the Loan Agreement or, in the event of the delivery of an Alternate Credit Facility, such Alternate Credit Facility. A Credit Facility may also serve the function of a Liquidity Facility.

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“Credit Facility Agreement” means any reimbursement or similar agreement pursuant to which a Credit Facility Provider issues or provides a Credit Facility.

“Credit Facility Bonds” means Bonds purchased with moneys drawn under (or otherwise obtained pursuant to the terms of) a Credit Facility, but excluding Bonds no longer considered to be Credit Facility Bonds in accordance with the terms of the applicable Credit Facility.

“Credit Facility Provider” means the commercial bank, bond insurer, or other financial institution issuing (or having primary obligation, or acting as agent for the financial institutions obligated, under) a Credit Facility then in effect.

“Credit Facility Rate” means the rate per annum, if any, specified in a Credit Facility as applicable to Credit Facility Bonds, which shall not exceed the Maximum Interest Rate for Credit Facility Bonds.

“Daily Bonds” means Bonds that bear interest at Daily Rates.

“Daily Interest Rate Period” means each day during the Daily Period for which a particular Daily Rate is in effect.

“Daily Mode” means the Interest Rate Mode during which the Series 2017A Bonds bear interest at the Daily Rate.

“Daily Period” means the entire period during which Bonds constitute Daily Bonds, which Daily Period shall generally be comprised of multiple Daily Interest Rate Periods, during which Daily Rates are in effect.

“Daily Rate” means the interest rate per annum on Daily Bonds determined on a daily basis as provided in the Bond Indenture.

“Differential Interest Amount” means, upon remarketing of a Liquidity Facility Bond or a Credit Facility Bond by the Remarketing Agent pursuant to the Bond Indenture, the excess of (a) interest which has accrued at the Liquidity Facility Rate or the Credit Facility Rate, as applicable, up to but excluding the remarketing date of the Bond, over (b) the interest accrued on such Bond which is received by the Liquidity Facility Provider or the Credit Facility Provider, as applicable, from the Remarketing Agent as part of the Purchase Price.

“Direct Purchase Bonds” means Bonds that bear interest at a Direct Purchase Rate, and any Unremarketed Bonds, if any.

“Direct Purchase Interest Rate Period” means each period during the Direct Purchase Period for which a particular Direct Purchase Rate is in effect.

“Direct Purchase Mode” means the Interest Rate Mode during which the Series 2017A Bonds bear interest at the Direct Purchase Rate and during which any Unremarketed Bonds, if any, remain Outstanding.

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“Direct Purchase Period” means the entire period during which Bonds constitute Direct Purchase Bonds, which Direct Purchase Period shall generally be comprised of multiple Direct Purchase Interest Rate Periods, during which Direct Purchase Rates are in effect. A Direct Purchase Period shall also include any period during which any Unremarketed Bonds remain Outstanding.

“Direct Purchase Rate” means the interest rate per annum on Direct Purchase Bonds determined on a periodic basis as provided in the Bond Indenture.

“Direct Purchase Rate Mandatory Purchase Date” means the first day following the last day of each Direct Purchase Interest Rate Period, or any other date established as such in a Supplemental Bond Indenture or Bondholder Agreement.

“Direct Purchaser” means, during any Direct Purchase Period, the Holder of the Direct Purchase Bonds, if there is a single Holder of all of the Direct Purchase Bonds and provided, however, that the Series 2017A Bonds are not then held under the book-entry system. If there is more than one Holder of the Direct Purchase Bonds, “Direct Purchaser” means the Holders owning a majority in aggregate principal amount of the Direct Purchase Bonds then Outstanding. If the Direct Purchase Bonds are then held under the book-entry system, “Direct Purchaser” means the Beneficial Owner of the Direct Purchase Bonds, if there is a single Beneficial Owner of all of the Direct Purchase Bonds. If there is more than one Beneficial Owner of the Direct Purchase Bonds, “Direct Purchaser” means the Beneficial Owners who are the Beneficial Owners of a majority in aggregate principal amount of the Direct Purchase Bonds then Outstanding.

“Electronic Notice” means a notice transmitted through email, facsimile or other similar electronic means of communication providing evidence of transmission, including a telephone communication confirmed by any other method set forth in this definition, to the notice address supplied by or on behalf of the addressee.

“Eligible Bonds” means any Bonds other than Liquidity Facility Bonds, Credit Facility Bonds or Bonds owned by, for the account of, or on behalf of, the Authority or NMHC.

“Eligible Moneys” means (a) Bond proceeds deposited with the Bond Trustee contemporaneously with the issuance and sale of the Series 2017A Bonds and which are continuously thereafter held subject to the lien of the Bond Indenture in a separate and segregated fund, account or subaccount established under the Bond Indenture in which no moneys which are not Eligible Moneys are at any time held; (b) moneys (i) paid or deposited by NMHC or any other Member of the Obligated Group to or with the Bond Trustee, (ii) held in any fund, account or subaccount established under the Bond Indenture in which no other moneys which are not Eligible Moneys are held and (iii) which have so been on deposit with the Bond Trustee for at least 124 consecutive days from their receipt by the Bond Trustee so long as NMHC is the sole Member of the Obligated Group or at least 367 consecutive days from their receipt by the Bond Trustee if there is more than one Member of the Obligated Group, or if such funds are provided by an Insider (within the meaning of Title 11 of the United States Bankruptcy Code, with respect to NMHC), during and prior to which period no petition by or against the Authority, NMHC or any other Member of the Obligated Group or any such Insider under any bankruptcy or similar law now or

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hereafter in effect shall have been filed and no bankruptcy or similar proceeding otherwise initiated (unless such petition or proceeding shall have been dismissed and such dismissal be final and not subject to appeal), together with investment earnings on such moneys; (c) moneys received by the Bond Trustee from any payment under a Credit Facility, if any, or a Liquidity Facility, if any, which are held in any fund, account or subaccount established under the Bond Indenture in which no other moneys which are not Eligible Moneys are held, together with investment earnings on such moneys; (d) proceeds from the remarketing of any Bonds pursuant to the provisions of the Bond Indenture to any person other than the Authority, NMHC, any other Member of the Obligated Group or any Insider; (e) proceeds from the issuance and sale of refunding bonds, together with the investment earnings on such proceeds, if there is delivered to the Bond Trustee at the time of issuance and sale of such refunding bonds an opinion of nationally recognized bankruptcy counsel experienced in bankruptcy matters (which opinion may assume that no holder of a Bond is an Insider) to the effect that the use of such proceeds and investment earnings to pay the principal of, premium, if any, or interest on the Series 2017A Bonds would not be avoidable as preferential payments under Section 547 of the Bankruptcy Code recoverable under Section 550 of the Bankruptcy Code should the Authority, NMHC or any other Member of the Obligated Group become a debtor in a proceeding commenced thereunder; and (f) moneys which are derived from any source, including without limitation moneys from NMHC or any other Member of the Obligated Group, together with the investment earnings on such moneys, if the Bond Trustee has received an unqualified opinion of nationally recognized bankruptcy counsel experienced in bankruptcy matters (which opinion may assume that no holder of a Bonds is an Insider) to the effect that payment of such amounts to a holder of a Bond would not be avoidable as preferential payments under Section 547 of the Bankruptcy Code recoverable under Section 550 of the Bankruptcy Code should the Authority, NMHC or any other Member of the Obligated Group become a debtor in a proceeding commenced thereunder; provided that such proceeds, moneys or income shall not be deemed to be Eligible Moneys or available for payment of the Series 2017A Bonds if, among other things, an injunction, restraining order or stay is in effect preventing such proceeds, moneys or income from being applied to make such payment. For the purposes of this definition, the term “moneys” shall include cash and any Qualified Investments including, without limitation, United States Government Obligations.

“Event of Default” means any of the events specified in the Bond Indenture and summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE — DEFAULTS AND REMEDIES” herein.

“Expense Fund” means the fund by that name established pursuant to the Bond Indenture and summarized under “SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE — FUNDS; DISPOSITION OF REVENUES” herein.

“Expiration Date” means (i) the date upon which a Liquidity Facility or Credit Facility is scheduled to expire (taking into account any extensions of such Expiration Date by virtue of extensions of a particular Liquidity Facility or Credit Facility, from time to time) in accordance with its terms, including without limitation termination upon delivery of an Alternate Liquidity Facility or an Alternate Credit Facility to the Bond Trustee and (ii) the date upon which a Liquidity Facility or Credit Facility terminates following voluntary termination by NMHC pursuant to the Loan Agreement and the terms of the related Liquidity Facility or Credit Facility.

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“Facilities” shall have the meaning assigned in the Master Indenture and summarized under “APPENDIX C —DEFINITIONS OF CERTAIN TERMS” in this Official Statement.

“Favorable Opinion of Bond Counsel” means an opinion of Bond Counsel, addressed to the Authority, the Remarketing Agent, if any, the Direct Purchaser, if any, NMHC and the Bond Trustee, to the effect that the action proposed to be taken is authorized or permitted or not prohibited by or in contravention of the Bond Indenture and will not result in the inclusion of interest on the Series 2017A Bonds in gross income of the Holders thereof for federal income tax purposes.

“Fitch” means Fitch Ratings, a corporation organized and existing under the laws of the State of New York, its successors and their assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by NMHC by notice in writing to the Authority and the Bond Trustee and the Direct Purchaser, if any.

“Fixed Bonds” means Bonds that bear interest at Fixed Rates.

“Fixed Mode” means the Interest Rate Mode during which the Series 2017A Bonds bear interest at a Fixed Rate or Fixed Rates to their Maturity Date.

“Fixed Period” means the period to the Maturity Date during which Bonds constitute Fixed Bonds during which Fixed Rates are in effect.

“Fixed Rate” means the fixed interest rate or interest rates per annum on Fixed Bonds to their Maturity Date determined prior to the Conversion of the Series 2017A Bonds to the Fixed Mode as provided in the Bond Indenture.

“Flexible Mode” means the Interest Rate Mode during which the Series 2017A Bonds bear interest at the Flexible Rate.

“Flexible Rate” means the per annum interest rate on a Bond in the Flexible Mode determined for such Bond pursuant to the Bond Indenture. The Series 2017A Bonds in the Flexible Mode may bear interest at different Flexible Rates.

“FRN Bonds” means Bonds that bear interest at FRN Rates.

“FRN Index” means the SIFMA Index, One Month LIBOR, the CPI-U or such other index that NMHC shall select in consultation with the Remarketing Agent not less than five Business Days prior to the FRN Rate Conversion Date, as an index reasonably expected to measure contemporaneous variations in the cost of newly borrowed funds or inflation, as applicable.

“FRN Index Percentage” means the percentage determined by the Remarketing Agent pursuant to the Bond Indenture with respect to the determination of the FRN Rate.

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“FRN Interest Rate Period” means each period during the FRN Period for which a particular FRN Rate is in effect.

“FRN Mode” means the Interest Rate Mode during which the Series 2017A Bonds bear interest at the FRN Rate.

“FRN Period” means the entire period during which Bonds constitute FRN Bonds, which FRN Period shall generally be comprised of multiple FRN Interest Rate Periods, during which FRN Rates are in effect.

“FRN Rate” means, with respect to the FRN Bonds in a particular FRN Interest Rate Period, the interest rate per annum on FRN Bonds during such FRN Interest Rate Period determined on a periodic basis as provided in the Bond Indenture, which is equal to the sum of (a) the FRN Index multiplied by the FRN Index Percentage, plus (b) the FRN Spread.

“FRN Spread” means the spread determined by the Remarketing Agent prior to the commencement of an FRN Interest Rate Period based on the relative spreads of securities that bear interest based on the FRN Index that, in the reasonable judgment of the Remarketing Agent under prevailing market conditions, are otherwise comparable to the Series 2017A Bonds or affecting the market for the Series 2017A Bonds or affecting such other comparable securities in a manner which, in the reasonable judgment of the Remarketing Agent, will affect the market for the Series 2017A Bonds (assuming for these purposes that the Series 2017A Bonds were to bear interest at FRN Rates for a particular FRN Interest Rate Period).

“Government Obligations” means (a) noncallable United States Government Obligations or (b) evidences of a direct ownership in future interest or principal payments on noncallable United States Government Obligations, which United States Government Obligations are held in a custodial account by a custodian on behalf of the Bond Trustee pursuant to the terms of a custody agreement; provided, however, that if such Government Obligations consist of obligations for which the principal and interest payments have been “stripped” into separate securities, such custodian shall be a Federal Reserve Bank.

“Holder” or “Bondholder,” whenever used herein with respect to a Bond, means the Person in whose name such Bond is registered; provided, however, that any time the Series 2017A Bonds are held in a book-entry system, “Holder” or “Bondholder” shall mean any person who acquires a beneficial ownership interest in a Bond held by the Securities Depository.

“Initial Fixed Period” means the Fixed Period commencing on the Date of Issuance.

“Interest Fund” means the fund by that name established pursuant to the Bond Indenture and summarized under “SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE — FUNDS; DISPOSITION OF REVENUES” herein.

“Interest Payment Date” means (i) with respect to any Weekly Period, any Daily Period, any FRN Period, any Two-Day Period, or any VRO Interest Rate Period, the first Business Day of each calendar month, (ii) with respect to any Fixed Period or Long-Term Period, each January 15

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and July 15, which for the Initial Fixed Period commencing on the Date of Issuance shall commence with July 15, 2018, (iii) with respect to any Short-Term Interest Rate Period, the first Business Day next succeeding the last day thereof, (iv) with respect to each Interest Rate Mode, the day next succeeding the last day thereof, and any Conversion Date, (v) with respect to any Window Period, the First Thursday of each month, or if such first Thursday is not a Business Day, the next succeeding Business Day, (vi) with respect to the Series 2017A Bonds in the Flexible Mode, each Mandatory Purchase Date applicable thereto, (vii) with respect to any Liquidity Facility Bonds or Credit Facility Bonds, as provided in the applicable Liquidity Facility or Credit Facility Agreement, and (viii) with respect to any Direct Purchase Period, the first Business Day of each calendar month, or as may otherwise be established in the applicable Supplemental Bond Indenture or Bondholder Agreement.

“Interest Rate Mode” means a Daily Mode, a Two-Day Mode, a Weekly Mode, a Short-Term Mode, a Long-Term Mode, an FRN Mode, a VRO Mode, a Window Mode, a Flexible Mode, a Direct Purchase Mode or a Fixed Mode.

“Interest Rate Period” means a Daily Interest Rate Period, a Two-Day Interest Rate Period, a Weekly Interest Rate Period, a Short-Term Interest Rate Period, a Long-Term Interest Rate Period, an FRN Interest Rate Period, a VRO Interest Rate Period, a Window Interest Rate Period, a Direct Purchase Interest Rate Period or a Fixed Period.

“Liquidity Facility” means a line of credit, letter of credit, standby purchase agreement, loan, guarantee, or similar liquidity facility for a Series of Bonds issued by a commercial bank or other financial institution and delivered to the Bond Trustee in accordance with the Loan Agreement or, in the event of the delivery of an Alternate Liquidity Facility, such Alternate Liquidity Facility.

“Liquidity Facility Bonds” means Bonds purchased with moneys drawn under (or otherwise obtained pursuant to the terms of) a Liquidity Facility, but excluding Bonds no longer considered to be Liquidity Facility Bonds in accordance with the terms of the applicable Liquidity Facility.

“Liquidity Facility Provider” means the commercial bank or other financial institution issuing (or having primary obligation, or acting as agent for the financial institutions obligated, under) a Liquidity Facility then in effect.

“Liquidity Facility Rate” means the rate per annum, if any, specified in a Liquidity Facility as applicable to Liquidity Facility Bonds, which shall not exceed the Maximum Interest Rate for Liquidity Facility Bonds.

“Loan Agreement” means the Loan Agreement dated as of December 1, 2017 between NMHC and the Authority, as it may from time to time be amended, initially providing for the loan to NMHC of the proceeds of the Series 2017A Bonds.

“Long-Term Bonds” means Bonds that bear interest at Long-Term Rates.

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“Long-Term Interest Rate Period” means each period during the Long-Term Period for which a particular Long-Term Rate is in effect.

“Long-Term Mode” means the Interest Rate Mode during which the Series 2017A Bonds bear interest at the Long-Term Rate.

“Long-Term Period” means the entire period during which Bonds thereof constitute Long-Term Bonds, which Long-Term Period shall generally be comprised of multiple Long-Term Interest Rate Periods, during which Long-Term Rates are in effect.

“Long-Term Rate” means the non-variable interest rate per annum on Long-Term Bonds determined on a periodic basis as provided in the Bond Indenture.

“Mandatory Purchase Date” means any Purchase Date on which Bonds are subject to mandatory purchase pursuant to the Bond Indenture, including as set forth in the applicable Supplemental Bond Indenture or Bondholder Agreement.

“Market Agent” means the Person, if any, appointed by NMHC to serve as market agent in connection with any Direct Purchase Period.

“Master Indenture” shall have the meaning set forth in the recitals to the Bond Indenture.

“Master Trustee” means Wells Fargo Bank, National Association, a national banking association, as Master Trustee under the Master Indenture, or its successor.

“Maturity Date” means July 15, ____; with respect to Bonds in the Initial Fixed Period, the maturities set forth on the inside front cover of this Official Statement; or, with respect to a Bond upon change to a Fixed Period (including any Conversion from a Fixed Period to a new Fixed Period), such maturities as are determined pursuant to the Bond Indenture.

“Maximum Interest Rate” means 12% per annum for all Bonds except (i) Direct Purchase Bonds, Liquidity Facility Bonds and Credit Facility Bonds, for which the Maximum Interest Rate shall be 25% per annum; provided, however, that in any case the Maximum Interest Rate on any Bonds shall not exceed the Maximum Lawful Rate.

“Maximum Lawful Rate” means the maximum rate of interest on the relevant obligation permitted by applicable law.

“Member” or “Member of the Obligated Group” means each Person which has executed the Master Indenture or any supplements thereto and thereby has become contractually obligated to comply with the provisions of the Master Indenture and has not withdrawn from the Obligated Group pursuant to the provisions of the Master Indenture.

“Moody’s” means Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating

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agency, any other nationally recognized securities rating agency designated by NMHC by notice in writing to the Authority and the Bond Trustee and the Direct Purchaser, if any.

“NMHC” means Northwestern Memorial HealthCare, an Illinois not for profit corporation, and its successors and assigns and any surviving, resulting or transferee corporation.

“Obligated Group Agent” means NMHC or such other Member as may be designated from time to time pursuant to the provisions of the Master Indenture.

“Official Statement” means this Official Statement prepared in connection with the offering and sale of the Series 2017A Bonds.

“Optional Redemption Fund” means the account by that name established pursuant to the Bond Indenture and summarized “SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE — FUNDS; DISPOSITION OF REVENUES” herein.

“Outstanding” when used as of any particular time with reference to Bonds, means (subject to the provisions of the Bond Indenture) all Bonds theretofore, or thereupon being, authenticated and delivered by the Bond Trustee under the Bond Indenture except (1) Bonds theretofore canceled by the Bond Trustee or surrendered to the Bond Trustee for cancellation; (2) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with the Bond Indenture, including Bonds (or portions of Bonds) referred to in the Bond Indenture; and (3) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Bond Trustee pursuant to the Bond Indenture.

“Person” means an individual, corporation, firm, association, partnership, trust or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof.

“Principal Office” of the Bond Trustee means the designated corporate trust office of the Bond Trustee, which as of the date hereof is located at 10 South Wacker Drive, 13th Floor, Chicago, Illinois 60606. “Principal Office” of a Remarketing Agent, a Calculation Agent or a Market Agent means the address for such Remarketing Agent, Calculation Agent or Market Agent designated in writing to the Bond Trustee and NMHC.

“Project” means all Property of NMHC or the Users originally financed with the proceeds of the Series 2017A Bonds.

“Project Certificate” means the Project Certificate dated the Closing Date delivered by NMHC and the Users in connection with the issuance of the Series 2017A Bonds.

“Project Certificate Exhibit” means the listing set forth in Exhibit A to the Project Certificate, which Exhibit sets forth the Bond Financed Property and the related useful lives.

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“Project Fund” means the fund by that name established pursuant to the Bond Indenture and summarized under “SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE — FUNDS; DISPOSITION OF REVENUES” herein.

“Purchase Contract” means the contract for purchase of the Series 2017A Bonds among the Authority, NMHC and the purchasers named therein.

“Purchase Date” means each date on which Bonds are subject to optional or mandatory purchase pursuant to the Bond Indenture, and shall include each Mandatory Purchase Date.

“Purchase Price” means, with respect to a Bond subject to purchase on a Purchase Date, an amount equal to the principal amount thereof plus accrued interest to, but not including, the Purchase Date; provided, however, that (1) if the Purchase Date for any Purchased Bond is an Interest Payment Date, the Purchase Price thereof shall be the principal amount thereof, and interest on such Bond shall be paid to the Holder of such Bond pursuant to the Bond Indenture and (2) in the case of a purchase on the first day of an Interest Rate Period which is preceded by a Long-Term Period and which commences prior to the day originally established as the last day of such preceding Long-Term Period, “Purchase Price” of any Purchased Bonds means the optional Redemption Price set forth in the Bond Indenture which would have been applicable to such Bond if the preceding Long-Term Period had continued to the day originally established as its last day, plus accrued interest, if any.

“Purchased Bonds” means the Series 2017A Bonds to be purchased on a Purchase Date pursuant to the Bond Indenture.

“Qualified Investments” means investments in any of the following:

(a) Government Obligations;

(b) Direct obligations of any agency or instrumentality of the United States of America and obligations on which the timely payment of principal and interest is fully guaranteed by any such agency or instrumentality;

(c) Certificates of deposit, time deposits or other direct, unsecured debt obligations of any bank (including, without limitation, the Master Trustee or the Bond Trustee and their affiliates), trust company or savings and loan association if all of the direct, unsecured debt obligations of such institution at the time of purchase of such certificates of deposit, time deposits or obligations, which are rated by a Rating Agency are rated by such Rating Agency in one of the three highest rating categories assigned by such Rating Agency (without regard to any refinement or gradation of rating category by numerical modifier or otherwise), or which certificates of deposit, time deposits or obligations are fully secured by a security interest in obligations described in clauses (a) or (b) of this definition; provided, however, that if such certificates of deposit, time

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deposits or obligations are so secured (1) the Bond Trustee shall have a perfected first security interest in the obligations securing such certificates of deposit, time deposits or other obligations, (2) the Bond Trustee shall hold or shall have the option to appoint an intermediary bank, trust company or savings and loan association as its agent to hold the obligations securing such certificates of deposit, time deposits or other obligations, and (3) the Bond Trustee or its appointed agent shall hold such obligations free and clear of the liens or claims of third parties;

(d) Certificates of deposit or time deposits of any bank (including the Bond Trustee and the Master Trustee and their affiliates), trust company or savings and loan association which certificates of deposit or time deposits are fully insured by a federally sponsored deposit insurance program;

(e) Securities of the type described in clauses (a) or (b) above purchased under agreements to resell such securities to any registered broker-dealer subject to the Securities Investors Protection Corporation jurisdiction or any commercial bank, if such broker-dealer’s or bank’s uninsured, unsecured and unguaranteed obligations which are rated by a Rating Agency are rated by such Rating Agency in one of the three highest rating categories assigned by such Rating Agency (without regard to any refinement or gradation of rating category by numerical modifier or otherwise), provided: (i) a master repurchase agreement or specific written repurchase agreement governs the transaction; (ii) the repurchase agreement has a term of 30 days or less, or the Bond Trustee or a third party custodian as described below is required thereunder to value the collateral securities no less frequently than monthly and to liquidate or cause the custodian to liquidate the collateral securities if any deficiency in the required collateral percentage is not restored within two Business Days of such valuation; (iii) the fair market value of the securities in relation to the amount of the repurchase obligation, including principal and interest, is equal to at least 100%; and either (iv)(A) the securities are held by the Bond Trustee free and clear of any lien or claims of a third party, or (iv)(B)(w) the securities are held by an independent third party acting solely as agent for the Bond Trustee free and clear of any lien or claims of a third party (other than as agent hereinafter described), (x) such agent is a Federal Reserve Bank, or a bank which is a member of the Federal Deposit Insurance Corporation and which bank has combined capital, surplus and undivided profits of not less than $50,000,000, (y) the Bond Trustee shall have received written confirmation from such agent that it holds such securities, free and clear of any lien or claim, as agent for the Bond Trustee and (z) a perfected first security interest under the Uniform Commercial Code, or book entry procedures prescribed at 31 CFR 306.0 et seq., 31 CFR 357.0 et seq. or any other regulations analogous to the preceding regulations governing any other automated book entry system operated by the United States federal reserve banks in which securities issued by government sponsored enterprises are issued, recorded, transferred and maintained in book entry form (including without limitation the regulations set forth in 24 CFR Part 81, Subpart H) in such securities is created for the benefit of the Bond Trustee;

(f) Investment agreements with banks which meet the rating criteria set forth in (c) above or investment agreements with non-bank financial institutions (i) all of the unsecured, direct long-term debt of such non-bank financial institution which is rated by a Rating Agency is rated by such Rating Agency in one of the three highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by such Rating Agency for obligations of that nature, (ii) if such non-bank financial institutions have no

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such outstanding long-term debt which is rated, all of the short-term debt of which is rated by a Rating Agency is rated by such Rating Agency in the highest rating category (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned to short-term indebtedness by such Rating Agency, or (iii) the obligations of such non-bank financial institutions are guaranteed by an entity whose claims paying ability is rated by a Rating Agency in one of the three highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise), all of which agreements referred to this subsection (f) provide that if such banks’ or non-bank financial institutions’ debt no longer satisfies such rating criteria such bank or institution will secure such agreements as soon as reasonably practicable to the extent and in the manner provided in subsection (c) above;

(g) Shares of a fund registered under the Investment Company Act of 1940, as amended, whose shares are registered under the Securities Act of 1933, as amended, (including those funds for which the Bond Trustee or an affiliate performs services for a fee, whether as a custodian, transfer agent, investment advisor or otherwise) having assets of at least $100,000,000, whose investment assets are obligations which constitute Qualified Investments;

(h) Commercial paper which, at the time of purchase, is rated by a Rating Agency in one of the two highest rating categories (incorporating refinements or gradation of rating category by numerical modifier or otherwise) assigned by such Rating Agency for obligations of that nature;

(i) Obligations of, or obligations fully guaranteed by, any state of the United States of America or any political subdivision thereof which obligations, at the time of purchase, are rated by a Rating Agency in one of the three highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by such Rating Agency to obligations of that nature;

(j) Senior debt obligations of any corporation or trust organized under the laws of any state of the United States of America which securities, at the time of purchase, are rated by a Rating Agency in one of the three highest rating categories (without regard to any refinements or gradation of rating category by numerical modifier or otherwise) assigned by such Rating Agency for obligations of that nature;

(k) Obligations which are rated in the highest rating category by a Rating Agency and are issued or incurred by any state, commonwealth or territory of the United States of America or any political subdivision, public instrumentality or public authority of any state, commonwealth or territory of the United States of America, which obligations are fully secured by and payable solely from an escrow fund consisting of cash or direct obligations of, or obligations the timely payment of principal and interest on which are fully guaranteed by, the United States of America, which fund is held by a corporate fiduciary pursuant to an escrow agreement; and

(l) Bankers acceptances of any bank, including the Bond Trustee and the Master Trustee and their affiliates, if all of the direct, unsecured debt obligations of such institution at the time of purchase of such acceptances which are rated by a Rating Agency are rated by such

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Rating Agency in one of the three highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) by such Rating Agency.

Ratings of Qualified Investments referred to in the Bond Indenture shall be determined at the time of purchase of such Qualified Investments and without regard to ratings subcategories. The Bond Trustee shall have no responsibility to monitor the ratings of Qualified Investments after the initial purchase of such Qualified Investments, including at the time of reinvestment of earnings thereof.

“Rating Agency” means S&P, Moody’s and Fitch.

“Rating Category” means a generic securities rating category, without regard, in the case of a long-term rating category, to any refinement or gradation of such long-term rating category by a numerical modifier or otherwise.

“Rebate Fund” means the Rebate Fund created by the Tax Exemption Agreement.

“Redemption Fund” means the fund by that name established pursuant to the Bond Indenture.

“Redemption Price” means, with respect to any Bond (or portion thereof), the principal amount of such Bond (or portion) plus the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such Bond and the Bond Indenture.

“Remarketing Agent” means, with respect to the Series 2017A Bonds, the financial institution or institutions as may be designated by NMHC as the Remarketing Agent, if any, for such Bonds, or any other Remarketing Agent or successor or additional Remarketing Agent appointed in accordance with the Bond Indenture. No Remarketing Agent shall be required during any Fixed Period or any Direct Purchase Period until the applicable Mandatory Purchase Date.

“Remarketing Agreement” means any agreement between NMHC and a Remarketing Agent whereby the Remarketing Agent undertakes to perform the duties of the Remarketing Agent under the Bond Indenture.

“Remarketing Proceeds Account” means the account by that name within the Bond Purchase Fund established pursuant to the Bond Indenture.

“Remarketing Window” has the meaning given in the Bond Indenture.

“Representation Letter” means the Blanket Letter of Representations dated November 9, 2010 from the Authority to DTC.

“Required Stated Amount” means with respect to a Liquidity Facility or a Credit Facility, at any time of calculation, an amount equal to the aggregate principal amount of all Bonds then Outstanding secured by such Liquidity Facility or Credit Facility together with interest accruing thereon (assuming an annual rate of interest equal to the Maximum Interest Rate) for the period as

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shall be specified in a Certificate of NMHC to be the minimum period specified by the Rating Agencies then rating such Bonds as necessary to obtain (or maintain) a specified short-term rating of such Bonds.

“Revenue Fund” means the fund by that name established pursuant to the Bond Indenture and summarized under “SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE — FUNDS; DISPOSITION OF REVENUES” herein.

“S&P” means S&P Global Ratings, its successors and their assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by NMHC by notice in writing to the Authority and the Bond Trustee and the Direct Purchaser, if any.

“Securities Depository” means The Depository Trust Company and its successors and assigns, or any other securities depository selected as set forth in the Bond Indenture.

“Self Liquidity Arrangement” means an agreement or other arrangement from the NMHC with respect to the Series 2017A Bonds such that any of the Series 2017A Bonds that are sold or remarketed with the benefit of a short-term rating from one of the Rating Agencies, will be rated (or continue to be rated) in one of the two highest short-term rating categories (without giving effect to any gradations within such category) by at least one of Moody’s, S&P or Fitch and by all of them that are then rating the Series 2017A Bonds without the support of a Liquidity Facility or a Credit Facility.

“Series,” when used with respect to the Series 2017A Bonds, means all the Series 2017A Bonds designated as being of the same Series, whether upon initial issuance thereof or upon any Conversion of a portion of a Series and redesignation thereof, authenticated and delivered in a simultaneous transaction, and any Bonds thereafter authenticated and delivered upon a transfer or exchange or in lieu of or in substitution for such Bonds of such Series, or upon a Conversion of a portion of any Series of the Series 2017A Bonds, as provided in the Bond Indenture. In the event that the Series 2017A Bonds or a portion of the Series 2017A Bonds have been so designated as being in more than a single Series, references in the Bond Indenture and in the Loan Agreement to the Series 2017A Bonds shall, as the context may require, refer to only the Series 2017A Bonds of the particular Series in question.

“Series 2017A Obligation” means NMHC’s Direct Note Obligation, Series 2017A (Illinois Finance Authority), being issued to the Authority to secure NMHC’s obligations under the Loan Agreement.

“Short-Term Bonds” means Bonds that bear interest at Short-Term Rates.

“Short-Term Interest Rate Period” means each period during the Short-Term Period for which a particular Short-Term Rate is in effect.

“Short-Term Mode” means the Interest Rate Mode during which the Series 2017A Bonds bear interest at the Short-Term Rate.”

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“Short-Term Period” means each period during which Bonds constitute Short-Term Bonds, which Short-Term Period shall generally be comprised of multiple Short-Term Interest Rate Periods, during which Short-Term Rates are in effect.

“Short-Term Rate” means the interest rate per annum on Short-Term Bonds determined on a periodic basis as provided in the Bond Indenture.

“SIFMA” means the Securities Industry & Financial Markets Association (formerly the Bond Market Association).

“SIFMA Index” means, on any date, a rate determined on the basis of the seven-day high grade market index of tax-exempt variable rate demand obligations, as produced by Bloomberg (or successor organizations) and published or made available by SIFMA or any Person acting in cooperation with or under the sponsorship of SIFMA and acceptable to NMHC and effective from such date or if such index is no longer produced or available, either (i) the S&P Municipal Bond 7 Day High Grade Rate Index as produced and made available by S&P Dow Jones Indices LLC (or successor organizations) or (ii) with a Favorable Opinion of Bond Counsel, such other index designed to measure the average interest rate on weekly interest rate reset demand bonds similar to the Series 2017A Bonds as selected by NMHC.

“Sinking Fund Installment” means the amount required by the Bond Indenture to be paid by the Authority on any single date for the retirement of Bonds of a Series.

“State” means the State of Illinois.

“Supplemental Bond Indenture” means any indenture hereafter duly authorized and entered into between the Authority and the Bond Trustee, supplementing, modifying or amending the Bond Indenture; but only if and to the extent that such Supplemental Bond Indenture is specifically authorized under the Bond Indenture.

“Tax-Exempt Organization” means a Person organized under the laws of the United States of America or any state thereof which is an organization described in Section 501(c)(3) of the Code, which is exempt from federal income taxation under Section 501(a) of the Code, and which is not a “private foundation” within the meaning of Section 509(a) of the Code, or corresponding provisions of federal income tax laws from time to time in effect.

“Tax Exemption Agreement” means the Tax Exemption Certificate and Agreement dated the Closing Date, among NMHC, the Authority and the Bond Trustee.

“Twenty-Eighth Supplemental Master Indenture” means the Twenty-Eighth Supplemental Master Trust Indenture dated as of December 1, 2017 between NMHC, on behalf of itself and as Obligated Group Agent, and the Master Trustee.

“Two-Day Bonds” means Bonds that bear interest at Two-Day Rates.

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“Two-Day Interest Rate Period” means each two day period during a Two-Day Period for which a particular Two-Day Rate is in effect.

“Two-Day Mode” means the Interest Rate Mode during which the Series 2017A Bonds bear interest at the Two-Day Rate.

“Two-Day Period” means the entire period during which Bonds constitute Two-Day Bonds, which Two-Day Period shall generally be comprised of multiple Two-Day Interest Rate Periods, during which Two-Day Rates are in effect.

“Two-Day Rate” means the interest rate per annum on Two-Day Bonds determined on a two-day basis as provided in the Bond Indenture.

“Unassigned Rights” means the Authority’s right to receive payment of its fees and expenses, the Authority’s rights to indemnification under the Loan Agreement, the Authority’s right to execute and deliver supplements and amendments to the Loan Agreement and the Authority’s right to receive notices and showings.

“United States Government Obligations” means noncallable direct obligations of, or obligations the timely payment of the principal of and interest on which is fully guaranteed by, the United States of America.

“Unremarketed Bonds” means Direct Purchase Bonds for which the Holders have not received the full Purchase Price of all of their Bonds on the applicable Direct Purchase Rate Mandatory Purchase Date.

“Use Agreement” means the Use Agreement dated as of December 1, 2017 among NMHC and the Users.

“Users” means Northwestern Memorial Hospital, Northwestern Lake Forest Hospital, CDH-Delnor Health System, Central DuPage Hospital Association, KishHealth System, Kishwaukee Community Hospital and their respective successors and assigns and any surviving, resulting or transferee corporation thereof.

“VRO” means Variable Remarketed Obligation.

“VRO Bonds” means Bonds that bear interest at VRO Rates.

“VRO Interest Rate Period” means each period during which Bonds are in the VRO Mode, which VRO Interest Rate Period shall generally be comprised of multiple VRO Interest Rate Periods, during which VRO Rates are in effect.

“VRO Mode” means the Interest Rate Mode during which the Series 2017A Bonds bear interest at the VRO Rate.

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“VRO Rate” means the interest rate per annum on VRO Bonds determined on a periodic basis as provided in the Bond Indenture.

“Weekly Bonds” means Bonds that bear interest at Weekly Rates.

“Weekly Interest Rate Period” means each weekly period during the Weekly Period for which a particular Weekly Rate is in effect.

“Weekly Mode” means the Interest Rate Mode during which the Series 2017A Bonds bear interest at the Weekly Rate.

“Weekly Period” means the entire period during which Bonds constitute Weekly Bonds, which Weekly Period shall generally be comprised of multiple Weekly Interest Rate Periods, during which Weekly Rates are in effect.

“Weekly Rate” means the interest rate per annum on Weekly Bonds determined on a weekly basis as provided in the Bond Indenture.

“Window Bonds” means Bonds that bear interest at Window Rates.

“Window Interest Rate Period” means each period during the Window Period for which a particular Window Rate is in effect, which shall be a period generally consisting of 7 days commencing on a Thursday and ending on the following Wednesday, except in the case of (a) the initial Window Rate Interest Period occurring after a Conversion to the Window Mode for which the period shall be from the applicable Window Rate Conversion Date to and including the following Wednesday and (b) the last Window Interest Rate Period during a Window Period, for which the period shall end on the day preceding the applicable Conversion Date, redemption date or Maturity Date.

“Window Mode” means the Interest Rate Mode during which the Series 2017A Bonds bear interest at the Window Rate.

“Window Period” means the entire period during which Bonds constitute Window Bonds, which Window Period shall generally be comprised of multiple Window Interest Rate Periods, during which Window Rates are in effect.

“Window Rate” means the interest rate per annum on Window Bonds determined on a periodic basis as provided in the Bond Indenture.

“Written Request” means with reference to the Authority, a request in writing signed by the Chairperson, Vice Chairperson, Executive Director, Secretary or Treasurer of the Authority and, with reference to any Member of the Obligated Group, means a request in writing signed by the President or a Vice President of such Member or the Obligated Group Agent, or any other officers designated by the Authority or such Member or the Obligated Group Agent, as the case may be.

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SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE

Denominations and Place of Payment, Optional and Mandatory Tenders, Mandatory Redemptions, Optional Redemptions, Extraordinary Redemptions and Procedure for and Notice of Redemption. These topics are discussed in the front part of this Official Statement.

This Official Statement describes certain terms the Series 2017A Bonds applicable while such series bears interest in the Fixed Mode. There are significant differences in the terms of the Series 2017A Bonds in other Interest Rate Periods. This Official Statement is not intended to provide information with respect to the Series 2017A Bonds in any Interest Rate Period other than the Fixed Period.

The Bond Indenture contains various covenants, security provisions, terms and conditions, certain of which are summarized below. Reference is made to the Bond Indenture for a full and complete statement of its provisions.

REMARKETING OF BONDS; NOTICE OF INTEREST RATES

Upon a mandatory tender or notice of the tender for purchase of Series 2017A Bonds, the Remarketing Agent shall offer for sale and use its best efforts to sell such Series 2017A Bonds, any such sale to be made on the date of such purchase in accordance with the Bond Indenture at a price equal to the principal amount thereof plus accrued interest, if any, thereon to the Purchase Date. In connection with any remarketing of Series 2017A Bonds upon a mandatory tender thereof, such remarketing may be, with respect to such Bonds, in whole or with respect to a portion thereof, as directed by NMHC. No Series 2017A Bonds that have been tendered pursuant to the Bond Indenture shall be remarketed as Weekly Bonds, Two-Day Bonds or Daily Bonds unless and until (i) the Liquidity Facility or Credit Facility, if applicable, has been reinstated or extended for such Bonds; (ii) an Alternate Liquidity Facility or Alternate Credit Facility has been provided for such Bonds; or (iii) NMHC has agreed to provide a Self Liquidity Arrangement for such Bonds.

The Remarketing Agent shall offer for sale and use its best efforts to sell Liquidity Facility Bonds and Credit Facility Bonds at a price equal to the principal amount thereof plus accrued interest to the Purchase Date. On such a Purchase Date, the proceeds of the remarketing of such Liquidity Facility Bonds or Credit Facility Bonds shall be received by the Bond Trustee on behalf of the applicable Liquidity Facility Provider or Credit Facility Provider and paid in immediately available funds to the applicable Liquidity Facility Provider or Credit Facility Provider on such Purchase Date. On such a Purchase Date, the applicable Liquidity Facility Provider or Credit Facility Provider shall notify the Bond Trustee of the Differential Interest Amount. The Bond Trustee shall pay the Differential Interest Amount to the Liquidity Facility Provider or the Credit Facility Provider, as applicable, on the date of remarketing, but only from funds available under the Bond Indenture or otherwise provided by NMHC. Liquidity Facility Bonds or Credit Facility Bonds shall not be delivered upon remarketing unless the Bond Trustee shall have received Electronic Notice from the Liquidity Facility Provider or the Credit Facility Provider that the Liquidity Facility or the Credit Facility, as applicable, has been reinstated in accordance with its terms to the full amount of the then Required Stated Amount.

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The Remarketing Agent shall determine the rate of interest to be borne by the 2017A Bonds during each Interest Rate Period as provided in the Bond Indenture and shall furnish to the Bond Trustee and to NMHC, in a timely manner, each rate of interest so determined by Electronic Notice, promptly confirmed in writing.

The Remarketing Agent shall not knowingly remarket Bonds to the Authority, NMHC or any affiliate thereof.

THE REMARKETING AGENT; QUALIFICATIONS OF REMARKETING AGENT; RESIGNATION; REMOVAL; SUCCESSOR REMARKETING AGENTS.

The Remarketing Agent shall be authorized by law to perform all the duties imposed upon it by the Bond Indenture. The Remarketing Agent or any successor shall signify its acceptance of the duties and obligations imposed upon it under the Bond Indenture by a Remarketing Agreement under which the Remarketing Agent will agree to:

(a) determine the interest rates applicable to the Series 2017A Bonds and give notice to the Bond Trustee of such rates and periods in accordance with of the Bond Indenture;

(b) keep such books and records as shall be consistent with prudent industry practice; and

The Remarketing Agent shall hold all amounts received by it in accordance with any remarketing of the Series 2017A Bonds pursuant to the provisions of Bond Indenture and summarized under “SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE — REMARKETING OF BONDS; NOTICE OF INTEREST RATES” herein. for the benefit of the Holders of such tendered Bonds and shall transfer such amounts to the Bond Trustee for deposit to the Remarketing Proceeds Account created under the Bond Indenture.

Any Remarketing Agent shall (i) be a member of the Financial Industry Regulatory Authority, having a combined capital stock, surplus and undivided profits of at least $15,000,000, and (ii) be authorized by law to perform all the duties imposed upon it by the Bond Indenture.

The Remarketing Agent may at any time resign and be discharged of the duties and obligations created by the Bond Indenture by giving Electronic Notice to the Bond Trustee, the Liquidity Facility Provider, if any, the Credit Facility Provider, if any, and NMHC. Such resignation shall take effect not earlier than the thirtieth (30th) day after the receipt by NMHC of the notice of resignation. The Remarketing Agent may be removed at the direction of NMHC at any time on thirty (30) days prior Electronic Notice, by an instrument signed by NMHC, filed with such Remarketing Agent, the applicable Liquidity Facility Provider, if any, the Credit Facility Provider, if any, the Direct Purchaser, if any, and the Bond Trustee. In the event that a successor Remarketing Agent has not been appointed by NMHC within thirty (30) days following the notice of resignation or removal of the Remarketing Agent, the notice period for resignation

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or removal shall be extended for an additional thirty (30) days, but in no event shall such notice period, including any such thirty (30) day extension, be longer than sixty (60) days.

Any corporation, association, partnership or firm which succeeds to the business of the Remarketing Agent as a whole or substantially as a whole, whether by sale, merger, consolidation or otherwise, shall thereby become vested with all the property, rights and powers of such Remarketing Agent under the Bond Indenture.

In the event that the Remarketing Agent has given notice of resignation or has been notified of its impending removal in accordance with the provisions of the Bond Indenture summarized under this caption, NMHC shall appoint a successor Remarketing Agent that meets the requirements set forth in the Bond Indenture and summarized under this caption.

In the event that the Remarketing Agent shall resign, be removed or be dissolved, or if the property or affairs of the Remarketing Agent shall be taken under control of any state or federal court or administrative body because of bankruptcy or insolvency, or for any other reason, and NMHC shall not have appointed its successor, the Authority shall appoint a successor and, if no appointment is made within thirty (30) days, the Bond Trustee shall apply to a court of competent jurisdiction for such appointment. Nothing in the Bond Indenture shall require any Remarketing Agent that has resigned or been removed to remain as Remarketing Agent beyond the notice period required by the Bond Indenture and described under this caption.

FUNDS; DISPOSITION OF REVENUES

1. Revenue Fund. The Authority shall establish with the Bond Trustee and maintain so long as any of the Series 2017A Bonds are outstanding a separate account to be known as the “Revenue Fund – Northwestern Memorial HealthCare – Series 2017A” (the “Revenue Fund”). All payments upon the Series 2017A Obligation pledged under the Bond Indenture and all payments under the Loan Agreement (other than payments made in connection with the Unassigned Rights and payments made directly by NMHC to the Direct Purchaser during a Direct Purchase Period), as and when received by the Bond Trustee, are required to be deposited into the Revenue Fund and held therein until disbursed as provided in the Bond Indenture. Pursuant to the assignment and pledge of payments upon the Series 2017A Obligation set forth in the granting clauses contained in the Bond Indenture, the Authority will direct NMHC to make payments upon the Series 2017A Obligation pledged under the Bond Indenture directly to the Bond Trustee when and as the same become due and payable by NMHC under the terms of the Series 2017A Obligation and the Loan Agreement; provided, however, that while the Series 2017A Bonds bear interest in a Direct Purchase Period, NMHC will make payments under the Loan Agreement and upon the Series 2017A Obligation directly to the Direct Purchaser when and as the same become due and payable by NMHC under the terms of the Loan Agreement and such Series 2017A Obligation in accordance with the Bond Indenture.

2. Interest Fund. The Authority shall establish with the Bond Trustee and maintain so long as any of the Series 2017A Bonds are outstanding a separate account to be known as the “Interest Fund – Northwestern Memorial HealthCare – Series 2017A” (the “Interest Fund”); provided, however, that while the Series 2017A Bonds are in a Direct Placement Period and if

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NMHC is making all payments of principal of and interest on the Series 2017A Bonds directly to the Direct Purchaser, the Bond Trustee is not required to establish the Interest Fund. The Bond Trustee shall also establish and maintain a separate and segregated account in the Interest Fund designated the “Credit Facility Interest Account – Northwestern Memorial HealthCare – Series 2017A (the “Credit Facility Interest Account”).

On each Interest Payment Date, the Bond Trustee shall deposit in the Interest Fund from the Revenue Fund moneys in an amount which, together with the amounts already on deposit therein and available to make such payment, other than in the Credit Facility Interest Account, is not less than the interest becoming due on the Series 2017A Bonds on such date.

In connection with any partial redemption or defeasance prior to maturity of the Series 2017A Bonds, the Bond Trustee may, at the written request of NMHC, use any amounts on deposit in the Interest Fund in excess of the amount needed to pay the interest on the Series 2017A Bonds remaining outstanding on the first Interest Payment Date occurring on or after the date of such redemption or defeasance to pay or provide for the payment of the principal of and interest on the Series 2017A Bonds to be redeemed or defeased (or to reimburse the Credit Facility Provider for a draw on the Credit Facility) or as otherwise directed by NMHC if the Bond Trustee shall have received a Favorable Opinion of Bond Counsel.

3. Bond Sinking Fund. The Authority shall establish with the Bond Trustee and maintain so long as any of the Series 2017A Bonds are outstanding a separate account to be known as the “Bond Sinking Fund – Northwestern Memorial HealthCare – Series 2017A” (the “Bond Sinking Fund”); provided, however, that during a Direct Purchase Period and if NMHC is making all payments of principal of and interest on the Series 2017A Bonds directly to the Direct Purchaser, the Bond Trustee is not required to establish the Bond Sinking Fund. The Bond Trustee shall also establish a separate account within the Bond Sinking Fund to be known as the “Credit Facility Principal Account – Northwestern Memorial HealthCare – Series 2017A” (the “Credit Facility Principal Account”).

On each Sinking Fund Installment date established pursuant to the Bond Indenture, after making the deposit required by the Bond Indenture, the Bond Trustee shall deposit in the Bond Sinking Fund from the Revenue Fund moneys in an amount which, together with any moneys already on deposit in the Bond Sinking Fund and available to make such payment, other than in the Credit Facility Principal Account, is not less than the principal becoming due on the Series 2017A Bonds on such dates.

In lieu of such mandatory Bond Sinking Fund redemption, the Bond Trustee will, at the Written Request of NMHC, purchase for cancellation an equal principal amount of Bonds of the maturity to be redeemed in the open market identified by NMHC at prices specified by NMHC not exceeding the principal amount of the Series 2017A Bonds being purchased plus accrued interest, with such interest portion of the purchase price to be paid from the Interest Fund and the principal portion of such purchase price to be paid from the Bond Sinking Fund. In addition, the amount of Bonds to be redeemed on any date pursuant to the mandatory Bond Sinking Fund redemption schedule shall be reduced by the principal amount of Bonds of the maturity required

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to be redeemed which are acquired by NMHC or any other Member and delivered to the Bond Trustee for cancellation.

In connection with any partial redemption or defeasance prior to maturity of the Series 2017A Bonds, the Bond Trustee may, at the written request of NMHC, use any amounts on deposit in the Bond Sinking Fund in excess of the amount needed to pay principal on the Series 2017A Bonds remaining outstanding on the first principal or mandatory sinking fund payment date occurring on or after the date of such redemption or defeasance to pay or provide for the payment of the principal or premium, if any, and interest on the Series 2017A Bonds to be redeemed or defeased (or to reimburse the Credit Facility Provider for a draw on the Credit Facility) or as otherwise directed by NMHC if the Bond Trustee shall have received a Favorable Opinion of Bond Counsel.

4. Optional Redemption Fund. The Authority shall establish with the Bond Trustee and maintain so long as any of the Series 2017A Bonds are outstanding a separate account to be known as the “Optional Redemption Fund – Northwestern Memorial HealthCare – Series 2017A” (the “Optional Redemption Fund”). The Bond Trustee shall also establish a separate account within the Optional Redemption Fund to be known as the “Credit Facility Redemption Account – Northwestern Memorial HealthCare – Series 2017A” (the “Credit Facility Redemption Account”). In the event of (i) prepayment by or on behalf of NMHC or any other Member of amounts payable on the Series 2017A Obligation, including prepayment with condemnation or insurance proceeds or proceeds of a sale consummated under threat of condemnation, or (ii) deposit with the Bond Trustee by NMHC, any other Member or the Authority of moneys from any other source for redeeming Bonds or purchasing Bonds for cancellation, such moneys shall, except as otherwise provided in the Bond Indenture, be deposited in the Optional Redemption Fund. Moneys on deposit in the Optional Redemption Fund shall be used, first, to make up any deficiencies existing in the Interest Fund and the Bond Sinking Fund (in the order listed) and, second, for the redemption or purchase of Bonds in accordance with the provisions of the Bond Indenture; provided, however, that with respect to Bonds that have the benefit of a Credit Facility, the Bond Trustee shall redeem the Series 2017A Bonds to be redeemed in accordance with the following paragraph and any funds remaining on deposit in the Optional Redemption Fund (exclusive of the Credit Facility Redemption Account) on any date on which Bonds are optionally redeemed, after payment in full of the redemption price of all Bonds redeemed on such date from amounts on deposit in the Credit Facility Redemption Account of the Optional Redemption Fund, shall be transferred by the Bond Trustee to the Credit Facility Provider, but not in excess of the amount necessary to reimburse the Credit Facility Provider for the draw made on the Credit Facility on such date to pay such redemption price.

5. Expense Fund. The Bond Trustee shall establish, maintain and hold in trust a separate fund designated as the “Expense Fund — Northwestern Memorial HealthCare — Series 2017A” (the “Expense Fund”). The moneys in the Expense Fund shall be used and withdrawn by the Bond Trustee to pay the Costs of Issuance upon the Written Request of NMHC or the Authority stating the Person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred and that such payment is a proper charge against the Expense Fund. Each Written Request shall be sufficient evidence to the Bond Trustee of the facts stated therein and the Bond Trustee shall have no duty to confirm the accuracy of such facts. On December 1, 2018, or

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upon the earlier Request of NMHC, amounts, if any, remaining in the Expense Fund shall be transferred to the Project Fund.

6. Project Fund. The Authority shall establish with the Bond Trustee a separate account to be known as the “Project Fund – Northwestern Memorial HealthCare – Series 2017A” (the “Project Fund”). An initial deposit to the credit of the Project Fund shall be made as required by the provisions of the Bond Indenture. Any moneys received by the Bond Trustee from any other source for the Project shall be deposited in the Project Fund unless otherwise specifically excepted under the Bond Indenture or unless contrary provision is made in the Loan Agreement. The moneys in the Project Fund shall be held in trust by the Bond Trustee, shall be applied to the payment of the costs of the Project and, pending such application, shall be held as trust funds under the Bond Indenture in favor of the holders of the outstanding Bonds and for the further security of such holders until paid out or transferred as provided in the Bond Indenture.

If after payment by the Bond Trustee of all orders theretofore tendered to the Bond Trustee under the provisions of the Bond Indenture and after receipt by the Bond Trustee of the certifications described in the Bond Indenture there shall remain any moneys in the Project Fund, NMHC may elect (i) to retain all or a portion of such moneys in the Project Fund until December 1, 2020 and withdraw such moneys in accordance with the provisions of the Bond Indenture to pay or reimburse NMHC for payment of the “cost” of an additional “project” or “projects” (as such terms are defined in the Act) if NMHC complies with the provisions of the Loan Agreement relating to changes in or amendments to the Project Documents, or (ii) to instruct the Bond Trustee to deposit such moneys in the Interest Fund to the extent necessary to make the next interest payment therefrom, then in the Bond Sinking Fund to the extent necessary to make the next payment therefrom so long as the next principal payment is required to be made within 13 months from the date of deposit therein and then to the Optional Redemption Fund.

If NMHC makes no such election and in any event on December 1, 2020, the Bond Trustee shall transfer such moneys to the Interest Fund to the extent necessary to make the next interest payment therefrom, then to the Bond Sinking Fund to the extent necessary to make the next principal payment therefrom, if such principal payment is required to be made within 13 months from the date of deposit therein and then to the Optional Redemption Fund; provided, however, that if NMHC and the Bond Trustee receive a Favorable Opinion of Bond Counsel to the effect that such moneys may be retained in the Project Fund or deposited in a manner not in accordance with the foregoing provisions, such moneys may be retained in the Project Fund or, if such Opinion is received by the Bond Trustee in sufficient time to permit the Bond Trustee to follow any directions contained therein, deposited as set forth in such Opinion. The foregoing notwithstanding, amounts remaining in the Project Fund after completion of the Project as described above which are attributable to investment earnings may be transferred to the Rebate Fund upon the written request of NMHC.

As soon as practicable after NMHC has made an election pursuant to (i) or (ii) in the second paragraph under this heading has been made, NMHC shall recalculate the average reasonably expected economic life of the Project, as reflected on the Project Certificate Exhibit, to (i) make any adjustments required by the Bond Indenture, (ii) include in the Project Certificate Exhibit the average reasonably expected economic life of any additional projects undertaken with moneys

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remaining on deposit in the Project Fund at the completion of the Project, and (iii) include in the Project Certificate Exhibit the amount of moneys so transferred from the Project Fund as an asset with an economic life of zero. The Bond Trustee shall be fully protected in relying on a written direction of NMHC in retaining funds in the Project Fund or transferring such funds to the accounts specified in the Bond Indenture.

Subject to the provisions of the Bond Indenture summarized under the caption “INVESTMENT OF FUNDS” below, moneys at any time on deposit in the Project Fund shall, by telephonic instructions promptly followed by a Written Request of NMHC, be invested or reinvested by the Bond Trustee in Qualified Investments maturing at such time or times so that the Bond Trustee will be able to pay the costs of the Project from time to time upon the Written Request of NMHC as provided in the Bond Indenture. The Bond Trustee and the Authority shall be entitled to rely upon a schedule of anticipated payments of construction and equipment costs approved by NMHC in scheduling such investments. Any earnings on such investments shall be credited to and any losses on such investments shall be charged against the Project Fund. The Bond Trustee shall not be obligated to invest any moneys held by it under the Bond Indenture except as directed by NMHC and except as provided otherwise in the provisions of the Bond Indenture summarized under “INVESTMENT OF FUNDS” below, but shall promptly inform the Authority and NMHC of any amounts that remain uninvested but are eligible for investment in Qualified Investments. The Bond Trustee may sell or present for redemption any Qualified Investments so purchased whenever it shall be necessary in order to provide moneys to meet any payment pursuant to the provisions of the Bond Indenture summarized under this caption and the Bond Trustee shall not be liable or responsible for any loss resulting from such investments.

INVESTMENT OF FUNDS

Upon a Written Request of NMHC to the Bond Trustee, moneys in the Revenue Fund, Interest Fund, Bond Sinking Fund, Project Fund, Expense Fund and Optional Redemption Fund shall be invested in Qualified Investments specified by NMHC. The Bond Trustee, when authorized by NMHC, may trade with itself in the purchase and sale of securities or such investments; provided, however, that in no case shall investments be otherwise than in accordance with the investment limitations contained in the Bond Indenture and in the Tax Exemption Agreement. The Bond Trustee shall not be liable or responsible for any loss resulting from any such investments.

During the period that the Project is in progress and until the Project is substantially completed, investment income from the funds specified in the Bond Indenture in excess of the requirements of such funds shall be deposited into the Project Fund.

Thereafter, all income in excess of the requirements of the funds specified in the first paragraph under this heading derived from the investment of moneys on deposit in any such funds shall be deposited in the following funds, in the order listed:

(a) The Bond Sinking Fund and the Interest Fund (in that order), to the extent, with respect to the Bond Sinking Fund, of the amount required to be deposited in the Bond Sinking Fund to make the next required principal payment on the Series 2017A Bonds if

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such payment is scheduled to occur within 13 months of such transfer and to the extent, with respect to the Interest Fund, of the amounts required to be deposited in the Interest Fund necessary to make any interest payments on the Series 2017A Bonds occurring within 13 months of such transfer; and

(b) The balance, if any, in the Optional Redemption Fund.

ARBITRAGE

The Authority covenants and agrees in the Bond Indenture that it will not take any action or fail to take any action with respect to the investment of the proceeds of any Bonds issued under the Bond Indenture or with respect to the payments derived from the Series 2017A Obligation pledged under the Bond Indenture and under the Loan Agreement or any other moneys regardless of source or where held which may, notwithstanding compliance with the other provisions of the Bond Indenture, the Loan Agreement and the Tax Exemption Agreement, result in constituting the Series 2017A Bonds “arbitrage bonds” within the meaning of such term as used in Section 148 of the Code. The Authority further covenants and agrees that it will comply with and take all actions required by the Tax Exemption Agreement.

SUPPLEMENTAL BOND INDENTURES

The Bond Indenture and the rights and obligations of the Authority, of the Bond Trustee and of the Holders of the Series 2017A Bonds and of the Bond Trustee may be modified or amended from time to time and at any time by an indenture or indentures supplemental to the Bond Indenture, which the Authority and the Bond Trustee may enter into when the written consent of the Holders of a majority in aggregate principal amount of the Series 2017A Bonds then Outstanding and NMHC shall have been filed with the Bond Trustee. No such modification or amendment shall (1) extend the Maturity Date of any Series 2017A Bond, or reduce the amount of principal thereof, or extend the time of payment or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, without the consent of the Holder of each Series 2017A Bond so affected, or (2) reduce the aforesaid percentage of Series 2017A Bonds, the consent of the Holders of which is required to effect any such modification or amendment, or permit the creation of any lien prior to or on a parity with the lien created by the Bond Indenture, or deprive the Holders of the Series 2017A Bonds of the lien created by the Bond Indenture (except as expressly provided in the Bond Indenture), without the consent of the Holders of all Series 2017A Bonds then Outstanding. It shall not be necessary for the consent of the Bondholders to approve the particular form of any Supplemental Bond Indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Authority and the Bond Trustee of any Supplemental Bond Indenture pursuant to the Bond Indenture provisions described in this paragraph, the Bond Trustee shall mail a notice, setting forth in general terms the substance of such Supplemental Bond Indenture to the Bondholders at the addresses shown on the registration books maintained by the Bond Trustee. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Bond Indenture.

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The Bond Indenture and the rights and obligations of the Authority, of the Bond Trustee and of the Holders of the Series 2017A Bonds may also be modified or amended from time to time and at any time by an indenture or indentures supplemental to the Bond Indenture, which the Authority and the Bond Trustee may enter into with the consent of NMHC, but without the necessity of obtaining the consent of any Bondholders, only to the extent permitted by law and only for any one or more of the following purposes:

(i) to add to the covenants and agreements of the Authority contained in the Bond Indenture other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Series 2017A Bonds (or any portion thereof), or to surrender any right or power in the Bond Indenture reserved to or conferred upon the Authority, provided, that no such covenant, agreement, pledge, assignment or surrender shall materially adversely affect the interests of the Holders of the Series 2017A Bonds;

(ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Bond Indenture, or in regard to matters or questions arising under the Bond Indenture, including but not limited to reflecting the creation of separate Series or sub-Series for the Series 2017A Bonds, or reflecting the serialization of the Series 2017A Bonds upon their Conversion to a Fixed Mode, as the Authority or the Bond Trustee may deem necessary or desirable and not inconsistent with the Bond Indenture, and which shall not materially adversely affect the interests of the Holders of the Series 2017A Bonds;

(iii) to modify, amend or supplement the Bond Indenture in such manner as to permit the qualification of the Bond Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which shall not materially adversely affect the interests of the Holders of the Series 2017A Bonds;

(iv) to evidence or give effect to, or to conform to the terms and provisions of, any Liquidity Facility or any Credit Facility;

(v) to evidence or give effect to, or to conform to the terms and provisions of, any letter of credit, standby bond purchase agreement or other credit or liquidity enhancement for the Series 2017A Bonds;

(vi) to facilitate and implement any book entry system (or any termination of a book entry system) with respect to the Series 2017A Bonds in accordance with the terms of the Bond Indenture;

(vii) to maintain the exclusion from gross income of interest payable with respect to the Series 2017A Bonds;

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(viii) to make any modification or amendment to the Bond Indenture which will be effective upon the Conversion and/or remarketing of Series 2017A Bonds following the mandatory tender of the Series 2017A Bonds pursuant to the Bond Indenture;

(ix) to provide for the appointment of a successor bond trustee or co-trustee pursuant to the terms of the Bond Indenture; or

(x) to make any change in the Bond Indenture (other than a change described in clauses (1) or (2) in the first paragraph under this caption) provided that (i) the Credit Facility Provider, if any, or the Direct Purchaser, if any, consents in writing to such Supplemental Bond Indenture, and (ii) a Favorable Opinion of Bond Counsel is delivered to the Bond Trustee and the Direct Purchaser, if any, to the effect that such change will not cause the interest borne by the Series 2017A Bonds to become includible in gross income of the Holders thereof for federal income tax purposes.

Upon the execution of any Supplemental Bond Indenture pursuant to the provisions of the Bond Indenture summarized under this caption, the Bond Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Bond Indenture of the Authority, the Bond Trustee and all Holders of Bonds Outstanding shall thereafter be determined, exercised and enforced subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Bond Indenture shall be deemed to be part of the terms and conditions of the Bond Indenture for any and all purposes.

AMENDMENT OF LOAN AGREEMENT The Authority shall not amend, modify or terminate any of the terms of the Loan Agreement, or consent to any such amendment, modification or termination unless the written consent of (i) the Credit Facility Provider (if any) (provided that the Credit Facility is then in effect or any amounts are owing to the Credit Facility Provider and the Credit Facility Provider (if any) is not in default under its payment obligations under the Credit Facility) or the Liquidity Facility Provider (if any) (provided that the Liquidity Facility is then in effect or any amounts are owing to the Liquidity Facility Provider and the Liquidity Facility Provider (if any) is not in default under its payment obligations under the Liquidity Facility) or (ii) the Holders of a majority in principal amount of the Series 2017A Bonds then Outstanding (if no Credit Facility is in effect or the Credit Facility Provider (if any) is then in default under its payment obligations under the Credit Facility) and the Liquidity Facility Provider (if any) to such amendment, modification or termination is filed with the Bond Trustee, provided that no such amendment, modification or termination shall reduce the amount of the Loan Payments to be made to the Authority or the Bond Trustee by NMHC pursuant to the Loan Agreement, or extend the time for making such payments, without the written consent of all of the Holders of the Series 2017A Bonds then Outstanding.

Notwithstanding the provisions of the Loan Agreement summarized in the first paragraph under this caption, the terms of the Loan Agreement may also be modified or amended from time to time and at any time by the Authority but without the necessity of obtaining the consent of any Bondholders, only to the extent permitted by law and only for any one or more of the following purposes:

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(i) to add to the covenants and agreements of the Authority or NMHC contained in the Loan Agreement other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Series 2017A Bonds (or any portion thereof), or to surrender any right or power therein reserved to or conferred upon the Authority or NMHC, provided, that no such covenant, agreement, pledge, assignment or surrender shall materially adversely affect the interests of the Holders of the Series 2017A Bonds;

(ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Loan Agreement, or in regard to matters or questions arising under the Loan Agreement, as the Authority may deem necessary or desirable and not inconsistent with the Loan Agreement or the Bond Indenture, and which shall not materially adversely affect the interests of the Holders of the Series 2017A Bonds;

(iii) to maintain the exclusion from gross income for federal income tax purposes of interest payable with respect to the Series 2017A Bonds;

(iv) to provide that a Bond may be secured by a Credit Facility or other additional security not otherwise provided for in the Bond Indenture or the Loan Agreement;

(v) to evidence or give effect to, or to conform to the terms and provisions of, any Liquidity Facility;

(vi) to evidence or give effect to, or to conform to the terms and provisions of, any Credit Facility; or

(vii) to make any modification or amendment to the Bond Indenture which will be effective upon the remarketing of the Series 2017A Bonds following the mandatory tender of the Series 2017A Bonds.

RELEASE AND SUBSTITUTION OF SERIES 2017A OBLIGATION UPON DELIVERY OF REPLACEMENT MASTER INDENTURE

The Bond Trustee is required to surrender the Series 2017A Obligation upon presentation to the Bond Trustee prior to such surrender of the following:

(A) a copy of an originally executed counterpart of a master trust indenture or similar agreement (the “Replacement Master Indenture”) executed by one or more of the members of the obligated group thereunder (collectively, the “New Group”) and an independent corporate trustee (the “Replacement Trustee”) meeting the eligibility requirements of the Master Trustee as set forth in the Master Indenture;

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(B) an original replacement note or similar obligation issued by NMHC (the “Substitute Note”) under and pursuant to and secured by the Replacement Master Indenture, which Substitute Note has been duly authenticated by the Replacement Trustee;

(C) an opinion of Independent Counsel addressed to the Bond Trustee to the effect that: (1) the Replacement Master Indenture has been duly authorized, executed and delivered by or on behalf of the New Group, the Substitute Note has been duly authorized, executed and delivered by each member of the New Group and the Replacement Master Indenture and the Substitute Note are each a legal, valid and binding obligation of each member of the New Group, subject in each case to customary exceptions for bankruptcy, insolvency and other laws generally affecting enforcement of creditors’ rights and application of general principles of equity and to the exceptions set forth in Exhibit D to the Master Indenture; (2) all requirements and conditions to the issuance of the Substitute Note set forth in the Replacement Master Indenture have been complied with and satisfied; and (3) registration of the Substitute Note under the Securities Act of 1933, as amended, is not required or, if registration is required, the Substitute Note has been so registered;

(D) a Favorable Opinion of Bond Counsel addressed to the Bond Trustee that the surrender of the existing Series 2017A Obligation and the delivery of the Substitute Note will not adversely affect the validity of any Bonds or any exemption for the purposes of federal income taxation to which interest on any of the Series 2017A Bonds would otherwise be entitled;

(E) evidence that the rating on such Series 2017A Bonds will not be lowered or withdrawn from the rating in effect prior to the substitution, provided that in connection with the request for a review of the ratings on such Series 2017A Bonds, each Rating Agency is provided a copy of the Replacement Master Indenture and such information as such Rating Agency may request with respect to the operations and financial condition of the New Group; and

(F) such other opinions and certificates as the Bond Trustee or the Authority may reasonably require, together with such reasonable indemnities as the Bond Trustee may request.

The Bond Trustee shall give Immediate Notice to the Authority of a request to surrender the Series 2017A Obligation.

In connection with the delivery of a Replacement Master Indenture and the substitution of the outstanding Series 2017A Obligation with the Substitute Note, the provisions of the Bond Indenture summarized under this subheading shall not permit, or be construed as permitting, (i) a change in the times, amounts or currency of payment of the principal of, premium, if any, and interest on any obligation or the Series 2017A Bonds, (ii) a reduction in the principal amount of any obligation or the Series 2017A Bonds or (iii) a change in the redemption premiums or rates of interest on any obligation or the Series 2017A Bonds, unless the Bond Trustee receives the prior written consent of the Holders of each Bond so affected.

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DEFEASANCE

The Series 2017A Bonds may be paid by the Authority in any of the following ways, provided that the Authority also pays or causes to be paid any other sums payable under the Bond Indenture by the Authority and related to such Series 2017A Bonds:

(a) by paying or causing to be paid the principal or Redemption Price of and interest on Outstanding Bonds, as and when the same become due and payable;

(b) by depositing with the Bond Trustee, in trust, at or before maturity, money or United States Government Obligations in the amount necessary (as provided in the Bond Indenture) to pay or redeem all Bonds Outstanding; or

If the Authority, NMHC or the Bond Trustee shall also pay or cause to be paid all other sums payable under the Bond Indenture by the Authority, and if NMHC shall have paid all expenses payable to the Authority, and any indemnification owed to the Authority, then and in that case, at the election of the Authority (evidenced by a Certificate of the Authority, filed with the Bond Trustee, signifying the intention of the Authority to discharge all such indebtedness and the Bond Indenture), and notwithstanding that any Series 2017A Bonds shall not have been surrendered for payment, the Bond Indenture and the pledge of the trust estate and other assets made under the Bond Indenture and all covenants, agreements and other obligations of the Authority under the Bond Indenture shall cease, terminate, become void and be completely discharged and satisfied (except with respect to the transfer or exchange of Series 2017A Bonds provided for therein, the payment of principal of and interest on the Series 2017A Bonds when due, the redemption of Series 2017A Bonds provided for in the Bond Indenture and the payment of or the provision for any Rebate Payments then due and payable to the United States Treasury). In such event, upon Written Request of the Authority, the Bond Trustee shall cause an accounting for such period or periods as may be requested by the Authority to be prepared and filed with the Authority and shall execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Bond Trustee shall pay over, transfer, assign or deliver to NMHC all moneys or securities or other property held by it pursuant to the Bond Indenture which are not required for the payment or redemption of Series 2017A Bonds not theretofore surrendered for such payment or redemption; provided that all expenses and any indemnification owed to the Authority shall have been paid. The release of the obligations of the Authority under the Bond Indenture shall be without prejudice to the right of the Bond Trustee to be paid reasonable compensation for all services rendered under the Bond Indenture by it and all reasonable expenses, charges and other disbursements (from any money in its possession under the provisions of the Bond Indenture, subject only to the prior lien of the Series 2017A Bonds for the payment of the principal thereof and the interest thereon) incurred on or about the administration of the trust created by the Bond Indenture and the performance of its duties thereunder, nor its right to indemnification under the Bond Indenture and the Loan Agreement.

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Upon the deposit with the Bond Trustee, in trust, at or before maturity, of money or securities in the amount necessary (as provided in the Bond Indenture) to pay or redeem any Outstanding Bond (whether upon or prior to its maturity or the redemption date of such Series 2017A Bond), provided that, if such Series 2017A Bond is to be redeemed prior to maturity, notice of such redemption shall have been given as in the Bond Indenture provided or provision satisfactory to the Bond Trustee shall have been made for the giving of such notice, the Bond Indenture may be released and discharged in accordance with the of the Bond Indenture summarized under this caption, but the liability of the Authority in respect of such Series 2017A Bonds shall continue, provided that thereafter the Holder thereof shall be entitled only to payment out of such money or securities deposited with the Bond Trustee as aforesaid for their payment, and provided, further, that the provisions of the Bond Indenture shall apply in any event.

With respect to any Weekly Bonds, Two-Day Bonds or Daily Bonds enhanced with a Liquidity Facility or Credit Facility that is a letter of credit, any such initial deposit or initial investment must be made with Eligible Moneys. Prior to defeasing any Weekly Bonds, Two-Day Bonds or Daily Bonds enhanced by a Liquidity Facility or a Credit Facility pursuant to the Bond Indenture, NMHC shall either (i) obtain written confirmation from each Rating Agency then rating the Series 2017A Bonds that the ratings on the Series 2017A Bonds will not be lowered or withdrawn as a result of the defeasance of the Series 2017A Bonds, or (ii) cause the Liquidity Facility or Credit Facility then in effect to remain in effect until the earlier of the final redemption date or the maturity date of the defeased Series 2017A Bonds.

Notwithstanding anything in the Bond Indenture to the contrary, Series 2017A Bonds secured by a Liquidity Facility or a Credit Facility shall not be defeased unless each of the following conditions is satisfied: (1) the defeasance escrow for such Series 2017A Bonds shall be held uninvested in cash only and shall not be invested in United Stated Government Obligations or any other form of investment; and (2) there shall be delivered to the Bond Trustee and the Issuer a verification report of an accountant as to the adequacy of the defeasance escrow so established. The rights of the Holders of Bonds bearing interest at a Daily Rate, a Two Day Rate, a Window Rate, or Weekly Rate to optionally tender such Series 2017A Bonds pursuant to the Bond Indenture shall continue to be in full force and effect during the defeasance escrow period and shall remain in effect until the redemption date of such Series 2017A Bonds.

DEFAULTS AND REMEDIES

Events of Default. Each of the following events is declared an “event of default” by the Bond Indenture:

(a) default in the due and punctual payment of the principal or Redemption Price of any Series 2017A Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration or otherwise, or default in the redemption of any Series 2017A Bonds from Sinking Fund Installments in the amount and at the times provided therefor;

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(b) default in the due and punctual payment of any installment of interest on any Series 2017A Bond when and as such interest installment shall become due and payable;

(c) if and only to the extent that NMHC has covenanted to pay the Purchase Price of tendered Series 2017A Bonds, failure to pay the Purchase Price of any Series 2017A Bond tendered pursuant to the Bond Indenture when such payment is due;

(d) the Authority shall for any reason be rendered incapable of fulfilling its obligations under the Bond Indenture; or

(e) an order or decree shall be entered, appointing a receiver, receivers, custodian or custodians for any of the revenues of the Authority, or approving a petition filed against the Authority seeking reorganization of the Authority under the federal bankruptcy laws or any other similar law or statute of the United States of America or any state thereof, or if any such order or decree, having been entered without the consent or acquiescence of the Authority, shall not be vacated or discharged or stayed on appeal within 60 days after the entry thereof; or

(f) any proceeding shall be instituted, with the consent or acquiescence of the Authority, or any plan shall be entered into by the Authority, for the purpose of effecting a composition between the Authority and its creditors or for the purpose of adjusting the claims of such creditors pursuant to any federal or state statute now or hereafter enacted, if the claims of such creditors are under any circumstances payable from any part or all of the trust estate (as defined in the Bond Indenture), including the revenues and other moneys derived by the Authority under the Series 2017A Obligation or the Loan Agreement; or

(g) the Authority (1) files a petition in bankruptcy or under Title 11 of the United States Code, as amended, (2) makes an assignment for the benefit of its creditors, (3) consents to the appointment of a receiver, custodian or trustee for itself or for the whole or any part of the trust estate, including the revenues and other moneys derived by the Authority under the Series 2017A Obligation or the Loan Agreement, or (4) is generally not paying its debts as such debts become due; or

(h) (1) the Authority is adjudged insolvent by a court of competent jurisdiction, (2) on a petition in bankruptcy filed against the Authority it is adjudged as bankrupt, or (3) an order, judgment or decree is entered by any court of competent jurisdiction appointing, without the consent of the Authority, a receiver, custodian or trustee of the Authority or of the whole or any part of its property and any of the aforesaid adjudications, orders, judgments or decrees shall not be vacated or set aside or stayed within 60 days from the date of entry thereof; or

(i) the Authority shall file a petition or answer seeking reorganization or any arrangement under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof; or

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(j) under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Authority or of the whole or any substantial part of its property, and such custody or control shall not be terminated within thirty days from the date of assumption of such custody or control; or

(k) any event of default as defined in the Loan Agreement and summarized under the caption “SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT— DEFAULTS AND REMEDIES” below or any event of default as defined in the Master Indenture and summarized under the caption “APPENDIX C — SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—DEFAULTS AND REMEDIES” shall occur and be continuing from and after the date the Authority is entitled under the Loan Agreement to request that the Master Trustee declare the Series 2017A Obligation to be immediately due and payable, or such event of default shall be continuing from and after the date on which the Master Trustee is entitled under the Master Indenture to declare the Series 2017A Obligation immediately due and payable, or the Master Trustee shall declare the Series 2017A Obligation immediately due and payable; or

(l) the Authority shall default in the due and punctual performance of any other of the covenants, conditions, agreements and provisions contained in the Series 2017A Bonds or in the Bond Indenture or any agreement supplemental thereto to be performed on the part of the Authority, and such default shall continue for the period of 30 days after written notice specifying such default and requiring the same to be remedied shall have been given to the Authority and NMHC by the Bond Trustee which notice the Bond Trustee may give in its discretion and must give at the written request of the owners of not less than twenty-five percent (25%) in aggregate principal amount of the Series 2017A Bonds then Outstanding under Bond Indenture exclusive of Bonds then owned by the Authority or any Member; provided that, if such default cannot with due diligence and dispatch be cured within 30 days but can be cured, the failure of the Authority to remedy such default within such 30-day period shall not constitute a default under the Bond Indenture if the Bond Trustee is provided with a certification from the Authority to the effect that such default cannot with due diligence and dispatch be cured within 30 days but can be cured and the Authority shall immediately upon receipt of such notice commence with due diligence and dispatch the curing of such default and, having so commenced the curing of such default, shall thereafter prosecute and complete the same with due diligence and dispatch; or

(m) the Authority, NMHC or the Bond Trustee shall default in the performance of any covenant, condition, agreement or provision of the Tax Exemption Agreement, and such default shall continue for the period of 30 days after written notice specifying such default and requiring the same to be remedied shall have been given to the party in default and NMHC by the other party; provided that if such default cannot with due diligence and dispatch be cured within 30 days but can be cured, the failure of the Authority, NMHC or the Bond Trustee to remedy such default within such 30-day period shall not constitute a default under the Bond Indenture if the Bond Trustee is provided with a certification from the Authority to the effect that such default cannot with due diligence and dispatch be cured within 30 days but can be cured and the Authority shall immediately upon receipt of such notice commence with due diligence and dispatch the curing of such default and, having

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so commenced the curing of such default, shall thereafter prosecute and complete the same with due diligence and dispatch.

(n) receipt by the Bond Trustee of a written notice from a Credit Facility Provider stating that an event of default has occurred under the Credit Facility Agreement and directing the Bond Trustee to declare the principal of the outstanding Bonds secured by such Credit Facility immediately due and payable;

(o) receipt by the Bond Trustee of a written notice from the Credit Facility Provider pursuant to a Credit Facility that amounts available to pay interest under the Credit Facility will not be reinstated following a drawing thereunder to pay interest and directing the Bond Trustee to declare the principal of the outstanding Bonds secured by such Credit Facility immediately due and payable; or

(p) during a Direct Purchase Period, receipt by the Bond Trustee of a written notice from the Direct Purchaser, if any, that an event of default has occurred under the Bondholder Agreement, which notice may in addition instruct the Bond Trustee to accelerate the Series 2017A Bonds pursuant to the Bond Indenture or instruct the Bond Trustee to subject the Series 2017A Bonds to mandatory tender pursuant to the Bond Indenture.

Upon actual knowledge of the existence of any Event of Default, the Bond Trustee shall notify NMHC, the Authority, the Liquidity Facility Provider, if any, the Credit Facility Provider, if any, the Remarketing Agent, if any, the Direct Purchaser, if any, and the Master Trustee in writing as soon as practicable; provided, however, that the Bond Trustee need not provide notice of any Event of Default pursuant to paragraph (k) if NMHC has expressly acknowledged the existence of such default in a writing delivered to the Bond Trustee, the Authority, the Liquidity Facility Provider, if any, the Credit Facility Provider, if any, the Direct Purchaser, if any, and the Master Trustee.

Acceleration. Upon the occurrence and during the continuation of an Event of Default, the Bond Trustee may, but only with the prior written consent of the Credit Facility Provider, if any, and upon the written request of the Holders of not less than twenty five percent (25%) in aggregate principal amount of the Series 2017A Bonds Outstanding, but only with the prior written consent of the Credit Facility Provider, if any, or, during a Direct Purchase Period, the Direct Purchaser, or upon the written request of the Credit Facility Provider, if any, or, during a Direct Purchase Period, the Direct Purchaser, the Bond Trustee shall, declare all Outstanding Bonds immediately due and payable, anything in the Series 2017A Bonds or in the Bond Indenture to the contrary notwithstanding. Upon the occurrence of an Event of Default set forth in the Bond Indenture, the Bond Trustee shall immediately, upon receipt of written notice from the Credit Facility Provider, declare an acceleration of the Series 2017A Bonds and shall draw upon the Credit Facility, if any, in accordance with its terms, to pay principal and interest due upon such acceleration. In such event, there shall be due and payable on the Series 2017A Bonds so accelerated an amount equal to the principal amount of all such Bonds, plus all interest accrued thereon and which accrues to the date of payment; provided, however, with respect to an Event of Default specified in clause (n) or (o) under this caption, interest shall cease to accrue on Eligible Bonds on the date of declaration

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of acceleration. The Bond Trustee shall give written notice of such acceleration to each Holder of a Bond, the Authority and NMHC.

If the Series 2017A Bonds are so accelerated, then the Series 2017A Obligation must also be accelerated. If the Series 2017A Obligation is accelerated, the Series 2017A Bonds may, subject to the provisions of the Bond Indenture summarized under this caption, be accelerated, but are not required to be accelerated. At any time after the principal of the Series 2017A Obligation and the principal amount of the Series 2017A Bonds shall have been so declared to be due and payable, and before the entry of a final judgment or decree in any proceeding instituted with respect to the Event of Default that resulted in the declaration of acceleration, and if the declaration that the Series 2017A Obligation is immediately due and payable is annulled in accordance with the provisions of the Master Indenture, the declaration that the Series 2017A Bonds are immediately due and payable shall also, without further action, be annulled and the Bond Trustee shall promptly give notice of such annulment in the same manner as provided in the Bond Indenture and summarized under this caption for giving notice of acceleration. No such annulment shall extend to or affect any subsequent Event of Default or impair any right consequent thereon. Notwithstanding anything in the Bond Indenture to the contrary, while a Credit Facility is in effect, no declaration of acceleration of the Series 2017A Bonds shall be annulled unless the Credit Facility Provider shall have rescinded in writing its default notice and the Credit Facility shall have been reinstated in full. Notwithstanding anything in the Bond Indenture to the contrary, with respect to Direct Purchase Bonds, no declaration of acceleration of the Direct Purchase Bonds shall be annulled or rescinded unless the Direct Purchaser shall have consented to such annulment or rescission in writing and all amounts due and owing under the Bondholder Agreement have been paid.

Notwithstanding anything contained in the Bond Indenture to the contrary, however, the Series 2017A Bonds shall not be declared immediately due and payable, nor shall they be subject to acceleration, without the prior written consent to such action by the applicable Credit Facility Provider or the Direct Purchaser, as applicable.

Remedies. Upon the occurrence and continuance of any Event of Default, the Bond Trustee shall, upon the written request of the Credit Facility Provider, if any, or, during a direct Purchase Period, the Direct Purchaser (subject to certain provisions of the Bond Indenture), and may, upon the written request of the Holders of a majority in principal amount of the Series 2017A Bonds Outstanding, with the consent of the Credit Facility Provider, if any, together with indemnification of the Bond Trustee to its satisfaction therefor, proceed forthwith to protect and enforce its rights and the rights of the Bondholders under the Bond Indenture and under the Act and the Series 2017A Bonds by such suits, actions or proceedings as the Bond Trustee, being advised by counsel, shall deem expedient, including but not limited to:

(i) civil action to recover money or damages due and owing;

(ii) civil action to enjoin any acts or things, which may be unlawful or in violation of the rights of the Holders of Bonds;

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(iii) enforcement of any other right of the Authority and the Bondholders conferred by law or by the Bond Indenture; and

(iv) enforcement of any other right conferred by the Loan Agreement, the Series 2017A Obligation or the Master Indenture.

Regardless of the happening of an Event of Default, the Bond Trustee, if requested in writing by the Credit Facility Provider or the Holders of a majority in principal amount of the Series 2017A Bonds then Outstanding, shall, upon being indemnified to its satisfaction therefor, institute and maintain such suits and proceedings as it may be advised shall be necessary or expedient (i) to prevent any impairment of the security under the Bond Indenture by any acts which may be unlawful or in violation of the Bond Indenture, or (ii) to preserve or protect the interests of the Holders, provided that such request is in accordance with law and the provisions of the Bond Indenture and, in the sole judgment of the Bond Trustee, is not unduly prejudicial to the interest of the Holders of Series 2017A Bonds not making such request.

No remedy by the terms of the Bond Indenture conferred upon or reserved to the Bond Trustee or the Bondholders is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Bond Indenture or existing at law or in equity or by statute (including the Act) on or after the date of the Bond Indenture.

BONDHOLDER’S CONTROL OF PROCEEDINGS

If an Event of Default shall have occurred and be continuing, the Holders of a majority in principal amount of all Bonds then Outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Bond Trustee, to direct the method and place of conducting any proceeding to be taken in connection with the enforcement of the terms and conditions of the Bond Indenture; provided, that such direction is in accordance with law and the provisions of the Bond Indenture (including indemnity to the Bond Trustee as provided in the Bond Indenture) and, in the sole judgment of the Bond Trustee, is not unduly prejudicial to the interest of Bondholders not joining in such direction. Nothing in the Bond Indenture shall impair the right of the Bond Trustee in its discretion to take any other action under the Bond Indenture which it may deem proper and which is not inconsistent with such direction by Bondholders.

WAIVER OF EVENTS OF DEFAULT

No delay or omission of the Bond Trustee or of any Holder of the Series 2017A Bonds to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or in acquiescence therein. Every power and remedy given under the Bond Indenture may be exercised from time to time and as often as may be deemed expedient.

The Bond Trustee may waive any Event of Default which in its opinion shall have been remedied before the entry of final judgment or decree in any suit, action or proceeding instituted

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by it under the provisions of the Bond Indenture, on or before the completion of the enforcement of any other remedy under the Bond Indenture.

The Bond Trustee, upon the written request of the Credit Facility Provider or the Holders of a majority in principal amount of the Series 2017A Bonds then Outstanding, shall waive any Event of Default under the Bond Indenture and its consequences; provided, however, that, except under the circumstances set forth in the Bond Indenture, a default in the payment of the principal of, premium, if any, or interest on any Bond, when the same shall become due and payable by the terms thereof or upon call for redemption, may not be waived without the written consent of the Holders of all the Series 2017A Bonds at the time Outstanding.

In case of any waiver by the Bond Trustee of an Event of Default under the Bond Indenture, the Authority, the Bond Trustee and the Bondholders shall be restored to their former positions and rights thereunder, respectively, but no such waiver shall extend to any subsequent or other Event of Default or impair any right consequent thereon. The Bond Trustee shall not be responsible to anyone for waiving or refraining from waiving any Event of Default in accordance with the provisions of the Bond Indenture summarized under this caption.

Notwithstanding anything in the Bond Indenture to the contrary, while a Credit Facility is in effect, the Bond Trustee shall not waive any Event of Default unless the Credit Facility Provider shall have rescinded in writing any default notice given by it and the Credit Facility shall have been reinstated in full. Notwithstanding anything in the Bond Indenture to the contrary, with respect to Direct Purchase Bonds, the Bond Trustee shall not waive any Event of Default unless the Direct Purchaser, if any, shall have consented to such waiver in writing and all amounts due and owing under the Bondholder Agreement have been paid.

APPLICATION OF REVENUES AND OTHER FUNDS AFTER DEFAULT

If an Event of Default shall occur and be continuing, all moneys received by the Bond Trustee pursuant to any right given or action taken under the provisions of the Bond Indenture shall, after payment of the cost and expenses of the proceedings resulting in the collection of such moneys and of the outstanding fees, expenses, liabilities and advances incurred or made by the Bond Trustee (subject to the Bond Indenture and other than moneys required to be deposited in the Bond Purchase Fund) shall be applied by the Bond Trustee as follows and in the following order:

(a) To the payment of any expenses necessary in the opinion of the Bond Trustee to protect the interests of the Holders of the Series 2017A Bonds and payment of reasonable fees and expenses of the Bond Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Bond Indenture; and

(b) To the payment of the principal or Redemption Price of and interest then due on the Series 2017A Bonds (upon presentation of the Series 2017A Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Bond Indenture, as follows:

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(i) Unless the principal of all of the Series 2017A Bonds shall have become or shall have been declared due and payable:

FIRST: To the payment to the Persons entitled thereto of all installments of interest then due, in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment ratably, according to the amounts due thereon, to the Persons entitled thereto without any discrimination or preference;

SECOND: To the payment to the Persons entitled thereto of the unpaid principal (including Sinking Fund Installments) or Purchase Price or Redemption Price of any Series 2017A Bonds which shall have become due, whether at maturity or by call for redemption or purchase, in the order of their due dates, with interest on the overdue principal at the rate borne by the respective Bonds, and, if the amount available shall not be sufficient to pay in full all the Series 2017A Bonds due on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal or Redemption Price due on such date to the Persons entitled thereto, without any discrimination or preference; and

THIRD: During a Direct Purchase Period, to the payment to the Direct Purchaser (if any) of any amounts payable under the Bondholder Agreement or during any period in which a Credit Facility or Liquidity Facility is in effect, to the Credit Facility Provider or Liquidity Facility Provider of any amounts a payable under the Credit Facility or Liquidity Facility, as applicable.

If the principal of all of the Series 2017A Bonds shall have become or have been declared due and payable, to the payment of the principal and interest then due and unpaid upon the Series 2017A Bonds, with interest on the overdue principal at the rate borne by the respective Series 2017A Bonds, and, if the amount available shall not be sufficient to pay in full the whole amount so due and unpaid, then to the payment thereof ratably, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Series 2017A Bond, according to the amounts due respectively for principal and interest, to the Persons entitled thereto without any discrimination or preference.

REMOVAL OF THE BOND TRUSTEE

The Bond Trustee may be removed at any time, by an instrument or concurrent instruments in writing delivered to the Bond Trustee, NMHC and the Authority, and signed by the owners of a majority in aggregate principal amount of Bonds then outstanding. So long as no event of default has occurred and is continuing under either the Bond Indenture or the Loan Agreement, the Bond Trustee may be removed for any reason at any time by NMHC or by the Authority by an instrument

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or concurrent instruments in writing delivered to the Bond Trustee. If any event of default has occurred or is continuing under the Bond Indenture or the Loan Agreement, the Bond Trustee may be removed for cause (including but not limited to maintaining non-competitive fees) at any time by NMHC or by the Authority by an instrument or concurrent instruments in writing and delivered to the Bond Trustee. The foregoing notwithstanding, the Bond Trustee may not be removed by NMHC unless written notice of the delivery of such instrument or instruments signed by the Authority is mailed to the owners of all Bonds outstanding under the Bond Indenture, which notice indicates the Bond Trustee will be removed and replaced by the successor trustee named in such notice, such removal and replacement to become effective on the 30th day next succeeding the date of such notice, unless the owners of not less than ten percent (10%) in aggregate principal amount of Bonds then outstanding under the Bond Indenture shall object in writing to such removal and replacement. Such notice shall be mailed by first class mail postage prepaid to the owners of all such Series 2017A Bonds then outstanding at the address of such owners then shown on the Bond Register.

BOND TRUSTEE AS HOLDER OF SERIES 2017A OBLIGATION

The Bond Trustee shall be considered the holder of the Series 2017A Obligation pledged under the Bond Indenture for the purpose of the provisions of the Master Indenture.

SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT

The following is a summary of certain provisions of the Loan Agreement between NMHC and the Authority, to which reference is made for a full and complete statement of its provisions.

LOAN OF SERIES 2017A BOND PROCEEDS

NMHC will enter into the Loan Agreement with the Authority pursuant to which the Authority will loan the proceeds from the sale of the Series 2017A Bonds to NMHC. The Series 2017A Obligation will be delivered to the Authority to evidence the loan of the proceeds of the Series 2017A Bonds by the Authority to NMHC. The Series 2017A Obligation will be issued in a principal amount equal to the principal amount of the Series 2017A Bonds.

REPRESENTATIONS

NMHC represents that it is a not for profit corporation duly incorporated under the laws of the State, is in good standing and duly authorized to conduct its business in the State, is duly authorized and has full power under all applicable laws and its articles of incorporation and Bylaws to enter into, execute and deliver, as applicable, the Master Indenture (including the Twenty-Eighth Supplemental Master Indenture), the Loan Agreement, the Series 2017A Obligation, the Purchase Contract, the Continuing Disclosure Undertaking, the Use Agreement, the Official Statement and the Tax Exemption Agreement (collectively, the “NMHC Agreements”) and all action on its or any Obligated Group Members’ part necessary for the valid creation and issuance of the Series 2017A Obligation and the valid execution and delivery of NMHC Agreements has been duly and effectively taken. NMHC also warrants that the Series 2017A Obligation in the hands of the holder thereof will be the legal and valid obligation of NMHC. NMHC represents that NMHC

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and each of the Users is a Tax-Exempt Organization. In addition, except as described in the Official Statement, no litigation, proceedings or investigations are pending or, to the knowledge of NMHC, threatened in writing against any Obligated Group Member, except litigation, proceedings or investigations involving claims for which the probable ultimate recoveries and the estimated costs and expenses of defense, in the opinion of management of NMHC, (i) will be entirely within the applicable insurance policy limits (subject to applicable deductibles) or are not in excess of the total of the available assets held under applicable self-insurance programs or (ii) will not have a material adverse effect on the operations or condition, financial or otherwise, of the Obligated Group, taken as a whole.

ASSIGNMENT OF RIGHTS UNDER THE LOAN AGREEMENT AND THE OBLIGATIONS PLEDGED UNDER THE BOND INDENTURE

NMHC agrees that the Loan Agreement and the Series 2017A Obligation and all of the rights, interests, powers, privileges and benefits accruing to or vested in the Authority thereunder may be protected and enforced in conformity with the Bond Indenture and may be assigned by the Authority to the Bond Trustee (except for Unassigned Rights) as additional security for the Series 2017A Bonds and may be exercised, protected and enforced for or on behalf of the Bondholders in conformity with the provisions of the Loan Agreement, the Master Indenture and the Bond Indenture.

PAYMENTS IN RESPECT OF THE SERIES 2017A OBLIGATION

Under the terms of the Loan Agreement, NMHC covenants and agrees to pay the Bond Trustee such amounts at such times as shall provide for payment of the principal, premium, if any, and interest, whether upon a regularly scheduled interest payment date, at maturity, by mandatory redemption or upon acceleration of the Series 2017A Bonds outstanding under the Bond Indenture. The Loan Agreement also requires that NMHC pay certain other charges which may be incurred for such items as the Bond Trustee’s fees, the Master Trustee’s fees, the Authority’s fees and expenses and all other reasonable fees and expenses incurred in connection with the issuance of the Series 2017A Bonds. All payments due on the Series 2017A Obligation and under the Loan Agreement, except for certain enumerated payments described in the Loan Agreement, shall be paid directly to the Bond Trustee and applied in the manner provided in the Bond Indenture.

ARBITRAGE; TAX EXEMPTION AGREEMENT

NMHC covenants and agrees that it will not take or permit to be taken any action or fail to take any action and will cause the Users to not take any action or fail to take any action, including, without limitation, with respect to the investment of the proceeds of any Bonds (whether or not held under the Bond Indenture) or with respect to any other moneys or securities deposited with the Bond Trustee pursuant to the Bond Indenture, or with respect to the payments derived from the Series 2017A Obligation or from the Master Indenture or the Loan Agreement or with respect to the purchase of other Authority obligations or with respect to any actions or payments required under the Tax Exemption Agreement, or with respect to any other moneys or properties, regardless of the source or where held, which may, notwithstanding compliance with the other provisions of the Bond Indenture, the Loan Agreement and the Tax Exemption Agreement, result in constituting

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any of the Series 2017A Bonds as “arbitrage bonds” within the meaning of such term as used in Section 148 of the Code. NMHC covenants that neither it nor any related person, as defined in Sections 144(a)(3) and 147(a) of the Code, shall, pursuant to an arrangement, formal or informal, purchase obligations of the Authority in an amount related to the amount of the Series 2017A Obligation or delivered in connection with the transaction contemplated by the Loan Agreement.

CORPORATION’S OBLIGATIONS ARE UNCONDITIONAL

As security for the payment of the Series 2017A Bonds, the Authority will assign and pledge to the Bond Trustee all right, title and interest of the Authority in and to the Loan Agreement and the Series 2017A Obligation, including the right to receive payments thereunder (except its Unassigned Rights, including without limitation, the right to receive payment of expenses, fees, indemnification and the rights to make determinations and receive notices as therein provided), and directs NMHC to make said payments directly to the Bond Trustee. NMHC assents to such assignment and pledge and will make payments directly to the Bond Trustee without defense or set-off by reason of any dispute between NMHC and the Authority or the Bond Trustee, and agrees that its obligation to make payments under the Loan Agreement and to perform its other agreements contained therein are absolute and unconditional. Until the principal of and interest on the Series 2017A Bonds shall have been fully paid or provision for the payment of the Series 2017A Bonds made in accordance with the Bond Indenture, NMHC (a) will not suspend or discontinue any payments provided for in the Loan Agreement, (b) will perform all its other duties and responsibilities called for by the Loan Agreement, and (c) will not terminate the Loan Agreement for any cause including any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Bond Financed Property, commercial frustration of purpose, any change in the laws of the United States or of the State or any political subdivision of either or any failure of the Authority to perform any of its agreements, whether express or implied, or any duty, liability or obligation arising from or connected with the Loan Agreement.

CERTAIN COVENANTS OF NMHC RELATING TO THE USE AND OPERATION OF CERTAIN OF ITS PROPERTY

NMHC will, and will cause each User to, use its health care facilities primarily as and for health care facilities and related activities and only in furtherance of the lawful corporate purposes of NMHC; will, and will cause each User to, use the facilities and the Bond Financed Property as “health facilities” within the meaning of the Act; and agrees to operate, and will cause each User to operate, all Property on a nondiscriminatory basis.

NMHC agrees under the Loan Agreement, that it will not use or permit any of the Bond Financed Property to be used, (i) by any Person in an “unrelated trade or business” (as defined in Section 513(a) of the Code) of NMHC (without regard to whether such activity results in unrelated trade or business income subject to taxation under Section 512(a) of the Code), or (ii) by any Person who is not a Tax-Exempt Organization, in either case in such manner or to such extent as would result in the loss of tax exemption of interest on the Series 2017A Bonds otherwise afforded under Section 103(a) of the Code.

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NMHC further agrees under the Loan Agreement, that it will not, and will cause each User not to, use or permit to be used any of the Bond Financed Property, (a) primarily for sectarian instruction or study or as a place of devotional activities or religious worship or as a facility used primarily in connection with any part of the program of a school or department of divinity for any religious denomination or the training of ministers, priests, nuns, rabbis or other similar persons in the field of religion or (b) in a manner which is prohibited by the Establishment of Religion Clause of the First Amendment to the Constitution of the United States of America and the decisions of the United States Supreme Court interpreting the same or by any comparable provisions of the Constitution of the State and decisions of the Supreme Court of the State interpreting the same. The provisions of this paragraph shall remain in full force and effect notwithstanding the payment of the Series 2017A Bonds and all amounts due and owing under the Bond Indenture and under the Series 2017A Obligation and the termination of the Bond Indenture and the Loan Agreement.

The covenants and agreements contained in the provisions of the Loan Agreement summarized under this caption need not be observed or may be changed if the Bond Trustee, the Authority and NMHC receive an Opinion of Bond Counsel to the effect that such nonobservance or change will not adversely affect the exclusion from gross income of interest on the Series 2017A Bonds for federal income tax purposes or the validity of the Series 2017A Bonds.

TRANSFER OF BOND FINANCED PROPERTY

NMHC covenants and agrees that it will not, and it will not permit the Users to, sell, lease or otherwise dispose of directly or indirectly, in whole or in part, any of the Bond Financed Property, unless the conditions set forth in the Project Certificate are satisfied.

INDEMNITY

NMHC will pay, and will protect, defend, indemnify and save the Authority and the Bond Trustee and their respective past, present and future members, officers, directors, employees, agents, successors, assigns and any other person, if any, who “controls” the Authority or the Bond Trustee, as the case may be, as that term is defined in Section 15 of the Securities Act of 1933, as amended, (the Authority, the Bond Trustee and the other listed persons, collectively referred to as, the “Indemnified Persons”) harmless from and against any and all liabilities, losses, damages, taxes, penalties, costs and expenses (including attorneys’ fees and expenses of the Authority and the Bond Trustee), causes of action, suits, proceedings, claims, demands, tax reviews, investigations and judgments of whatsoever kind and nature (including, but not limited to, those arising or resulting from any injury to or death of any person or damage to property) arising from or in any manner directly or indirectly growing out of or connected with the following:

(a) the use, financing, non-use, condition or occupancy of any of the Bond Financed Property, any repairs, construction, alterations, renovation, relocation, remodeling and equipping thereof or thereto or the condition of any such Bond Financed Property including adjoining sidewalks, streets or alleys and any equipment or facilities at any time located on or connected with such Bond Financed Property or used in connection therewith but which are not the result of the gross negligence of the Authority or the Bond Trustee;

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(b) a violation of any agreement, warranty, covenant or condition of the Loan Agreement or any other agreement executed in connection with the Loan Agreement;

(d) a violation of any law, ordinance, rule, regulation or court order affecting the Bond Financed Property or the ownership, occupancy or use thereof or the Series 2017A Bonds or use of the proceeds thereof;

(e) a violation of any law, ordinance, rule, regulation or court order relating to the sale of the Series 2017A Bonds or the use of any official statement (or other disclosure document) related thereto;

(f) any statement or information concerning NMHC, any of its officers and members, its operations or financial condition generally or the Bond Financed Property, contained in any official statement or supplement or amendment thereto furnished to the Authority or the purchaser of any Bonds, that is untrue or incorrect in any material respect, and any omission from such official statement of any statement or information which should be contained therein for the purpose for which the same is to be used or which is necessary to make the statements therein concerning NMHC, any of its officers and members and the Bond Financed Property not misleading in any material respect, provided that such official statement or supplement or amendment has been approved by NMHC; and

(g) the acceptance or administration of the Bond Indenture, including without limitation the enforcement of any remedies under the Bond Indenture and related documents, provided that the Bond Trustee shall not be entitled to any indemnity related to liabilities described in this clause (g) caused solely by the negligence or willful misconduct of the Bond Trustee.

In case any claim shall be made or any action shall be brought against one or more of the Indemnified Persons in respect of which indemnity can be sought against NMHC pursuant to any of the preceding paragraphs, the Indemnified Person seeking indemnity shall promptly notify NMHC, in writing, and NMHC shall promptly assume the defense thereof, including the employment of counsel chosen by NMHC and approved by the Authority or the Bond Trustee, or both (provided, that such approval by the Authority or the Bond Trustee shall not be unreasonably withheld), the payment of all expenses and the right to negotiate and consent to settlement. If any Indemnified Person is advised in a written opinion of counsel that there may be legal defenses available to such Indemnified Person which are adverse to or in conflict with those available to NMHC or that the defense of such Indemnified Person should be handled by separate counsel, NMHC shall not have the right to assume the defense of such Indemnified Person, but NMHC shall be responsible for the reasonable fees and expenses of counsel retained by such Indemnified Person in assuming its own defense, and provided also that, if NMHC shall have failed to assume the defense of such action or to retain counsel reasonably satisfactory to the Authority or the Bond Trustee within a reasonable time after notice of the commencement of such action, the reasonable

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fees and expenses of counsel retained by the Indemnified Person shall be paid by NMHC. Notwithstanding the foregoing, any one or more of the Indemnified Persons shall have the right to employ separate counsel with respect to any such claim or in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be paid by such Indemnified Person unless the employment of such counsel has been specifically authorized by NMHC or unless the provisions of the immediately preceding sentence are applicable. NMHC shall not be liable for any settlement of any such action affected without the consent of NMHC, but if settled with the consent of NMHC or if there be a final judgment for the plaintiff in any such action with or without consent, NMHC agrees to indemnify and hold harmless the Indemnified Person from and against any loss, liability or expense by reason of such settlement or judgment.

NMHC shall also indemnify the Authority, the Bond Trustee and such Indemnified Persons for all reasonable costs and expenses, including reasonable counsel fees, incurred in: (i) enforcing any obligation of NMHC under the Loan Agreement or any related agreement, (ii) taking any action requested by NMHC, (iii) taking any action required by the Loan Agreement or any related agreement, or (iv) taking any action considered necessary by the Authority and which is authorized by the Loan Agreement or any related agreement. If the Authority is to take any action under the Loan Agreement or any other instrument executed in connection with the Loan Agreement for the benefit of NMHC, it will do so if and only if (i) the Authority is a necessary party to any such action or proceeding, and (ii) the Authority has received specific written direction from NMHC, as required under the Loan Agreement or under any other instrument executed in connection therewith, as to the action to be taken by the Authority.

All amounts payable to the Authority under the provisions of the Loan Agreement summarized under this heading shall be deemed to be fees and expenses payable to the Authority for the purposes of the provisions of the Loan Agreement and of the Bond Indenture dealing with assignment of the Authority’s rights under the Loan Agreement. The Authority and its members, officers, agents, employees and their successors and assigns shall not be liable to NMHC for any reason.

Any provision of the Loan Agreement or any other instrument or document executed and delivered in connection therewith to the contrary notwithstanding, the Authority retains the right to (i) enforce any applicable federal or State law or regulation or resolution of the Authority, and (ii) enforce any rights accorded to the Authority by federal or State law or policy or procedure of the Authority, and nothing in the Loan Agreement shall be construed as an express or implied waiver thereof.

The provisions of the Loan Agreement summarized under this heading shall survive the termination of the Loan Agreement and the Bond Indenture and/or the resignation or removal of the Bond Trustee.

MAINTENANCE OF CORPORATE EXISTENCE

Unless NMHC complies with the provisions of the Loan Agreement, NMHC agrees that as long as any Series 2017A Bonds are outstanding it will maintain its existence, will not dissolve, liquidate or otherwise dispose of all or substantially all of its assets, and will not consolidate with

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or merge into another entity or permit one or more other entities to consolidate with or merge into it. Any dissolution, liquidation, disposition, consolidation or merger shall be subject to the conditions set forth in the Loan Agreement.

ACCREDITATION AND LICENSURE

NMHC warrants that each of the Users’ acute care hospitals is now accredited by The Joint Commission or the Healthcare Facilities Accreditation Program of the American Osteopathic Association, and NMHC warrants that each of the Users’ health care Facilities have all material state and local licenses required for the operation thereof. NMHC will cause each User to obtain and maintain, or cause to be obtained and maintained, all such material licenses required for its operations and the operation of its health care Facilities. NMHC will cause each User to use its best efforts to establish and maintain its Facilities’ status as a provider of health care services, eligible for reimbursement under Medicare and equivalent insurance programs, and Medicaid and other similar contractual programs, including future federal and state programs, so long as it is in the best interest of NMHC, as determined by the Board of Directors of NMHC.

RATES AND CHARGES

NMHC covenants and agrees, and will cause each User, to charge such fees and rates for its Facilities and services and to exercise such skill and diligence, so as to provide income from their respective Property together with other available funds sufficient to pay promptly all expenses of operation, maintenance and repair of such Property, all amounts owing on the Series 2017A Obligation pledged under the Bond Indenture and all other payments required to be made by NMHC under the Loan Agreement. NMHC further covenants and agrees that it will, and will cause each of the Users to, from time to time as often as necessary, to the extent permitted by law, revise its rates, fees and charges and and will cause the other Obligated Group Members to operate their Facilities and to revise, their rates, fees and charges in such manner or take such other action as may be necessary or proper to comply with the provisions of the Loan Agreement summarized under this heading. The provisions of the Loan Agreement summarized in this paragraph shall not be construed to prohibit NMHC or the other Obligated Group Members from serving indigent patients to the extent required for NMHC or any such other Obligated Group Member to continue its qualification as a Tax-Exempt Organization or from serving indigent patients or any other class or classes of patients without charge or at reduced rates so long as such service does not prevent NMHC from satisfying the other requirements of the Loan Agreement summarized under this heading.

AMENDMENTS TO THE LOAN AGREEMENT

Subject to the terms, conditions and provisions of the Bond Indenture, NMHC and the Authority may from time to time enter into supplements and amendments to the Loan Agreement. An executed copy of any of the foregoing amendments, changes or modification shall be filed with the Bond Trustee. The Bond Trustee may grant such waivers of compliance by NMHC with provisions of the Loan Agreement as to which the Bond Trustee may deem necessary or desirable to effectuate the purposes or intent of the Bond Indenture and which, in the opinion of the Bond Trustee, do not have a material adverse effect upon the interests of the Bondholders, provided that

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the Bond Trustee shall file with the Authority any and all such waivers granted by the Bond Trustee within three (3) Business Days thereof.

DEFAULTS AND REMEDIES

The occurrence and continuance of any of the following events shall constitute an “event of default” under the Loan Agreement:

(a) failure of NMHC to pay when due any installment of interest, principal or any premium on the Series 2017A Obligation as described in the Loan Agreement; or failure by NMHC to make any other payment required by the Loan Agreement when the same shall become due and payable, whether upon a scheduled Interest Payment Date, at maturity, upon any date fixed for prepayment, by acceleration or otherwise on the date that such payment shall become due, whether at maturity, if there is no Credit Facility or Liquidity Facility in effect; or

(b) failure of NMHC to comply with or perform any of the covenants, conditions, or provisions of the Loan Agreement (other than those specifically identified in clauses (a), (h) or (i) under this caption) or of the Tax Exemption Agreement or the failure of NMHC or any User to comply with or perform any of the covenants, conditions or provisions of the Use Agreement and to remedy such default within 60 days after written notice thereof from the Authority or the Bond Trustee to NMHC; provided that, if such default cannot with due diligence and dispatch be wholly cured within 60 days but can be wholly cured, the failure of NMHC to remedy such default within such 60-day period shall not constitute a default under the Loan Agreement if the Bond Trustee is provided with a certification from NMHC to the effect that such default cannot with due diligence and dispatch be wholly cured within 60 days but can be wholly cured and NMHC shall as soon as reasonably practicable upon receipt of such notice commence with due diligence and dispatch the curing of such default and, having so commenced the curing of such default, shall thereafter prosecute and complete the same with due diligence and dispatch; or

(c) if any representation or warranty made by NMHC in the Loan Agreement or in any statement or certificate furnished to the Authority or the Bond Trustee or the purchaser of any Bonds in connection with the sale of the Series 2017A Bonds or furnished by NMHC pursuant to the Loan Agreement proves untrue in any material respect as of the date of the making thereof and shall not be made good within 60 days after written notice thereof by the Authority to NMHC; provided that, if such default cannot with due diligence and dispatch be cured within 60 days but can be cured, the failure of NMHC to remedy such default within such 60-day period shall not constitute a default under the Loan Agreement if the Bond Trustee is provided with a certification from NMHC to the effect that such default cannot with due diligence and dispatch be cured within 60 days but can be cured and NMHC shall as soon as reasonably practicable upon receipt of such notice commence with due diligence and dispatch the curing of such default and, having so commenced the curing of such default, shall thereafter prosecute and complete the same with due diligence and dispatch; or

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(d) any event of default shall occur under the Master Indenture which would permit the acceleration of any Obligation; or

(e) if NMHC admits in writing its insolvency or bankruptcy or its inability to pay its debts as they mature, or is generally not paying its debts as such debts become due, or makes an assignment for the benefit of creditors or applies for or consents to the appointment of a trustee, custodian or receiver for NMHC, or for the whole, or a substantial part, of its Property; or

(f) if a trustee, custodian or receiver is appointed for NMHC or for the whole, or a substantial part, of its Property and is not discharged within 60 days after such appointment; or

(g) if bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, proceedings under Title 11 of the United States Code, as amended, or other proceedings for relief under any bankruptcy law or similar law for the relief of debtors are instituted by or against NMHC (other than bankruptcy proceedings instituted by NMHC against third parties), and if instituted against NMHC are allowed against NMHC or are consented to or are not dismissed, stayed or otherwise nullified within 60 days after such institution; or

(h) failure by NMHC to comply with or perform its covenant under the Loan Agreement summarized under the caption “DISCHARGE OF ORDERS” below; or

(i) if payment of any installment of interest or principal, or any premium, on any Bond shall not be made when the same shall become due and payable under the provisions of the Loan Agreement.

Upon the occurrence and during the continuance of any Event of Default under the Loan Agreement, the Authority shall have the following rights and remedies, in addition to any other remedies therein or by law provided:

I. Acceleration of Maturity; Waiver of Event of Default and Rescission of Acceleration. The Authority or the Bond Trustee may, by written notice to the Master Trustee, request that it declare the principal of the Series 2017A Obligation pledged under the Bon Indenture (if not then due and payable) to be due and payable immediately, subject to the provisions of the Master Indenture summarized under the caption “APPENDIX C — SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE—WAIVER OF EVENTS OF DEFAULT” regarding waiver of events of default, anything in such Series 2017A Obligation or in the Loan Agreement contained to the contrary notwithstanding.

II. Right to Bring Suit, Etc. The Authority or the Bond Trustee, with or without entry, personally or by attorney, may in its discretion proceed to protect and enforce its rights by pursuing any available remedy including a suit or suits in equity or at law, whether for damages or for the specific performance of any

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obligation, covenant or agreement contained in the Series 2017A Obligation, the Master Indenture, or in the Loan Agreement or in aid of the execution of any power granted in the Loan Agreement, or for the enforcement of any other appropriate legal or equitable remedy, as the Authority or the Bond Trustee, shall deem most effectual to collect the payments then due and thereafter to become due on the Series 2017A Obligation pledged under the Bond Indenture, to enforce performance and observance of any obligation, agreement or covenant of NMHC under the Loan Agreement, under the Series 2017A Obligation or under the Master Indenture or to protect and enforce any of the Authority’s rights or duties thereunder.

EXCHANGE OF BONDS

The Loan Agreement provides that in the event the Act or the Authority created thereunder is determined to be unconstitutional under the laws of the State or under the laws of the United States of America and, as a result thereof, the Series 2017A Bonds issued by the Authority are declared to be invalid and unenforceable, and if as a result thereof NMHC’s obligations to make payments on the Series 2017A Obligation issued by it and pledged under the Bond Indenture are determined to be unenforceable, then NMHC will issue its own bonds (the interest on which may not be exempt from federal income tax) in exchange for an amount of Bonds equal to the then Outstanding Bonds, principal amount for principal amount, having the same rates of interest, maturities, redemption provisions and prepayment provisions as are then applicable to the Series 2017A Bonds being exchanged. The bonds to be issued by NMHC will be issued under an indenture having substantially the same terms and provisions as the Bond Indenture, the Loan Agreement and the Master Indenture and such bonds of NMHC will be issued thereunder in exchange for an amount of bonds equal to the Series 2017A Bonds surrendered by the registered owners thereof. Notice of any such exchange shall be given as provided for redemption of the Series 2017A Bonds under the Bond Indenture and the expenses of such exchange, including the printing of the bonds and other reasonable expenses in connection therewith, shall be borne by NMHC.

FINANCIAL STATEMENTS

NMHC covenants in the Loan Agreement, that it will and will cause each Member of the Obligated Group to keep proper books of records and accounts in which full, true and correct entries will be made of all dealings or transactions of, or in relation to, its business and affairs in accordance with principles of accounting generally accepted in the United States of America consistently applied (except to the extent otherwise permitted pursuant to the Master Indenture); provided, however, that the method of recording entries in the books of records and accounts may be changed to reflect any changes in accounting principles generally accepted in the United States of America so long as any such change is reflected in the notes accompanying its financial statements for the year in which such change is made, and will furnish the materials and notices required to be delivered to the Master Trustee under the Master Indenture to the Authority and the Bond Trustee. The Bond Trustee shall have no duty to review or analyze such financial statements and shall hold such financial statements solely as a repository for the benefit of the Bondholders.

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The Bond Trustee shall not be deemed to have notice of any information contained therein or event of default which may be disclosed therein in any manner.

DISCHARGE OF ORDERS

NMHC covenants in the Loan Agreement to cause any order, writ or warrant of attachment, garnishment, execution, replevin or similar process filed against any part of the funds or accounts held by the Bond Trustee under the Bond Indenture to be discharged, vacated, bonded or stayed within 90 days after such filing (which 90-day period shall be extended for so long as NMHC is contesting such process in good faith), but, notwithstanding the foregoing, in any event not later than five days prior to any proposed execution or enforcement with respect to such filing or any transfer of moneys or investments pursuant to such filing.

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APPENDIX E

FORM OF OPINION OF BOND COUNSEL

[THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX E

FORM OF OPINION OF BOND COUNSEL

[Date of Issuance]

Illinois Finance Authority Northwestern Memorial HealthCare, Chicago, Illinois as Obligated Group Agent Chicago, Illinois

J.P. Morgan Securities LLC, Wells Fargo Bank, National Association, on its own behalf and as Representative as bond trustee New York, New York Chicago, Illinois

Re: $______Illinois Finance Authority Revenue Bonds, Series 2017A (Northwestern Memorial HealthCare) and $______Illinois Finance Authority Revenue Bonds, Series 2017B (Northwestern Memorial HealthCare)

Ladies and Gentlemen:

We have acted as bond counsel in connection with the issuance on the date hereof by the Illinois Finance Authority (the “Authority”) of (i) $______in aggregate principal amount of Illinois Finance Authority Revenue Bonds, Series 2017A (Northwestern Memorial HealthCare) (the “Series 2017A Bonds”) and (ii) $______in aggregate principal amount of Illinois Finance Authority Revenue Bonds, Series 2017B (Northwestern Memorial HealthCare) (the “Series 2017B Bonds” and, together with the Series 2017A Bonds, the “Bonds”). The Series 2017A Bonds are being issued pursuant to the provisions of the Illinois Finance Authority Act, as amended (the “Act”), and the Bond Trust Indenture dated as of December 1, 2017, relating to the Series 2017A Bonds (the “Series 2017A Bond Indenture”), between the Authority and Wells Fargo Bank, National Association, as bond trustee (the “Bond Trustee”). The Series 2017B Bonds are being issued pursuant to the Act and the Bond Trust Indenture dated as of December 1, 2017, relating to the Series 2017B Bonds (the “Series 2017B Bond Indenture” and, together with the Series 2017A Bond Indenture, the “Bond Indentures”), between the Authority and the Bond Trustee. The Bonds will be treated as a single issue for federal income tax purposes. Reference is made to the Bond Indentures for the definitions of certain capitalized terms not otherwise defined herein.

The proceeds of the Bonds will be loaned by the Authority to Northwestern Memorial HealthCare, an Illinois not for profit corporation (the “Borrower”), pursuant to a (i) Loan Agreement dated as of December 1, 2017 (the “Series 2017A Loan Agreement”) between the Authority and the Borrower, relating to the Series 2017A Bonds and (ii) Loan Agreement dated as of December 1, 2017 (the “Series 2017B Loan Agreement” and, together with the Series 2017A Loan Agreement, the “Loan

E-1 Agreements”) between the Authority and the Borrower, relating to the Series 2017B Bonds. Such loan will be evidenced by the (i) $______Direct Note Obligation, Series 2017A (Illinois Finance Authority) dated the date hereof (the “Series 2017A Obligation”) and (ii) $______Direct Note Obligation, Series 2017B (Illinois Finance Authority) dated the date hereof (the “Series 2017B Obligation” and, together with the Series 2017A Obligation, the “Series 2017 Obligations”), each issued by the Borrower pursuant to the Twenty-Eighth Supplemental Master Trust Indenture dated as of December 1, 2017 (the “Supplemental Master Indenture”) between the Borrower, on behalf of itself and as Obligated Group Agent on behalf of Northwestern Memorial Hospital, Northwestern Lake Forest Hospital (“NM LFH”), Northwestern Memorial Foundation, Lake Forest Health and Fitness Institute, Northwestern Medical Faculty Foundation d/b/a Northwestern Medical Group, CDH-Delnor Health System, Central DuPage Hospital Association d/b/a Northwestern Medicine Regional Medical Group, Delnor-Community Hospital, Central DuPage Physician Group d/b/a Northwestern Medicine Regional Medical Group, KishHealth System, Kishwaukee Community Hospital, Valley West Community Hospital, Kishwaukee Physician Group, Inc., Marianjoy Rehabilitation Hospital & Clinics, Inc., and Rehabilitation Medicine Clinic, Inc. (collectively with the Borrower, the “Members of the Obligated Group” and, individually, a “Member”), and Wells Fargo Bank, National Association, as master trustee (the “Master Trustee”), which supplements and amends that certain Amended and Restated Master Trust Indenture dated as of May 1, 2004 (as supplemented and amended, the “Original Master Indenture” and, together with the Supplemental Master Indenture, the “Master Indenture”) among the Members of the Obligated Group and the Master Trustee. The Members of the Obligated Group agree to be jointly and severally liable (subject to the Master Indenture’s provisions permitting a Member to leave the Obligated Group) on all Obligations issued under the Master Indenture, including the Series 2017 Obligations.

The proceeds of the Bonds will be used, together with certain other moneys, to (i) finance, refinance or reimburse all or a portion of the costs of planning, designing, acquiring, constructing, renovating, improving, expanding, completing and equipping certain health facilities owned by the Borrower and by NM LFH and certain other Members of the Obligated Group (collectively the “Users”), including, but not limited to, the construction and equipping of a replacement hospital facility to be owned and operated by NM LFH (collectively, the “Project”); (ii) advance refund all of the outstanding (a) Illinois Finance Authority Revenue Bonds, Series 2009A (Northwestern Memorial Hospital) (the “NMH Bonds”), (b) Illinois Finance Authority Revenue Bonds, Series 2009 (Central DuPage Health) (the “Series 2009 CDH Bonds”), and (c) Illinois Finance Authority Revenue Bonds, Series 2009B (Central DuPage Health) (the “Series 2009B CDH Bonds” and, together with the Series 2009 CDH Bonds, the “CDH Bonds”) (the NMH Bonds and the CDH Bonds are collectively referred to herein as the “Prior Bonds”); (iii) pay a portion of the Northwestern Memorial HealthCare Taxable Commercial Paper Notes, Series A (the “Taxable Notes”); and (iv) pay certain expenses incurred in connection with the refunding of the Prior Bonds, the payment of the Taxable Notes and the issuance of the Bonds, all as permitted under the Act.

The Bonds have been sold to J.P. Morgan Securities LLC (the “Representative”), on its own behalf and on behalf of Barclays Capital Inc., Wells Fargo Securities, Loop Capital Markets LLC and Cabrera Capital Markets LLC (collectively, the “Underwriters”), pursuant to a (i) Bond Purchase Agreement dated December __, 2017 (the “Series 2017A Purchase Contract”) among the Representative, on behalf of itself and the Underwriters, the Authority and the Borrower for itself and as Obligated Group Agent on behalf of the Members of the Obligated Group, relating to the Series 2017A Bonds and (ii) Bond Purchase Agreement dated December __, 2017 (the “Series 2017B Purchase Contract” and, together with the Series 2017A Purchase Contract, the “Purchase Contracts”) among the Representative, on behalf of itself and the Underwriters, the Authority and the Borrower for itself and as Obligated Group Agent on behalf of the Members of the Obligated Group, relating to the Series 2017B Bonds. In connection with the sale of the Bonds, the Borrower has executed and/or delivered a (i) Preliminary

E-2 Official Statement dated November 30, 2017 (the “Series 2017A Preliminary Official Statement”), relating to the Series 2017A Bonds, (ii) Official Statement dated December __, 2017 (the “Series 2017A Official Statement”), relating to the Series 2017A Bonds, (iii) Preliminary Official Statement dated November 30, 2017 (the “Series 2017B Preliminary Official Statement” and, together with the Series 2017A Preliminary Official Statement, the “Preliminary Official Statements”), relating to the Series 2017B Bonds and (iv) Official Statement dated December __, 2017 (the “Series 2017B Official Statement” and, together with the Series 2017A Official Statement, the “Official Statements”), relating to the Series 2017B Bonds.

In connection with the issuance of the Bonds, the Authority, the Bond Trustee, the Borrower and Users have executed a Tax Exemption Certificate and Agreement dated the date hereof (the “Tax Agreement”), which places certain restrictions on the investment of moneys held in the funds established by the Bond Indentures and which, under certain circumstances, would require the transfer of certain moneys held in such funds to a Rebate Fund created under the Tax Agreement.

As bond counsel, we have examined the following:

(a) certified copies of the proceedings of the Authority authorizing or approving, among other things, the execution and delivery of the Bond Indentures, the Loan Agreements, the Purchase Contracts and the Tax Agreement, the use and distribution of the Preliminary Official Statements and the Official Statements and the issuance and sale of the Bonds;

(b) the executed Official Statements, the executed Series 2017 Obligations, and executed counterparts of the Bond Indentures, the Loan Agreements, the Purchase Contracts, the Supplemental Master Indenture, the Use Agreement dated as of December 1, 2017 (the “Use Agreement”) among the Borrower and Users, and the Tax Agreement;

(d) executed opinions, each dated the date hereof, of Dentons US LLP, special counsel to the Members of the Obligated Group; the General Counsel for the Members of the Obligated Group, Nixon Peabody LLP, special counsel to the Underwriters; and Katten Muchin Rosenman LLP, special counsel to the Authority; and

(e) such other documents and showings and related matters of law as we have deemed necessary in order to enable us to render this opinion.

Based upon the foregoing and in reliance upon the matters hereinafter referred to, we are of the opinion that:

1. The Bond Indentures, the Loan Agreements, the Purchase Contracts and the Tax Agreement have been duly authorized by all necessary action on the part of the Authority, have been duly executed and delivered by authorized officers of the Authority, and, assuming the due authorization, execution and delivery thereof by the other parties thereto, constitute the legal, valid and binding obligations of the Authority enforceable against the Authority in accordance with their respective terms, except to the extent limited by bankruptcy, reorganization or other similar laws affecting creditors’ rights generally and by the availability of equitable remedies, and except to the extent that the enforcement of the indemnification provisions of the Loan Agreements and the Purchase Contracts may be limited by federal or state securities laws.

E-3 2. The Bonds have been duly authorized by all necessary action on the part of the Authority, have been duly executed by authorized officers of the Authority, authenticated by the Bond Trustee and issued by the Authority and constitute the legal, valid and binding limited obligations of the Authority enforceable in accordance with their terms, except to the extent limited by bankruptcy, reorganization or other similar laws affecting the enforcement of creditors’ rights generally and by the availability of equitable remedies, and the Bonds are entitled to the benefits and security of the Bond Indentures.

3. It is our opinion that, subject to compliance by the Authority, the Borrower and the Users with certain covenants, under present law, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Internal Revenue Code of 1986, as amended (the “Code”), but we express no opinion as to whether interest on the Bonds is taken into account in computing adjusted current earnings, which is used in determining the federal alternative minimum tax for certain corporations. Failure to comply with certain of such Authority, Borrower and User covenants could cause the interest on the Bonds to be includible in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. Ownership of the Bonds may result in other federal tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Bonds. Interest on the Bonds is not exempt from present Illinois income taxation. Ownership of the Bonds may result in other state and local tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Bonds.

4. The Bond Indentures create valid assignments to the Bond Trustee of the rights of the Authority in and to the Loan Agreements (with certain limited exceptions referred to in the Bond Indentures) and a valid pledge and assignment to the Bond Trustee of the Series 2017 Obligations as security for the Bonds.

In rendering this opinion, we have relied upon the opinions of the General Counsel for the Members of the Obligated Group and Dentons US LLP, special counsel to the Members of the Obligated Group, each referred to in paragraph (d) above, with respect to, among other things, (i) the status of the Members of the Obligated Group as organizations described in Section 501(c)(3) of the Code that are exempt from federal income taxation under Section 501(a) of the Code, and (ii) the validity and binding effect upon and enforceability against the Members of the Obligated Group of the Master Indenture, the Loan Agreements, the Purchase Contracts, the Series 2017 Obligations, the Use Agreement and the Tax Agreement, subject to the exceptions set forth in said opinions.

In rendering the opinions in paragraph 3 hereof, we have relied upon certificates of the Borrower and the Users with respect to certain material facts within their knowledge relating to the property financed and refinanced with the proceeds of the Bonds and the Prior Bonds and the application of the proceeds of the Bonds and the Prior Bonds. In rendering such opinions, we have also relied upon certifications of the Authority with respect to certain material facts within the knowledge of the Authority and on the mathematical computation of the yield on the Bonds and the yield on certain investments by Causey Demgen & Moore P.C., certified public accountants, with respect to the advance refunding of the Prior Bonds.

We express no opinion herein as to the accuracy, adequacy or completeness of the Official Statements relating to the Bonds.

E-4 Our opinion represents our legal judgment based upon our review of the law and the facts that we deem relevant to render such opinion, and is not a guarantee of a result. This opinion is given as of the date hereof and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.

Respectfully submitted,

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APPENDIX F

FORM OF DISCLOSURE DISSEMINATION AGREEMENT

4830-8822-8944.9

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DISCLOSURE DISSEMINATION AGENT AGREEMENT

This Disclosure Dissemination Agent Agreement (the “Disclosure Agreement”), dated as of December 19, 2017, is executed and delivered by Northwestern Memorial HealthCare (“NMHC” or the “Obligated Group Agent”), on its behalf and as Obligated Group Agent on behalf of each Member of the Obligated Group created under the Master Trust Indenture (hereinafter defined) and Digital Assurance Certification, L.L.C., as exclusive Disclosure Dissemination Agent (the “Disclosure Dissemination Agent” or “DAC”) for the benefit of the Holders (hereinafter defined) of the Bonds (hereinafter defined) and in order to provide certain continuing disclosure with respect to the Bonds in accordance with Rule 15c2-12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (the “Rule”).

The services provided under this Disclosure Agreement solely relate to the execution of instructions received from the Corporation through use of the DAC system and do not constitute “advice” within the meaning of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). DAC will not provide any advice or recommendation to the Corporation, or anyone on behalf of the Corporation, regarding the “issuance of municipal securities” or any “municipal financial product” as defined in the Act and nothing in this Disclosure Agreement shall be interpreted to the contrary.

SECTION 1. DefinitionsCapitalized terms not otherwise defined in this Disclosure Agreement shall have the meaning assigned in the Rule or, to the extent not in conflict with the Rule, in the Official Statement (hereinafter defined). The capitalized terms shall have the following meanings:

“Annual Report” means an Annual Report described in and consistent with Section 3 of this Disclosure Agreement.

“Annual Filing Date” means the date, set in Sections 2(a) and 2(f), by which the Annual Report is to be filed with the MSRB.

“Annual Financial Information” means annual financial information as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(a) of this Disclosure Agreement.

“Audited Financial Statements” means the financial statements (if any) of Northwestern Memorial HealthCare and Subsidiaries or other audited financial statements including the Obligated Group, for the prior fiscal year, including consolidating schedules showing the statement of financial position, statement of activities and statement of cash flows of the Obligated Group, based upon whether the Obligated Group Agent has elected under Section 411 of the Master Indenture to determine compliance with its financial covenants and ratios based upon the audited financial statements of the System or the Obligated Group, for the immediately preceding fiscal year, certified by an independent auditor as prepared in accordance with Generally Accepted Accounting Principles or otherwise, as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(b) of this Disclosure Agreement.

“Bonds” means the bonds as listed on the attached Exhibit A, with the 9-digit CUSIP numbers relating thereto.

“Certification” means a written certification of compliance signed by the Disclosure Representative stating that the Annual Report, Quarterly Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure delivered to the Disclosure Dissemination Agent is the Annual Report, Quarterly Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure required to be submitted to the MSRB under this Disclosure Agreement.

F-1 4830-8822-8944.9

A Certification shall accompany each such document submitted to the Disclosure Dissemination Agent by the Disclosure Representative and include the full name of the Bonds and the 9-digit CUSIP numbers for all Bonds to which the document applies.

“Disclosure Representative” means the President, Chief Financial Officer and Senior Vice President and Treasurer of NMHC or his or her designee, acting as Obligated Group Agent, or such other person as NMHC shall designate in writing to the Disclosure Dissemination Agent from time to time as the person responsible for providing Information to the Disclosure Dissemination Agent.

“Disclosure Dissemination Agent” means Digital Assurance Certification, L.L.C, acting in its capacity as Disclosure Dissemination Agent hereunder, or any successor Disclosure Dissemination Agent designated in writing by the Obligated Group pursuant to Section 9 hereof.

“Failure to File Event” means the Corporation’s failure to file an Annual Report on or before the Annual Filing Date or a failure to file a Quarterly Report on or before the Quarterly Filing Date.

“Force Majeure Event” means: (i) acts of God, war, or terrorist action; (ii) failure or shut-down of the Electronic Municipal Market Access system maintained by the MSRB; or (iii) to the extent beyond the Disclosure Dissemination Agent’s reasonable control, interruptions in telecommunications or utilities services, failure, malfunction or error of any telecommunications, computer or other electrical, mechanical or technological application, service or system, computer virus, interruptions in Internet service or telephone service (including due to a virus, electrical delivery problem or similar occurrence) that affect Internet users generally, or in the local area in which the Disclosure Dissemination Agent or the MSRB is located, or acts of any government, regulatory or any other competent authority the effect of which is to prohibit the Disclosure Dissemination Agent from performance of its obligations under this Disclosure Agreement.

“Generally Accepted Accounting Principles” has the meaning ascribed to such term in the Master Indenture.

“Holder(s)” means any person(s) (a) having the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries) or (b) treated as the owner of any Bonds for federal income tax purposes.

“Information” means, collectively, the Annual Reports, the Quarterly Reports, the Audited Financial Statements (if any), the Notice Event notices, the Failure to File Event notices, the Voluntary Event Disclosures and the Voluntary Financial Disclosures.

“Issuer” means the Illinois Finance Authority.

“Master Indenture” means the Second Amended and Restated Master Trust Indenture dated as of December 1, 2017, as previously supplemented and amended by the Amended and Restated Master Trust Indenture dated as of May 1, 2004, as supplemented and amended from time to time, among the Obligated Group Members and Wells Fargo Bank, N.A., as master trustee.

“MSRB” means the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934.

“Notice Event” means any of the events enumerated in paragraph (b)(5)(i)(C) of the Rule and listed in Section 4(a) of this Disclosure Agreement.

F-2 4830-8822-8944.9

“Official Statement” means that Official Statement prepared by the Obligated Group in connection with the issuance of the Bonds, as listed on Appendix A.

“Quarterly Report” means a Quarterly Report described in and consistent with Section 2Q of this Disclosure Agreement.

“Quarterly Filing Date” means the date, set in Section 2Q(a), by which the Quarterly Report is to be filed with the MSRB.

“Trustee” means the institution identified as such in the document under which the Bonds were issued.

“Voluntary Event Disclosure” means information of the category specified in any of subsections (e)(vi)(1) through (e)(vi)(11) of Section 2 of this Disclosure Agreement that is accompanied by a Certification of the Disclosure Representative containing the information prescribed by Section 7(a) of this Disclosure Agreement.

“Voluntary Financial Disclosure” means information of the category specified in any of subsections (e)(vii)(1) through (e)(vii)(9) of Section 2 of this Disclosure Agreement that is accompanied by a Certification of the Disclosure Representative containing the information prescribed by Section 7(b) of this Disclosure Agreement.

SECTION 2. Provision of Annual Reports

(a) The Obligated Group, or the Disclosure Representative on behalf of the Obligated Group, shall provide, annually, an electronic copy of the Annual Report and Certification to the Disclosure Dissemination Agent, together with a copy for the Trustee, not later than four (4) days prior to the Annual Filing Date. Promptly upon receipt of an electronic copy of the Annual Report and the Certification, the Disclosure Dissemination Agent shall provide an Annual Report to the MSRB not later than 150 days after the end of each fiscal year of the Corporation, commencing with the fiscal year ending August 31, 2018. Such date and each anniversary thereof is the “Annual Filing Date.” 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 3 of this Disclosure Agreement.

(b) If on the tenth (10th) day prior to the Annual Filing Date, the Disclosure Dissemination Agent has not received a copy of the Annual Report and Certification, the Disclosure Dissemination Agent shall contact the Disclosure Representative by telephone and in writing (which may be by e-mail) to remind the Obligated Group of its undertaking to provide the Annual Report pursuant to Section 2(a). Upon such reminder, the Disclosure Representative shall either (i) provide the Disclosure Dissemination Agent with an electronic copy of the Annual Report and the Certification no later than one business day prior to the Annual Filing Date, or (ii) instruct the Disclosure Dissemination Agent in writing that the Obligated Group will not be able to file the Annual Report within the time required under this Disclosure Agreement, state the date by which the Annual Report for such year will be provided and instruct the Disclosure Dissemination Agent that a Failure to File Event has occurred and to immediately send a notice to the MSRB in substantially the form attached as Exhibit B, which may be accompanied by a cover sheet in the form attached as Exhibit C-1.

(c) If the Disclosure Dissemination Agent has not received an Annual Report and Certification by 6:00 p.m. Eastern time on the Annual Filing Date (or, if such Annual Filing Date falls on a Saturday, Sunday or holiday, then the first business day thereafter) for the Annual Report, a Failure to File Event shall have occurred and the Disclosure Representative irrevocably directs the Disclosure

F-3 4830-8822-8944.9

Dissemination Agent to immediately send a notice to the MSRB in substantially the form attached as Exhibit B without reference to the anticipated filing date for the Annual Report, which may be accompanied by a cover sheet in the form attached as Exhibit C-1.

(d) If Audited Financial Statements are prepared but not available prior to the Annual Filing Date, the Disclosure Representative shall, when the Audited Financial Statements are available, provide in a timely manner an electronic copy to the Disclosure Dissemination Agent, accompanied by a Certification, together with a copy for the Trustee, for filing with the MSRB.

(e) The Disclosure Dissemination Agent shall:

(i) verify the filing specifications of the MSRB each year prior to the Annual Filing Date;

(ii) upon receipt, promptly file each Annual Report and Operating Data received under Sections 2(a) and 2(b) with the MSRB;

(iii) upon receipt, promptly file each of the Audited Financial Statements and Operating Data received under Section 2(d) with the MSRB;

(iv) upon receipt, promptly file the text of each Notice Event received under Sections 4(a) and 4(b)(ii) with the MSRB, identifying the Notice Event as instructed by the Corporation pursuant to Section 4(a) or 4(b)(ii) (being any of the categories set forth below) when filing pursuant to Section 4(c) of this Disclosure Agreement:

1. “Principal and interest payment delinquencies;”

2. “Non-Payment related defaults, if material;”

3. “Unscheduled draws on debt service reserves reflecting financial difficulties;”

4. “Unscheduled draws on credit enhancements reflecting financial difficulties;”

5. “Substitution of credit or liquidity providers, or their failure to perform;”

6. “Adverse tax opinions, IRS notices or events affecting the tax status of the security;”

7. “Modifications to rights of securities holders, if material;”

8. “Bond calls, if material;”

9. “Defeasances;”

10. “Release, substitution, or sale of property securing repayment of the securities, if material;”

11. “Rating changes;”

F-4 4830-8822-8944.9

12. “Tender offers;”

13. “Bankruptcy, insolvency, receivership or similar event of an Obligated Person;”

14. “Merger, consolidation, or acquisition of an Obligated Person, if material;” and

15. “Appointment of a successor or additional trustee, or the change of name of a trustee, if material;”

(v) upon receipt (or irrevocable direction pursuant to Section 2(c) of this Disclosure Agreement, as applicable), promptly file a completed copy of Exhibit B to this Disclosure Agreement with the MSRB, identifying the filing as “Failure to provide annual financial information as required” when filing pursuant to Section 2(b)(ii) or Section 2(c) of this Disclosure Agreement;

(vi) upon receipt, promptly file the text of each Voluntary Event Disclosure received under Section 7(a) with the MSRB, identifying the Voluntary Event Disclosure as instructed by the Corporation pursuant to Section 7(a) (being any of the categories set forth below) when filing pursuant to Section 7(a) of this Disclosure Agreement:

1. “Amendment to continuing disclosure undertaking;”

2. “Change in Obligated Person;”

3. “Notice to investors pursuant to bond documents;”

4. “Certain communications from the Internal Revenue Service;”

5. “Secondary market purchases;”

6. “Change of tender agent, remarketing agent, or other on-going party;” and

7. “Derivative or other similar transaction;”

(vii) upon receipt, promptly file the text of each Voluntary Financial Disclosure received under Section 7(b) with the MSRB, identifying the Voluntary Financial Disclosure as instructed by the Corporation pursuant to Section 7(b) (being any of the categories set forth below) when filing pursuant to Section 7(b) of this Disclosure Agreement:

1. “Quarterly/monthly interim unaudited financial information;”

2. “Change in fiscal year/timing of annual disclosure;”

3. “Change in accounting standard;”

4. “Interim/additional financial information/operating data;”

5. “Investment/debt/financial policy;”

F-5 4830-8822-8944.9

6. “Information provided to rating agency, credit/liquidity provider or other third party;”

7. “Consultant reports;” and

8. “Other financial/operating data;”

(viii) upon receipt (or irrevocable direction pursuant to Section 2Q(c) of this Disclosure Agreement, as applicable), promptly file a completed copy of Exhibit D to this Disclosure Agreement with the MSRB, identifying the filing as “Failure to provide quarterly report as required” when filing pursuant to Section 2(b)(ii) or Section 2(c) of this Disclosure Agreement; and

(ix) provide the Obligated Group evidence of the filings of each of the above when made, which shall be by means of the DAC system, for so long as DAC is the Disclosure Dissemination Agent under this Disclosure Agreement.

(f) The Obligated Group may adjust the Annual Filing Date upon change of NMHC’s fiscal year by providing written notice of such change and the new Annual Filing Date to the Disclosure Dissemination Agent, Trustee (if any) and the MSRB, provided that the period between the existing Annual Filing Date and new Annual Filing Date shall not exceed one year.

(g) Any Information received by the Disclosure Dissemination Agent before 6:00 p.m. Eastern time on any business day that it is required to file with the MSRB pursuant to the terms of this Disclosure Agreement and that is accompanied by a Certification and all other information required by the terms of this Disclosure Agreement will be filed by the Disclosure Dissemination Agent with the MSRB no later than 11:59 p.m. Eastern time on the same business day; provided, however, the Disclosure Dissemination Agent shall have no liability for any delay in filing with the MSRB if such delay is caused by a Force Majeure Event provided that the Disclosure Dissemination Agent uses reasonable efforts to make any such filing as soon as possible.

SECTION 2Q. Provision of Quarterly Reports

(a) The Obligated Group Agent, or the Disclosure Representative on behalf of the Obligated Group, shall provide, for the applicable fiscal quarter, an electronic copy of the Quarterly Report and Certification to the Disclosure Dissemination Agent, together with a copy for the Trustee, not later than the Quarterly Filing Date. Promptly upon receipt of an electronic copy of the Quarterly Report and the Certification, the Disclosure Dissemination Agent shall provide a Quarterly Report to the MSRB not later than 60 days after the end of each of the first three fiscal quarters of each fiscal year (commencing with the quarter ending February 28, 2018) and for the fourth fiscal quarter not less than 75 days after the end of such fiscal quarter of each fiscal year. Each January 31, April 30, July 31 and November 15 is a Quarterly Filing Date. The Quarterly 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 3Q of this Disclosure Agreement.

(b) If on the fourth (4th) day prior to the Quarterly Filing Date, the Disclosure Dissemination Agent has not received a copy of the Quarterly Report and Certification, the Disclosure Dissemination Agent shall contact the Disclosure Representative by telephone and in writing (which may be by e-mail) to remind the Obligated Group of its undertaking to provide the Quarterly Report pursuant to Section 2Q(a). Upon such reminder, the Disclosure Representative shall either (i) provide the Disclosure Dissemination Agent with an electronic copy of the Quarterly Report and the Certification no later than

F-6 4830-8822-8944.9

one business day prior to the Quarterly Filing Date, or (ii) instruct the Disclosure Dissemination Agent in writing that the Obligated Group will not be able to file the Quarterly Report within the time required under this Disclosure Agreement, state the date by which the Quarterly Report for such quarter will be provided and instruct the Disclosure Dissemination Agent that a Failure to File Event has occurred and to immediately send a notice to the MSRB in substantially the form attached as Exhibit B, which may be accompanied by a cover sheet in the form attached as Exhibit C-1.

(c) If the Disclosure Dissemination Agent has not received a Quarterly Report and Certification by 6:00 p.m. Eastern on the Quarterly Filing Date (or, if such Quarterly Filing Date falls on a Saturday, Sunday or holiday, then the first business day thereafter) for the Quarterly Report, a Failure to File Event shall have occurred the Disclosure Representative irrevocably direct the Disclosure Dissemination Agent to immediately send a notice to the MSRB in substantially the form attached as Exhibit D without reference to the anticipated filing date for the Quarterly Report, which may be accompanied by a cover sheet in the form attached as Exhibit C-1.

SECTION 3. Content of Annual Reports

(a) Each Annual Report shall contain Annual Financial Information with respect to the Obligated Group or of Northwestern Memorial HealthCare and Subsidiaries, including the following information in substantially the form provided in Appendix A to the Official Statement. Unless otherwise noted herein, financial information will include the financial information of Northwestern Memorial HealthCare and Subsidiaries, or another group of which the Obligated Group is a part. Unless otherwise noted herein, operational information is limited to the operations of the Obligated Group.

(i) Updated table provided under the heading “HISTORICAL UTILIZATION OF SERVICES”;

(ii) Updated table provided under the heading “SUMMARY OF FINANCIAL RESULTS – Debt Service Coverage”;

(iii) Updated table provided under the heading “SUMMARY OF FINANCIAL RESULTS – Capitalization”; and

(iv) Updated table provided under the heading “SUMMARY OF FINANCIAL RESULTS – Sources of Revenue.”

Such information shall not include any interim or pro forma data.

(b) Audited Financial Statements prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) will be included in the Annual Report. If audited financial statements are not available, then, unaudited financial statements, prepared in accordance with GAAP will be included in the Annual Report. Audited Financial Statements (if any) will be provided pursuant to Section 2(d).

Any or all of the items listed above may be included by specific reference from other documents, including Official Statements or official statements of debt issues with respect to which any Obligated Group Member is an “Obligated Person” (as defined by the Rule), which have been previously filed with the Securities and Exchange Commission or available on the MSRB Internet Website. If the document incorporated by reference is a final Official Statement, it must be available from the MSRB. The Obligated Group will clearly identify each such document so incorporated by reference.

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Any Annual Financial Information containing modified operating data or financial information is required to explain, in narrative form, the reasons for the modification and the impact of the change in the type of operating data or financial information being provided.

SECTION 3A. Content of Quarterly Reports Each Quarterly Report shall contain such information as the Obligated Group shall have agreed to provide, including the following information: certain unaudited financial information consisting of a consolidating balance sheet, a consolidating statement of operations and a statement of cash flows of the Obligated Group.

Any or all of the items listed above may be included by specific reference from other documents, including Official Statements of debt issues with respect to which the Obligated Group are “Obligated Persons” (as defined by the Rule), which have been previously filed with the Securities and Exchange Commission or available on the MSRB Internet Website. If the document incorporated by reference is a final Official Statement, it must be available from the MSRB. The Disclosure Representative will clearly identify each such document so incorporated by reference.

Any quarterly financial information containing modified operating data or financial information is required to explain, in narrative form, the reasons for the modification and the impact of the change in the type of operating data or financial information being provided.

SECTION 4. Reporting of Notice Events

(a) The occurrence of any of the following events with respect to the Bonds constitutes a Notice Event:

(i) Principal and interest payment delinquencies;

(ii) Non-payment related defaults, if material;

(iii) Unscheduled draws on debt service reserves reflecting financial difficulties;

(iv) Unscheduled draws on credit enhancements reflecting financial difficulties;

(v) Substitution of credit or liquidity providers, or their failure to perform;

(vi) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds;

(vii) Modifications to rights of Bond holders, if material;

(viii) Bond calls, if material, and tender offers;

(ix) Defeasances;

(x) Release, substitution, or sale of property securing repayment of the Bonds, if material;

(xi) Rating changes;

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(xii) Bankruptcy, insolvency, receivership or similar event of an Obligated Person. For the purposes of the events described in this subsection (a)(xii), an event is considered to have occurred when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an Obligated Group Member in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Obligated Group Member, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Obligated Group Member;

(xiii) The consummation of a merger, consolidation, or acquisition involving an Obligated Group Member or the sale of all or substantially all of the assets of the Obligated Group Member, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and

(xiv) Appointment of a successor or additional trustee or the change of name of a trustee, if material.

The Disclosure Representative shall, in a timely manner not in excess of ten business days after its occurrence, notify the Disclosure Dissemination Agent in writing of the occurrence of a Notice Event. Such notice shall instruct the Disclosure Dissemination Agent to report the occurrence pursuant to subsection (c) and shall be accompanied by a Certification. Such notice or Certification shall identify the Notice Event that has occurred (which shall be any of the categories set forth in Section 2(e)(iv) of this Disclosure Agreement), include the text of the disclosure that the Disclosure Representative, on behalf of the Obligated Group, desires to make, contain the written authorization of the Obligated Group for the Disclosure Dissemination Agent to disseminate such information, and identify the date the Disclosure Representative desires for the Disclosure Dissemination Agent to disseminate the information (provided that such date is not later than the tenth business day after the occurrence of the Notice Event).

(b) The Disclosure Dissemination Agent is under no obligation to notify the Obligated Group or the Disclosure Representative of an event that may constitute a Notice Event. In the event the Disclosure Dissemination Agent so notifies the Disclosure Representative, the Disclosure Representative will (not later than the tenth business day after the occurrence of the Notice Event, if the Obligated Group determine that a Notice Event has occurred), instruct the Disclosure Dissemination Agent that (i) a Notice Event has not occurred and no filing is to be made or (ii) a Notice Event has occurred and the Disclosure Dissemination Agent is to report the occurrence pursuant to subsection (c) of this Section 4, together with a Certification. Such Certification shall identify the Notice Event that has occurred (which shall be any of the categories set forth in Section 2(e)(iv) of this Disclosure Agreement), include the text of the disclosure that the Disclosure Representative, on behalf of the Obligated Group desire to make, contain the written authorization of the Disclosure Representative for the Disclosure Dissemination Agent to disseminate such information, and identify the date the Disclosure Representative desires for the Disclosure Dissemination Agent to disseminate the information (provided that such date is not later than the tenth business day after the occurrence of the Notice Event).

(c) If the Disclosure Dissemination Agent has been instructed by the Disclosure Representative as prescribed in subsection (a) or (b)(ii) of this Section 4 to report the occurrence of a Notice Event, the Disclosure Dissemination Agent shall promptly file a notice of such occurrence with

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MSRB in accordance with Section 2 (e)(iv) hereof. This notice may be filed with a cover sheet in the form attached as Exhibit C-1.

SECTION 5. CUSIP Numbers Whenever providing information to the Disclosure Dissemination Agent, including but not limited to Annual Reports, documents incorporated by reference to the Annual Reports, Quarterly Reports, Audited Financial Statements, Notice Event notices, Failure to File Event notices, Voluntary Event Disclosures and Voluntary Financial Disclosures, the Disclosure Representative shall indicate the full name of the Bonds and the 9-digit CUSIP numbers for the Bonds as to which the provided information relates.

SECTION 6. Additional Disclosure Obligations The Disclosure Representative, on behalf of the Obligated Group, acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, may apply to the Obligated Group, and that the duties and responsibilities of the Disclosure Dissemination Agent under this Disclosure Agreement do not extend to providing legal advice regarding such laws. The Disclosure Representative, on behalf the Obligated Group, acknowledges and understands that the duties of the Disclosure Dissemination Agent relate exclusively to execution of the mechanical tasks of disseminating information as described in this Disclosure Agreement.

SECTION 7. Voluntary Filing

(a) The Disclosure Representative may instruct the Disclosure Dissemination Agent to file a Voluntary Event Disclosure with the MSRB from time to time pursuant to a Certification of the Disclosure Representative. Such Certification shall identify the Voluntary Event Disclosure (which shall be any of the categories set forth in Section 2(e)(vi) of this Disclosure Agreement), include the text of the disclosure that the Disclosure Representative desires to make, contain the written authorization of the Obligated Group for the Disclosure Dissemination Agent to disseminate such information, and identify the date the Disclosure Representative desires for the Disclosure Dissemination Agent to disseminate the information. If the Disclosure Dissemination Agent has been instructed by the Disclosure Representative as prescribed in this Section 7(a) to file a Voluntary Event Disclosure, the Disclosure Dissemination Agent shall promptly file such Voluntary Event Disclosure with the MSRB in accordance with Section 2(e)(vi) hereof. This notice may be filed with a cover sheet in the form attached as Exhibit C-2.

(b) The Obligated Group may instruct the Disclosure Dissemination Agent to file a Voluntary Financial Disclosure with the MSRB from time to time pursuant to a Certification of the Disclosure Representative. Such Certification shall identify the Voluntary Financial Disclosure (which shall be any of the categories set forth in Section 2(e)(vii) of this Disclosure Agreement), include the text of the disclosure that the Disclosure Representative desires to make, contain the written authorization of the Obligated Group for the Disclosure Dissemination Agent to disseminate such information, and identify the date the Disclosure Representative desires for the Disclosure Dissemination Agent to disseminate the information. If the Disclosure Dissemination Agent has been instructed by the Disclosure Representative as prescribed in this Section 7(b) to file a Voluntary Financial Disclosure, the Disclosure Dissemination Agent shall promptly file such Voluntary Financial Disclosure with the MSRB in accordance with Section 2(e)(vii) hereof. This notice may be filed with a cover sheet in the form attached as Exhibit C-2.

(c) The parties hereto acknowledge that the Obligated Group is not obligated pursuant to the terms of this Disclosure Agreement to file any Voluntary Event Disclosure pursuant to Section 7(a) hereof or any Voluntary Financial Disclosure pursuant to Section 7(b) hereof.

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(d) Nothing in this Disclosure Agreement shall be deemed to prevent the Obligated Group from disseminating any other information through the Disclosure Dissemination Agent using the means of dissemination set forth in this Disclosure Agreement or including any other information in any Annual Report, Quarterly Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure, in addition to that required by this Disclosure Agreement. If the Obligated Group choose to include any information in any Annual Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure in addition to that which is specifically required by this Disclosure Agreement, the Obligated Group shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure.

SECTION 8. Termination of Reporting Obligation The obligations of the Obligated Group and the Disclosure Dissemination Agent under this Disclosure Agreement shall terminate with respect to an issue of the Bonds upon the legal defeasance, prior redemption or payment in full of all of the Bonds of such issue, when the Obligated Group is no longer an Corporation with respect to the Bonds, or upon delivery by the Disclosure Representative to the Disclosure Dissemination Agent of an opinion of counsel expert in federal securities laws to the effect that continuing disclosure is no longer required.

SECTION 9. Disclosure Dissemination Agent The Obligated Group has appointed Digital Assurance Certification, L.L.C. as exclusive Disclosure Dissemination Agent under this Disclosure Agreement. The Obligated Group may, upon 30 days written notice from the Dissemination Agent to the Disclosure Dissemination Agent and the Trustee, replace or appoint a successor to the Disclosure Dissemination Agent. Upon termination of DAC’s services as Disclosure Dissemination Agent, whether by notice of the Dissemination Agent or DAC, the Corporation, on behalf of the Obligated Group, agrees to appoint a successor Disclosure Dissemination Agent or, alternately, agrees to assume all responsibilities of Disclosure Dissemination Agent under this Disclosure Agreement for the benefit of the Holders of the Bonds. Notwithstanding any replacement or appointment of a successor, the Obligated Group shall remain liable until payment in full for any and all sums owed and payable to the Disclosure Dissemination Agent. The Disclosure Dissemination Agent may resign at any time by providing thirty days’ prior written notice to the Dissemination Agent.

SECTION 10. Remedies in Event of Default In the event of a failure of the Obligated Group or the Disclosure Dissemination Agent to comply with any provision of this Disclosure Agreement, the Holders’ rights to enforce the provisions of this Agreement shall be limited solely to a right, by action in mandamus or for specific performance, to compel performance of the parties’ obligation under this Disclosure Agreement. Any failure by a party to perform in accordance with this Disclosure Agreement shall not constitute a default on the Bonds or under any other document relating to the Bonds, and all rights and remedies shall be limited to those expressly stated herein.

SECTION 11. Duties, Immunities and Liabilities of Disclosure Dissemination Agent

(a) The Disclosure Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement. The Disclosure Dissemination Agent’s obligation to deliver the information at the times and with the contents described herein shall be limited to the extent the Corporation, on behalf of the Obligated Group has provided such information to the Disclosure Dissemination Agent as required by this Disclosure Agreement. The Disclosure Dissemination Agent shall have no duty with respect to the content of any disclosures or notice made pursuant to the terms hereof. The Disclosure Dissemination Agent shall have no duty or obligation to review or verify any

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Information, or any other information, disclosures or notices provided to it by the Corporation and shall not be deemed to be acting in any fiduciary capacity for the Obligated Group, the Holders of the Bonds or any other party. The Disclosure Dissemination Agent shall have no responsibility for the Obligated Group’s failure to report to the Disclosure Dissemination Agent a Notice Event or a duty to determine the materiality thereof. The Disclosure Dissemination Agent shall have no duty to determine or liability for failing to determine whether the Obligated Group has complied with this Disclosure Agreement. The Disclosure Dissemination Agent may conclusively rely upon Certifications of the Obligated Group at all times.

THE OBLIGATED GROUP AGREES TO INDEMNIFY AND SAVE THE DISCLOSURE DISSEMINATION AGENT AND ITS RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS, HARMLESS AGAINST ANY LOSS, EXPENSE AND LIABILITIES WHICH THEY MAY INCUR ARISING OUT OF OR IN THE EXERCISE OR PERFORMANCE OF THEIR 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 DISCLOSURE DISSEMINATION AGENT’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

The obligations of the Obligated Group under this Section shall survive resignation or removal of the Disclosure Dissemination Agent and defeasance, redemption or payment of the Bonds.

(b) The Disclosure Dissemination Agent may, from time to time, consult with legal counsel (either in-house or external) of its own choosing in the event of any disagreement or controversy, or question or doubt as to the construction of any of the provisions hereof or its respective duties hereunder, and shall not incur any liability and shall be fully protected in acting in good faith upon the advice of such legal counsel. The reasonable fees and expenses of such counsel shall be payable by the Obligated Group.

(c) All documents, reports, notices, statements, information and other materials provided to the MSRB under this Agreement shall be provided in an electronic format and accompanied by identifying information as prescribed by the MSRB.

SECTION 12. Amendment; Waiver Notwithstanding any other provision of this Continuing Disclosure Agreement, the Obligated Group and the Disclosure Dissemination Agent may amend this Disclosure Agreement and any provision of this Disclosure Agreement may be waived, if such amendment or waiver is supported by (i) an opinion of counsel expert in federal securities laws acceptable to both the Obligated Group and the Disclosure Dissemination Agent to the effect that such amendment or waiver would not, in and of itself, cause the undertakings in this Disclosure Agreement to violate the Rule if such amendment or waiver had been effective as of the date of this Disclosure Agreement but taking into account any subsequent change in or official interpretation of the Rule and (ii) an opinion of counsel expert in federal securities laws or a certification from the underwriter or an independent financial advisor expert in tax-exempt healthcare finance, in either case acceptable to both the Obligated Group and the Disclosure Dissemination Agent, to the effect that such amendment or waiver does not materially impair the interests of the holders of the Bonds; provided neither the Obligated Group nor the Disclosure Dissemination Agent shall be obligated to agree to any amendment modifying their respective duties or obligations without their consent to such modification.

Notwithstanding the preceding paragraph, the Disclosure Dissemination Agent shall have the right to adopt amendments to this Disclosure Agreement necessary to comply with modifications to and interpretations of the provisions of the Rule as announced by the Securities and Exchange Commission from time to time by giving not less than 20 days written notice of the intent to do so together with a copy

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of the proposed amendment to the Dissemination Agent, on behalf of the Obligated Group. No such amendment shall become effective if the Dissemination Agent, on behalf of the Obligated Group shall, within 10 days following the giving of such notice, send a notice to the Disclosure Dissemination Agent in writing that they object to such amendment.

SECTION 13. Beneficiaries This Disclosure Agreement shall inure solely to the benefit of the Obligated Group, the Trustee of the Bonds, the Disclosure Dissemination Agent, the underwriter, and the Holders from time to time of the Bonds, and shall create no rights in any other person or entity.

SECTION 14. Governing Law This Disclosure Agreement shall be governed by the laws of the State of Illinois (other than with respect to conflicts of laws).

SECTION 15. Counterparts This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

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The Disclosure Dissemination Agent and the Obligated Group have caused this Continuing Disclosure Agreement to be executed, on the date first written above, by their respective officers duly authorized.

DIGITAL ASSURANCE CERTIFICATION, L.L.C., as Disclosure Dissemination Agent

By: Name: Title:

NORTHWESTERN MEMORIAL HEALTHCARE, as Obligated Group Agent

By: Name: Title:

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EXHIBIT A

NAME AND CUSIP NUMBERS OF BONDS

Name of Issuer: Illinois Finance Authority

Corporation(s): Northwestern Memorial HealthCare and the Members of the Obligated Group

Name of Bond Issue: Illinois Finance Authority Revenue Bonds, Series 2017A (Northwestern Memorial HealthCare)

Date of Issuance: December __, 2017

Date of Official Statement: December __, 2017

Maturity (July 15) CUSIP

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EXHIBIT B

NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Illinois Finance Authority

Corporation(s): Northwestern Memorial HealthCare and the Members of the Obligated Group

Name of Bond Issue: Illinois Finance Authority Revenue Bonds, Series 2017A (Northwestern Memorial HealthCare)

Date of Issuance: December __, 2017

Date of Official Statement: December __, 2017

CUSIP Numbers:

NOTICE IS HEREBY GIVEN that the Corporation(s) have not provided an Annual Report with respect to the above named Bonds as required by the Disclosure Agreement between the Corporation and Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent. [The Corporation(s) have notified the Disclosure Dissemination Agent that they anticipate that the Annual Report will be filed by ______].

Dated:

Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent, on behalf of the Obligated Group

______cc: Northwestern Memorial HealthCare Trustee

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EXHIBIT C-1

EVENT NOTICE COVER SHEET

The “Event Notice” will be sent to the MSRB pursuant to Securities and Exchange Commission Rule 15c2-12(b)(5)(i)(C) and (D), which may include this Event Notice Cover Sheet.

Issuer’s and/or Obligated Group Agent’s and/or Other Corporation’s Name:

Issuer: Illinois Finance Authority

Obligated Group Agent’s and/or Other Corporation’s Name: Northwestern Memorial HealthCare

Issuer’s Six-Digit CUSIP Numbers: or Nine-Digit CUSIP Number(s) of the bonds to which this material event notice relates:

Number of pages of attached:

Description of Notice Event (Check One):

1. _____ “Principal and interest payment delinquencies;” 2. _____ “Non-Payment related defaults, if material;” 3. _____ “Unscheduled draws on debt service reserves reflecting financial difficulties;” 4. _____ “Unscheduled draws on credit enhancements reflecting financial difficulties;” 5. _____ “Substitution of credit or liquidity providers, or their failure to perform;” 6. _____ “Adverse tax opinions, IRS notices or events affecting the tax status of the security;” 7. _____ “Modifications to rights of securities holders, if material;” 8. _____ “Bond calls, if material;” 9. _____ Defeasances;” 10. _____ “Release, substitution, or sale of property securing repayment of the securities, if material;” 11. _____ “Rating changes;” 12. _____ “Tender offers;” 13. _____ “Bankruptcy, insolvency, receivership or similar event of the Corporation;” 14. _____ “Merger, consolidation, or acquisition of the Corporation, if material;” and 15. _____ “Appointment of a successor or additional trustee, or the change of name of a trustee, if material.”

Failure to provide annual financial information as required

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Failure to provide quarterly report as required

I hereby represent that I am authorized by the Obligated Group or its agent to distribute this information publicly:

Signature:

Name: Title:

Date:

Digital Assurance Certification, L.L.C. 390 North Orange Avenue Suite 1750 Orlando, FL 32801 407-515-1100

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EXHIBIT C-2

VOLUNTARY EVENT DISCLOSURE COVER SHEET

The “Voluntary Event Disclosure” will be sent to the MSRB, which may be accompanied by this Voluntary Event Disclosure Cover Sheet, pursuant to the Disclosure Dissemination Agent Agreement dated as of December 19, 2017, between the Corporation and DAC.

Issuer’s and/or Obligated Group Agent’s and/or Other Corporation’s Name:

Issuer: Illinois Finance Authority

Obligated Group Agent’s and/or Other Corporation’s Name: Northwestern Memorial HealthCare

Issuer’s Six-Digit CUSIP Number: or Nine-Digit CUSIP Number(s) of the bonds to which this notice relates:

Number of pages attached:

Description of Voluntary Event Disclosure (Check One):

1. _____ “amendment to continuing disclosure undertaking;” 2. _____ “change in Corporation;” 3. _____ “notice to investors pursuant to bond documents;” 4. _____ “certain communications from the Internal Revenue Service;” 5. _____ “secondary market purchases;” 6. _____ “change of tender agent, remarketing agent, or other on-going party;” and 7. _____ “derivative or other similar transaction.”

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I hereby represent that I am authorized by the Obligated Group or its agent to distribute this information publicly:

Signature:

Name: Title:

Date:

Digital Assurance Certification, L.L.C. 390 North Orange Avenue Suite 1750 Orlando, FL 32801 407-515-1100

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EXHIBIT C-3

VOLUNTARY FINANCIAL DISCLOSURE COVER SHEET

Issuer’s and/or Obligated Group Agent’s and/or Other Corporation’s Name:

Issuer: Illinois Finance Authority

Obligated Group Agent’s and/or Other Corporation’s Name: Northwestern Memorial HealthCare

Issuer’s Six-Digit CUSIP Number:

or Nine-Digit CUSIP Number(s) of the bonds to which this notice relates:

Number of pages attached:

Description of Voluntary Event Disclosure (Check One):

1. _____ “quarterly/monthly interim unaudited financial information;” 2. _____ “change in fiscal year/timing of annual disclosure;” 3. _____ “change in accounting standard;” 4. _____ “interim/additional financial information/operating data;” 5. _____ “investment/debt/financial policy;” 6. _____ “information provided to rating agency, credit/liquidity provider or other third party;” 7. _____ “consultant reports;” and 8. _____ “other financial/operating data.”

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I hereby represent that I am authorized by the Obligated Group or its agent to distribute this information publicly:

Signature:

Name: Title:

Date:

Digital Assurance Certification, L.L.C. 390 North Orange Avenue Suite 1750 Orlando, FL 32801 407-515-1100

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EXHIBIT D

NOTICE TO MSRB OF FAILURE TO FILE QUARTERLY REPORT

Name of Issuer Illinois Finance Authority

Corporation Northwestern Memorial HealthCare and the Members of the Obligated Group

Name of Bond Issue: Illinois Finance Authority Revenue Bonds, Series 2017A (Northwestern Memorial HealthCare)

Date of Issuance: December __, 2017

Date of Official Statement: December __, 2017

CUSIP Numbers: Series 2017A Bonds

F-23

NOTICE IS HEREBY GIVEN that the Obligated Group has not provided a Quarterly Report with respect to the above named Bonds as required by the Disclosure Agreement between the Corporation and Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent. [The Obligated Group has notified the Disclosure Dissemination Agent that they anticipate that the Quarterly Report will be filed by ______].

Dated:

Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent, on behalf of the Obligated Group

cc: Northwestern Memorial HealthCare Trustee

F-24

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ILLINOIS FINANCE AUTHORITY • REVENUE BONDS, SERIES 2017A (NORTHWESTERN MEMORIAL HEALTHCARE)