FIRST SOUTHWEST COMPANY

Transcription

1 This Preliminary Official Statement and the 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 a solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. PRELIMINARY OFFICIAL STATEMENT DATED DECEMBER 4, 2006 NEW ISSUE BOOK-ENTRY ONLY RATINGS: (Insured) (Underlying) S&P: AA BBB- See RATINGS herein. In the opinion of Bond Counsel, under existing laws, regulations, rulings and judicial decisions, assuming continuing compliance with certain conditions imposed by applicable federal tax law as described herein, interest on the Series 2006 Bonds is excludable from the gross income of the owners thereof for federal income tax purposes. Interest on the Series 2006 Bonds will not be treated as a preference item in calculating the alternative minimum tax imposed under the Internal Revenue Code of 1986, as amended (the Code ), with respect to individuals and corporations. Such interest, however, is included in the adjusted current earnings of certain corporations for purposes of computing the alternative minimum tax imposed on such corporations. Interest on the Series 2006 Bonds is exempt from Oklahoma income taxation. See TAX EXEMPTION herein. Dated: Date of delivery $29,010,000* COMANCHE COUNTY HOSPITAL AUTHORITY (Lawton, Oklahoma) HOSPITAL REVENUE REFUNDING BONDS SERIES 2006 Due: As shown on inside cover The Series 2006 Bonds are being issued pursuant to a Bond Indenture (the Original Bond Indenture ), dated as of October 1, 1993, by and between the Authority and Bank of Oklahoma, N.A., as trustee (the Trustee ), as previously supplemented and as supplemented by the Series 2006 Supplemental Bond Indenture (the Series 2006 Supplemental Indenture ) dated as of December 1, 2006, by and between the Authority and the Trustee, (the Original Bond Indenture, as previously supplemented and as supplemented by the Series 2006 Supplemental Indenture is collectively referred to herein as the Bond Indenture ). Interest on the Series 2006 Bonds is payable on January 1 and July 1 of each year commencing July 1, The Series 2006 Bonds are subject to optional and extraordinary optional redemption at par in the manner described herein. The Series 2006 Bonds will be issued as registered bonds in book-entry form in authorized denominations as described herein and, when issued, will be initially registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company, New York, New York ( DTC ), which will act as a securities depository therefor (the Securities Depository ). Purchases of the Series 2006 Bonds may be made only in book-entry form in authorized denominations by credit to participating broker-dealers and other institutions on the books of DTC as described herein. Purchasers will not receive certificates representing their interests in the Series 2006 Bonds purchased by them. Principal of and interest on the Series 2006 Bonds will be payable by the Trustee, as Paying Agent and Registrar, to the Securities Depository, which will remit such payments in accordance with its normal procedures, as described herein. Payment of principal of and interest on the Series 2006 Bonds will be insured in accordance with the terms of a financial guaranty insurance policy to be issued simultaneously with the delivery of the Series 2006 Bonds by Radian Asset Assurance Inc. The Series 2006 Bonds are limited and special obligations of the Authority payable solely from the Trust Estate, as more fully defined in the Bond Indenture, which includes all interest of the Authority in and to the Pledged Revenues, as defined in the Bond Indenture. The Series 2006 Bonds are special obligations of the Authority and do not constitute an obligation either general or special of the State of Oklahoma or Comanche County, Oklahoma (the County ), within the meaning of any constitutional or statutory provisions. Neither the faith and credit nor the taxing power of the State of Oklahoma, any county, municipality, political subdivision or governmental unit or agency thereof or of the County is or shall be pledged to the payment of the principal of or interest on the Series 2006 Bonds. THE AUTHORITY HAS NO TAXING POWER. The Series 2006 Bonds are offered when, as and if issued and received by the Underwriters, subject to prior sale, to withdrawal or modification of the offer without notice, and to the approval of legality by Fagin, Brown, Bush, Tinney & Kiser, Bond Counsel. Certain legal matters will be passed upon for the Authority by its counsel, Wade and Mackey, P.C., Lawton, Oklahoma, and for the Underwriters by their counsel, Kutak Rock LLP. It is expected that the Series 2006 Bonds in definitive form will be available for delivery to DTC in New York, New York, on or about December 19, FIRST SOUTHWEST COMPANY *Preliminary, subject to change. The date of this Official Statement is December, 2006 BOSC, Inc. A subsidiary of BOK Financial Corp.

2 $29,010,000* COMANCHE COUNTY HOSPITAL AUTHORITY (Lawton, Oklahoma) HOSPITAL REVENUE REFUNDING BONDS SERIES 2006 Maturities, Amounts, Interest Rates and Yields* $18,345,000* Series 2006 Serial Bonds July 1 Maturity Principal Amount Interest Rate Yield CUSIP Base: $ 450, , , , , , , , , , , ,030, ,085, ,140, ,200, ,265, ,335, ,405, ,480,000 $10,665,000* % Term Bond due July 1, Yield % (CUSIP: ) CUSIP numbers have been assigned to this issue by Standard & Poor s CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc., and are included solely for the convenience of the Owners of the Series 2006 Bonds. Neither the Authority nor the Underwriters shall be responsible for the selection or correctness of the CUSIP numbers set forth above. *Preliminary, subject to change.

3 REGARDING USE OF THE OFFICIAL STATEMENT No dealer, broker, salesman or other person has been authorized to give any information or to make any representations, other than as contained in this Official Statement, and if given or made, any such other information or representations must not be relied upon. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2006 Bonds, by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been furnished by the Authority and other sources which are believed to be reliable. While the Underwriters have performed a review sufficient to form a reasonable basis for their belief in the accuracy and completeness of the key representations of the Authority contained in this Official Statement, the Underwriters do not guarantee the accuracy or the completeness of this Official Statement. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the information or opinions set forth herein after the date of this Official Statement. OTHER THAN WITH RESPECT TO INFORMATION CONCERNING RADIAN ASSET ASSURANCE INC. CONTAINED UNDER THE CAPTION FINANCIAL GUARANTY INSURANCE HEREIN AND IN APPENDIX F HERETO, NONE OF THE INFORMATION IN THIS OFFICIAL STATEMENT HAS BEEN SUPPLIED OR VERIFIED BY RADIAN ASSET ASSURANCE INC., AND RADIAN ASSET ASSURANCE INC. MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO: (I) THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION; (II) THE VALIDITY OF THE SERIES 2006 BONDS; OR (III) THE TAX STATUS OF THE INTEREST ON THE SERIES 2006 BONDS. All references made herein to the Series 2006 Bonds are qualified in their entirety by reference to the Bond Indenture. All references made herein to the documents collectively constituting the Bond Indenture and the Lease are qualified in their entirety by reference to such complete documents, original counterparts of which are on file in the offices of the Authority, located in the Comanche County Memorial Hospital, 3401 West Gore Boulevard, Lawton, Oklahoma, 73505, and the corporate trust offices of the Trustee in Oklahoma City, Oklahoma. The cover page contains information for quick reference only. It is not a summary of this issue. Investors must read this entire Official Statement to obtain information essential and material to the making of an informed investment decision. This Official Statement contains statements that are forward-looking statements as defined in the Private Securities Litigation Reform Act of When used in this Official Statement, the words estimate, intend, expect and similar expressions are intended to identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. In connection with this offering, the Underwriters may over-allot or effect transactions which stabilize or maintain the market price of the Series 2006 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. THIS PRELIMINARY OFFICIAL STATEMENT IS DEEMED TO BE FINAL (EXCEPT FOR PERMITTED OMISSIONS) BY THE AUTHORITY FOR PURPOSES OF COMPLYING WITH RULE 15c2-12 OF THE SECURITIES AND EXCHANGE COMMISSION.

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5 TABLE OF CONTENTS INTRODUCTION...1 THE AUTHORITY...2 Organization and Powers...2 The Beneficiary...3 The Lease...3 Existing Indebtedness...3 SOURCES OF PAYMENT FOR THE SERIES 2006 BONDS...4 THE SERIES 2006 BONDS...5 General...5 Payments of Principal and Interest...6 Redemption of the Series 2006 Bonds...6 BOOK-ENTRY SYSTEM...8 FINANCIAL GUARANTY INSURANCE...11 Description of Financial Guaranty Insurance Policy...11 Radian Asset Assurance Inc...11 PLAN OF REFUNDING AND APPLICATION OF SERIES 2006 BOND PROCEEDS...14 Plan of Refunding...14 Estimated Sources and Uses of Funds...15 ESTIMATED DEBT SERVICE SCHEDULE...16 INVESTMENT CONSIDERATIONS...16 General...16 Federal and State Legislation and Regulation...17 Audits; General Compliance...25 Regulatory and Contractual Actions...25 Antitrust...26 Maintenance of Tax-Exempt Status...26 Private Health Plans and Insurers...26 Changes in Health Care Delivery...27 Licensing, Surveys, Investigations and Audits...28 Environmental Laws and Regulations...28 Malpractice Claims and General Liability Insurance...29 Other Factors that Could Affect Adversely the Hospital...29 Factors Concerning the Enforceability of the Bond Indenture...30 Limitations on Security Interests in Pledged Revenues...30 Secondary Market...31 Book-Entry...31 TAX EXEMPTION...31 Federal Income Tax Exemption...31 Federal Income Taxation Accounting Treatment of Original Issue Discount...32 Federal Income Taxation Accounting Treatment of Original Issue Premium...33 State Income Tax Exemption...33 LEGAL MATTERS...33 ELIGIBILITY FOR INVESTMENT IN OKLAHOMA...33 NO LITIGATION...33 UNDERWRITING...34 INDEPENDENT ACCOUNTANTS...34 ONGOING DISCLOSURE...34 RATINGS...35 MISCELLANEOUS...35 Appendix A Certain Information Regarding the Authority and the Hospital Appendix B Financial Statements and Audit Report as of and for the Years Ended June 30, 2006 and 2005 Appendix C Definitions and Summaries of Certain Provisions of the Bond Indenture and the Lease Appendix D Proposed Form of Opinion of Bond Counsel Appendix E Form of Continuing Disclosure Agreement Appendix F Specimen Financial Guaranty Insurance Policy Page

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7 OFFICIAL STATEMENT $29,010,000* COMANCHE COUNTY HOSPITAL AUTHORITY (Lawton, Oklahoma) HOSPITAL REVENUE REFUNDING BONDS SERIES 2006 INTRODUCTION This Official Statement, including the cover page and Appendices, is being provided by the Trustees of the Comanche County Hospital Authority (the Authority ), in connection with the issuance of the Authority s $29,010,000* Hospital Revenue Refunding Bonds, Series 2006 (the Series 2006 Bonds ). The Authority is a public trust duly created by a Declaration of Trust Indenture dated January 13, 1971, as amended, for the use and benefit of Comanche County, Oklahoma (the County ) under the provisions of Title 60, Oklahoma Statutes 2001, Sections 176 et seq., as amended (the Act ). See THE AUTHORITY herein. The Series 2006 Bonds (together with the Series 2004 Bonds and the Series 2005 Bonds described herein, and any Additional Indebtedness issued in the future on a parity therewith, collectively referred to herein as the Bonds ) are being issued under the Bond Indenture (the Original Bond Indenture ), dated as of October 1, 1993, by and between the Authority and Bank of Oklahoma, N.A., as trustee (the Trustee ), as previously supplemented by a Loan Agreement and Supplemental Bond Indenture dated as of January 1, 2002 (the 2002 Supplemental Indenture ), a Supplemental Bond Indenture dated as of December 1, 2004 (the 2004 Supplemental Indenture ), a Supplemental Bond Indenture dated as of November 1, 2005 (the 2005 Supplemental Indenture ), and as supplemented by the Series 2006 Supplemental Bond Indenture (the Series 2006 Supplemental Indenture ) dated as of December 1, 2006, by and between the Authority and the Trustee, (the Original Bond Indenture, as previously supplemented and as supplemented by the Series 2006 Supplemental Indenture is collectively referred to herein as the Bond Indenture ). See Appendix C hereto for a summary of certain provisions of the Bond Indenture. The Authority operates the Comanche County Memorial Hospital (the Hospital or the Facilities ), an acute-care general hospital located in Lawton, Oklahoma. See Appendix A hereto for information regarding the Hospital and its operations and Appendix B hereto for audited financial statements for the years ended June 30, 2006 and The County has leased the Hospital to the Authority pursuant to the Lease dated January 13, 1971 (the Lease ), for a term extending to the original termination date of January 12, 2001, and so long thereafter as any indebtedness of the Authority secured by any revenues of the Hospital remains outstanding. In July 2000, the Authority exercised an option to renew the term of the Lease for an additional 30-year period ending January 12, 2031 (and so long thereafter as any indebtedness incurred by the Authority remains outstanding). See Appendix C hereto for a summary of certain provisions of the Lease. The proceeds of the Series 2006 Bonds, together with certain other available funds, will be used to (i) defease and discharge the Authority s ODFA Payment Obligations with respect to a series of revenue bonds issued by The Oklahoma Development Finance Authority for the use and benefit of the Authority and the Hospital described under PLAN OF REFUNDING AND APPLICATION OF SERIES 2006 BOND PROCEEDS herein (the ODFA Bonds ), (ii) provide funds for certain capital expenditures for the Hospital, (iii) fund certain debt service reserve fund requirements and (iv) pay certain costs of issuance of the Series 2006 Bonds. *Preliminary, subject to change.

8 The Authority, pursuant to the Bond Indenture, is issuing its Series 2006 Bonds on a parity basis with the Authority s $14,930,000 currently outstanding Hospital Revenue Refunding Bonds, Series 2004, issued on December 16, 2004, in the original aggregate principal amount of $18,335,000 (the Series 2004 Bonds ) and the Authority s $32,970,000 currently outstanding Hospital Revenue Refunding Bonds, Series 2005, issued on November 30, 2005, in the original aggregate principal amount of $32,970,000 (the Series 2005 Bonds ). The Series 2004 Bonds and the Series 2005 Bonds are collectively referred to herein as the Outstanding Bonds. See THE AUTHORITY Existing Indebtedness, SOURCES OF PAYMENT FOR THE SERIES 2006 BONDS and PLAN OF REFUNDING AND APPLICATION OF SERIES 2006 BOND PROCEEDS herein. All Bonds issued under the Bond Indenture are special obligations of the Authority, payable from the Trust Estate pledged thereto under the Bond Indenture. The Bond Indenture requires that monthly payments be made by the Authority in amounts and at times sufficient to pay the principal, redemption premium, if any, and interest on the Series 2006 Bonds and the Outstanding Bonds, as well as other amounts required by the Bond Indenture including debt service payments on any Additional Indebtedness that may be issued on a parity therewith under the Bond Indenture. The Authority may issue Additional Indebtedness on a parity with the Series 2006 Bonds and the Outstanding Bonds to the extent and under the conditions set forth in the Bond Indenture. See SOURCES OF PAYMENT FOR THE SERIES 2006 BONDS and Appendix C herein. The covenants and representations contained in the Bond Indenture do not and shall never constitute a personal or pecuniary liability or charge against the general credit of the Authority or the individual Trustees thereof. The Series 2006 Bonds are not obligations or debts of the State of Oklahoma or the County, or any municipality, county, political subdivision, or governmental unit or agency of the State of Oklahoma, and neither the faith and credit nor the taxing power of the State of Oklahoma, nor of any county, municipality, subdivision, or governmental unit or agency thereof or of the County is pledged to the payment of the Series 2006 Bonds. THE AUTHORITY HAS NO TAXING POWER. See SOURCES OF PAYMENT FOR THE SERIES 2006 BONDS and INVESTMENT CONSIDERATIONS herein. There follow brief descriptions of the Authority, the Hospital, the Series 2006 Bonds, the Bond Indenture, the Lease and related matters. Such descriptions do not purport to be comprehensive or definitive and references to such documents are qualified in their entirety by reference to the complete texts thereof. Capitalized terms used in this Official Statement and not otherwise defined shall have the meanings assigned thereto in the Bond Indenture and the Lease. See Appendix C hereto for definitions of certain terms used in this Official Statement and for summaries of certain provisions of the Bond Indenture and the Lease. Organization and Powers THE AUTHORITY The Authority was created pursuant to a Declaration of Trust Indenture dated January 13, 1971, as amended (the Trust Indenture ), for the benefit of the County. The Authority is a public trust and an agency of the State of Oklahoma under the Act and is governed by five Trustees (the Trustees ) appointed by the Board of County Commissioners of the County to serve for terms of five years. Trustees of the Authority must be residents of the County and not more than three of the Trustees may be residents of the City of Lawton, Oklahoma. The purpose of the Authority, as is more fully described in the Trust Indenture, is to promote and to encourage the development of health care of any and every type within and near the corporate limits of 2

9 the County and in territory in reasonably convenient proximity thereto by instituting, furnishing and providing facilities to other governmental subdivisions or agencies or to other entities. The Authority is not organized for profit and no part of its net earnings may inure to the benefit of any private person. The Act provides that no Trustee of the Authority may be charged personally with any liability whatsoever by reason of any act or omission committed or suffered in performance of the functions of the Authority or in the operation of the Authority s property. The Authority has no taxing power. The current Trustees of the Authority are identified under Governance and Administration in Appendix A hereto. The Authority s offices are located at the Comanche County Memorial Hospital, 3401 West Gore Boulevard, Lawton, Oklahoma The Beneficiary Comanche County, Oklahoma, is the beneficiary of the public trust, and all properties held by the Authority shall become the property of the beneficiary upon termination of the Authority. The governing body of the County is the Board of County Commissioners. Under Oklahoma law, creation of any bonded indebtedness and a negotiated sale or a sale of obligations at a discount by a county public trust such as the Authority requires approval by a two-thirds (2/3) vote of the governing body of the beneficiary. For certain limited information relating to the County, see Service Area in Appendix A hereto. The Lease The County has leased the Hospital to the Authority pursuant to the Lease dated January 13, 1971 (the Lease ), for a term extending to the original termination date of January 12, 2001, and so long thereafter as any indebtedness of the Authority secured by any revenues of the Hospital remains outstanding. In July 2000, the Authority exercised an option to renew the term of the Lease for an additional 30-year period ending January 12, 2031 (and so long thereafter as any indebtedness incurred by the Authority remains outstanding). See Appendix C hereto for a summary of certain provisions of the Lease. Existing Indebtedness The Series 2004 Bonds are currently outstanding in the aggregate principal amount of $14,930,000 consisting of serial bonds maturing July 1 in each of the years The Series 2005 Bonds are currently outstanding in the aggregate principal amount of $32,970,000 consisting of serial bonds maturing July 1 in each of the years In addition, the Authority has secured its payment obligations with respect to a series of revenue bonds issued by The Oklahoma Development Finance Authority for the use and benefit of the Authority and the Hospital described under PLAN OF REFUNDING AND APPLICATION OF SERIES 2006 BOND PROCEEDS herein, which payment obligations will be defeased and discharged upon the issuance of the Series 2006 Bonds. The scheduled annual debt service requirements for the Series 2006 Bonds, the Series 2005 Bonds and the Series 2004 Bonds are included in the amounts set forth in the table appearing under the caption ESTIMATED DEBT SERVICE SCHEDULE herein. In addition, the Authority has other indebtedness not secured under the Bond Indenture including certain capitalized lease obligations and notes payable all as described under the heading Outstanding Indebtedness in Appendix A hereto. The estimated annual debt service requirements for such other indebtedness are included in the amounts set forth under the column Debt Service on Outstanding Indebtedness in the table appearing under the caption ESTIMATED DEBT SERVICE SCHEDULE herein. 3

10 SOURCES OF PAYMENT FOR THE SERIES 2006 BONDS The Series 2006 Bonds are limited and special obligations of the Authority payable solely from the Trust Estate. The Series 2006 Bonds are special obligations of the Authority and do not constitute an obligation either general or special of the State of Oklahoma or Comanche County, Oklahoma, within the meaning of any constitutional or statutory provisions. Neither the faith and credit nor the taxing power of the State of Oklahoma, any county, municipality, political subdivision or governmental unit or agency thereof or of the County is or shall be pledged to the payment of the principal of or interest on the Series 2006 Bonds. THE AUTHORITY HAS NO TAXING POWER. The Series 2006 Bonds (together with the Series 2005 Bonds, the Series 2004 Bonds and any Additional Indebtedness that may be issued in the future on a parity therewith) are payable solely from the Trust Estate held by the Trustee under the Bond Indenture consisting of the following described property: (i) the interest of the Authority in and to the Pledged Revenues; (ii) all funds and accounts created under the Bond Indenture except the Rebate Fund and all other moneys held by the Trustee for the payment of the Bonds; (iii) all other real or personal property of the Authority, of every kind and nature from time to time hereafter by delivery or by writing conveyed, pledged, assigned or transferred as and for additional security for the Bonds, to the Trustee, which is authorized to receive any and all such property at any and all times and to hold and apply the same subject to the terms of the Bond Indenture; and (iv) all interest of the Authority in and to all proceeds, fees, charges, revenues, income, rents, receipts, issues and benefits from the foregoing. The Pledged Revenues of the Authority are defined to include all receipts, revenues, income and other moneys received by or on behalf of the Authority including, without limitation, contributions, donations and pledges whether in the form of cash, securities or other personal property, revenues derived from the ownership or operation of the Hospital, including insurance and condemnation proceeds with respect to any portion thereof, and all rights to receive the same, whether in the form of accounts, accounts receivable, contract rights or other rights, and the proceeds of such rights, and whether now owned or held or hereafter coming into existence, and the proceeds of the Bonds pending their application in accordance with the Bond Indenture; provided, however, that gifts, grants, bequests, donations and contributions heretofore or hereafter made and designated or specified by the granting authority, donor or maker thereof as being for specified purposes and the income derived therefrom to the extent required by such designation or specification shall be excluded from Pledged Revenues. The Bond Indenture creates the Bond Reserve Fund with amounts deposited therein to be withdrawn by the Trustee in the event that moneys in the Bond Account and Sinking Fund are insufficient to pay the principal of or interest on all Bonds Outstanding thereunder when due. Upon the issuance of the Series 2006 Bonds, there will be deposited therein an amount sufficient to cause the total amount held in the Bond Reserve Fund to be equal to the Reserve Requirement (see the definition thereof in Appendix C hereto). The Bond Indenture provides that the Authority shall make monthly deposits with the Trustee in amounts, after the application of certain credits for investment earnings, equal to one-sixth of the interest and one-twelfth of the principal payments due on the Bonds on the next interest payment date and/or principal payment date plus amounts necessary to replenish or restore the amount required to be on deposit in the Bond Reserve Fund. The Bond Indenture also provides, in the event such payments are not made timely as required by the Bond Indenture, that the Authority thereafter shall be required to deposit the Pledged Revenues into a Revenue Fund established under the Bond Indenture to be applied in the following priority by the Trustee: to pay principal and interest on the Bonds; to replenish the Bond Reserve Fund; to pay the costs and expenses of operating and maintaining the Hospital; and any remainder to be applied to any proper purpose of the Authority. 4

11 The Bond Indenture contains various other covenants relating to, among other things, the incurrence of Additional Indebtedness, the sale, lease or other disposition of property, the establishment of rates, fees and charges and other matters. See Appendix C hereto for a description of the foregoing provisions and other provisions of the Bond Indenture. The Bonds are not secured by any mortgage or other lien on any real or tangible personal property of the Authority. The actual realization of amounts to be derived upon the enforcement of any obligation securing the Series 2006 Bonds will depend upon the exercise of various remedies specified in the Bond Indenture. These and other available remedies may require judicial action of a nature that is often subject to discretion and delay. Under existing law, the remedies specified in such documents may not be readily available or may be limited. A court may decide not to order the specific performance of the covenants contained in these financing documents. The various legal opinions to be delivered concurrently with the delivery of the Series 2006 Bonds will state that the enforceability of such instruments may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors rights generally and by general principles of equity. For a discussion of certain risks associated with an investment in the Series 2006 Bonds, see INVESTMENT CONSIDERATIONS herein. See Appendix A hereto for certain information regarding the Authority and the Hospital. See Appendix B hereto for the Financial Statements and Audit Reports of the Hospital as of and for the Years Ended June 30, 2006 and THE SERIES 2006 BONDS The following is a summary of certain provisions of the Series 2006 Bonds. Reference is made to the Series 2006 Bonds themselves for the complete text thereof and to the Bond Indenture, and the discussion herein is qualified by such reference. General Form and Denomination. The Series 2006 Bonds will be issuable as fully registered bonds in denominations of $5,000 each or any integral multiple of $5,000. Transfer and Exchange. The Series 2006 Bonds are issued only in fully registered form, and will be initially offered only in book-entry form, registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York, which will act as Securities Depository of the Series 2006 Bonds. See BOOK-ENTRY SYSTEM, herein. For so long as Cede & Co. remains the registered owner of the Series 2006 Bonds, payments of principal and interest on the Series 2006 Bonds will be made by the Trustee directly to DTC or Cede & Co. as the nominee of DTC. The Series 2006 Bonds are transferable by the registered owner thereof in person or by his attorney duly authorized in writing at the principal office of the Trustee but only in the manner, subject to the limitations and upon payment of the charges provided in the Bond Indenture, and upon surrender and cancellation of such Series 2006 Bonds. Upon such transfer a new bond or bonds of the same maturity or maturities, interest rate or rates and of authorized denomination or denominations, for the same aggregate principal amount, will be issued to the transferee in exchange therefor. The Authority and the Trustee may deem and treat the registered owner of the bond or bonds as the absolute owner thereof (whether or not the 5

12 bond shall be overdue) for the purpose of receiving payment thereon and for all other purposes and neither the Authority nor the Trustee shall be affected by any notice to the contrary. Upon payment of a transfer charge as provided in the Bond Indenture and any required tax, fee or other governmental charge and subject to such conditions, any Series 2006 Bond, upon the surrender thereof at the principal office of the Trustee with a written instrument of transfer, in form and with guarantee of signature satisfactory to the Trustee, duly executed by the registered owner or such owner's duly authorized attorney, may, at the option of the registered owner thereof, be exchanged for an equal aggregate principal amount of bonds of the same maturity and interest rate of any other authorized denomination. The Authority and the Trustee shall not be required (a) to issue, transfer or exchange any bonds during a period beginning at the close of business 15 calendar days next preceding either any interest payment date or any date of selection of bonds to be redeemed and ending at the close of business on the interest payment date or day on which the applicable notice of redemption is given, or (b) to transfer or exchange any bonds (other than as provided in clause (a) above) selected, called or being called for redemption in whole or in part. The Authority or the Trustee may make a charge for every such exchange or transfer of bonds sufficient to reimburse it for any tax, or other governmental charge required to be paid with respect to such exchange or transfer, but no other charge shall be made to any Bondholder for the privilege of exchanging or transferring bonds under the provisions of the Bond Indenture. Except as otherwise provided in the preceding sentence, the cost of preparing each new bond upon each exchange or transfer and any other expense of the Authority or the Trustee incurred in connection therewith shall be paid by the Authority. Payments of Principal and Interest The Series 2006 Bonds will bear interest at the rates and mature in the amounts set forth on the inside cover page of this Official Statement. Principal of and interest due at maturity on the Series 2006 Bonds will be payable to the owners of such Series 2006 Bonds upon presentation and surrender thereof at the principal corporate trust office of the Trustee as Bond Registrar (the Registrar ). Payments of interest on the Series 2006 Bonds (except interest due at maturity) shall be made by the Registrar on each January 1 and July 1, commencing July 1, 2007, to the registered owner thereof by check or draft (or at the option of the owner of an aggregate principal amount of Series 2006 Bonds at least equal to $1,000,000, by wire transfer) mailed to the address of such registered owner as it appears on the registration books of the Authority maintained by the Registrar as of the Record Date. The term Record Date means the day which is the 15 th day of the calendar month next preceding any Interest Payment Date or, if such day is not a Business Day, the next preceding Business Day. Redemption of the Series 2006 Bonds Optional Redemption. The Series 2006 Bonds maturing on and after July 1, 2016, are subject to redemption prior to maturity at the option of the Authority on and after July 1, 2015, at a price of par plus accrued interest to the date of redemption. Mandatory Sinking Fund Redemption. The Series 2006 Term Bond maturing July 1, 2031*, is subject to mandatory redemption prior to maturity, in part by lot, on July 1 in each of the years and in the principal amounts set forth below at a redemption price of 100% of the principal amount to be redeemed, plus interest accrued to the date fixed for redemption: *Preliminary, subject to change. 6

13 $10,665,000* Series 2006 Term Bond Date Principal Amount Date Principal Amount Date Principal Amount 7/1/26 $1,555,000 7/1/28 $1,725,000 7/1/30 $1,915,000 7/1/27 1,640,000 7/1/29 1,815,000 7/1/31 2,015,000 Final Maturity Extraordinary Optional Redemption. The Series 2006 Bonds are subject to redemption at the option of the Authority in whole or in part, at any time, if such redemption is made from: (i) insurance proceeds; (ii) expropriation awards; or (iii) payments received from the Authority pursuant to an Event of Default under the Bond Indenture. In the event that such redemption is made, such redemption shall be made at the principal amount so redeemed and interest thereon to the redemption date. The Series 2006 Bonds are subject to redemption prior to maturity, at the option of the Authority, in whole at any time at a redemption price of 100% of the principal amount of each Bond called for redemption, plus interest accrued to the date fixed for redemption, without premium, if, as a result of any change in the Constitution or laws of the United States of America or of the State of Oklahoma or legislative or administrative action, whether State or Federal, or by final judgment in a court of competent jurisdiction after the contest thereof by the Authority in good faith, wherein (i) the Bond Indenture or the Lease becomes void, unenforceable, or impossible of performance in accordance with the intent and purpose of the parties as expressed therein or (ii) the interest on the Series 2006 Bonds shall become subject to federal income taxes. Provisions Relating to Redemption of Series 2006 Bonds. If less than all the Series 2006 Bonds shall be called for redemption, the particular Series 2006 Bonds or portions of Series 2006 Bonds to be redeemed shall be selected from all Series 2006 Bonds then Outstanding, in such manner as the Trustee in its discretion may deem proper; provided, however, that the portion of any Series 2006 Bonds to be redeemed shall be in the principal amount of $5,000 or some integral multiple thereof and that in selecting Series 2006 Bonds for redemption, the Trustee shall treat each Series 2006 Bond as representing that number of Series 2006 Bonds which is obtained by dividing the principal amount of such registered Series 2006 Bond by $5,000 (such amounts being hereinafter referred to as the applicable units of principal amount ). If it is determined that one or more, but not all, of the $5,000 units of principal amount represented by any such Series 2006 Bond is to be called for redemption, then upon notice of intention to redeem such $5,000 unit or units, the holder of such Series 2006 Bond shall forthwith surrender such Series 2006 Bond to the Trustee for (i) payment of redemption price (including interest to the date fixed for redemption) of the $5,000 unit or units of principal amount called for redemption and (ii) exchange for a new Series 2006 Bond or Series 2006 Bonds of the aggregate principal amount of such Series 2006 Bond not called for redemption. If the holder of any such Series 2006 Bond of a denomination greater than $5,000 shall fail to present such Series 2006 Bond to the Trustee for payment and exchange as aforesaid, such Series 2006 Bond shall, nevertheless, become due and payable on the date fixed for redemption to the extent of the $5,000 unit or units of principal amount called for redemption (and to that extent only). At least thirty (30) days and not more than sixty (60) days before the redemption date of the Series 2006 Bonds to be redeemed, the Trustee shall cause notice of any such redemption signed by the Trustee to be mailed, postage prepaid, to all Bondholders owning or holding Series 2006 Bonds to be redeemed in whole or in part, at their addresses as they appear on the registration books hereinabove provided for, but failure to so mail any such notice shall not affect the validity of the proceedings for such redemption. Each such notice shall set forth the date fixed for redemption, the redemption price to be paid and, if less than all of the Series 2006 Bonds of any one maturity then Outstanding shall be called for redemption, the *Preliminary, subject to change. 7

14 numbers and letters, if any, of such Series 2006 Bonds to be redeemed, and the portion of the principal amount thereof to be redeemed. In case any Series 2006 Bond is to be redeemed in part only, the notice of redemption which relates to such Series 2006 Bond shall state also that on or after the redemption date, upon surrender of such Series 2006 Bond, a new registered Series 2006 Bond in principal amount equal to the unredeemed portion of such Series 2006 Bond will be issued. On the date so designated for redemption, notice having been given in the manner and under the conditions hereinabove provided and money for payment of the redemption price being held in separate accounts by the Trustee or by any paying agents in trust for the holders of the Series 2006 Bonds or portions thereof to be redeemed, all as provided in the Bond Indenture, the Series 2006 Bonds shall become and be due and payable at the redemption price provided for redemption of such Series 2006 Bonds or portions of Series 2006 Bonds on such date, interest on the Series 2006 Bonds or portions of Series 2006 Bonds so called for redemption payable subsequent to the redemption date shall be void, such Series 2006 Bonds or portions of Series 2006 Bonds shall cease to be entitled to any benefit of the Bond Indenture and the holders of such Series 2006 Bonds or portions of Series 2006 Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof and, to the extent provided in the next paragraph, to receive Series 2006 Bonds for any unredeemed portions of Series 2006 Bonds. In case part but not all of an Outstanding Series 2006 Bond shall be selected for redemption, the registered owner thereof or his legal representative shall present and surrender such Series 2006 Bond to the Trustee for payment of the principal amount thereof so called for redemption, and the Authority shall execute and the Trustee shall authenticate and deliver to or upon the order of such registered owner or his legal representative, without charge therefor, for the unredeemed portion of the principal amount of the registered bond so surrendered, a new bond of the same series and maturity and bearing interest at the same rate. Series 2006 Bonds of less than a full maturity may be selected by the Trustee in such equitable manner as it may determine. Series 2006 Bonds and portions of Series 2006 Bonds which have been duly called for redemption under the provisions of the Bond Indenture, or with respect to which irrevocable instructions to call for redemption at the earliest redemption date have been given to the Trustee in form satisfactory to it, and for the payment of the redemption price for which moneys shall be held in separate accounts by the Trustee or by any escrow agent in trust for the holders of the Series 2006 Bonds or portions thereof to be redeemed, all as provided in the Bond Indenture, shall not thereafter be deemed to be Outstanding under the provisions of the Bond Indenture and shall cease to be entitled to any security or benefit under the Bond Indenture other than the right to receive payment from such moneys. BOOK-ENTRY SYSTEM The information in this section concerning The Depository Trust Company ( DTC ) and DTC s book-entry-only system has been obtained from DTC, and the Authority and the Underwriters take no responsibility for the accuracy thereof. The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Series 2006 Bonds. The Series 2006 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 Series 2006 Bond certificate will be issued for each maturity of the Series 2006 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC at the office of the Trustee on behalf of DTC utilizing the DTC FAST system of registration. 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 8

15 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 DTC holds and provides asset servicing for over 2 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 85 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, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as 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 Standard & Poor s 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 Purchases of Series 2006 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2006 Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2006 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 2006 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 2006 Bonds, except in the event that use of the book-entry system for the Series 2006 Bonds is discontinued. To facilitate subsequent transfers, all Series 2006 Bonds deposited by Direct Participants with DTC (or the Trustee on behalf of DTC utilizing the DTC FAST system of registration) 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 2006 Bonds with DTC (or the Trustee on behalf of DTC utilizing the DTC FAST system of registration) 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 2006 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2006 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. 9

16 Redemption notices shall be sent to DTC. If less than all the Series 2006 Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2006 Bonds unless authorized by a Direct Participant in accordance with DTC s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Series 2006 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions and dividend payments on the Series 2006 Bonds will be made to Cede &Co. or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Authority or the Paying Agent on the payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Paying Agent or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series 2006 Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2006 Bond certificates are required to be printed and delivered. The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series 2006 Bond certificates will be printed and delivered. The Authority, Bond Counsel, the Trustee and the Underwriters cannot and do not give any assurances that the DTC Participants will distribute to the Beneficial Owners of the Series 2006 Bonds: (i) payments of principal of or interest on the Series 2006 Bonds; (ii) certificates representing an ownership interest or other confirmation of Beneficial Ownership interests in the Series 2006 Bonds; or (iii) redemption or other notices sent to DTC or its nominee, as the Registered Owners of the Series 2006 Bonds; or that they will do so on a timely basis or that DTC or its participants will serve and act in the manner described in this official statement. The current Rules applicable to DTC are on file with the Securities and Exchange Commission and the current Procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. None of the Authority, Bond Counsel, the Trustee or the Underwriters will have any responsibility or obligation to such DTC Participants (Direct or Indirect) or the persons for whom they act as nominees with respect to: (i) the Series 2006 Bonds; (ii) the accuracy of any records maintained by DTC or any DTC Participant; (iii) the payment by any DTC Participant of any amount due to any Beneficial Owner in respect of the principal amount of or interest on the Series 2006 Bonds; (iv) the delivery by any DTC Participant of any notice to any Beneficial Owner which is required or permitted under the terms of the Bond Indenture to be given to Registered Owners; (v) the selection of the Beneficial Owners to receive payment in the event of 10

17 any partial redemption of the Series 2006 Bonds; or (vi) any consent given or other action taken by DTC as Registered Owner. In reading this Official Statement, it should be understood that while the Series 2006 Bonds are in the Book Entry system, references in other sections of this Official Statement to Registered Owner should be read to include the Beneficial Owners of the Series 2006 Bonds, but: (i) all rights of ownership must be exercised through DTC and the Book Entry system; and (ii) notices that are to be given to Registered Owners by the Authority or the Trustee will be given only to DTC. FINANCIAL GUARANTY INSURANCE Description of Financial Guaranty Insurance Policy A financial guaranty insurance policy (the Policy ) will be issued by Radian Asset Assurance Inc. (the Insurer ) simultaneously with the issuance and delivery of the Series 2006 Bonds. The Policy is noncancelable during its term and provides for the prompt payment of principal of and interest on the Series 2006 Bonds to the extent that Bank of Oklahoma, N.A., as Trustee (the Trustee ), has not received sufficient funds from Comanche County Hospital Authority (the Issuer ) for payment of the Series 2006 Bonds on the due date. The Insurer is obligated to make the required payment on the later of the due date or the first business day after which the Insurer has received notice from The Bank of New York, as Insurance Trustee (the Insurance Trustee ), that the Issuer has failed to pay amounts due on the Series 2006 Bonds. Under the Policy, the due date of the Series 2006 Bonds, when referring to the payment of principal, means the stated maturity date thereof or the date on which payment of principal is due by reason of mandatory sinking fund payments and does not mean any earlier date on which payment is due by reason of any call for redemption, acceleration, or other advancement of maturity, other than in the discretion of the Insurer. With respect to interest on the Series 2006 Bonds, the due date means the stated date for payment of interest. The Policy guarantees reimbursement of any recovery of any such payment from a Holder or the Trustee pursuant to a final judgment by any court of competent jurisdiction holding that such payment constituted a voidable preference within the meaning of any applicable bankruptcy law. Upon the occurrence and continuance of an Event of Default, the Insurer, may, in its discretion, direct the acceleration of the Series 2006 Bonds at a price equal to the principal amount thereof plus accrued interest, or the Insurer may elect to continue to pay principal and interest on the originally scheduled due dates of the Series 2006 Bonds. For specific information on the coverage provided, reference should be made to the Policy that has been reproduced in specimen form in Appendix F hereto. The Policy does not insure against nonpayment of principal or interest on the Series 2006 Bonds due to the insolvency, misconduct or negligence of the Trustee. The Policy does not insure the payment of any redemption premium. Radian Asset Assurance Inc. Radian Asset Assurance Inc. (the Insurer ) is a monoline financial guaranty insurance company, regulated by the Insurance Department of the State of New York and licensed to do business in all 50 states, the District of Columbia, Guam and the United States Virgin Islands. As September 30, 2006, the Insurer had total consolidated shareholders equity of approximately $1,557,829,000 and total consolidated assets of approximately $2,543,356,000. The financial information relating to the Insurer presented in this Official Statement was prepared internally by the Insurer, based on accounting principles generally accepted in the United States of America ( GAAP ), and has not been audited by independent auditors. The address of the Insurer s 11

18 administrative office is 335 Madison Avenue, New York, New York 10017, and its telephone number is On March 2, 2006, the Insurer entered into a settlement agreement with respect to two financial guaranty contracts insured by the Insurer on a direct basis. Under this agreement, the Insurer paid $68.0 million to its counterparty in consideration for its counterparty s terminating one of these transactions, a synthetic collateralized debt obligation representing $247.5 million in exposure, and amending the other transaction to add certain structural changes that the Insurer believes will improve its overall risk profile. Additional information regarding this settlement may be found in Management s Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Financial Guaranty Year Ended December 31, 2005 Compared to Year Ended December 31, 2004 Provision for Losses in Item 7 of Part II of the Annual Report on Form 10-K filed by the Insurer s ultimate corporate parent, Radian Group Inc. ( Radian ) with the Securities and Exchange Commission. The Insurer has filed the information in (i) (iv) below with entities designated as Nationally Recognized Municipal Securities Information Repositories ( NRMSIRs ) pursuant to Rule 15c2-12 of the Securities Exchange Act of 1934, and such financial information is available through such NRMSIRs: (i) The Insurer s audited consolidated financial statements as of December 31, 2005 and 2004 and for each of the three years in the period ended December 31, 2005 prepared in accordance with GAAP, together with the accompanying report of the Insurer s independent registered public accounting firm, which expresses an unqualified opinion (the Radian Financial Statements ). (ii) The Insurer s quarterly unaudited consolidated balance sheet as of March 31, 2006 and unaudited consolidated statement of operations for the three month period then ended, prepared in accordance with GAAP. (iii) The Insurer s quarterly unaudited consolidated balance sheet as of June 30, 2006 and unaudited consolidated statement of operations for the six-month period then ended, prepared in accordance with GAAP. (iv) The Insurer s quarterly unaudited consolidated balance sheet as of September 30, 2006 and unaudited consolidated statement of operations for the nine-month period then ended, prepared in accordance with GAAP. Additional information regarding the Insurer can be found in the following documents filed by Radian with the Securities and Exchange Commission: (a) Annual Report on Form 10-K for the year ended December 31, 2005 and the Quarterly Reports on Form 10-Q for the periods ended March 31, 2006, June 30, 2006 and September 30, 2006 under the headings: (i) Safe Harbor Statement (but only insofar as it relates to the financial guaranty insurance businesses); (ii) 10-K only, Item 1. Business: Financial Guaranty Business, Defaults and Claims Financial Guaranty, Loss Mitigation Financial Guaranty, Reserve for Losses Financial Guaranty, Risk Management Financial Guaranty, Risk in Force Financial Guaranty Business, Customers Financial Guaranty Business, Sales and Marketing Financial Guaranty Business, Competition Financial Guaranty Business, Ratings (but only insofar as it relates to the Insurer or Radian Reinsurance Inc.), and Regulation Direct Regulation (but only insofar as it relates to the financial guaranty business); (iii) 10-K only, Item 1A Risk Factors Risks Affecting Our Company (but only insofar as it relates to the Insurer) and Risks Particular to our Financial Guaranty Business ; (iv) 10-K Only Item 6 Selected Financial Data, Selected Ratios Financial Guaranty and Other Data Financial Guaranty, (v) Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations Financial Guaranty Results of Operations and Liquidity and Capital Resources (but only to the extent it relates 12

19 to the Insurer or Radian Reinsurance Inc.), and Critical Accounting Policies (but only to the extent that it relates to Financial Guaranty ); and (vi) 10-Q only, Item 2 Management s Discussion and Analysis of Financial Condition and Results of Operations, Overview, Business Summary Financial Guaranty, Results of Operations Financial Guaranty, Liquidity and Capital Resources (but only to the extent that it relates to the Insurer) and Critical Accounting Policies (but only to the extent that it relates to Financial Guaranty ) and (b) the Reports on Form 8-K dated January 19, 2006, February 13, 2006, March 15, 2006, April 20, 2006, May 12, 2006, June 30, 2006, July 20, 2006, July 26, 2006, October 19, 2006 and October 27, A complete copy of the Radian Financial Statements is available from the Insurer upon written request. Prior year amounts included in the Radian Financial Statements have been restated to reflect the combined balances and results of operations of the Insurer and Radian Reinsurance Inc. The Insurer is an indirect, wholly owned subsidiary of Radian, a publicly owned corporation with its shares listed on the New York Stock Exchange (symbol RDN ). Radian is a leading credit enhancement provider to the global financial and capital markets, headquartered in Philadelphia, Pennsylvania. Radian s subsidiaries provide products and services through three business lines: financial guaranty, mortgage insurance and financial services. None of Radian, Radian s other subsidiaries or any of Radian s investors is obligated to pay the debts of or claims against the Insurer. On June 29, 2006, Standard & Poor s Ratings Services, a division of The McGraw-Hill Companies, Inc. ( S&P ), affirmed the Insurer s AA financial strength rating and revised upward its outlook on the Insurer from negative to stable. The Insure also has an insurance financial strength rating of Aa3 (outlook: stable) from Moody s Investors Service, Inc. ( Moody s ) and a claims paying ability of AA (outlook: negative) from Fitch Ratings Services ( Fitch ). The ratings of S&P, Moody s and Fitch reflect only the views of the applicable rating agency, respectively, do not constitute a recommendation to buy, sell or hold securities and are subject to revision or withdrawal at any time by such rating agencies. Any further explanation of any rating may be obtained only from the applicable rating agency. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Series 2006 Bonds. The Insurer does not guarantee the market price or investment value of the Series 2006 Bonds nor does it guarantee that the rating on the Series 2006 Bonds will not be revised or withdrawn. The Insurer is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York, its state of domicile. In addition, Radian and its insurance subsidiaries are subject to regulation by insurance laws of the various other jurisdictions in which they are licensed to do business. As a financial guaranty insurance corporation licensed to do business in the State of New York, the Insurer is subject to Article 69 of the New York Insurance Law which, among other things, limits the business of each financial guaranty insurer to financial guaranty insurance and related business lines, requires that each financial guaranty insurer maintain a minimum surplus to policyholders, establishes contingency, loss and unearned premium reserve requirements for each financial guaranty insurer, and limits the size of individual transactions and the volume of transactions that may be underwritten by each financial guaranty insurer. Other provisions of the New York Insurance Law, applicable to non-life insurance companies such as the Insurer regulate, among other things, permitted investments, payment of dividends, transactions with affiliates, mergers, consolidations, acquisitions or sales of assets and incurrence of liability for borrowings. Neither the Insurer nor any of its affiliates accepts any responsibility for the accuracy or completeness of, nor have they participated in the preparation of, this Official Statement or any information or disclosure that is provided to potential purchasers of the Series 2006 Bonds or omitted from such disclosure, other than with respect to the accuracy of information presented under the heading 13

20 FINANCIAL GUARANTY INSURANCE and as set forth in Appendix F of this Official Statement. The Insurer s role is limited to providing the coverage set forth in the Policy. In addition, the Insurer makes no representation regarding the Series 2006 Bonds or the advisability of purchasing the Series 2006 Bonds. Plan of Refunding PLAN OF REFUNDING AND APPLICATION OF SERIES 2006 BOND PROCEEDS The Authority has payment obligations currently secured under the 2002 Supplemental Indenture and a Promissory Note (the ODFA Payment Obligations ) in amounts sufficient to pay the principal of and interest on a series of revenue bonds issued on February 6, 2002, by The Oklahoma Development Finance Authority (the ODFA Bonds ) for the use and benefit of the Authority and the Hospital in the original aggregate principal amount of $28,010,000, and currently outstanding in the aggregate principal amount of $26,725,000, consisting of bonds maturing July 1 of each of the years 2008, 2009, 2014, 2021 and Proceeds of the Series 2006 Bonds, together with certain other available funds, will be applied to defease and discharge the Authority s ODFA Payment Obligations on the date of issuance of the Series 2006 Bonds. Proceeds of the Series 2006 Bonds and certain moneys held by the trustee for the ODFA Bonds will provide for the advance refunding and defeasance and discharge of the callable maturities of the ODFA Bonds aggregating $23,445,000 for redemption on July 1, 2012, at a redemption price of 102% of their principal amount plus interest accrued thereon to the redemption date and funds contributed by the Authority will be applied to defease and discharge the non-callable maturities aggregating $3,280,000 of the ODFA Bonds at par plus interest accrued thereon to the dates of their payment. In order to effect the defeasance and discharge of the ODFA Bonds, the Authority intends to deposit in escrow, pursuant to the Bond Indenture, moneys or Government Obligations sufficient to pay the principal of and interest on the ODFA Bonds to and including their scheduled maturity or July 1, 2012, redemption date. Such moneys or Government Obligations will be available only for the payment of the ODFA Bonds and will not be available for the payment of the Series 2006 Bonds. After the deposit of such moneys or Government Obligations, the Authority will be discharged from all ODFA Payment Obligations with respect to the ODFA Bonds. Proceeds of the Series 2006 Bonds also will be used to provide moneys to fund certain routine capital expenditures for the Hospital, fund certain debt service reserve fund requirements and pay certain costs of issuance of the Series 2006 Bonds. [Remainder of this page intentionally left blank] 14

21 Estimated Sources and Uses of Funds Bonds. The following table sets forth the estimated applications of the proceeds of the Series 2006 Principal of Series 2006 Bonds Less: Original Issue Discount Plus: Original Issue Premium Other Available Funds 1 Total Sources: Deposit to ODFA Bonds Escrow Fund Deposit to Bond Reserve Fund Deposit to Construction Fund Costs of Issuance including Underwriters Discount 2 Total Applications: 1 Includes funds held by the trustee for the ODFA Bonds and cash contributed by the Authority. $ $ $ $ $ $ $ $ $ $ 2 Includes all costs of issuance, including Underwriters discount ($ ), financial guaranty insurance premium, fees for legal counsel and other expenses, the payment of which is contingent upon the issuance of the Series 2006 Bonds. [Remainder of this page intentionally left blank] 15

22 ESTIMATED DEBT SERVICE SCHEDULE The following table sets forth for each respective year ending June 30, the amounts required to make scheduled payment of principal of and interest on the Series 2006 Bonds and the Outstanding Indebtedness more fully described under the heading Outstanding Indebtedness in Appendix A hereto: Period Ending June 30 ESTIMATED DEBT SERVICE REQUIREMENTS (Totals may not sum due to rounding) Series 2006 Principal Series 2006 Interest Debt Service on Outstanding Indebtedness Total Debt Service 2007 $ 7,072, ,510, ,959, ,725, ,723, ,716, ,714, ,671, ,647, ,581, ,344, ,354, ,341, ,341, ,329, ,325, ,322, ,322, ,116, ,117, ,114, ,118, ,117, ,116, ,121, ,120,788 Total $134,948,129 Assumes the defeasance and discharge of the Authority s ODFA Payment Obligations as described under PLAN OF REFUNDING AND APPLICATION OF SERIES 2006 BOND PROCEEDS herein (column entry for 2007 includes the Authority s ODFA Payment Obligations to the date of delivery of the Series 2006 Bonds) and annual debt service on the Series 2005 Bonds, the Series 2004 Bonds, the Capital Lease Obligations and notes payable and the Authority s guarantee obligation with respect to the Tillman Series 2003 Revenue Note described under Outstanding Indebtedness in Appendix A hereto. INVESTMENT CONSIDERATIONS The purchase of the Series 2006 Bonds involves certain investment risks that are discussed throughout this Official Statement. Accordingly, each prospective purchaser of the Series 2006 Bonds should make an independent evaluation of all of the information presented in this Official Statement in order to make an informed investment decision. This discussion of certain risks is not intended to be exhaustive and should be read in conjunction with Appendix A. General The ability of the Authority to make the required principal and interest payments on the Series 2006 Bonds and the Outstanding Bonds depends upon, among other things, the capabilities of 16

23 management, economic conditions, competition, labor markets for nurses and other employees, medical advancements and changes in medical technology, various third-party reimbursement programs, including Medicare, Medicaid and other third-party payors, and many other factors. No assurance can be given that the revenues generated by the Authority from the operation of the Hospital will be sufficient to make such required payments. Future economic and other conditions, including the demand for health care services, economic trends and events, technological developments and demographic changes, the confidence of physicians and the public in the facilities and services provided by the Authority, malpractice claims and other litigation, competition, changes in the methods and rates of third-party and governmental reimbursement as well as increased costs and changes in government regulations may adversely affect the future financial condition of the Authority and, consequently, the Authority s ability to make payments of the principal of and interest on the Series 2006 Bonds. There can be no assurance given that the financial condition of the Authority and/or the utilization of their facilities and services will not be materially and adversely affected by future economic and other conditions. This caption should be read in conjunction with the information concerning the Authority and the Hospital contained in Appendix A hereto and the audited financial statements attached hereto as Appendix B. Federal and State Legislation and Regulation General. The Authority is subject to regulatory actions and policy changes by those governmental and private agencies that administer Medicare, Medicaid and other third-party payor programs (to the extent that the Authority maintains participating contracts with such agencies), and actions by, among others, the National Labor Relations Board, the Joint Commission on Accreditation of Healthcare Organizations and other federal, state and local government agencies and accrediting organizations. There can be no assurance that such agencies and legislative bodies may not make policy changes that could produce adverse effects upon the ability of the Authority to generate revenues or upon the utilization of its health care facilities. Wide variations of bills and regulations proposing to regulate, control or alter the method of financing healthcare costs are often proposed and introduced in Congress, state legislatures and regulatory agencies. Because of the many possible financial effects that could result from enactment of any bills or regulatory actions proposing to regulate the healthcare industry, it is not possible to predict with assurance the effect on the Authority and the Hospital, if any, of such bills or regulatory actions. Medicare and Medicaid Programs. Medicare and Medicaid are the commonly used names for health care payment programs governed by certain provisions of the Federal Social Security Act. Medicare is an exclusively federal program, and Medicaid is a combined federal and state program. Medicare provides certain health care benefits to beneficiaries who are 65 years of age or older, who are long-term disabled, who qualify for the End Stage Renal Disease Program or who are otherwise eligible. Medicare Part A covers inpatient hospital services, certain skilled nursing facility services, hospice and home health care services, and certain other services, and Medicare Part B covers certain physician services, outpatient hospital services, certain home health services, medical supplies, durable medical equipment and certain other services. Medicaid is designed to pay providers for care given to the medically indigent and is funded by federal and state appropriations. Medicare is administered by the Centers for Medicare and Medicaid Services ( CMS ) of the United States Department of Health and Human Services ( HHS ). The Medicare Part A program is primarily financed by payroll taxes held in the Federal Hospital Insurance Trust Fund (the HI Trust Fund ), from which expenditures to participating hospitals and other health care providers are paid. The 17

24 Medicare Part B program is financed by premium payments by enrollees (or states under the Medicaid program), by appropriations by the federal government to the Federal Supplementary Medical Insurance Trust Fund (the SMI Trust Fund ) and by earned-interest income. In its March 2002 report to Congress, the Board of Trustees for the Trust Funds projected that the HI Trust Fund will be exhausted in 2030 and that additional effective and decisive action will be required to avert insolvency and reported that the SMI Trust Fund is adequately financed into the future but expressed concern about growth in the cost of the program. Medicare. General. Approximately 49% of the gross patient service revenues of the Hospital for the fiscal year ended June 30, 2006, were derived from Medicare. Medicare pays acute care hospitals for most services provided to inpatients under a payment system known as the Prospective Payment System or PPS. Separate PPS payments are made for inpatient operating costs and inpatient capital costs. Some costs that are excluded from PPS are paid on the basis of reasonable cost, also known as pass-through costs. Medicare pays for hospital-based and certain outpatient services pursuant to a variety of methodologies. Significant changes have been and may be made in the Medicare program that could have a material adverse impact on the financial condition of the Hospital and the Authority. Health care providers, including the Hospital, have been affected by changes in recent years in laws and regulations governing the Medicare program. The purpose of much of this statutory and regulatory activity has been to contain health care costs, including limits on the amount of money paid to health care providers under the Medicare program. The Balanced Budget Act of 1997 ( BBA ) made comprehensive changes to Medicare reimbursement and established a new Medicare Part C relating to Medicare managed care. The changes in reimbursement under BBA were projected to slow the increase in Medicare spending by $115 billion and Medicaid spending by $13 billion over five years. The BBA was amended in 1999 by the Medicare, Medicaid and SCHIP Balanced Budget Refinement Act ( BBRA ). BBRA provided for approximately $27 billion in relief to providers over ten years to counteract reimbursement cuts mandated by BBA. BBRA was amended the following year by the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 ( BIPA ), which provides approximately $35 million in additional BBA relief over five years. Payment for Outpatient Services. Medicare payment for outpatient services, including outpatient surgery and radiology procedures, is made under a prospective payment system. Many outpatient services are reimbursed through payment of ambulatory payment classification ( APC ) groups, but others, like clinical diagnostic laboratory services, continue to be reimbursed under fee schedules outside of the outpatient PPS system. Certain outpatient services, like most observation services, are bundled into APC groups and are not reimbursed separately. Pass-through payments have been developed to provide additional reimbursement for certain innovative medical devices, drugs and biologicals, but time limits restrict the life of these separate payments. In addition, hospitals may receive additional reimbursement for outlier cases, which are unusually difficult or costly cases. Some hospitals may also qualify for incremental transitions to payment under APCs. APCs do not include payments for physicians professional services, which are billed and paid separately. Certain pre-admission services rendered on an outpatient basis are bundled in the PPS payment for inpatient operating costs and not separately billable. Because of the fixed nature of this PPS reimbursement for outpatient services, the ultimate effect on the Hospital will depend upon its ability to control the costs of providing such services and its ability to accurately capture and report claims for the services being provided. 18

25 Payment for Inpatient Operating Costs. Acute care hospitals are paid a specified amount towards their operating costs based on the Diagnosis Related Group ( DRG ) assigned to each discharge of a Medicare patient, which is in turn determined by the diagnosis, procedure and other factors assigned to each such discharge. The amount to be paid for each DRG is established prospectively by CMS and is not, with certain exceptions, related to a hospital s actual costs or variations in service or length of stay, but rather is based on the amount of resources typically expended to treat patients with that diagnosis. For certain Medicare beneficiaries who have unusually long or costly hospital stays, which are known as 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 operating costs incurred by the Hospital. DRG payments to both urban and rural hospitals are increased annually by reference to the hospital market basket index, or the cost of providing health care services. In recent years, Congress has reduced the rate of increases in the DRG rates under the market basket index. Pursuant to the Omnibus Budget Reconciliation Act of 1993 ( OBRA 1993 ), the annual increase for most hospitals for federal fiscal years through 1997 was less than the increase in the market basket index. The percentage increase for fiscal year 1998 was 0%. For fiscal year 1999, the increase equaled the market basket percentage increase minus 1.9% for hospitals in all areas. For fiscal year 2000, it was the market basket percentage increase minus 1.8%, except in October 2000 an increase was made which was the market basket percentage increase minus 1.1% as a result of BIPA, except for hospitals designated as sole community hospitals. For fiscal year 2001, the increase was again modified by BIPA to be the market basket percentage increase minus 1.1% until March 31, 2001 and the market basket percentage increase plus 1.1% from April 1, 2001 until September 30, 2001, except for sole community hospitals. The increase for fiscal years 2002 and 2003 was the market basket percentage increase minus.55%. For fiscal year 2003, the market basket was rebased and revised to reflect costs from fiscal year 1997, rather than fiscal year 1992, which was previously used. Each subsequent fiscal year, the increase will equal the market basket percentage increase for all hospitals. There is no assurance that future increases in the DRG payments will keep pace with increases in the cost of providing hospital services. The Secretary of HHS is required to review annually the DRG categories to take into account any new procedures, reclassify DRGs and recalibrate the DRG relative weights which reflect the relative hospital resources used by hospitals with respect to discharges classified within a given DRG category. There is no assurance that the Hospital will be paid amounts which will reflect adequately changes in the cost of providing health care or in the cost of health care technology being made available to patients. CMS must adjust DRG classifications at least annually, but such adjustments must be on a budget-neutral basis. Certain hospitals and distinct-part units are not covered under PPS but are reimbursed on a reasonable cost basis, subject to the Tax Equity and Fiscal Responsibility Act of 1982 ( TEFRA ) rate of increase ceiling on inpatient costs per discharge. Inpatient Rehabilitation Facilities. Section 4421 of the BBA, as amended by section 125 of the BBRA, and by section 305 of the BIPA, authorized the implementation of a per discharge prospective payment system, through new Section 1886(j) of the Social Security Act, for inpatient rehabilitation hospitals and rehabilitation units of other hospitals. These hospitals and units are referred to as inpatient rehabilitation facilities ( IRFs ). The IRF PPS utilizes information from a patient assessment instrument to classify patients into distinct groups based on clinical characteristics and expected resource needs. These groups are called case-mix groups ( CMGs ). Payments are made on a per discharge basis and differ based on the patient's assigned CMG and other applicable adjustments. Payments made under the 19

26 IRF PPS are designed to cover the inpatient operating and capital costs of furnished covered rehabilitation services, subject to certain exceptions. When originally implemented, a methodology had been in place to transition IRFs to the IRF PPS. This transition methodology expired on October 1, All IRFs are now paid pursuant to the IRF PPS. Because the IRF PPS is new, it is difficult to predict the long-term impact it will have on IRFs. Inpatient Capital Payments. Medicare payments for inpatient capital expenses (which include depreciation, interest, taxes, property, related insurance and similar expense items) are based upon a PPS system similar to the inpatient operating cost PPS. The capital expenses PPS was phased in over a 10-year transition period that ended September 30, For cost reporting periods beginning on or after October 1, 2001, payment for capital-related costs for all hospitals, except those defined as new hospitals, is determined based solely on the capital standard Federal rate. The basic methodology for determining capital prospective payments based on the Federal rate is set forth in Federal Medicare regulations. For the purpose of calculating payments for each discharge, the standard Federal rate is adjusted by factors for DRG weight, geographic adjustment factors, large urban hospital add-ons (if applicable), capital disproportionate share adjustment and capital indirect medical education adjustment factors (if applicable) and any applicable outlier payments. Under certain special exceptions provisions in the Federal Medicare regulations, additional payments under the inpatient capital PPS may be made through the tenth year beyond the end of the capital PPS transition period to eligible hospitals that meet (i) a project need requirement, which, in the case of certain urban hospitals, includes an excess capacity test; and (ii) a project size requirement, subject to certain total cap limitations. Eligible hospitals include sole community hospitals, urban hospitals with at least 100 beds that have a disproportionate share patient percentage of at least 20.2%, and hospitals with a combined Medicare and Medicaid inpatient utilization of at least 70%. The Hospital does not expect to qualify for the special exception payments described above. Physician Payment. Physician services are reimbursed on the basis of resource-based relative value scale ( RBRVS ) national fee schedules, subject to certain geographical adjustments. These fee schedules establish payment amounts for all physician services, including services of provider-based physicians, although reimbursement may vary based on the physician s location. The fee schedules are subject to annual updates. While changes to Medicare Part B payments for physicians do not directly affect hospitals, they may affect the relationship between the Hospital, its medical staff and the revenues of the Hospital as a result of its employment of and other relationships with physicians. There are no assurances that the annual physician fee schedules will reflect the costs of providing physician services. Costs of Medical Education. Medicare pays for costs associated with both direct and indirect medical education. Payment for the costs of indirect medical education will be made as a percentage adjustment to the DRG payments teaching hospitals receive. The indirect medical education adjustment is based on the ratio of a hospital s number of interns and residents per bed ( IRB ), although certain limitations on the IRB and certain resident count limitations apply as the result of BBA. Teaching hospitals also receive an indirect medical education adjustment to their Medicare capital PPS payment. Teaching intensity for these adjustments is measured by the ratio of interns and residents per average daily census. Payment for direct medical education is made on a pass through basis based on a formula that reflects base-year resident costs adjusted by inflation and the number of current-year reimbursable resident positions, adjusted as a reflection of the hospital s Medicare share of inpatient days relative to the hospital s total inpatient days. BBRA and BIPA created certain corridors for direct medical education payments through floor and cap thresholds that give additional reimbursement to hospitals with low costs compared to others in the locality and limit reimbursement for hospitals with high costs compared to others in the locality. Certain limitations on resident counts apply as a result of changes made by BBA. 20

27 Skilled Nursing Care. Medicare Part A covers certain post-hospital extended care services furnished by skilled nursing facilities ( SNFs ). BBA had mandated a prospective payment system for SNF services effective July 1, Included in the PPS reimbursement are covered skilled nursing services, as well as physical, occupational and speech therapy and certain ancillary services provided by the SNF. The SNF PPS is a per diem rate covering all costs related to the Part A stay, subject to certain limited exceptions. BBA also required consolidated billing for Part A and Part B services; however, BIPA repealed the consolidated billing requirements for Part B services, except for physical, occupational and speech therapy. Consolidated billing will continue to apply to these services and to most Part A services. The effect of consolidated billing on a SNF depends on whether the SNF can control costs from outside suppliers of such services. SNFs received some additional reimbursement under BBRA and BIPA that has temporarily lessened some of the adverse impact of BBA. Reimbursement for SNFs continues to fluctuate as new legislation is enacted each year. The effect of the SNF PPS will depend on the ability of a SNF to control costs of providing services and on the amount of relief provided by new legislation. Under most circumstances, SNF services are covered only if the patient spent at least three consecutive days as a hospital inpatient prior to admission at the SNF and if the patient was admitted to the SNF within 30 days of discharge from the hospital. SNF services are reimbursed for up to 100 days for each spell of illness and are subject to coinsurance and deductibles from the patient. Medicare/Medicaid Conditions of Participation. Health care facilities must comply with standards called Conditions of Participation in order to be eligible for Medicare and Medicaid reimbursement. Under the Medicare rules, hospitals accredited by the Joint Commission on Accreditation of Healthcare Organizations ( JCAHO ) are deemed to meet most of the Conditions of Participation ( Deemed Status ). However, CMS may request that the state agency responsible for licensing hospitals, on behalf of CMS, conduct a sample validation survey of a hospital to determine whether it is complying with the Medicare and/or Medicaid Conditions of Participation. Failure to maintain JCAHO accreditation or to otherwise comply with the Conditions of Participation could materially adversely affect the revenues of the Hospital. Provider-Based Standards. Significant changes have been made by CMS to the requirements providers must satisfy to have departments, clinics and other similar entities qualified as provider-based. These changes will generally make it more difficult to qualify for provider-based status. Qualifying for provider-based status typically results in additional reimbursement than a provider would receive as a free-standing entity. The effect of such changes on the Hospital is uncertain, and will depend on the types of services provided by affiliated entities. Under certain scenarios, loss of provider-based status will operate retrospectively and providers may be required to pay back to CMS the additional reimbursement received due to provider-based status. Medicare Managed Care. The Medicare program also offers medical services to beneficiaries through approved Medicare managed care organizations. Qualified managed care organizations contract with Medicare to provide a certain set of medical services to Medicare beneficiaries for a fixed prepaid price. The qualified Medicare managed care organization then contracts with health care providers, such as the Hospital, for the provision of services. With the implementation of the provisions of the BBA, CMS hoped that Medicare managed care options would be expanded. However, low reimbursement rates have hindered growth in this area. CMS has expressed a desire to modify this program to encourage future growth. As with any managed care plan, the revenues of the Hospital will be dependent on its ability to control costs. Medicaid. For the fiscal year ended June 30, 2006, Medicaid patients represented approximately 10.3% of the gross patient service revenues for the Hospital. 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 Hospital. Health care providers, including the Hospital, have been affected by changes in 21

28 the last several years in federal and state Medicaid laws and regulations. The purpose of much of this statutory and regulatory activity has been to contain the rate of increase in health care costs. Diverse and complex mechanisms to limit the amount of money paid to health care providers under the Medicaid program have been enacted. Medicaid is the commonly accepted name for the jointly administered and funded federal and state program which pays for certain health care services created by certain provisions of the federal Social Security Act to benefit indigent persons who are aged, blind or disabled and receiving Supplemental Social Security Insurance, or the members of families eligible for Aid to Families with Dependent Children, as well as others who meet federal or state eligibility conditions. Medicaid payments have been affected by efforts to reduce government spending. The Omnibus Budget Reconciliation Act of 1981 ( OBRA 1981 ) removed the requirement that states reimburse hospitals on the basis of the reasonable cost of inpatient hospital services and gave states greater flexibility to develop their own reimbursement rates. Pursuant to the BBA, rate setting is to be conducted as a public process, with opportunity for public review and comment. Federal legislation establishes standards which govern how states can impose and use provider-specific taxes for purposes of supplementing local funds to draw federal matching funds under the Medicaid program. Intergovernmental transfers of funds were originally exempted from any limits for the purpose of drawing federal matching funds, unless the transferred funds were derived from donations or taxes that would not otherwise be recognized for federal matching funds. However, in regulations released on January 12, 2001 and on January 18, 2002, the federal government attempted to prevent States from obtaining increased federal matching funds through intergovernmental transfers and other funding mechanisms when the state had raised no new dollars. In contrast, while BBA imposed limits on disproportionate share payments under the Medicaid program, these provisions were later modified under BIPA to allow increases in such payments. These changing requirements concerning federal matching funds and failure of a state to comply with these CMS regulations could result in the state losing federal matching funds which could have a material adverse effect on the revenues of the Hospital. The Oklahoma Medicaid Program is jointly funded by the Federal government and the state of Oklahoma. The Oklahoma Medicaid Program is administered by the Oklahoma Health Care Authority (the OHCA ). Effective July 1, 1995, the Oklahoma legislature mandated that OHCA implement a managed care program for Medicaid recipients. Beginning in 1996, OHCA established SoonerCare which consists of two programs: SoonerCare Choice and SoonerCare Plus. Under SoonerCare Choice, OHCA contracts directly with primary care providers and hospitals. It is a partially capitated program that is offered primarily to residents of rural counties. SoonerCare Plus, under which OHCA contracted directly with health plans under a fully capitated program offered to residents in urban counties, was discontinued in December OHCA reimburses hospitals for inpatient hospital services at a prospective per diem rate that includes an operating component based on the level of care provided and a fixed capital component. In addition, a hospital may receive adjustments related to costs for indirect medical education and direct medical education. Certain hospitals also qualify for payments as disproportionate share hospitals. The Federal and Oklahoma governments have considered, and are continuing to consider, changes to Medicaid funding. The United States Congress recently approved an increase in Medicaid funding to states; however, the Federal government continues to explore options for a long-term solution to the funding difficulties with Medicaid. Certain of the proposals being examined may ultimately result in reduced Federal Medicaid funding to the states, which could adversely impact the amount of revenues received by the Hospital. 22

29 On September 30, 2005, Oklahoma officials announced that the OHCA earned approval to provide health plan premium assistance to Oklahoma low-income individuals and small businesses for healthcare coverage under the Oklahoma Employer/Employee Partnership for Insurance Coverage program. The program is designed to make affordable health coverage available to adults who are either uninsured or at risk of losing their coverage due to high premium costs. Oklahoma has appropriated $50 million to such program and it is anticipated that its subsidy will be matched each year with approximately $100 million in federal funds. Utilization Review. Federal statutes and regulations require that the services provided to Medicare and Medicaid beneficiaries be regularly reviewed to ensure quality patient care and effective utilization of resources. The 1972 Social Security Amendments, as amended by the Medicare and Medicaid Anti-Fraud and Abuse Amendments of 1977, require, as a condition of participation in Medicare and Medicaid, that hospitals, including the Hospital, establish utilization review committees composed of physicians and other staff members. The committees must examine the appropriateness and effectiveness of health care delivery in the respective facilities. Failure to conduct utilization reviews can result in various sanctions, including, but not limited to, denial of payment for inappropriate services. Federal Anti-Fraud and Abuse Regulations. The federal Medicare/Medicaid Anti-Fraud and Abuse Amendments to the Social Security Act (the Anti-Kickback Law ) make it a criminal felony offense to knowingly and willfully offer, pay, solicit or receive remuneration in order to induce business for which reimbursement is provided under a federal health care program. In addition to criminal penalties, including fines up to $25,000 and five years imprisonment, violations of the Anti-Kickback Law may lead to civil monetary penalties in the amount of $50,000 for each violation, treble damages and exclusion from the Medicare and Medicaid programs. The scope of prohibited payments in the Anti-Kickback Law is broad and includes economic arrangements involving hospitals, physicians and other health care providers, including joint ventures, space and equipment rentals, purchases of physician practices and management and personal services contracts. Judicial decisions regarding the Anti-Kickback Law have broadly interpreted its scope. The Anti- Kickback Law has been interpreted to cover any arrangement where one purpose of the remuneration was to obtain money for the referral of services or to induce further referrals. Remuneration for purposes of the Anti-Kickback Law includes the transfer of anything of value, in cash or in kind, directly or indirectly, covertly or overtly. HHS regulations describe certain arrangements that will not be deemed to constitute violations of the Anti-Kickback Law. The safe harbor regulations define certain practices that will be exempted from prosecution or other enforcement action regarding inducements for referrals. The safe harbors described in the regulations are narrow and do not cover a wide range of economic relationships which many hospitals, physicians and other health care providers consider to be legitimate business arrangements not prohibited by the Anti-Kickback Law. Because the regulations describe safe harbors and do not purport to describe comprehensively all lawful or unlawful economic arrangements or other relationships between health care providers and referral sources, hospitals, physicians and other health care providers having these arrangements or relationships may not be required to alter them in order to ensure compliance with the Anti-Kickback Law. While the failure to qualify for a safe harbor exemption does not necessarily lead to the conclusion that such arrangement violates federal law, such failure may indicate the potential for investigation or challenge to the arrangement. The Hospital has entered into other arrangements with other health care providers. Management believes that such arrangements do not violate the Anti-Kickback Law. 23

30 Management continually assesses such arrangements to determine what, if any, action is required to minimize the risk that such arrangements could be claimed to be in violation of the Anti-Kickback Law. Federal Self-Referral Restrictions. Physicians have been prohibited under legislation sometimes known as Stark I from referring Medicare patients for clinical laboratory services to providers in which the physicians have a financial interest, unless an exception applies. The Medicare and Medicaid Amendments included in the Omnibus Budget Reconciliation Act of 1993 (sometimes referred to as Stark II ) extended this prohibition on referrals, effective December 31, 1994, to a longer and very expansive list of designated health services, including inpatient and outpatient hospital services, physical and occupational therapy services, radiation therapy services and radiology and other diagnostic services, all of which are provided by the Hospital. Certain provisions of Stark II are ambiguous, and the scope of the prohibitions in the law is broad, in part because financial interest is very broadly defined to include both ownership interests of physicians in the provider of such designated health services and compensation arrangements between physicians and such providers. The prohibitions are subject to a number of exceptions defined by the statute. Compliance with one of the statutory exceptions of Stark II is mandatory where a referral falls within the purview of the statute. Significantly, on March 26, 2004, CMS promulgated an interim final rule, effective July 26, 2004, which clarifies certain ambiguities in the Stark law prohibitions and exceptions thereto and also provides for certain new exceptions. It is anticipated that Stark law enforcement activity will increase following publication of these Phase II Regulations. Nonetheless, there still remain ambiguities and questions of interpretation in analyzing whether an arrangement violates the Stark law. Penalties for violation of the statute include denial of Medicare or Medicaid payment, as the case may be, and required refunding of amounts improperly collected. In addition, civil monetary penalties ($15,000 for each service and $100,000 for a circumvention scheme in violation of the statute) and Medicare program exclusion may be imposed under certain circumstances. While management believes that its arrangements currently comply with such law, the current ambiguity and breadth of the law mean that there can be no assurance that enforcement authorities would agree. False Claims Act. The False Claims Act prohibits the knowing submission of false claims to the government and imposes significant penalties of up to $10,000, plus three times the amount of damages, for each violation. The United States Department of Justice continues to target fraud in the health care industry as one of its top priorities. Nationwide initiatives have resulted in the investigation of a number of health care providers and the imposition of multi-million dollar fines. The Health Insurance Portability and Accountability Act of 1996 ( HIPAA ) added new criminal offenses applicable to health care providers, including fraud, theft or embezzlement, false statements, obstruction of justice and money laundering. HIPAA also expanded the government s ability to exclude providers by making exclusion mandatory in cases of any health care fraud. A minimum permissive exclusionary period of one to three years was also created, depending on the basis for exclusion. The BBA made mandatory exclusion permanent upon a health care provider s third conviction of a health care related offense. In addition to these legislative actions, the Office of the Inspector General of HHS ( OIG ) has publicized that the United States government recouped over $369 million from healthcare providers through False Claims Act civil settlements in the six months ending Sept. 30, In addition, the OIG has stated that during that same six-month period it administered 2,212 sanctions for alleged fraud and abuse concerning Medicare, Medicaid, and other federal healthcare programs. While management believes that its submission of claims to federal health care programs have not violated the False Claims Act, there can be no assurance that enforcement authorities would agree. 24

31 Audits; General Compliance General. In recent years the complex body of law governing relationships among hospitals, physicians and other providers and suppliers has been expanding in a manner causing increasing regulation of such relationships. This body of law includes federal and state statutes prohibiting the offering or payment of any remuneration, directly or indirectly, to induce the referral of patients or for arranging for or recommending or ordering goods, services or items for which payment may be made in whole or in part by the Medicare or Medicaid programs. While regulations establishing certain limited exceptions and safe harbors have been promulgated, in general there is no clear statutory, regulatory or administrative guidance concerning most contractual arrangements. In addition, the OIG has published several fraud alerts expressing heightened interest in investigating and prosecuting violations of the anti-fraud and abuse laws and periodically issues advisory opinions discussing whether particular arrangements potentially violate the Anti-Kickback Statute and whether the OIG would refrain from pursuing action for such violations due to public policy and other mitigating concerns. Audits. Most hospitals are subject to audits and retroactive audit adjustments with respect to reimbursement claimed under the Medicare and Medicaid programs and from other third-party payors. Any such adjustments can be substantial. Medicare regulations also provide for withholding Medicare payment in certain circumstances; any such withholding with respect to the Hospital could have an adverse effect on the overall financial condition of the Hospital. Management is not aware of any situation whereby a material Medicare payment is being withheld. The Hospital maintains reserves for potential audit adjustments. General Compliance. Medicare requires compliance with certain additional reporting and other requirements. Penalties for noncompliance may be materially adverse and could include criminal or civil liability for making false claims and/or exclusion from participation in the Medicare program. Management currently is aware of no such compliance-related difficulties with the Medicare program that would materially adversely affect the financial condition of the Hospital. Compliance Plan. The OIG issued Compliance Guidance for Hospitals (the Guidelines ) in February The OIG issued similar final and draft Guidelines for other health care providers, including laboratories, durable medical equipment suppliers, nursing facilities, third-party billing companies, ambulance providers, hospice agencies, home health agencies, pharmacies and others. The Guidelines are voluntary programs based upon the U.S. Sentencing Commission s Sentencing Guidelines. Theoretically, a hospital s implementation of an effective corporate compliance program would be considered as a mitigating factor in the event the provider is prosecuted for a federal offense. Implementation of an effective compliance program may require dedication of significant financial resources. Additionally, because voluntary disclosures and repayment of erroneously billed charges are critical elements of an effective compliance plan, a hospital may make repayments to the government that it would not have made absent a compliance plan. The Hospital adopted an Ethics Compliance/Responsibility Program effective November Regulatory and Contractual Actions The Hospital is subject to regulatory actions and policy changes by those governmental and private agencies that administer Medicare, Medicaid and other third-party-payor programs (to the extent that the Hospital maintains participating contracts with such agencies), and actions by, among others, the National Labor Relations Board, the Joint Commission on Accreditation of Healthcare Organizations and other federal, state and local government agencies. Increasingly, private insurance companies have been negotiating alternative rate contracts with providers with respect to their beneficiaries. It is not possible at this time to predict the impact of these 25

32 types of contracts on the revenues of the Hospital. The long-term effect will depend upon such factors as the correlation between the negotiated rate and the actual cost of services provided, the success of such programs in marketing their plans to consumers and the actual utilization of the health care facilities of the Hospital by beneficiaries. Antitrust The Hospital, like other providers of health care services, is subject to federal and state antitrust laws. Those laws generally prohibit agreements which restrain trade and prohibit the acquisition or maintenance of a monopoly through anti-competitive practices. The legality of particular conduct under the antitrust laws usually depends on the specific facts and circumstances and cannot be predicted in advance. Antitrust enforcement by federal and state authorities in the health care field has increased in the last 10 years. On September 15, 1993, the United States Department of Justice and the Federal Trade Commission issued Statements of Antitrust Enforcement Policy in the Health Care Area. These statements were revised on September 27, 1994 and again on August 28, The statements generally describe certain analytical principles which the agencies believe apply to certain factual situations and also establish certain Antitrust Safety Zones. Conduct within those zones will not be challenged by the agencies, absent extraordinary circumstances. Many activities frequently engaged in by health care providers and third parties fall outside of these safety zones but are not in fact challenged; failure to fall within a zone does not mean that a participant will be investigated or prosecuted, or even that the activity violated the antitrust laws. Management believes that the activities of the Hospital fully comply with the antitrust laws. Maintenance of Tax-Exempt Status Covenants to Maintain Tax-Exempt Status of Interest on the Series 2006 Bonds. The Internal Revenue Code of 1986, as amended (the Code ), imposes a number of requirements that must be satisfied for interest on state and local obligations, such as the Series 2006 Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of bond proceeds, limitations on the investment earnings of bond proceeds prior to expenditure and a requirement that the Authority file an information report with the IRS. The Authority has covenanted in certain of the documents referred to herein that it will comply with such requirements. Future failure by the Authority to comply with any of these covenants may result in the interest on the Series 2006 Bonds being taxable, retroactively to the date of issuance. See TAX EXEMPTION herein. Private Health Plans and Insurers Certain private insurance companies contract with hospitals on an exclusive or a preferred provider basis, and some insurers have introduced plans known as preferred provider organizations ( PPOs ). Under such plans, there may be financial incentives for subscribers to use only those hospitals which contract with the plans. Under an exclusive provider plan, which includes most health maintenance organizations ( HMOs ), private payors limit coverage to those services provided by selected hospitals. With this contracting authority, private payors may direct patients away from nonselected hospitals by denying coverage for services provided by them. Most PPOs and HMOs currently pay hospitals on a discounted fee-for-service basis or on a discounted fixed rate per day of care. Many healthcare providers, including the Hospital, do not have accurate information about its actual costs of providing specific types of care, particularly since each patient presents a different mix of services and length of stay. Consequently, the discounts offered to 26

33 HMOs and PPOs may result in payment at less than actual cost and the volume of patients directed to a hospital under an HMO or PPO contract may vary significantly from projections. Therefore, the future financial consequences of such contracts are unknown and the effect on the financial statements may be different in the future than that reflected in the financial statements for the current period. The Hospital currently has contracts with PPOs and other managed care providers. Such programs negotiate payment terms, which terms may include discounted fee-for-service payments or payments based on DRG. There is no assurance that the Hospital will maintain such contracts or obtain other similar contracts in the future. Failure to maintain such PPO contracts could have the effect of reducing the Hospital s patient base or gross revenues. Conversely, participation may maintain or increase the Hospital s patient base, but may result in reduced payment and lower net income. Therefore, the future financial consequences of such contracts are unknown and the effect on the financial statements may be different in the future than that reflected in the financial statements for the current period. Changes in Health Care Delivery General. Efforts by health insurers and governmental agencies to limit the cost of hospital service and to reduce utilization of hospital facilities may reduce future revenues of all hospitals. Through various combinations of changes in governmental policy, advances in technology and treatment, increased costs of operations, increased charges, changes in payment methodology, utilization review, and greater competition, inpatient hospitalizations have generally decreased over the past five years. It is uncertain whether that decrease will continue, and to what extent the factors mentioned above will continue to create operational and economic uncertainty for hospitals in the United States. It is now generally acknowledged that hospital operations pose greater complexity and higher risk than in years past, and this trend may continue. It is not practical to enumerate each and every operating risk which may result from hospital operations, and certain risks or combinations of risks which are now unanticipated may have material adverse results in the future. Certain risks relating to hospital operations are enumerated below. Physician Contracting and Relations. The Hospital has entered into a wide variety of relationships with physicians. Many of these relationships may be of material importance to the operations of the Hospital, and, in an increasingly complex legal and regulatory environment, these relationships pose a variety of legal or business risks. Increasingly, the focus of these relationships is a physician practice group or independent practice association that concentrates a large number of physicians in a limited number of contracting organizations. This increases the importance of these contracts and increases the risk of the loss of one or more such contracts. The primary relationship between a hospital and physicians who practice in it is through the hospital s organized medical staff. Medical staff bylaws, rules and policies establish the criteria and procedures by which a physician may have his or her privileges or membership curtailed, denied or revoked. Physicians who are denied medical staff membership or certain clinical privileges, or who have such membership or privileges curtailed, denied or revoked, often file legal actions against hospitals and medical staff. Such actions may include a wide variety of claims, some of which could result in substantial uninsured damages to a hospital. In addition, failure of the hospital governing body to adequately oversee the conduct of its medical staff may result in hospital liability to third parties. All hospitals are subject to such risks. Technology and Services. Scientific and technological advances, new procedures, drugs and appliances, preventive medicine, occupational health and safety and outpatient healthcare delivery may reduce utilization and revenues of all hospitals in the future. Technological advances in recent years have accelerated the trend toward the use by hospitals of sophisticated, and costly, equipment and services for 27

34 diagnosis and treatment. The acquisition and operation of certain equipment or services may continue to be a significant factor in hospital utilization, but the ability of the Hospital to offer such equipment or services may be subject to the availability of equipment or specialists, governmental approval or the ability to finance such acquisitions or operations. Competition. Increased competition from a wide variety of potential sources, including, but not limited to, other hospitals, inpatient and outpatient healthcare facilities, clinics, physicians and others, could adversely affect the utilization and/or revenues of the Hospital. Existing and potential competitors may not be subject to various restrictions applicable to the Hospital, and competition may, in the future, arise from new sources not currently anticipated or prevalent. For a discussion of competitors, see Competition and Market Share in Appendix A hereto. Licensing, Surveys, Investigations and Audits Healthcare facilities 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 and Medicaid participation and payment, state licensing agencies, private payors and the Joint Commission on Accreditation of Healthcare Organizations. Renewals and continuance of certain of these licenses, certifications and accreditations are based on inspections, surveys, audits, investigations or other reviews, some of which may require or include affirmative action or response by the Hospital. These activities generally are conducted in the normal course of business of health facilities. Nevertheless, an adverse result could result in a loss or reduction in the scope of licensure, certification or accreditation of the Hospital, or could reduce the payment received or require repayment of amounts previously remitted. Management currently anticipates no difficulty renewing or continuing currently held licenses, certifications or accreditations, nor does it anticipate a reduction in third-party payments from such events which would materially adversely affect the operations or financial condition of the Hospital. Nevertheless, actions in any of these areas could result in the loss of utilization or revenues, or the ability of the Hospital to operate all or a portion of its healthcare facilities, and, consequently, could have a material and adverse effect on the ability of the Authority to make the debt service payments relating to the Series 2006 Bonds. Environmental Laws and Regulations Healthcare providers are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations which address, among other things, provider operations or facilities and properties owned or operated by providers. Among the types of regulatory requirements faced by healthcare providers are: air and water quality control requirements; waste management requirements; specific regulatory requirements applicable to asbestos, polychlorinated biphenyls, and radioactive substances; requirements for providing notice to employees and members of the public about hazardous materials handled by or located at the provider; requirements for training employees in the proper handling and management of hazardous materials and wastes; and other requirements. In their role as owners and/or operators of properties or facilities, hospitals may be subject to liability for investigating and remedying any hazardous substances that have come to be located on hospital property, including any such substances that may have migrated off the property. Typical healthcare provider operations include, but are not limited to, in various combinations, the handling, use, treatment, storage, transportation, disposal and/or discharge of hazardous, infectious, toxic, radioactive and flammable materials, wastes, pollutants or contaminants. As such, healthcare provider operations are particularly susceptible to the practical, financial and legal risks associated with the obligations imposed 28

35 by applicable environment 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 can be no assurance that the Hospital will not encounter such risks in the future, and such risks may result in material adverse consequences to the operations or financial condition of the Hospital. At the present time, management is not aware of any pending or threatened claim, investigation or enforcement action regarding such environmental issues, or any instance of contamination, which, if determined adversely to the Hospital, would have material adverse consequences to the Hospital. Malpractice Claims and General Liability Insurance In recent years, the number of malpractice and general liability suits and the dollar amounts of damage recoveries have increased nationwide, resulting in substantial increases in malpractice insurance premiums. Malpractice and other actions alleging wrongful conduct are often filed against hospitals. While the Hospital carries malpractice and general liability insurance in amounts which management considers adequate, it is unable to predict the cost of such insurance in the future. The previous medical malpractice insurance provider used by the Hospital to cover hospital services (The Hospital Casualty Company, an entity sponsored by the Oklahoma Hospital Association) was placed into receivership by the Oklahoma State Insurance Commission; as a result, the Hospital may be exposed to additional liability on certain claims insured by this provider and claims arising under a gap in coverage prior to effectiveness of the new policy. See the discussion under Insurance Coverage in Appendix A and see discussion in Note 8 Medical Malpractice Claims in Appendix B hereto. Because the Hospital is a political subdivision of Comanche County, management believes the limit of liability for any individual tort claim not covered by insurance would be limited to $125,000. The Hospital considers currently available information provided by various sources in determining its estimated liability for medical malpractice claims. Events could occur that would cause this estimated liability to change materially in the near term. Other Factors that Could Affect Adversely the Hospital In the future, the following factors, among others, may affect the operations of the Hospital to an extent that cannot be determined at this time: adoption of federal or state legislation establishing a rate-setting agency with statutory control over hospitals; changes in revenue rulings governing the tax-exempt status of charitable organizations by either the courts or the Department of the Treasury, thereby requiring tax-exempt hospitals, as a condition to maintaining their tax-exempt status, to provide increased indigent care at reduced rates or without charge; changes in tax laws resulting in a reduction of charitable contributions; developments affecting the tax-exempt status of not-for-profit organizations (taxing authorities in certain jurisdictions have sought to impose or increase taxes related to the property and operations of such organizations, including hospitals, particularly where such authorities have been dissatisfied with the amount of service provided to indigents); and the rate of relevant technological advances (the availability of certain equipment may be a significant factor in hospital utilization, purchase of such equipment may be subject to health planning agency approval and to the ability of a hospital to finance such purpose). Recent developments also require not-for-profit hospitals to provide a minimum level of charitable care at reduced rates or without charge and conditions certain state tax benefits on the satisfaction of that requirement. Management cannot predict whether future administrative, legislative, or judicial proceedings will challenge their tax-exempt status under state or federal law or will require the 29

36 Hospital to increase its charitable care and community services to retain its tax-exempt status under state and/or federal law. Factors Concerning the Enforceability of the Bond Indenture The remedies available to the Trustee and the owners of the Series 2006 Bonds upon an Event of Default under the Bond Indenture are in many respects dependent upon judicial actions which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including specifically the United States Bankruptcy Code, the remedies provided in the Bond Indenture may not be readily available or may be limited and a court may decide to order the specific performance of covenants contained therein. The various legal opinions delivered concurrently with the delivery of the Series 2006 Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by general principles of equity and by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally. The rights and remedies of holders of the Series 2006 Bonds are subject to various provisions of the Federal Bankruptcy Code. The filing of a petition for relief under the Federal Bankruptcy Code by the Authority would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against the Authority and its property; and as an automatic stay of any act or proceeding to enforce a lien upon the Authority s property. In addition, upon the filing of a bankruptcy petition by or against the Authority, the security interest in the Pledged Revenues may not be effective as to accounts receivable acquired after (or, under certain conditions, prior to) the filing of the bankruptcy petition. If the bankruptcy court so orders, the property of the Authority, including its accounts receivable and the proceeds thereof, could be used for the benefit of the Authority despite the claims and over the objection of its secured creditors, to the extent that the Authority could adequately protect such creditors interest in such prepetition property. In a bankruptcy proceeding of the Authority initially only the Authority, as the debtor, may file a plan of reorganization so long as the exclusive filing period provided for under the Federal Bankruptcy Code has not expired. Thereafter, the Authority or any other party in interest may file a plan of reorganization for compromise of the debtor s debts in any such proceeding which could include provisions modifying or altering the rights of creditors generally, or any class of them, secured or unsecured. The plan, when confirmed by the court, binds all creditors who had notice or knowledge of the plan and discharges all claims against the debtor provided for in the plan. No plan may be confirmed unless certain conditions are met, among which are findings by the court that the plan is in the best interest of creditors, is feasible and, in the case of a consensual plan, has been accepted by each class of claims impaired thereunder. Each class of claims has accepted the plan if the holders of at least two-thirds in dollar amount of allowed claims and the holders of more than one-half in number of the allowed claims of such 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 has been accepted by at least one class of claims impaired thereunder and is fair and equitable with respect to each class of non-accepting claimholders impaired thereunder and does not discriminate unfairly. Limitations on Security Interests in Pledged Revenues The effectiveness of the security interest in the Pledged Revenues of the Authority created by the Bond Indenture may be limited by a number of factors, including: (1) provisions of the Social Security Act that may limit the ability of the Trustee to enforce directly the security interest in any of the Pledged Revenues in the form of reimbursement due under the Medicare or Medicaid programs and any other statutory or contractual provisions, grant award conditions, regulations or judicial decisions which may have a comparable effect with respect to any of the Pledged Revenues in the form of governmental 30

37 appropriations, or governmental or private research services; (2) commingling of some or all of the Pledged Revenues and other moneys of the Authority not so pledged; (3) present and future statutory liens; (4) rights arising in favor of the United States of America or any agency thereof; (5) rights of third parties in revenues not yet expended; (6) constructive trusts, equitable or other rights impressed or conferred by Federal or state courts in the exercise of equitable jurisdiction; (7) the factors described above under Factors Concerning the Enforceability of the Bond Indenture ; and (8) rights of third parties in Pledged Revenues not in possession of the Trustee. Secondary Market There is no guarantee that a secondary trading market will develop for the Series 2006 Bonds. Consequently, prospective bond purchasers should be prepared to hold their Series 2006 Bonds to maturity or prior redemption. Subject to applicable securities laws and prevailing market conditions, the Underwriters intend but are not obligated to make a market in the Series 2006 Bonds. Book-Entry Persons who purchase Series 2006 Bonds through broker-dealers become creditors of the broker-dealer with respect to the Series 2006 Bonds. Records of the investors holdings are maintained only by the broker-dealer and the investor. In the event of the insolvency of the broker-dealer, the investor would be required to look to the broker-dealer s estate, and to any insurance maintained by the broker-dealer, to make good the investor s loss. The Authority and the Trustee are not responsible for failures to act by, or insolvencies of, the Securities Depository or any broker-dealer. Federal Income Tax Exemption TAX EXEMPTION In the opinion of Fagin, Brown, Bush, Tinney & Kiser, Bond Counsel, to be delivered at the time of original issuance of the Series 2006 Bonds, under existing laws, regulations, rulings and judicial decisions, interest on the Series 2006 Bonds (including any original issue discount properly attributable to a holder thereof) is (a) excluded from gross income for federal income tax purposes and (b) is not a specific item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. Such interest, however, will be included in the adjusted current earnings (i.e., alternative minimum taxable income as adjusted for certain items including those items that would be included in the calculation of a corporation s earnings and profits under Subchapter C of the Internal Revenue Code of 1986, as amended, the Code ) of certain corporations and such corporations are required to include in the calculation of alternative minimum taxable income 75% of the excess of each such corporation s adjusted current earnings over its alternative minimum taxable income (determined without regard to this adjustment and prior to reduction for certain net operating losses). The opinion to be rendered by Bond Counsel on the date of delivery of the Series 2006 Bonds is expected to be in substantially the form appearing in Appendix D hereto. The opinions set forth above are subject to continuing compliance by the Authority with its covenants regarding federal tax laws in the Bond Indenture and related tax certifications. Failure to comply with such covenants could cause such interest to be included in gross income retroactive to the date of issue of the Series 2006 Bonds. The Series 2006 Bonds have not been designated as qualified tax-exempt obligations for purposes of Section 265(b)(3) of the Code relating to the ability of financial institutions to deduct from 31

38 gross income for federal income tax purposes interest expense that is allocable to carrying and acquiring tax-exempt obligations. The accrual or receipt of such interest may otherwise affect the federal income tax liability of certain recipients such as banks, thrift institutions, property and casualty insurance companies, corporations (including S corporations and foreign corporations operating branches in the United States), Social Security or Railroad Retirement benefit recipients or taxpayers otherwise entitled to claim the earned income credit and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations, among others. The extent of these other tax consequences will depend upon the recipient s particular tax status or other items of income or deduction. Bond Counsel will express no opinion regarding any such consequences and investors should consult their own tax advisors regarding the tax consequences of purchasing or holding the Series 2006 Bonds. From time to time, there are legislative proposals in Congress that, if enacted, could alter or amend the federal tax matters referred to above or adversely affect the market value of the Series 2006 Bonds. 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. Each purchaser of the Series 2006 Bonds should consult his or her own tax advisor regarding any pending or proposed federal tax legislation. Bond Counsel will express no opinion regarding any pending or proposed federal tax legislation. Federal Income Taxation Accounting Treatment of Original Issue Discount The Series 2006 Bonds that were offered at a price less than the principal amount thereof resulting in a yield greater than the interest rate for each such maturity as shown on the inside cover page hereof are herein referred to as the OID Bonds. The difference between such initial offering price and the principal payable at maturity or upon prior redemption constitutes original issue discount treated as interest which is not includible in gross income for federal income tax purposes subject to the caveats and provisions described above. In the case of an owner of an OID Bond, the amount of original issue discount which is treated as having accrued with respect to such OID Bond is added to the cost basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of such OID Bond (including its sale, redemption or payment at maturity). Amounts received upon disposition of such OID Bond which are attributable to accrued original issue discount will be treated as tax-exempt interest, rather than as taxable gain, for federal income tax purposes. Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual OID Bond, on days which are determined by reference to the maturity date of such OID Bond. The amount treated as original issue discount on such OID Bond for a particular semiannual accrual period is equal to (a) the product of (i) the yield to maturity for such OID Bond (determined by compounding at the close of each accrual period) and (ii) the amount which would have been the tax basis of such OID Bond at the beginning of the particular accrual period if held by the original purchaser, (b) less the amount of any interest payable on such OID Bond during the accrual period. The tax basis is determined by adding to the initial public offering price on such OID Bond the sum of the amounts which would have been treated as original issue discount for such purposes during all prior periods. If such OID Bond is sold between semiannual compounding dates, original issue discount which would have accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period. The Code contains additional provisions relating to the accrual of original issue discount in the case of owners of OID Bonds who purchased such OID Bonds after the initial offering. Owners of OID Bonds including purchasers of OID Bonds in the secondary market should consult their own tax advisors 32

39 with respect to the determination for federal income tax purposes of original issue discount accrued with respect to such OID Bonds as of any date and with respect to the state and local tax consequences of owning such OID Bonds. Federal Income Taxation Accounting Treatment of Original Issue Premium The Series 2006 Bonds that were offered at a price in excess of the principal amount thereof resulting in a yield less than the interest rate for each such maturity as shown on the inside cover page hereof are herein referred to as the Premium Bonds. An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. An initial purchaser of a Premium Bond must amortize any premium over such Premium Bond s term using constant yield principles, based on the purchaser s yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, by amortizing the premium to the call date, based on the purchaser s yield to the call date and giving effect to the call premium). As premium is amortized, the amount of interest accruing in any semiannual period and the purchaser s basis in such Premium Bond are reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser s basis may be reduced, no federal income tax deduction is allowed. Owners of Premium Bonds (including purchasers of Premium Bonds in the secondary market) should consult their own tax advisors with respect to the precise determination for federal income tax purposes of the treatment of bond premium upon sale, redemption or other disposition of such Premium Bonds and with respect to the state and local consequences of owning and disposing of such Premium Bonds. State Income Tax Exemption Laws 2002, Chapter 351, 12 (68 Okla. Stat., 2000 Supp., ), effective July 1, 2001, provides that interest on local governmental obligations (including bonds or notes issued by public trusts on behalf of cities, towns or counties) issued after July 1, 2001, for purposes other than to provide financing for projects for nonprofit corporations shall be exempt from Oklahoma income taxation. In the opinion of Fagin, Brown, Bush, Tinney & Kiser, Bond Counsel, interest on the Series 2006 Bonds is exempt from Oklahoma income taxation. LEGAL MATTERS Legal matters incident to the authorization, issuance and sale of the Series 2006 Bonds are subject to the approval of Fagin, Brown, Bush, Tinney & Kiser, Bond Counsel, who will render an opinion in substantially the form attached hereto as Appendix D. Certain legal matters will be passed upon for the Authority by its counsel, Wade and Mackey, P.C., and for the Underwriters by their counsel, Kutak Rock LLP. ELIGIBILITY FOR INVESTMENT IN OKLAHOMA The Act provides that the Series 2006 Bonds are eligible for purchase by any state banking association or corporation subject to such limitations as to investment quality as may be imposed by regulations, rules or rulings of the Oklahoma State Banking Commissioner. NO LITIGATION No litigation is pending or, to the knowledge of the Authority, threatened in any court to restrain or enjoin the issuance or delivery of any of the Series 2006 Bonds or the collection of revenues pledged or to be pledged to pay the principal of and interest on the Series 2006 Bonds or in any way contesting or affecting the validity of the Series 2006 Bonds or the Resolution or the power to collect and pledge the 33

40 revenues to pay the Series 2006 Bonds, or contesting the powers or authority of the Authority to issue the Series 2006 Bonds. Neither the creation, organization or existence of the Authority, nor the title of the present trustees or officers of the Authority to their respective offices, is being contested. UNDERWRITING The Series 2006 Bonds are to be purchased by First Southwest Company and BOSC, Inc., A subsidiary of BOK Financial Corp. (the Underwriters ), pursuant to a Bond Purchase Agreement with the Authority (the Bond Purchase Agreement ). The Underwriters have agreed to purchase the Series 2006 Bonds at a price of $ (representing the principal amount thereof less underwriter s discount of $ and less original issue discount of $ plus original issue premium of $ ). The Bond Purchase Agreement provides that the Underwriters will not be obligated to purchase any Series 2006 Bonds if all Series 2006 Bonds are not available for purchase, and requires the Authority to indemnify the Underwriters against losses, claims, damages and liabilities arising out of any incorrect or incomplete statements or information contained in this Official Statement and other matters. The initial public offering prices (yields) set forth on the inside cover page hereof may be changed by the Underwriters. One of the Underwriters of the Series 2006 Bonds is BOSC, Inc., A subsidiary of BOK Financial Corp. ( BOSC ). BOSC and Bank of Oklahoma, N.A. ( BOK N.A. ) are both wholly-owned subsidiaries of BOK Financial Corp., a bank holding company organized under the laws of the State of Oklahoma ( BOK Financial ). Thus, BOSC and BOK N.A. are affiliated, but BOSC is not a bank. The Series 2006 Bonds are not deposits of any bank and are not insured by the Federal Deposit Insurance Corporation ( FDIC ). BOK Financial and BOK N.A. are not responsible for the obligations of BOSC. INDEPENDENT ACCOUNTANTS The Hospital s Financial Statements as of and for the Years Ended June 30, 2006 and 2005, included in this Official Statement as Appendix B, have been audited by BKD, LLP, independent accountants, as stated in their reports appearing in Appendix B. The accountants have not expressed and will not express any opinion as to any information contained in this Official Statement other than that contained in Appendix B. The inclusion of the financial statements and reports in Appendix B does not imply that there has been no change in the financial position of the Hospital since the date thereof. ONGOING DISCLOSURE The Authority will enter into a Continuing Disclosure Agreement dated as of December 1, 2006, with the Trustee (the Continuing Disclosure Agreement ) to provide certain financial information and operating data annually to certain information repositories ( NRMSIRs ) and to provide notices of material events, pursuant to the requirements of Section (b)(5)(i) of Securities and Exchange Commission Rule 15c2-12 (17 C.F.R. Part 240, c2-12) (the Rule ) for the benefit of the holders and beneficial owners of the Series 2006 Bonds. In addition, the Authority also agrees to provide certain unaudited quarterly financial information to such repositories and such annual and quarterly information to any holder of $1,000,000 or more of the Series 2006 Bonds requesting the same in writing. The Underwriters obligation to accept and pay for the Series 2006 Bonds is conditioned upon delivery to the Underwriters or their agent of a certified copy of the Continuing Disclosure Agreement. The proposed form of the Continuing Disclosure Agreement is attached hereto as Appendix E. The Authority was unable to document that it had complied with a previous undertaking under the Rule entered into in connection with its borrowing of the proceeds provided by the issuance of the 34

41 ODFA Bonds inasmuch as it had no record of its filings of audited financial statements and annual financial information with all of the NRMSIRs for fiscal years Prior to the sale of the Series 2004 Bonds, the Authority filed such required statements and information for each of said years and implemented procedures to assure future compliance with respect to the undertakings entered into in connection with the issuance of the Bonds. The Authority has made timely annual filings of such statements and information for fiscal years (but failed to make timely filings of one or more of its quarterly unaudited financial information during fiscal year 2006) and covenants to comply with the Continuing Disclosure Agreement being entered into in connection with the issuance of the Series 2006 Bonds. RATINGS The Series 2006 Bonds have been assigned an underlying rating of BBB- by Standard & Poor s Ratings Services, a division of The McGraw-Hill Companies, Inc. ( S&P ). The Series 2006 Bonds are expected to be rated AA by S&P based upon the understanding that the Policy will be issued by Radian Asset Assurance Inc. upon delivery of the Series 2006 Bonds. Such ratings reflect only the views of such organization at the time such ratings are given, and the Authority and the Underwriters make no representation as to the appropriateness of such ratings. An explanation of the significance of such ratings may be obtained only from such rating agency. The Authority furnished such rating agency with certain information and materials relating to the Series 2006 Bonds that have not been included in this Official Statement. Generally, rating agencies base their ratings on the information and materials so furnished and on investigations, studies and assumptions by the rating agencies. There is no assurance that a particular rating will be maintained for any given period of time or that it will not be lowered or withdrawn entirely if, in the judgment of the agency originally establishing such rating, circumstances so warrant. Neither the Underwriters nor the Authority have undertaken any responsibility to bring to the attention of the owners of the Series 2006 Bonds any proposed revision or withdrawal of a rating of the Series 2006 Bonds or to oppose any such proposed revision or withdrawal. Any such revision or withdrawal of such a rating could have an adverse effect on the market price and marketability of the Series 2006 Bonds. MISCELLANEOUS The foregoing summaries or descriptions of provisions in the Bond Indenture and the Lease and all references to other materials not purporting to be quoted in full, are only brief outlines of certain provisions thereof and do not constitute complete statements of such provisions and do not summarize all the pertinent provisions of such provisions. All such descriptions are further qualified in their entirety by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors rights and the possible exercise of judicial discretion in enforcing such rights. Reference is hereby made to the complete documents for further information, draft copies of which are available from the offices of First Southwest Company, 325 North St. Paul Street, Suite 800, Dallas, TX 75201, and BOSC, Inc., A subsidiary of BOK Financial Corp., Bank of Oklahoma Plaza, 201 Robert S. Kerr, 4 th Floor, Oklahoma City, OK 73102, prior to delivery of the Series 2006 Bonds, and thereafter executed counterparts of which will be available for inspection during normal business hours at the principal corporate trust office of the Trustee, Bank of Oklahoma, N.A., 9520 N. May, Suite 110, Oklahoma City, OK This Official Statement is submitted only in connection with the sale of the Series 2006 Bonds and may not be reproduced or used in whole or in part for any other purpose. All projections 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 and no representation is made that any of such opinions or estimates will be realized. This Official Statement is 35

42 not to be construed as a contract or agreement between the Authority and the purchasers or holders of any of the Series 2006 Bonds. This Official Statement has been approved by the Authority. COMANCHE COUNTY HOSPITAL AUTHORITY By: Pat Henry, Chairman 36

43 APPENDIX A CERTAIN INFORMATION REGARDING THE AUTHORITY AND THE HOSPITAL

44 TABLE OF CONTENTS INTRODUCTION... 1 GENERAL... 1 Licenses, Accreditation, Certifications and Membership... 3 Comanche County Memorial Hospital Foundation... 3 Affiliations... 4 GOVERNANCE AND ADMINISTRATION... 5 Governance... 5 Administration... 6 BED COMPLEMENT, SERVICES AND MEDICAL STAFF... 8 Bed Complement... 8 Services... 8 Medical Staff... 9 PHYSICIAN RECRUITMENT AND PERSONNEL Physician Recruitment Plan Employed Physician Rationale Personnel Nurse Recruitment Plan Pension Plan Insurance Coverage SERVICE AREA Primary and Secondary Service Areas Overview of Comanche County COMPETITION AND MARKET SHARE UTILIZATION OUTSTANDING INDEBTEDNESS FINANCIAL PERFORMANCE REVENUES AND EXPENSES Gross Patient Service Revenues and Contractual Discounts Revenue Payor Mix Debt Service Coverage - Historical Revenues/Historical Debt Service Requirements Debt Service Coverage - Projected Revenues/Projected Debt Service Requirements MANAGEMENT S DISCUSSION OF OPERATING RESULTS Revenues Expenses Liquidity Long-Term Debt Pension Plan Page

45 INTRODUCTION Comanche County Memorial Hospital, an acute-care general hospital (the Hospital ), is owned by Comanche County, Oklahoma ( Comanche County or the County ), and leased to and operated by the Comanche County Hospital Authority (the Authority ). The Hospital, originally opened in 1951, with expansions and renovations since that time, has grown into a full-service regional referral 283-bed (licensed) hospital and integrated delivery system serving southwestern Oklahoma. The Hospital is located in Lawton, Oklahoma, the third largest city in the state and the county seat of Comanche County. Lawton is located approximately 100 miles southwest of Oklahoma City. The Hospital functions as the regional hospital for southwestern Oklahoma, which is comprised of Comanche County and ten adjacent counties. The population served by the Hospital totaled an estimated 306,843 in July The Hospital s primary service area ( PSA ), which accounted for 66% of the Hospital s admissions in FY 2006, consists of Comanche County. The population of the PSA was estimated at 112,429 in July An additional ten counties within the Hospital s secondary service area ( SSA ), which had an estimated population of 194,414 in July 2005, accounted for 34% of the Hospital s admissions in FY GENERAL The Authority is a public trust, created on January 13, 1971, by the Board of County Commissioners of Comanche County to operate, control and manage all matters concerning Comanche County Memorial Hospital and McMahon Tomlinson Nursing Center. Pursuant to a Lease dated as of January 13, 1971 (the Lease ), between the County and the Authority, the County leased to the Authority all hospital centers, hospital sites, equipment and facilities owned and subsequently constructed or acquired by the County or under its custody, management or control. The initial term of the Lease was for a period of 30 years and so long thereafter as any debt incurred by the Authority and secured by the revenues of any of the leased property remains unpaid. In July 2000, the Authority exercised an option to renew the term of the Lease for an additional 30-year period ending in January Today, the Hospital is licensed for 283 beds (232 of which were staffed as of June 30, 2006) and is the largest county hospital in the State of Oklahoma. With 1,586 employees (1,227 FTE) and a network of 166 physicians as of June 30, 2006, the Hospital is one of the largest employers in Comanche County. Authority Operating Entities. The Authority has three operating entities under its control: The Hospital is the largest operating entity of the Authority, representing 91.9% of its $171.9 million of assets and 93.4% of its $164.3 million of operating revenues as of June 30, All the information in this presentation, unless expressly stated, is related only to the Hospital. McMahon Tomlinson Nursing Center (the Nursing Center ), a 135-bed nursing facility located adjacent to the Hospital in Lawton. Tillman County Memorial Hospital and Physician Group, a 48-bed, short-term hospital in Frederick, Oklahoma (the Tillman County Memorial Hospital ), also operating a nursing center and home health agency (collectively, the Tillman Facilities ).

46 The Nursing Center is licensed by the State of Oklahoma and is located in Lawton, adjacent to the Hospital. The Nursing Center currently has a one-month waiting list and an occupancy rate of 98% and has been profitable for each of the past 17 years. Effective September 1, 1993, the Authority entered into a sublease agreement with the Tillman County City of Frederick Hospital Authority ( Tillman ) to take over full use, operations, administration and management of the Tillman Facilities located in Frederick, Oklahoma, approximately 45 miles from Lawton. The term of the sublease is 20 years with a renewal option for an additional 20 years. The Authority s consideration to Tillman under the sublease is the Authority s guarantee of the Tillman Series 2003 Revenue Note. See Outstanding Indebtedness herein for additional discussion of the Tillman Series 2003 Revenue Note. Each of the Hospital, the Nursing Center and Tillman issue financial statements as operating units or component units of the Authority. The Authority commenced issuing consolidated annual financial statements as of its fiscal year ended June 30, History of Development of the Hospital. The Hospital is currently licensed as a 283-bed facility located on 35 acres of land at 3401 West Gore Boulevard in Lawton, Oklahoma. An Outpatient Service Center and the Nursing Center are located on such property as well. The Hospital was first established as a 100-bed hospital in 1951 through the issuance of general obligation bonds by the County and receipt of Hill-Burton grants. The Hospital was increased to 140-beds in 1958 with proceeds of Federal aid and a general obligation bond issue by the County. A further addition to the Hospital of 24 beds, which was funded from Hospital moneys, was made in Subsequent additions to the Hospital of 36 beds increased the bed complement to 200 beds. In 1975 the Hospital added new space for offices, ancillary departments and 39 additional beds for a complement of 239 beds. Such project was financed with proceeds of the Authority s Hospital Revenue Bonds, Series 1972 and 1973, together with other available moneys. The proceeds of the Authority s Hospital Revenue Bonds, Series 1983, together with other available moneys, financed the fourth expansion and renovation of the Hospital which resulted in the addition of 44 beds, bringing the total bed complement to 283. The renovated, expanded and upgraded departments included administration, diagnostic treatment, nursing and service facilities. In addition, proceeds of the Series 1983 Bonds were used to refund the Authority s outstanding Series 1972 and Series 1973 Bonds. In November 1989, the Authority issued its Hospital Revenue Bonds, Series 1989 to refinance its Series 1983 Bonds. In 1990, the Authority provided funds for the construction of a rehabilitation nursery unit and medical office building through its issuance of Certificates of Participation. Such Certificates of Participation, together with its Hospital Revenue Bonds, Series 1989, were refinanced through the Authority s issuance of its Hospital Revenue Bonds, Series 1993A, which also provided funds for various capital improvement projects. Such projects included the substantial renovation of certain of the Hospital s facilities, fixtures and equipment, the acquisition and installation of new equipment, the renovation of a portion of the Hospital for use as a surgicare facility, improvements to the Hospital s existing parking facilities, the construction of a multi-level parking garage adjacent to the Hospital and leasehold improvements to a portion of the medical office building for use by physicians employed by the Hospital. The Series 1993A Bonds were refunded by the Authority s Hospital Revenue Refunding Bonds, Series 2004 and Series The Oklahoma Development Finance Authority ( ODFA ) issued its $28,010,000 Fixed Rate Revenue Bonds, 2000 Series B (the ODFA Bonds ) and loaned the proceeds to the Authority in A-2

47 January See THE AUTHORITY Existing Indebtedness in the Official Statement. The proceeds derived from the issuance of the ODFA Bonds financed the construction and equipping of an outpatient service center adjacent to the Hospital which opened in April The Authority s payment obligations with respect to the ODFA Bonds will be defeased and discharged upon the issuance of the Series 2006 Bonds. See PLAN OF REFUNDING AND APPLICATION OF SERIES 2006 BOND PROCEEDS in the Official Statement. Clinics and Other Facilities Operated by the Hospital. The Hospital has developed a network of 10 primary care clinics, 14 specialist clinics and 10 rural clinics staffed by Hospital physicians to offer medical services throughout the Hospital s primary and secondary service area. The rural health network of the Hospital is an important source of patient referrals, providing 23% of all patient referrals to the Hospital from outside of Lawton. The clinics are normally staffed with a physician, nurse and receptionist. Rural health clinics, as provided by law, are staffed by a physician assistant or nurse practitioner supervised by a physician. The physician assistant will have a nurse and receptionist as well. Licenses, Accreditation, Certifications and Membership The Hospital is accredited by the Joint Commission on Accreditation of Healthcare organizations ( JCAHO ). The Hospital was most recently surveyed in 2004, receiving a three-year accreditation. The Hospital holds licenses from: The State Board of Health of the State of Oklahoma; The United States Department of Justice Controlled Substances; The Oklahoma State Bureau of Narcotics and Dangerous Drug Control; and The Oklahoma State Department of Environmental Quality Radiation Management. The Hospital is accredited or certified by: The Joint Commission for Accreditation of Healthcare Organizations; The American College of Radiology; The American Association of Blood Banks; Commission on Accreditation of Rehabilitation Facilities; The National Association of Radiological Technologists An X-Ray Technician school conducted by the Hospital in association with Cameron University; and The College of American Pathologists A Medical Technologist School conducted by the Hospital in association with Cameron University. The Hospital is also a member of the following organizations: Oklahoma Hospital Association American Hospital Association Voluntary Hospitals of America Oklahoma Community Healthcare Alliance Comanche County Memorial Hospital Foundation The Comanche County Memorial Hospital Foundation (the Foundation ) was established as a not-for-profit corporation in 1993 by the Board of Trustees of the Authority to advance the charitable, scientific and educational purposes of the Authority and to fund such advancements through the organization and solicitation of financial support for the Hospital through current and planned giving. A-3

48 The Foundation also was established to create and manage programs to provide medicine, equipment and nutrition to patients in need, as well as funds to refurbish and replace items required for patient care. The Foundation hired an Executive Director in September 2001 to identify and cultivate potential donors to support its mission. The funds raised by the Foundation cannot be used for any purpose other than to support the mission of the Comanche County Hospital Authority. Prior to the engagement of the Executive Director, the Foundation had not actively sought donations to support its mission. For the fiscal years ending June 30, 2006 and 2005, it received contributions of $392,206 and $283,283, respectively. Contributions funded the provision of health program services and the management and administrative costs of the Foundation. As of June 30, 2006, the Foundation has Net Assets of $757,027. The Foundation is governed by a Board of Trustees currently consisting of thirty members. The current members of the Board of Trustees for the July 1, 2006 June 30, 2007, fiscal year are as follows: Board Member Occupation Effective Date Term Expiration July Current Term Ed Dzialo, Chairman Attorney July Fourth Diane Denhan, Vice Chairperson Stock Broker April Third Larry Benson, Sec./Treasurer Banker April Third Martha Lou Lawson Former Hospital Board Member Fifth Richard Boatsman, MD Pathologist Fifth Pat Henry Business Woman/Board Member April Third Linda Bridges CPA April Third Hugh Payne Architectural Landscaper April Third Cliff Brady Business Owner July Second Wallace Coffee Chairman, Comanche Nation July Second Betty B. Graybill Retired Physician s Wife July Second Cassandra Johnson Business Woman/Physician s Wife July Second Hossein Moini Business Owner July Second Faith Ofori Physician s Wife July Second Wayne Duty Rowe Rancher/Retired Board Member July Second Steve Cothren Athletic Director, LPS July First Clayton Green Business Owner/Board Member July First Edward Legako, MD Pediatrician July First Colleen Longacre PR Person for Wal-Mart July First William Jolly, MD Retired Physician July First Vickie Campbell Homemaker July First Kim Dodds Radio Management July First Kitty Dutcher Homemaker July First Larry Patton Television Station Manager July First Nancy Pontikes Homemaker/Physician s Wife July First Gerald Stadler Banker July First Terry Bell Business Owner July First Darrell Jones Business Owner July First Simone Schutz Homemaker/Physician s Wife July First Liz Wyatt Homemaker July First The Foundation is not considered a component unit of the Comanche County Hospital Authority. Consequently, its financial position is not included in the financial statements of the Authority, and it issues its own separate financial statements reporting financial position, revenues, expenses, changes in net assets and cash flows. Affiliations The Hospital has entered into a joint venture with Jackson County Memorial Hospital and Duncan Regional Hospital to form a limited liability company to build and operate a Radiation Oncology A-4

49 Treatment Center. The hospitals have joined together in this venture as a means of coordinating the provision of such care and avoiding the duplication of such service in southwestern Oklahoma. The limited liability company is expected to acquire a linear accelerator and locate it in Lawton, with branch offices located in Altus and Duncan, Oklahoma within the next three years. The Hospital, in association with Cameron University, operates a Medical Technician School on its campus. The school was created with the goal of training students to be medical technologists that, upon graduation, may be employed by the Hospital. Graduates number six to eight per annum. Cameron University s registered nurse training program is conducted in cooperation with the Hospital, using many of its facilities and, along with the Great Plains Area Vocational-Technical School practical nursing program, which also uses the Hospital for practical training, provides a source of registered and licensed practical nurses for employment by the Hospital. Other vocational programs in affiliation with Great Plains Area Vocational-Technical School are respiratory technologist, radiology techs and surgical techs. The Hospital has developed programs with area schools to assist students in preparing for a career in the field of healthcare. The Hospital conducts a program with Caddo Kiowa Technology Center in Fort Cobb, Oklahoma, and Red River Vocational-Technical School in Duncan, Oklahoma, to train licensed practical nurses and with the University of Oklahoma, Norman, Oklahoma, for physical therapy and occupational therapy students. The Authority is also conducting programs in conjunction with Southwestern Oklahoma State University, Weatherford, Oklahoma, for medical records students and a training program for pharmacy students. The Hospital has a family practice residency program affiliated with the University of Oklahoma School of Medicine. The Hospital offers a diverse array of low cost or no-cost programs to the community as part of its charitable mission and to serve its community. Through the provision of these programs, the Hospital s support within the community is enhanced and strengthened. Programs provided by the Hospital include, but are not limited to, the following: Prenatal Classes; Prostate Screenings; Sports Injury Clinic; and Depression Screenings. In addition to providing services directly to the community, the Hospital also makes gifts-in-kind, food, and monetary contributions in support of community endeavors to prevent and treat medical conditions of all kinds in an effort to build a stronger, healthier community. Among the organizations and programs supported by the Hospital are the American Heart Association, American Cancer Society, Asthma Camp, Boy Scouts of America, American Diabetes Association, Lawton Food Bank, March of Dimes, MS Foundation, United Way Agencies and the YMCA. Governance GOVERNANCE AND ADMINISTRATION The Authority is governed by a Board of Trustees appointed by the Board of County Commissioners of Comanche County, subject to a majority of that governing body, to serve a maximum of three five-year terms. Members of the Board of Trustees must be residents of Comanche County, and A-5

50 at any time not more than three of the Trustees may be residents of the City of Lawton. The Authority s principal offices are located at the Hospital. The leadership of the Board is determined through the annual nomination and election of officers. Members of the Board nominate and elect members of the Board to serve in the capacity of Chairman, Vice Chairman and Secretary. Each member of the Board of Trustees serves on the Finance Committee of the Board. The current trustees of the Authority are as follows: Name Office Occupation Years on Authority Board Appointment Date Ms. Pat Henry Chairman Retail Merchant 8 July 1998 Dennis Butler Vice Chairman Attorney 11 July 1995 Robert Love, M.D. Secretary Physician 9 July 1997 John Zelbst Member Attorney 9 July 1997 Clayton Green Member Business Owner 4 months July 2006 Administration The management of the Authority, including the Hospital, has been delegated by the Board of Trustees to the Administrative Staff. The Chief Executive Officer and the principal members of the Authority s administration are as follows. Randall K. Segler, CHE, Chief Executive Officer. Mr. Segler joined the Hospital in 1992 as Executive Vice President and Chief Operating Officer, and was promoted to Chief Executive Officer in Prior to joining the Hospital, he served as the Executive Vice President and Chief Operating Officer of Saint Joseph s Hospital (a 524-bed tertiary care referral center) in Marshfield, Wisconsin, from 1990 to 1992, and Senior Vice President and Chief Operating Officer of Northwest Texas Hospitals (a 250-bed acute care hospital and 134-bed psychiatric and substance abuse facility) in Amarillo, Texas, between 1986 and Prior to that, he served as Associate Administrator of Longmont United Hospital (a 143-bed hospital 45 miles northwest of Denver, Colorado) in Longmont, Colorado, from 1981 to 1986, and Grady Memorial Hospital (a 156-bed community hospital) in Chickasha, Oklahoma, from 1977 to Mr. Segler holds a Master of Healthcare degree from Trinity University, San Antonio, Texas, and a Bachelor of Science degree in business administration and allied health services from Southwestern Oklahoma State University. Mr. Segler is a Certified Diplomate of the American College of Healthcare Executives and serves or served as a Board member of the Oklahoma Hospital Association, City of Lawton Chamber of Commerce, Lawton Public Schools Foundation, Great Plains Vo-Tech Foundation and Southwest Oklahoma Medical Residency Foundation. Douglas Kent Weaver, Chief Operating Officer. Mr. Weaver joined the Hospital as Chief Operating Officer in 1999 from Memorial Hospital and Physician Group in Frederick, Oklahoma, where he served as Chief Executive Officer since Prior to that, he served in various progressive positions, including Department Director, Assistant Administrator and Chief Executive Officer of Memorial Hospital of Texas County in Guymon, Oklahoma, from Mr. Weaver holds a Master of Business Administration degree in management from Wayland Baptist University in Amarillo, Texas, a Bachelor of Science in pharmacy from Southwestern Oklahoma State University, and Associate of Science degree from Seward County Community College in Liberal, Kansas. Mr. Weaver is a Diplomate of the American College of Healthcare Executives and served as a member of the Board of the Oklahoma Hospital Association, and served as a member of a Regional Policy Board of the American Hospital Association. A-6

51 David Blackmon, C.P.A., Chief Financial Officer. Mr. Blackmon joined the Hospital in 2000 as Chief Financial Officer from Triad Hospitals, Inc. (formerly HCA & Healthtrust, Inc.) where he served as Chief Financial Officer of Longview Regional Medical Center and Alice Physicians and Surgeons Hospital since Prior to 1992, he served as Chief Financial Officer of Healthfirst Management Corporation from 1991, and Cambridge International Inc. and Affiliated Companies (a four hospital, 300-bed system, physician clinic and public foundation) from From 1982 to 1984, Mr. Blackmon served as Controller of Park North Hospital and Laurelwood Hospital as an employee of Contemporary Health Management. Mr. Blackmon holds a Bachelor of Science degree in accounting from Louisiana State University, and serves on the Board of the Lawton Kiwanis as a past President. Raymond Thomas Steinmetz, Jr., C.P.A., Senior Director of Finance and Information Technology. Mr. Steinmetz graduated from Southwestern Oklahoma State University with a Bachelor of Science degree with a major in accounting and finance. Since joining the Hospital in 1993, Mr. Steinmetz has served in various progressive capacities, including Staff Accountant Clinics, General Ledger Analyst, Decision Support Analyst, Senior Financial Analyst, Director of Accounting, and Controller. Joe Kip Cummins, Senior Director of Physicians Business Services. Mr. Cummins graduated from Cameron University with a Bachelor of Business Administration degree and from University of Oklahoma with a Master of Science in Health Administration degree. He joined the Hospital in 1990 as a Resident in Hospital Administration. After completing his residency, he served as the Assistant Vice President of Ancillary/Support Services, the Vice President of Ancillary/Support Services and is currently the Senior Director of Physicians Business Services. Mr. Cummins is a Diplomate of the American College of Healthcare Executives. Don Austerlitz, Senior Director of Human Resources. Mr. Austerlitz holds a Master s degree in Counseling, a Bachelor s degree in Management with emphasis in personnel and a Bachelor s degree in Psychology from Central State University. Since joining the Hospital in 1976, Mr. Austerlitz has served as Personnel Director and Vice President of Human Resources. Jo Ann Knecht, Senior Director of Operations. Ms. Knecht holds a Master of Business Administration degree from Oklahoma City University and a Bachelor of Science in Medical Records Administration degree from Southwestern Oklahoma State University. Since joining the Hospital in 1977, Ms. Knecht has served in various positions including Medical Records Director, Vice President of Quality/Risk Management and Vice President of Staff Support Services. Ms. Knecht serves as an officer of the Lawton Philharmonic Orchestra and Chairman of the Personnel Committee. Linda Leith, Chief Nursing Officer. Ms. Leith holds a Doctor of Nursing Science degree from Indiana University, a Master of Science in Nursing Administration degree and a Bachelor of Science in Nursing degree. She has a National Certification through the American Nurse s Credentialing Center as an Advanced Certified Nurse Administrator. Ms. Leith joined the Hospital in April 2003 as Division Director of Nursing. Prior to that, she was Chief Operating Officer and Chief Nurse Executive in Danville, Illinois, for two years and Vice President of Patient Services in Valparaiso, Indiana, for fifteen years. Ms. Leith authored two books on grief and several articles in professional journals on nursing administration. She has also taught nursing at both the undergraduate and graduate levels at Valparaiso University in Indiana. A-7

52 BED COMPLEMENT, SERVICES AND MEDICAL STAFF Bed Complement The Hospital is currently licensed for 283 beds. Staffed beds totaled 232 beds as of June 30, 2006, with the distribution noted in the table below. Bed Complement By Service June 30, 2006 Service Staffed Service Staffed Medical/Surgical 95 CCU 4 Rehabilitation 30 Obstetrics 14 NTU 18 Cardiovascular Care Unit 16 Gero-Psych 19 Nursery 24 ICU 12 Services The Hospital currently provides and expects to continue to provide the patient services as indicated in the below table. Patient Services Ambulance Services Home Health Services Pharmacy Anesthesiology Industrial Rehabilitation Physical Therapy Angiography Intensive Care Unit Plastic Surgery Bone Densitometry Internal Medicine Podiatry Breastfeeding Resource Center IV Infusion Therapy Poison Control Cardiac Catheterization Laboratory Pre/Perinatal Education Cardio-Electrophysiology Linear Accelerator Psychiatry - Adult Inpatient Cardiology Lithotripsy Psychiatry Geriatric Cardiovascular Surgery Magnetic Resonance Imaging Pulmonology Clinical Psychiatry Mammography Radiation Therapy Cosmetic Laser Center Metabolic Support Services Radiation Oncology Dedicated Women s Center Neonatology Radiology Dentistry Nephrology Rehabilitation Services Dermatology Neurosurgery Respiratory Therapy Diabetes Service Neurology Rheumatology Diagnostic Radiology Nuclear Medicine Rural Health Clinics Durable Medical Equipment Nursery Skilled Nursing Services Ear, Nose & Throat Nutrition Counseling Sleep Studies Echocardiology Obstetrics Social Services Electrocardiography Occupational Medicine Speech Therapy Electrophysiology Occupational Therapy Sports Medicine Emergency Services Oncology Sports Rehabilitation Endocrinology Ophthalmology Stereotactic Breast Biopsy Services Endoscopic Services Oral Surgery Teleradiology Family Practice Orthopedic Surgery Ultrasound Gastroenterology Pain Management Urgent Care Center General Medicine Pathology Urology General Surgery Pediatrics Wound Care Center Gynecology Perinatology Hematology Peritoneal Dialysis A-8

53 Medical Staff As of June 30, 2006, the medical staff was categorized as follows: Staff Status Number of Physicians Active 117 Provisional 32 Honorary 5 Affiliate 8 Consulting 4 Total 166 The table below provides an overview of the active medical staff acute admissions, by specialty areas and number of physicians within the specialty area, for the fiscal year ended June 30, Specialty Physicians Eligible to Admit Average Age No. of Admitting Physicians Acute Admissions Percent of Total Anesthesiology Cardiology , Ear, Nose & Throat Family Practice , Gastroenterology Hospitalist , Internal Medicine Nephrology Neurology Ob/Gyn , Oncology Ophthalmology Orthopedics Pediatrics , Psychiatry Pulmonology Rehabilitation Surgery, General Surgery, Neuro Surgery, Oral Surgery, Plastic Surgery, Vascular Urology Total , A-9

54 For the period from July 1, 2005, to June 30, 2006, the 10 most active physicians accounted for 32% of the Hospital s 11,159 admissions. The average age of the 10 most active physicians is 48 years. The following table presents a summary of the 10 most active physicians for the period from July 1, 2005, to June 30, 2006: Specialty Age Number of Admissions Percent of Total Hospitalist % Pediatrics Cardiology Hospitalist Hospitalist Hospitalist Obstetrics/Gynecology Cardiology Family Practice Obstetrics/Gynecology Total Top 10 Physicians 3,623 32% Remaining Physicians 7, Total All Admitting Physicians 11, % The following table shows the turnover of the members of the medical staff from June 30, 2002, through June 30, 2006: Changes in Medical Staff Staff Level Active, Courtesy, Affiliate Additions Deletions Total Physician Recruitment Plan PHYSICIAN RECRUITMENT AND PERSONNEL The Hospital has an ongoing recruitment strategy, which includes physician recruitment to fill existing medical staff needs and recruitment for medical specialties, which will enhance current specialties and/or expand the scope of services provided by the Hospital. This latter recruitment strategy targets patients who have had to leave the community to receive service. The Chief Executive Officer and Chief Operating Officer of the Hospital are responsible for physician recruitment. Once candidates are identified and a preliminary review is completed by the Chief Executive Officer and Chief Operating Officer, physicians are brought to Lawton to meet with (a) the Senior Director of Physician Services, (b) Senior Director of Human Resources, and (c) other doctors in the specialty or related area. Subsequent to such meetings, a decision, with input from the physicians in the specialty or related specialty area, is taken by management on whether to extend an offer to the physician under consideration for employment. As a result of the number of employed physicians and their breadth of specialties, the employed doctors constitute a multi-specialty clinic. Management is working with the physicians to assist them in changing their approach from that of a collection of individual specialists to a multi-specialty clinic. By A-10

55 doing so, management seeks to have the physicians become recruiters of additional physicians to the Hospital, and to provide them with an incentive to recruit quality individuals into the clinic and the community. In keeping with such philosophy, the Hospital has recently implemented a program whereby management identifies medical students attending Oklahoma University Medical School that have personal ties to southwestern Oklahoma, and assign an employed physician to contact the student to serve as a mentor and introduce them to the Hospital with the goal of recruiting them to the community upon graduation. The Hospital has identified the following physician practice areas for recruitment: Specialty No. of Physicians Specialty No. of Physicians Orthopedic Surgeon 2 Pulmonology 1 General Practice 2 Radiology 1 Internal Medicine 1 Gastroenterology 1 Neurology 1 Rheumatology 1 Cardiovascular Surgeon 1 Cardiology 1 Employed Physician Rationale The Hospital began employing physicians as a means of recruiting doctors to Lawton, Oklahoma, and placing physicians in Comanche County Memorial Hospital Clinics in outlying communities. The Hospital has found that it must offer physicians an incentive package, of which employment is a part, to attract doctors to Lawton. The Hospital offers prospective physicians an employment contract, with a minimum of three years, that provides a salary plus incentives based upon productivity. Currently, it has been the experience of the Hospital that students graduating from Medical School want to be employed by a health facility rather than enter private practice. Graduates prefer to focus on the science of medicine and patient care while receiving assistance from the Hospital to establish quality business operations. Among the benefits of employing physicians is to reduce the incentive for physicians to construct competing facilities with the Hospital. The reduction in expenditures and elimination of lost revenues as a result of competition with physician-owned specialty hospitals, at a minimum, offsets the direct cost of employed physicians. The number of physicians employed by the Hospital has grown to 69 physicians in 15 specialties and represents in excess of $167 million in billed hospital charges in These specialties include the following: Specialties Family Practice Urology Internal Medicine Neurosurgery Gynecologist Orthopedic Surgery Obstetrics General Surgery Radiology Anesthesiologist Hospitalist Physiatry Cardiovascular Surgery Neurology Psychiatry The cost of the physician practices are included in the audited financial statements of the Hospital. During fiscal year 2006, the physician practices accounted for revenues of $25 million and expenses of $35 million resulting in a loss from the direct employment of physicians of $10 million. A-11

56 Personnel As of June 30, 2006, the Hospital employed 1,586 persons. The Hospital averages approximately 1,227 FTEs annually. The Hospital is a non-union hospital and management reports that relations with employees are good. Nurse Recruitment Plan During fiscal year 2006, the Hospital employed approximately 205 RN full-time equivalent employees (FTEs). As of September 2006, the Hospital had 30 RN FTE positions vacant, yielding a vacancy rate of 12%. Turnover for RNs for the twelve months ended June 2006 was 18%. Collaboration with Area Nursing Schools. The Hospital collaborates with each of the three area nursing schools (Southwestern Oklahoma State University in Altus, Oklahoma, Cameron University and Great Plains Area Vocational-Technical School in Lawton, Oklahoma) by conducting onsite recruitment of nursing students, serving as a clinical site for nursing rotations (thereby exposing students to the Hospital with the idea that they should go to work at the Hospital upon graduation), funding the salary of faculty members recruited to educate nursing students at Southwestern Oklahoma State University and Cameron University, and holding events to draw nursing students and nurses to the area. Referral Incentives. From time to time, the Hospital pays referral bonuses to any employee who refers a nurse that is subsequently hired by the Hospital. The Hospital does not provide sign-on incentives to potential nurses. Student Assistant Program. The Hospital offers a student assistant program that provides students the opportunity to master the procedures practiced in patient care. Eligible students must be enrolled in an accredited nursing program advancing toward a registered nursing degree. Tuition Scholarship Program. Hospital employees may be reimbursed the cost of tuition to attend nursing school. Candidates are eligible for up to $3,000 per year of tuition reimbursement. Increasing Nursing School Enrollment. The Hospital actively seeks to expose students to careers in the field of healthcare, commencing with students in junior high school, and offers scholarships to graduating high school students that elect to enter the field of nursing. Due to the challenge of recruiting nurses and other healthcare professionals to Lawton, the Hospital seeks to cultivate future healthcare professionals, including physicians, nurses and technicians from local residents and other individuals with ties to the local area. Pension Plan Plan Description. The Authority provides employees of the Hospital and the Nursing Center with a single-employer defined benefit pension plan. The pension plan is administered by the pension plan s Board of Trustees who are appointed by the Authority s Board of Trustees. The plan provides retirement, disability and death benefits to plan members and beneficiaries. The authority to establish and amend benefit provisions is vested in the Authority s governing body. Funding Policy. The ability to establish and amend obligations of participants in the pension plan and the Authority is vested in the Authority s governing body. There are no required or permitted contributions by participants in the pension plan. The Authority is required to contribute an actuarially-determined amount to the pension plan. Contributions to the pension plan are made by the Hospital on behalf of the Authority. A-12

57 Funding Status. As of June 30, 2005, the net pension plan obligation was approximately $1.34 million. The Hospital implemented changes to plan benefits effective June 30, 2004, to reduce the rate of growth of plan liabilities, while making payments to its plan in excess of actuarially-determined amounts to reduce its unfunded pension liability. At the current time, the Hospital is not contemplating (a) terminating its non-contributory defined benefit pension plan, (b) freezing its current plan and implementing a defined contribution pension plan, or (c) freezing participation in its non-contributory defined benefit pension plan and establishing a new retirement savings plan for new employees of the Authority. Insurance Coverage Medical Malpractice Insurance. The Hospital purchases medical malpractice insurance on a claims made basis in the amount of $1 million per incident and $3 million per annum, subject to a $50,000 deductible, on a fixed premium basis. In addition, it purchases medical malpractice insurance on a claims made basis for the benefit of its employed physicians. Historically, the Hospital has settled an average of ten claims per annum resulting in out-of-pocket expenses, including deductibles, of approximately $200,000. Based upon experience, the Hospital expects to settle an average of three claims per annum against its employed physicians costing, including deductibles, approximately $100,000. On such basis, the Hospital conservatively accrues $50,000 per month, or $600,000 per annum, for the cost of insurance deductibles and settlements. Funding levels are reviewed and updated on an annual basis. Under Oklahoma law, as a county-owned facility in a city with a population of less than 150,000, medical malpractice casualty losses of the Hospital are limited to the greater of (a) $125,000 per occurrence, or (b) the extent of its medical malpractice insurance. A plaintiff is permitted only 12 months to file suit against the Hospital, as a tort claims hospital, thereby allowing the Hospital to accurately monitor its exposure to potential loss due to medical malpractice. During fiscal year 2004, the Hospital changed medical malpractice insurance companies (see the discussion under INVESTMENT CONSIDERATIONS Malpractice Claims and General Liability Insurance in the Official Statement) when the provider used during 2004 was placed into receivership by the Oklahoma State Insurance Commission; as a result, the Hospital may be exposed to additional liability on certain claims insured by this provider and claims arising under a gap in coverage prior to effectiveness of the new policy. See discussion in Note 7 Medical Malpractice Claims in Appendix B hereto. In order to obtain medical malpractice insurance for its employed physicians, the Hospital was required by its insurance carrier to purchase medical malpractice insurance for the Hospital in the amount of $1 million per incident and $3 million per annum, despite its limited liability under State law. Despite its purchase of such medical malpractice insurance, the Hospital realized an annual reduction in premiums of approximately $1.5 million. Self-Funded Insurance. The Hospital provides its employees with workers compensation, short-term disability, and health and dental care plans. The workers compensation plan is self-insured to the extent of the first $250,000 per accident under excess risk insurance policies purchased by the Hospital. The health and dental plans are self-insured to the extent of the first $125,000 per person per year under excess risk insurance policies purchased by the Hospital. A provision is accrued for self-insured workers compensation, short-term disability, and health and dental care claims, including both claims reported and claims incurred but not yet reported. The accrual is estimated based on consideration of prior claims experience, recently settled claims, frequency of claims and other economic and social factors. A-13

58 Primary and Secondary Service Areas SERVICE AREA The primary service area ( PSA ) of the Hospital is Comanche County, Oklahoma. The population of the PSA was estimated at 112,429 on July 1, 2005, by the U.S. Census Bureau Population Estimates Program and represents approximately 36.6% of the total service area population. Approximately 66% of the Hospital s admissions came from Comanche County in fiscal year Washita Carnegie CCMH Closest Hospitals to CCMH Service Area Legend Primary Service Area Secondary Service Area The secondary service area ( SSA ) includes the following counties (estimated population as of July 1, 2005, by the U.S. Census Bureau Population Estimates Program in parentheses): Caddo (30,229); Cotton (6,589); Grady (49,369); Greer (5,901); Harmon (3,030); Jackson (26,518); Kiowa (9,848); Stephens (42,946); Tillman (8,513); and Washita (11,471). The total population of the secondary service area is estimated at 194,414, with the overall population of the primary and secondary service areas estimated at 306,843. Overall, approximately 34% of the Hospital s cases come from the secondary service area. A-14

59 The population of the Hospital s overall service area is estimated to have increased 0.6% from July 1, 2001, to July 1, 2005 (0.3% for the PSA and 0.8% for the SSA). The population of both the PSA and the SSA is projected to increase in the future by the Department of Commerce of the State of Oklahoma in its report dated November 2002, the most current projections available. The population of the Hospital s total service area is projected to increase 5.9% from an estimated 306,843 in 2005 to 325,010 in 2010, 8.6% to 333,115 in 2015 and 11.2% to 341,220 in Growth in population is primarily concentrated in the PSA as its population is projected to increase 19.4% from an estimated 112,429 in 2005 to 135,800 in The population of the SSA is forecasted to grow 6.9% from an estimated 194,414 in 2005 to 209,220 in Overview of Comanche County Comanche County is located in southwestern Oklahoma. It was created at statehood from a portion of Comanche County, Oklahoma Territory. Originally a part of the Kiowa, Comanche and Apache reservation, Comanche County was opened for homesteading by lottery on August 6, Lawton, the county seat and location of the Hospital, was founded on August 6, 1901, when the Kiowa, Comanche and Apache reservation was opened for settlement. A lottery was used to distribute the land. The town site was selected by federal authorities and located on a section of prairie south of Fort Sill. Today, Lawton is the third largest city in Oklahoma. It is located in the heart of southwestern Oklahoma, ninety miles southwest of Oklahoma City and 193 miles northwest of Dallas, Texas. Lawton serves as the prominent shopping, medical, recreational, educational and religious center for the region. It is the retail and distribution center for southwest Oklahoma s cattle, dairy and agricultural industries. In addition, Lawton is the home of manufacturing and processing companies. Lawton offers many of the amenities of a large city, while providing the advantages of living in a small town. Lawton is home to Cameron University, a multi-purpose university offering more than 50 degrees through two-year, four-year and graduate programs whose mission is to offer appropriate educational programs to individuals living in its 11-county service area in southwestern Oklahoma, and Great Plains Area Vocational-Technical School which provides classes in a variety of business, technical, industrial, health, marketing and other fields. Lawton is the home of several museums, including the Fort Sill Museum and the Museum of the Great Plains, and cultural, arts and humanities activities and organizations. The Lawton Community Theater, Southwest Oklahoma Dance Alliance, Lawton City Ballet and Lawton Community Concerts Association are leading cultural activities of the area. The quality of life afforded by Lawton and its importance to the regional economy of southwestern Oklahoma has not gone unnoticed. Reflecting its quality of life, Lawton has been ranked as one of the best 100 cities to live in by Money Magazine. It was also named one of America s Hottest 50 Cities for business development and expansion in 2002 by Expansion Management Magazine. This recognition was based, in part, on the private investment of over $600 million in new construction and expansion. [Remainder of this page intentionally left blank] A-15

60 The 20 largest employers in the Lawton Metropolitan Statistical Area as of April 2006 (most recently available FTE data for Fort Sill is September 30, 2005), are as follows: Employer Total Product/Service Fort Sill Army Post 6,084 Armed Forces Goodyear Tire & Rubber Co. 3,300 Tires Lawton Public Schools 2,648 Education Services Comanche County Memorial Hospital 1,517 Health Services Wal-Mart/Sam s 947 Retail Store City of Lawton 832 Government Cameron University 560 Educational Services Southwestern Medical Center 455 Health Services Assurant Group 443 Telemarketing Lawton Correctional Facility 398 Correctional Services Bar-S Foods 283 Food Processing Comanche County 268 Government Techrizon 267 Software Systems Great Plains Technology Center 225 Educational Services Lawton Constitution 175 Newspaper EZ Go Foods 170 Retail Store Comanche Nation Games 162 Gambling Chempac 145 Dry Chemical Packaging Goodwill Industries 144 Charity City National Bank 138 Banking Services The U.S. Army Field Artillery School is headquartered at Fort Sill which is located on approximately 94,220 acres in Comanche County. Fort Sill s on-base population consists of: (i) up to 20% of the military permanent party assigned to Fort Sill, (ii) civilians employed at Fort Sill, and (iii) trainees assigned to Fort Sill which range from 12,000 to 17,000 on average but are subject to extreme seasonal fluctuation. As of September 30, 2005, the military permanent party was 9,438 of which 13% lived on base. Fort Sill employed 6,084 civilians as of September 30, 2005 (most recently available data) and Fort Sill facilities serve as an attraction to military retirees, currently approximately 10,000 living within a 100-mile radius. Fort Sill s Field Artillery Training Center provides instruction to all U.S. Army Field Artillery, the U.S. Marine Corps and soldiers of various allied nations and trains more than 16,000 enlisted men annually and an additional 16,000 personnel with basic training and advanced individual training in several artillery-related military occupational specialties. The National Defense Authority Act for Federal Fiscal Year 2002 authorized another round of the Base Realignment and Closure ( BRAC ) in The U.S. Secretary of Defense published and transmitted to the Defense Base Closure and Realignment Commission a list of the military installations that the Secretary recommended for closure or realignment for the Commission s review who then submitted a recommendations report thereon to the President of the United States. The President accepted the Commission s report and transmitted approval thereof to Congress in As a result, Fort Sill was realigned as follows: Fort Sill received the air defense units previously located at Fort Bliss, Texas; An artillery brigade was relocated from Fort Sill to Fort Bliss, Texas; The correctional function of Fort Sill was relocated, with the correctional function of other bases, to Fort Leavenworth, Kansas; The Air Defense Artillery Center & School was relocated from Fort Bliss, Texas, to Fort Sill, and consolidated with the Field Artillery Center & School to establish a Net Fires Center; A-16

61 The 95 th Division (IT) of the USAR command and Control Southwest (Army 117) was relocated to Fort Sill; A number of U.S. Army Reserve Centers, as well as the Army Reserve Centers and Equipment Concentration Site at Fort Sill, were closed and the units relocated into a new Armed Forces Reserve Center and a new US Army Reserve Equipment Concentration Site at Fort Sill. The initial physical evidence of the consolidation of the Air Defense Artillery Center & School at Fort Sill occurred in June of At such time, soldiers with the 6 th Battalion and 52 nd Air Defense Artillery unloaded the first of an estimated 102 railroad cars with equipment from their previous post in Ansbach, Germany. It was reported by The Oklahoman in June 2006 that by 2010 Fort Sill is expected to absorb between 10,000 and 10,500 new Air Defense Center positions. COMPETITION AND MARKET SHARE Competition. The Hospital competes with hospitals in the surrounding area as shown on the map on the previous page. The following table summarizes the annual admissions for 2005 (most recently available comparative data), by hospital, within the Hospital s overall service area. Hospitals Within the Hospital s Primary and Secondary 11-County Service Area Hospital County City Miles From Lawton Licensed Beds Admissions 2005 Percent of Total Comanche County Memorial Hospital Comanche Lawton , % Southwestern Medical Center Comanche Lawton , Jackson County Memorial Hospital Jackson Altus , Duncan Regional Hospital Stephens Duncan , Grady Memorial Hospital Grady Chickasha , Elkview General Hospital Kiowa Hobart , Memorial Hospital & Physician Group Tillman Frederick Carnegie Tri-County Hospital Caddo Carnegie Cordell Memorial Hospital Washita Cordell Physicians Hospital in Anadarko Caddo Anadarko N/A N/A Total 30, % Figure represents number of licensed beds as number of staffed beds is not reported. The Admissions may not tie exactly with that for the Hospital but are a consistent comparison measure among hospitals in this table. Source: 2005 Patient Origin Report derived from the 2005 Oklahoma Cooperative Annual Hospital Survey Oklahoma Hospital Association. Analysis of Competitors. While nine hospitals are within the service area of the Hospital, it considers only three (Southwestern Medical Center, Jackson County Memorial Hospital and Duncan Regional Hospital) as competitors. Grady Memorial Hospital, located in Chickasha between Lawton and Oklahoma City, is a lower acuity hospital than the Hospital. The other five hospitals are facilities that provide no invasive procedures and are operated to stabilize patients and transfer them to larger facilities such as the Hospital for care. The aggregate daily censes of five facilities (Elkview General Hospital, Memorial Hospital & Physician Group, Carnegie Tri-County Hospital, Cordell Memorial Hospital and Anadarko Municipal Hospital) is not likely more than 40. Southwestern Medical Center. SWMC is a lower level acuity hospital than the Hospital and provides basic primary care services including surgery, OB, emergency and general medicine. SWMC has a smaller staff than the Hospital and does not provide higher level acuity such as cardiovascular A-17

62 surgery and stent placements. SWMC and four additional hospitals were sold by HCA to a start-up healthcare organization named Capella in While Capella is a new company, its senior management team includes experienced healthcare management professionals. Specialty Hospitals; Niche Providers. Great Plains Surgical Center, located in Lawton, Oklahoma, is an investor and physician owned ambulatory surgical center that opened in June The physician owners are general, ENT and orthopedic surgeons and do most of their outpatient surgeries at the Center. Market Share. The following table summarizes the Hospital s market share in the Primary Service Area for years 2005 and 2004 (most recently available comparative data). Hospital Admissions as a Percent of Primary Service Area Admissions Hospital Admissions % of Total Admissions % of Total Comanche County Memorial Hospital 9, % 10, % Southwestern Medical Center 5, , Total 14, % 15, % The Admissions may not tie exactly with that for the Hospital but are a consistent comparison measure among hospitals in this table. Source: 2005 and 2004 Patient Origin Reports derived from the 2005 and 2004 Oklahoma Cooperative Annual Hospital Surveys Oklahoma Hospital Association. UTILIZATION The following table provides certain information concerning utilization of the Hospital and other significant data for the fiscal years ended June 30, 2002, through June 30, 2006: Acute Staffed Beds SNF/Rehab/Nursery/Other Staffed Beds Discharges Acute Care 8,485 9,015 9,322 9,326 9,226 Discharges Other 949 1,052 1, Occupancy Acute Care 63.2% 63.2% 63.2% 67.4% 69.4% Occupancy Rehab. 51.4% 49.9% 43.5% 36.2% 29.8% Average Length of Stay Acute Care Average Length of Stay Rehab Patient Days Acute Care 36,851 39,400 38,691 37,258 36,827 Patient Days Other 12,049 12,740 12,515 11,874 10,827 Inpatient Surgeries 2,797 2,785 2,850 2,904 2,762 Outpatient Surgeries 2,911 3,051 2,912 2,734 2,696 Hospital Outpatient Visits 82,199 80,570 74,934 84,815 86,509 Emergency Room Visits 33,209 33,644 35,441 36,296 36,773 Home Health Visits 12,115 14,233 12,812 13,334 13,683 Physician and Clinic Visits 162, , ,537 N/A N/A Physician and Clinic Relative Value Units 446, , , , ,062 Occupancy NTU 66.0% 67.9% 72.0% 74.0% 75.1% Occupancy Gero-Psych 30.0% 40.6% 43.0% 43.6% 37.5% Average Daily Census Acute Average Daily Census Other A-18

63 OUTSTANDING INDEBTEDNESS As of the fiscal year ended June 30, 2006, the Hospital had $80.9 million of long-term debt outstanding. Net of current portions due ($3.36 million), the Hospital s long-term debt was $77.54 million. As of the past two fiscal years ended June 30, the Hospital s long-term debt consisted of the following revenue bonds and long-term obligations: Long-Term Obligation Outstanding At 6/30/06 Outstanding At 6/30/05 Final Maturity Series 1993A Hospital Revenue Bonds -- $34,265,000 N/A Series 2004 Bonds $16,735,000 18,335,000 July 2013 Series 2005 Bonds 32,970, July 2023 ODFA Bonds 27,175,000 27,605,000 N/A Bank Notes Payable 2,256, March 2016 Capital Lease Obligations 1,765,661 2,768, Subtotal: Gross Long-Term Debt $80,902,137 82,973,567 Less: Current Maturities (3,358,087) (3,032,906) Total Long-Term Debt, Net of Current Maturities $77,544,050 $79,940,661 $18,635,000 of the outstanding principal amount of the Authority s Series 1993A Hospital Revenue Bonds was refunded by the Authority s Series 2004 Hospital Revenue Refunding Bonds during fiscal year 2005 and the remaining $34,265,000 was refunded by the Authority s Series 2005 Bonds during fiscal year It is expected that proceeds of the Series 2006 Bonds and certain other available funds and cash being contributed by the Authority will be applied to advance refund and defease and discharge all of the outstanding ODFA Bonds upon the issuance of the Series 2006 Bonds. See PLAN OF REFUNDING AND APPLICATION OF SERIES 2006 BOND PROCEEDS in the Official Statement. The Authority originally guaranteed payment of debt service on the Tillman County-City of Frederick Hospital Authority Series 1994B Bonds as consideration for the use of the Tillman Facilities; said Series 1994B Bonds were refunded in December 2003 with a portion of the proceeds of the Tillman County-City of Frederick Hospital Authority Hospital Revenue Refunding Note, Series 2003 (the Tillman Series 2003 Revenue Note ) and the Authority has guaranteed payment of 39.38% of debt service on the Tillman Series 2003 Revenue Note. The guarantee with respect to the Series 1994B Bonds was not, and the guarantee with respect to the Tillman Series 2003 Revenue Note is not, expected to be, called upon to satisfy a short-fall in debt service. The Tillman Series 2003 Revenue Note matures September 1, 2013, and is payable, in semiannual principal and interest installments on March 1 and September 1 of each year, commencing March 1, 2004, from and secured by (a) a first lien on the revenues of Tillman, and (b) proceeds of a 1.0% sales tax, with no established expiration date, dedicated to the payment of debt service on the Tillman Series 2003 Revenue Note. The Hospital and the Authority have no current plans to incur additional debt in the immediate future. With $28.23 million in unrestricted cash and investments in 2005, and $28.75 million in 2006, the Hospital s cash to debt ratio was 35.3% in 2005 and 37.1% in Long-term debt to capitalization was 64.6% in 2005 and 61.4% in [Remainder of this page intentionally left blank] A-19

64 FINANCIAL PERFORMANCE REVENUES AND EXPENSES The following discussion referring to financial performance includes revenues and expenses for the operations of the Hospital. Gross Patient Service Revenues and Contractual Discounts The following table summarizes the Hospital s gross patient service revenues, contractual allowances, net patient service revenues and contractual discount rates for the fiscal years ended June 30, 2002 through June 30, Gross Patient Service Revenue and Contractual Discounts ($000s) Gross Patient Service Revenue $293,488 $342,735 $373,285 $398,856 $410,401 Less: Contractual Allowances (162,358) (192,989) (208,454) (221,684) (227,315) Net Patient Service Revenue $131,130 $149,746 $164,832 $177,172 $183,086 Contractual Discount Rate 55.3% 56.3% 55.8% 55.6% 55.4% The trend in the contractual discount rate reflects 5% rate increases each year starting in The contractual rate did not increase pro-ratably to the patient charge increase due to improved managed care contract payment monitoring, improved claims denial management and improved admitting and collection processes. Revenue Payor Mix The principal sources of revenues for the Hospital consist of payments made on behalf of certain patients by Blue Cross and other commercial insurance carriers, by the federal government under the Medicare program, by the federal and state governments under the Medicaid program and by or through certain health maintenance organizations or preferred provider organizations under managed care plans. The following table provides historical information concerning gross patient service revenues of the Hospital from each respective payor type for the years : Payor/% of Total Medicare 49.7% 48.6% 48.1% 48.3% 49.0% Commercial Champus/TriCare Self Pay Medicaid HMO Medicaid Blue Cross PPO Workers Comp Total 100.0% 100.0% 100.0% 100.0% 100.0% Medicare was the largest payor group to the Hospital, accounting for 49.0% of the Hospital s 2006 gross patient revenues. It has been very stable, accounting for 48.1% to 49.7% annually between 2002 and Traditional commercial indemnity payors were the second largest payor group, comprising 11.1% of the Hospital s 2006 gross patient revenues. Blue Cross, the primary provider of healthcare coverage for federal workers at Fort Sill, represented 8.3% of 2006 gross patient revenues. No single insurer, other than Blue Cross, has any significant market share. A-20

65 Medicaid represents the third largest payor at 10.3% of 2006 gross patient revenues. The percentage of gross patient revenues accounted for by Medicaid (including HMO and non-hmo Medicaid) has ranged from 9.0% in 2004 to 11.3% in The change in distribution between Medicaid and HMO Medicaid in 2004 and 2005 reflects the termination of the State s Medicaid HMO, and the Hospital s participation through its Prime Advantage Health Plan in December Self pay represents the fourth largest payor, at 9.7% of 2006 gross patient revenues. The growth in self pay, from 6.9% in 2002 to 10.2% in 2005, reflects (a) the national recession and corresponding reduction in employment during 2003 and 2004, (b) the uninsured, (c) employers not providing their employees with healthcare insurance, or providing it on an uneconomical basis, (d) increases in insurance co-payments and deductibles as employers seek to control the cost of providing healthcare insurance to their employees, and (e) increases in the cost of services at the hospital. The reduction in self pay in 2006 may reflect (i) increased hiring by the construction trade as preparations are being made for the arrival of additional troops at Fort Sill due to the realignment of Fort Sill through BRAC, and (ii) the impact of the Oklahoma Employer/Employee Partnership For Insurance Coverage which provides premium assistance to low-income individuals and small businesses for healthcare coverage. Champus/TriCare represented 5.8% of 2006 gross patient revenues, and reflects the presence of Fort Sill, and the attractiveness of the Lawton Metropolitan Statistical Area as a retirement area for military due to the presence of Fort Sill. [Remainder of this page intentionally left blank] A-21

66 Debt Service Coverage - Historical Revenues/Historical Debt Service Requirements Fiscal Years Ended June 30 (000 s) Revenues: Net Patient Service Revenues $ 131,130 $ 149,746 $ 164,832 $ 178,917 $183,086 Premium Revenue 19,925 18,049 10, Other Revenue 2,765 2,942 2,775 2,475 2,577 Total Operating Revenues $ 153,820 $ 170,737 $ 178,152 $ 181,392 $ 185,663 Expenses Salaries and Wages 52,323 57,031 57,701 62,451 67,462 Employee Benefits 10,241 13,396 12,443 13,212 12,964 Purchased Services and Professional Fees 16,156 18,786 20,186 20,067 18,544 Medical Supplies and Drugs 21,218 23,697 26,302 28,533 30,496 Other Supplies and Expenses 5,952 6,563 8,154 10,304 11,147 HMO Medical Expense 17,094 16,574 8, Insurance 1,450 2,417 2,840 2,044 2,044 Depreciation and Amortization 6,808 7,455 8,391 9,396 9,303 Loss on Sale of Capital Assets Interest Expense 3,211 3,185 3,580 4,682 4,392 Provision for Uncollectible Accounts 17,170 21,270 28,390 31,467 27,646 Total Expenses $ 151,646 $ 170,449 $ 176,328 $ 182,169 $ 184,052 Income From Operations (Loss) 2, ,824 (679) 1,611 Nonoperating Gains (Losses): Contributions Investment Income 1,793 1, ,121 1,277 Total Nonoperating Gains (Losses) $ 1,925 $ 1,529 $ 770 $ 1,403 $ 1,566 Excess of Revenue, Gains and Other Support Over Expenses $ 4,099 $ 1,816 $ 2,594 $ 724 $ 3,177 Plus: Interest 3,211 3,185 3,580 4,682 4,392 Depreciation and Amortization 6,808 7,455 8,391 9,396 9,303 Income Available for Debt Service $ 14,118 $ 12,456 $ 14,565 $ 14,802 $ 16,872 Annual Debt Service on Outstanding Debt $ 5,378 $ 5,730 $ 6,179 $ 7,714 $ 7,425 Debt Service Coverage Ratio 2.63x 2.17x 2.36x 1.92x 2.27x Maximum Annual Debt Service $ 7,520 $ 7,520 $ 7,520 $ 7,520 $ 7,520 Maximum Annual Debt Service Coverage 1.84x 1.62x 1.90x 1.97x 2.24x Annual debt service on then outstanding revenue bonds and notes and Capital Lease Obligations. Does not include annual debt service on the Series 2006 Bonds. Debt service represents the payment of principal as reported on the Statement of Cash Flows and interest expense as reported on the Income Statement. Maximum annual debt service on then outstanding revenue bonds and notes and Capital Lease Obligations and Authority s guarantee obligation with respect to the Tillman Series 2003 Revenue Note described under Outstanding Indebtedness herein. Does not include maximum annual debt service on the Series 2006 Bonds. A-22

67 Debt Service Coverage - Projected Revenues/Projected Debt Service Requirements Fiscal Years Ending June 30 (000 s) Revenues: Net Patient Service Revenue $ 197,818 $ 207,709 $ 218,094 Other Revenue 2,537 2,600 2,700 Total Operating Revenues $ 200,355 $ 210,309 $ 220,794 Expenses Salaries and Wages 72,718 76,354 80,172 Employee Benefits 14,544 15,271 16,034 Purchased Services 20,028 21,029 22,081 Medical Supplies and Drugs 32,936 34,070 35,769 Other Supplies and Expenses 14,302 15,017 15,768 Depreciation and Amortization 9,171 9,182 9,724 Interest Expense 3,599 3,265 3,834 Provision for Uncollectible Accounts 30,773 33,439 35,327 Total Expenses $ 198,071 $ 207,628 $ 218,708 Income From Operations (Loss) 2,284 2,681 2,086 Nonoperating Gains (Losses): Contributions Investment Income 1,700 1,700 1,700 Total Nonoperating Gains (Losses) 1,700 1,700 1,700 Excess of Revenue, Gains and Other Support Over Expenses $ 3,984 $ 4,381 $ 3,786 Plus: Interest 3,599 3,265 3,834 Depreciation and Amortization 9,171 9,182 9,724 Income Available for Debt Service $ 16,754 $ 16,829 $ 17,344 Projected Annual Debt Service on Outstanding Debt $ 6,957 $ 6,397 $ 6,845 Projected Debt Service Coverage Ratio 2.41x 2.63x 2.53x Projected Maximum Annual Debt Service $ 6,957 $ 6,957 $ 6,957 Projected Maximum Annual Debt Service Coverage 2.41x 2.42x 2.49x Annual debt service on the Series 2006 Bonds, the Series 2005 Bonds, the Series 2004 Bonds and Capital Lease Obligations; also includes July 1, 2006, payments on ODFA Bonds and payments on Bank Notes. Maximum annual debt service on the Series 2006 Bonds, the Series 2005 Bonds, the Series 2004 Bonds and Capital Lease Obligations and Authority s guarantee obligation with respect to the Tillman Series 2003 Revenue Note described under Outstanding Indebtedness herein. Maximum annual debt service occurs in FY A-23

68 MANAGEMENT S DISCUSSION OF OPERATING RESULTS All references to a year under the following discussion, e.g., 2005, 2006, are to the Hospital s fiscal year ending June 30 in such referenced year. Revenues Pursuant to a change in pronouncements of the Governmental Accounting Standards Board, commencing with the Hospital s fiscal year ended June 30, 2002, net patient service revenue is reported net of the provision for uncollectible accounts in its audited financial statements. For comparison purposes with prior years, the provision for uncollectible accounts has been considered as expense rather than a reduction from net patient service revenue. The Hospital s overall revenues totaled $183.1 million in 2006, up 2.3% over 2005, and up 39.2% since The growth in overall revenue reflects annual increases in net patient revenues due to growth in utilization and price increases instituted by the Hospital. Revenues for 2006 total $185.7 million, up 2.4% over The growth in revenues from 2005 to 2006 primarily reflects improved Medicaid reimbursement. Reflecting the Hospital increasing prices more rapidly than improvements in payments under Medicare and Medicaid, the Hospital experienced a declining level of reimbursement of billed charges from 2000 through Since 2003, the Hospital s contractual discount rate has declined slightly from 55.9% in 2003 to 55.4% in 2006 as increases in Hospital pricing were comparable to the improvement in Medicare and Medicaid reimbursement during such period. As a result of the growth in net patient service revenues, overall revenues increased despite the elimination of HMO premiums as a result of the State of Oklahoma terminating its Medicaid HMO on December 31, The Hospital had provided prepaid healthcare benefits through an HMO, which served Medicaid beneficiaries. The elimination of premium revenues was offset by an elimination of HMO medical expenses of the Hospital. With the elimination of HMO premium revenues, other revenues of the Hospital consist of other operating revenues and non-operating revenues consisting of contributions and investment income. Other operating revenue in 2006, which includes $121,673 from a ¼ of one mill of the County property tax, was comparable to prior years at $2.6 million or 1.4% of 2006 total revenues. Investment income of $1.3 million in 2006 was comparable to the $1.1 million realized in 2005, representing 0.7% of overall 2006 revenues, reflecting the Hospital s investments consisting of fixed income securities, money market mutual funds, and repurchase agreements. On November 2, 2004, voters in the State of Oklahoma approved an increase in the state cigarette tax by a net of 52 cents per pack, effective January 1, 2005, to, among other things, fund reimbursement to healthcare providers and provide healthcare insurance premium assistance for employees of small businesses with the goal of expanding healthcare coverage and reducing the number of uninsured in the State of Oklahoma, recently sighted in a press release of the Oklahoma Hospital Association to be approximately 700,000 Oklahomans, or 24% of the state population, giving Oklahoma one of the highest uninsured rates in the country. On September 30, 2005, the Oklahoma Health Care Authority received approval from the federal government to provide health plan premium assistance to Oklahoma s low income individuals and small businesses for health care coverage. The Centers for Medicare and Medicaid Services granted approval to the State s proposal under the Health Insurance Flexibility and Accountability Demonstration Initiative. With the approval of The Centers for Medicare and Medicaid Services, the program was implemented by the Oklahoma Health Care Authority in While too early to see the effect of the program on the financial performance of the Hospital, it will decrease the number of self-pay individuals served by the Hospital. The Oklahoma Health Care Authority is seeking to grow this program, and the state legislature is supportive of their efforts. During the first quarter of A-24

69 2007, the Governor approved expanding the program to include employers with under 50 employees compared to the previous limit of 25 employees. The Oklahoma Health Care Authority and Oklahoma Hospital Association continue to explore a permanent source of funding to increase Medicaid reimbursement to hospitals based upon their ability to receive and keep the difference between payments under Medicaid and Medicare (the upper payment limit ). In the interim, the state legislature has, similar to 2006, appropriated additional funds for its 2007 fiscal year in order to provide Medicaid reimbursement to physicians and hospitals consistent in both methodology and rates to Physicians realized the improved reimbursement rates provided in 2006 with effect from August 1 st, and the hospital rates, for in-patient services with effect from October 1 st, and out-patient services with effect from January 1 st. The increased physician and hospital reimbursement from Medicaid provided the Hospital with over $2.0 million in Expenses The Hospital s 2005 expenses totaled $182.2 million, up a slight 3.3% from 2004, and 19.9% since Expenses in 2006 totaled $184.1 million, a very slight increase of 1.0% over 2005 as the Hospital continued to successfully contain growth in expenses. Similar to the national trend, the Hospital has experienced a significant increase in the cost of salaries and wages, its largest expense at 36.7% of 2006 expenses. Since 2002, salaries and wages have increased 28.9% to $67.5 million reflecting wage increases, growth in the number of personnel required by the increase in utilization of the Hospital, increases in nurses salaries, and with respect to 2006, the hiring of a number of general surgeons and their staff. Commencing in 2005 and continuing in 2006, the Hospital improved the compensation of its nurses allowing the Hospital to attract (hiring 46 RNs and 28 LPNs in 2006) and retain nurses, permitting it to substantially eliminate its use of contract nurses. While the substantial reduction of contract nurses has not yielded significant cost savings, it has led to improvements in physician satisfaction and quality of patient care. Medical supplies represented the second largest expense of the Hospital at $30.5 million. The Hospital continues to seek to control the rate of increase of its medical supplies. It has signed a contract with the provider of stents to its cath lab as a means of decreasing supply costs. The Hospital has also changed pharmaceutical venders as a means of reducing the rate of growth in its pharmaceutical expense. The provision for uncollectible accounts the third largest expense at $27.6 million in The provision for uncollectible accounts increased from 11.1% in 2002 to 17.3% of operating revenues in Similar to the national trend, the Hospital witnessed an increase in the number of self-pay patients, particularly in the emergency room. The growth in self-pay accounts reflects (a) the national recession and corresponding reduction in employment during 2003 and 2004, (b) uninsured patients, (c) employers not providing their employees with healthcare insurance, or providing it on an uneconomical basis, and (d) increases in insurance co-payments and deductibles as employers sought to control the cost of providing healthcare insurance to their employees. The growth in self-pay patients between 2002 and 2005 adversely impacted the amount of the provision for uncollectible accounts, as did the increased cost of hospital services. In 2006, the provision for uncollectible accounts fell by $3.8 million, or 12.1% from 2005, to $27.6 million. Such decline is attributed to (i) the improving economy in Lawton, the primary service area of the Hospital, as a result of the growth at Fort Sill, and as a consequence, increased employment resulting in more individuals being covered by healthcare insurance, (b) expenditures by the Oklahoma Health Care Authority to provide healthcare insurance premium assistance for employees of small businesses, and (c) the increased collection of co-payments prior to the provision of medical services. Reflecting the decline in provisions for uncollectible accounts and growth in net patient revenues, the provision for uncollectible accounts declined from 17.3% of operating revenues in 2005 to 14.9% in A-25

70 HMO Medical expenses fell from $8.3 million in 2004 to zero in 2005 as a result of the Hospital s closure of its Prime Advantage Health Plan due to termination of the State s Medicaid HMO. HMO medical expenses accounted for the cost of medical services to members of Prime Advantage Health Plan, a health maintenance organization established in 1996 as a division of the Hospital, for SoonerCare beneficiaries. The SoonerCare program was a managed care program sponsored by the Oklahoma Health Care Authority to provide covered medical services to Oklahoma Medicaid patients. The elimination of HMO medical expense was offset by the elimination of premium revenues for Prime Advantage. Other expenses of the Hospital include the cost of insurance and depreciation and amortization. While representing a small percentage of the total expenses of the Hospital (1.3% in 2006), the cost of insurance, particularly professional liability insurance, increased 145.8% since 2001 to $2.8 million in A change in medical malpractice insurance companies during 2004 contributed to the Hospital s ability to reduce its insurance expense 28.0% to $2.0 million in both 2005 and Depreciation and amortization expense totaled $9.3 million in 2006, accounting for 5.1% of total expenses in The Hospital s depreciation and amortization expense has risen 36.7% since 2002, as a result of continued capital investment in plant facilities over the past five years, and in particular, completion of construction of its outpatient surgery center in The Hospital s operating margin was -0.4% in 2005 and 0.9% in 2006, compared to an average of 0.9% between 2002 and With non-operating revenues (primarily investment income), the Hospital s excess margin of 0.3% in 2005 and 1.7% in 2006, compared to an average of 1.7% between 2002 and The negative operating margin in 2005 principally reflects the interest expense associated with the Hospital s ODFA Bonds (which had previously been paid from proceeds of the ODFA Bonds with such interest expense incurred during construction being capitalized and included as part of the cost of the out-patient surgery center), the depreciation expense associated with completion of the out-patient surgery center, as well as the increase in the provision for uncollectible accounts of the Hospital relative to The improvement in operating and excess margin in 2006 reflects the improvement in Medicaid reimbursement received by the Hospital and reduction in provisions for uncollectible accounts of $3.8 million. The reduction in margin from 2002 to 2003 reflects the adverse impact of the State reduction in Medicaid payments in 2003 (estimated to have cost the Hospital approximately $1 million), as well as the increase in the provision for uncollectible accounts of the Hospital. The Hospital pays debt service on its bonds, notes payable to bank, and capital lease obligations (See Outstanding Indebtedness herein). Scheduled debt service on the long term obligations of the Hospital totaled $7.71 million in 2005 and $7.42 million in 2006, resulting in actual debt service coverage of 1.92x in 2005 and 2.27x in Since the preceding calculations reflect scheduled debt service, the calculations exclude the affect of the refunding and defeasance of the ODFA Bonds, outstanding in a principal amount of $ million as at June 30, Using the maximum annual debt service ( MADS ) based upon the aggregate outstanding long term obligations of the Hospital of $7.52 million, absent the impact of the Series 2006 Bonds, the Hospital s pro forma historical coverage of MADS was 1.97x in 2005 and 2.24x in Liquidity Days Cash On Hand. Hospital management is committed to improving and enhancing the Hospital s overall income and liquidity. One area of effort concerns the annual investment in plant facilities through capital expenditures. Management has a policy of reviewing capital expenditures on a quarterly basis so the organization can more effectively manage capital spending, and furthermore, that such spending is towards investments providing appropriate levels of return to the Hospital. A-26

71 The Hospital held $28.2 million in unrestricted cash and investments at year-end 2005 and $28.7 million at year-end Such cash and investments amounted to 59.6 days in 2005 and 60.0 in The Hospital s ability to improve its days cash on hand has been constrained by its need to expand and maintain facilities to accommodate the demand for its services as well as its profitability. The Hospital s ability to finance such expansion is limited to funds generated from operations or proceeds of indebtedness. Based upon its leverage, the Hospital has been funding capital expenditures from operating cash flow. During 2003, the Hospital expended approximately $7.0 million to fund (a) the $5.5 million upgrade of its power plant to serve the power needs of its outpatient service center (130,000 square feet) and an additional patient tower for the Nursing Center (60,000 square feet), and (b) its $3 million share of the cost of constructing an additional patient tower for the Nursing Center. In 2004, the Hospital spent approximately $2.3 million to finance the purchase of an additional MRI and CAT Scan to address the demand for such services which had resulted in a 21 day waiting list. As a result of such capital expenditures, as well as growth in days accounts receivable and increased utilization of the Hospital and its services, days cash on hand fell from 61.1 in 2003 to 50.5 in Days cash on hand recovered from 2004 to 59.6 in 2005 due to a reduction in days accounts receivable and managing the capital expenditures of the Hospital. Pursuant to a change in pronouncements of the Governmental Accounting Standards Board, net patient service revenue is reported net of the provision for uncollectible accounts effective during After accounting for such change in pronouncements, days cash on hand in 2005 and 2006 was 72.9 and The change in days cash on hand reflects a reduction in expenditures because the provision for uncollectible accounts is treated as a reduction to net patient service revenue rather than an expense. Days Accounts Receivable. The increase in days accounts receivable from 56.7 in 2002 to 62.3 in 2003 and 62.2 in 2004 reflects a reduction in performance of and turnover in billing coders that caused increased coding errors, and consequently rejected claims. To reduce coding errors, and consequently rejected claims, claims were reviewed in additional detail prior to submission thereby lengthening the billing and collection process. Management felt it was more important to improve revenue collection than reduce revenues and improve the days accounts receivable. The days accounts receivable was further impacted by an increase in the number of self-pay patients, which if they enter into a payment plan, retire their obligation to the Hospital over a five to six year period. As a result of the continued training of coders and department directors in charge of input and coding, the acquisition of enhanced coding software that allows coders to see charges for timely and accurate coding, improvement in the accuracy of patient demographic and third-party payor information taken during the patient admission process (thereby minimizing rebills and consequently payment times of third-party payors), days accounts receivable was reduced to 60.0 as of year-end As of year-end 2006, days accounts receivable has increased to 61.1 which remained coincident with prior years. Average Payment Period. The Hospital s average payment period was 61.2 days in 2005 and 59.1 days in The lengthening in average payment period during the past five years, from a low of 42.4 in 2002, reflects an increase in construction in progress. Long-Term Debt Since 2002, the aggregate outstanding principal balance of long-term debt of the Hospital has declined as the amortization of outstanding indebtedness exceeded the principal amount of capital lease obligations and note payables to bank entered into by the Hospital. In 2006, the Hospital incurred a $2.3 million long-term note payable to bank in connection with its purchase of a medical office building from a group of general surgeons that became employees of the Hospital together with their staff in The A-27

72 Hospital and the Authority have no current plans to incur additional debt in the near or intermediate future. As of June 30, 2006, the Hospital had $80.90 million of long-term debt outstanding. Net of current portions due ($3.36 million), the Hospital s long-term debt was $77.54 million. Subsequent to June 30, 2006, the Hospital undertook a five year financing in the amount of $2 million for a pharmacy robot and distribution system that will improve safety of medical distribution and decrease costs. In addition to such debt, the Authority originally guaranteed payment of debt service on the Tillman County- City of Frederick Hospital Authority Series 1994B Bonds as consideration for the use of the Tillman Facilities; said Series 1994B Bonds were refunded in December 2003 with a portion of the proceeds of the Tillman County-City of Frederick Hospital Authority Hospital Revenue Refunding Note, Series 2003 (the Tillman Series 2003 Revenue Note ) and the Authority has guaranteed payment of 39.8% of the debt service on the Tillman Series 2003 Revenue Note. The guarantee with respect to the Series 1994B Bonds was not, and the guarantee with respect to the Tillman Series 2003 Revenue Note is not expected to be called upon to satisfy a short-fall in debt service. The Tillman Series 2003 Revenue Note matures September 1, 2013, and is payable, in semiannual principal and interest installments on March 1 and September 1 of each year, commencing March 1, 2004, from and secured by (a) a first lien on the revenues of Tillman, and (b) proceeds of a 1.0% sales tax, with no established expiration date, dedicated to the payment of debt service on the Tillman Series 2003 Revenue Note. Pension Plan As of June 30, 2005, the net pension plan obligation was approximately $1.34 million. The Hospital implemented changes to plan benefits effective June 30, 2004, to reduce the rate of growth of plan liabilities. At the current time, the Hospital is not contemplating (a) terminating its non-contributory defined benefit pension plan, (b) freezing its current plan and implementing a defined contribution pension plan, or (c) freezing participation in its non-contributory defined benefit pension plan and establishing a new retirement savings plan for new employees of the Authority. A-28

73 APPENDIX B FINANCIAL STATEMENTS AND AUDIT REPORT AS OF AND FOR THE YEARS ENDED JUNE 30, 2006 AND 2005

74 [This Page Intentionally Left Blank]

75 Comanche County Memorial Hospital Accountants Reports and Financial Statements June 30, 2006 and 2005

76 Comanche County Memorial Hospital June 30, 2006 and 2005 Contents Independent Accountants Report on Financial Statements and Supplementary Information...1 Management s Discussion and Analysis...3 Financial Statements Balance Sheets... 8 Statements of Revenues, Expenses and Changes in Net Assets... 9 Statements of Cash Flows Notes to Financial Statements Required Supplementary Information Schedule of Funding Progress Independent Accountants Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements in Accordance with Government Auditing Standards Schedule of Findings and Responses... 32

77 Independent Accountants Report on Financial Statements and Supplementary Information Board of Trustees Comanche County Memorial Hospital Lawton, Oklahoma We have audited the accompanying balance sheets of COMANCHE COUNTY MEMORIAL HOSPITAL (the Hospital) as of June 30, 2006 and 2005, and the related statements of revenues, expenses and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the Hospital s management. 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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1, the financial statements of the Hospital are intended to present the financial position, and the changes in position and cash flows, where applicable, of only that portion of the activities of Comanche County Hospital Authority that are attributable to the transactions of the Hospital. They do not purport to, and do not, present fairly the financial position of Comanche County Hospital Authority of as June 30, 2006 and 2005, and the changes in its financial position and its cash flows, where applicable, for the years then ended in conformity with accounting principles generally accepted in the United States of America. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of COMANCHE COUNTY MEMORIAL HOSPITAL as of June 30, 2006 and 2005, and its changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated September 15, 2006, on our consideration of the Hospital s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

78 Board of Trustees Comanche County Memorial Hospital Page 2 The accompanying management s discussion and analysis and pension information as listed in the table of contents are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. September 15, 2006 /s/ BKD, LLP

79 Comanche County Memorial Hospital Management s Discussion and Analysis Years Ended June 30, 2006 and 2005 Introduction This management s discussion and analysis of the financial performance of Comanche County Memorial Hospital (the Hospital) provides an overview of the Hospital s financial activities for the years ended June 30, 2006 and It should be read in conjunction with the accompanying financial statements of the Hospital. Unless otherwise indicated, dollar amounts are in thousands. Financial Highlights The Hospital s net assets increased in each of the past three years with a $3,177 or 6.7% increase in 2006, a $724 or 1.5% increase in 2005 and a $2,594 or 5.9% increase in The Hospital reported operating income of $6,003, $4,003 and $5,476 in 2006, 2005 and 2004, respectively. During 2006 and 2005, the Hospital acquired $8,675 and $7,797 in capital assets. Using This Annual Report The Hospital s financial statements consist of three statements a balance sheet; a statement of revenues, expenses and changes in net assets; and a statement of cash flows. These statements provide information about the activities of the Hospital, including resources held by the Hospital but restricted for specific purposes by creditors, contributors, grantors or enabling legislation. The Hospital is accounted for as a business-type activity and presents its financial statements using the economic resources measurement focus and the accrual basis of accounting. The Balance Sheet and Statement of Revenues, Expenses and Changes in Net Assets One of the most important questions asked about any hospital s finances is Is the Hospital as a whole better or worse off as a result of the year s activities? The balance sheet and the statement of revenues, expenses and changes in net assets report information about the Hospital s resources and its activities in a way that helps answer this question. These statements include all restricted and unrestricted assets and all liabilities using the accrual basis of accounting. Using the accrual basis of accounting means that all of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the Hospital s net assets and changes in them. The Hospital s total net assets the difference between assets and liabilities is one measure of the Hospital s financial health or financial position. Over time, increases or decreases in the Hospital s net assets are an indicator of whether its financial health is improving or deteriorating. Other nonfinancial factors, such as changes in the Hospital s patient base, changes in legislation and regulations, measures of the quantity and quality of services provided to its patients and local economic factors should also be considered to assess the overall financial health of the Hospital. 3

80 The Statement of Cash Flows The statement of cash flows reports cash receipts, cash payments and net changes in cash and cash equivalents resulting from four defined types of activities. It provides answers to such questions as where did cash come from, what was cash used for and what was the change in cash and cash equivalents during the reporting period. The Hospital s Net Assets The Hospital s net assets are the difference between its assets and liabilities reported in the balance sheet. The Hospital s net assets increased by $3,177 (6.7%) in 2006, by $724 (1.5%) in 2005 and by $2,594 (5.9%) in 2004 as shown in Table 1. Table 1: Assets, Liabilities and Net Assets Assets Patient accounts receivable, net $ 30,658 $ 29,433 $ 28,101 Other current assets 32,736 26,595 16,529 Capital assets, net 76,025 76,424 77,776 Other noncurrent assets 17,235 24,075 32,435 Total assets $ 156,654 $ 156,527 $ 154,841 Liabilities Long-term debt $ 77,544 $ 79,941 $ 83,273 Current liabilities 28,312 28,965 24,671 Total liabilities 105, , ,944 Net Assets Invested in capital assets, net of related debt 3,407 3,606 4,027 Restricted expendable 1,995 3,172 2,630 Unrestricted 45,396 40,843 40,240 Total net assets 50,798 47,621 46,897 Total liabilities and net assets $ 156,654 $ 156,527 $ 154,841 Other current assets increased by $6,141 (23.1%) in 2006 and by $10,066 (60.1%) in 2005 primarily due to plant fund investments drawing nearer to maturity in both years. During 2006, noncurrent assets decreased $6,840 (28.4%) due to both plant fund investments drawing nearer to maturity in 2006 and refinancing the remaining of the Hospital s Series 1993A Revenue Bonds using cash and proceeds from the Series 2005 Revenue Bonds, which had less of a required reserve. During fiscal 2006 and 2005, longterm debt decreased by $2,397 (2.9%) and $3,332 (4.0%), respectively, due to debt service payments and refunding part of the Hospital s Series 1993A Revenue Bonds using cash and proceeds from the Series 2004 Revenue Bonds issued in fiscal 2005 and the Series 2005 Revenue Bonds issued in At June 30, 2006, days revenue in accounts receivable decreased to 72 days, compared with 73 days at June 30, 2005, and 75 days at June 30,

81 Operating Results and Changes in the Hospital s Net Assets In 2006, the Hospital s net assets increased by $3,177 (6.7%) as shown in Table 2. This increase is made up of several different components and represents an increase of $2,453 compared to the increase in net assets in 2005 of $724. The Hospital s net assets increased $2,594 in Table 2: Operating Results and Changes in Net Assets Operating Revenues Net patient service revenue $ 155,440 $ 147,450 $ 136,442 Premium revenue 10,545 Other operating revenues 2,577 2,574 2,846 Total operating revenues 158, , ,833 Operating Expenses Salaries and wages and employee benefits 80,427 75,663 70,144 Purchased services and professional fees 18,544 20,067 20,186 Medical supplies and drugs 30,496 28,533 26,302 HMO medical expense 8,300 Depreciation and amortization 9,303 9,396 8,391 Other operating expenses 13,244 12,362 11,034 Total operating expenses 152, , ,357 Operating Income 6,003 4,003 5,476 Nonoperating Revenues (Expenses) Noncapital grants and gifts Investment income 1,277 1, Interest expense (4,392) (4,682) (3,581) Total nonoperating revenues (expenses) (2,845) (3,364) (2,882) Capital Grants and Gifts Increase in Net Assets $ 3,177 $ 724 $ 2,594 Operating Income The first component of the overall change in the Hospital s net assets is its operating income or loss generally, the difference between net patient service and other operating revenues and the expenses incurred to perform those services. The operating income reported by the Hospital is consistent with the Hospital s operating history. 5

82 The operating income for 2006 increased by $2,000 as compared to the 2005 amount. The primary components of the increase in operating income are: An increase in net patient service revenue of $7,990 or 5.4%. An increase in salaries, wages and benefits for the Hospital s employees of $4,764 or 6.3%. A decrease in purchased services and professional fees of $1,523 or 7.6%. Net patient service revenue increased primarily because of increased outpatient services volume due to the opening of the Outpatient Center in late fiscal 2004 and increased reimbursement from the state s Medicaid program as they changed its basis of reimbursement from a prospective per diem method to a prospective per discharge method in early fiscal Salaries, wages and benefits increased primarily in connection with the Hospital s retention and recruitment efforts and efforts to decrease reliance on use of contracted nursing staff. These efforts resulted primarily from the shortage of nurses and other health care professionals in the United States. In addition, the Hospital hired several new physicians for their new physician practices. Purchased services and professional fees decreased due primarily to the Hospital s efforts to decrease the use of contracted nursing staff. Nonoperating Revenues and Expenses Nonoperating revenues and expenses consist primarily of investment income and interest expense. The Hospital s total debt exceeds cash and investments and, as a result, interest expense exceeds investment income. In 2006, interest expense decreased over the 2005 amount by $290 (6.2%) primarily due to refinancing the remaining of the Hospital s Series 1993A Revenue Bonds using cash and proceeds from the Series 2005 Revenue Bonds which were at a lower interest rate. The Hospital s Cash Flows Changes in the Hospital s cash flows are generally consistent with changes in operating income and nonoperating revenues and expenses, except that in 2006, cash provided by operations decreased due primarily to decreases in accounts payable and accrued expenses. Capital Asset and Debt Administration Capital Assets At the end of 2006, the Hospital had $76,025 invested in capital assets, net of accumulated depreciation, as detailed in Note 5 to the financial statements. In 2006, the Hospital acquired capital assets costing $8,675. Debt At June 30, 2006, the Hospital had $80,902 in revenue bonds, notes payable and capital lease obligations outstanding. During 2006 and 2005, the Hospital refunded all of the Series 1993A Hospital Revenue Bonds using cash and the proceeds of the Series 2005 and Series 2004 Hospital Revenue Bonds. There have been no changes in the Hospital s debt ratings in the past three years. 6

83 Other Economic Factors During the last three years, Lowe s, Home Depot and Wal-Mart have opened stores in the Lawton area. Also a new veterans center opened and Assurant Group expanded their call service center in Lawton. These contributed to the creation of more than 5,000 jobs in Comanche County during the last year. The Base Realignment and Closure Commission s 2005 report includes plans to move 3,700 military and civilian jobs plus support contractors to Fort Sill. It is estimated the population of Lawton will increase by 15,000 when the plan is approved and becomes effective in Contacting the Hospital s Financial Management This financial report is designed to provide our patients, suppliers, taxpayers and creditors with a general overview of the Hospital s finances and to show the Hospital s accountability for the money it receives. Questions about this report and requests for additional financial information should be directed to Hospital Business Administration by telephoning (580)

84 Comanche County Memorial Hospital Balance Sheets June 30, 2006 and 2005 Assets Current Assets Cash and cash equivalents $ 6,615,174 $ 6,859,152 Short-term investments 13,554,265 7,904,547 Restricted cash and investments current 4,117,299 4,757,927 Patient accounts receivable, net of allowance; 2006 $17,918,000, 2005 $20,095,000 30,658,137 29,433,431 Accrued investment income 257, ,947 Due from related parties 711, ,103 Other receivables 215, ,471 Supplies 4,665,815 4,521,876 Prepaid expenses and other expenses 2,598,978 1,899,817 Total current assets 63,393,952 56,028,271 Noncurrent Cash and Investments Held by trustee for debt service 9,700,354 11,568,081 Restricted by state statute for health maintenance organization 500,000 9,700,354 12,068,081 Less amount required to meet current obligations 4,117,299 4,757,927 5,583,055 7,310,154 Other long-term investments 8,577,775 13,463,084 14,160,830 20,773,238 Capital Assets, Net 76,024,957 76,424,235 Other Assets Deferred financing costs 2,749,500 3,167,286 Other 324, ,341 3,074,317 3,301,627 Total assets $ 156,654,056 $ 156,527,371 See Notes to Financial Statements

85 Liabilities and Net Assets Current Liabilities Current maturities of long-term debt $ 3,358,087 $ 3,032,906 Accounts payable and accrued expenses 18,226,014 20,394,028 Accrued interest payable 2,244,608 2,232,838 Estimated amounts due to third-party payer 4,483,329 3,305,749 Total current liabilities 28,312,038 28,965,521 Long-term Debt 77,544,050 79,940,661 Total liabilities 105,856, ,906,182 Net Assets Invested in capital assets, net of related debt 3,406,667 3,605,518 Restricted Expendable for debt service payments 1,994,949 2,672,225 Expendable under state HMO statutes 500,000 Unrestricted 45,396,352 40,843,446 Total net assets 50,797,968 47,621,189 Total liabilities and net assets $ 156,654,056 $ 156,527,371 8

86 Comanche County Memorial Hospital Statements of Revenues, Expenses and Changes in Net Assets Years Ended June 30, 2006 and Operating Revenues Net patient service revenue, net of provision for uncollectible accounts; 2006 $27,646,000, 2005 $31,467,000 $ 155,440,058 $ 147,450,361 Other 2,576,670 2,573, ,016, ,023,818 Operating Expenses Salaries and wages 67,462,388 62,451,450 Employee benefits 12,964,341 13,211,930 Purchased services and professional fees 18,544,179 20,066,929 Medical supplies and drugs 30,496,280 28,533,305 Supplies and other 11,146,978 10,303,537 Insurance 2,044,323 2,044,246 Depreciation and amortization 9,303,020 9,396,322 Loss on sale of capital assets 52,111 13,075 Total operating expenses 152,013, ,020,794 Operating Income 6,003,108 4,003,024 Nonoperating Revenues (Expenses) Noncapital grants and gifts 269, ,771 Investment income 1,276,746 1,120,394 Interest expense (4,392,210) (4,681,651) (2,845,632) (3,363,486) Excess of Revenues Over Expenses before Capital Grants and Gifts 3,157, ,538 Capital Grants and Gifts 19,303 84,420 Increase in Net Assets 3,176, ,958 Net Assets, Beginning of Year 47,621,189 46,897,231 Net Assets, End of Year $ 50,797,968 $ 47,621,189 See Notes to Financial Statements 9

87 Comanche County Memorial Hospital Statements of Cash Flows Years Ended June 30, 2006 and Operating Activities Receipts from and on behalf of patients $ 155,392,932 $ 146,392,728 Payments to suppliers and contractors (64,922,785) (58,571,372) Payments to or on behalf of employees (80,748,675) (73,534,180) Other receipts and payments, net 2,039,639 3,683,105 Net cash provided by operating activities 11,761,111 17,970,281 Noncapital Financing Activities Noncapital grants and gifts 269, ,771 Net cash provided by noncapital financing activities 269, ,771 Capital and Related Financing Activities Capital grants and gifts 19,303 84,420 Principal paid on long-term debt (37,341,430) (21,667,531) Interest paid on long-term debt (4,380,440) (4,804,461) Purchase of capital assets (8,875,479) (8,155,578) Proceeds from issuance of long-term debt 36,776,236 19,026,650 Debt issuance costs paid (1,362,811) (838,979) Proceeds from sale of capital assets 5,368 29,151 Net cash used in capital and related financing activities (15,159,253) (16,326,328) Investing Activities Interest on investments 1,373,892 1,140,535 Purchase of investments (13,573,030) (9,177,235) Proceeds from disposition of investments 14,441,707 8,957,832 Net cash provided by investing activities 2,242, ,132 Increase (Decrease) in Cash and Cash Equivalents (885,741) 2,762,856 Cash and Cash Equivalents, Beginning of Year 11,702,977 8,940,121 Cash and Cash Equivalents, End of Year $ 10,817,236 $ 11,702,977 Reconciliation of Cash and Cash Equivalents to the Balance Sheet Cash and cash equivalents in current assets $ 6,615,174 $ 6,859,152 Cash and cash equivalents in noncurrent cash and investments Held by trustee for debt service 4,202,062 4,843,825 Total cash and cash equivalents $ 10,817,236 $ 11,702,977 See Notes to Financial Statements

88 Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating income $ 6,003,108 $ 4,003,024 Depreciation and amortization 9,303,020 9,396,322 Loss on sale of assets 52,111 13,075 Changes in operating assets and liabilities Patient accounts receivable, net (1,326,253) (342,500) Supplies and prepaid expenses (843,100) (78,249) Estimated amount due from and to third-party payer 1,177, ,283 Accounts payable and accrued expenses (1,967,966) 4,500,953 Other assets and liabilities (637,389) 202,373 Net cash provided by operating activities $ 11,761,111 $ 17,970,281 Supplemental Disclosures of Cash Flows Information Capital asset acquisitions included in accounts payable $ 27,616 $ 227,845 10

89 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations and Reporting Entity Comanche County Memorial Hospital (the Hospital), is an acute care hospital located in Lawton, Oklahoma. The Hospital is an operating division of Comanche County Hospital Authority (the Authority), a public trust. On January 13, 1971, the Board of County Commissioners of Comanche County, Oklahoma, created the Authority to operate, control and manage all matters concerning Comanche County Memorial Hospital and the trust estate. At the termination of the trust, the beneficiary, Comanche County, will receive the residue of the trust estate. The financial statements of the Hospital are intended to present the financial position, and changes in financial position and cash flows, of only that portion of the activities of the Authority that is attributable to the transactions of the Hospital. The Hospital s financial statements do not purport to, and do not, present the financial position of the Authority and the changes in the Authority s financial position and cash flows. On January 13, 1971, an indenture of lease was entered into between Comanche County (the Lessor) and the trustees of the Authority (the Lessee), leasing to the Authority all hospital centers, hospital sites, equipment and facilities owned and subsequently constructed or acquired by the Lessor or under its custody, management or control. The initial term of the lease was for a period of 30 years and so long thereafter as any indebtedness incurred by Lessee and secured by the revenues of any of the leased property remains unpaid. In addition, the lease agreement provides the Authority certain renewal options. Consideration for the lease is the installation and construction of improvements to the leased property for the purpose of aiding the Lessor in the performance of its public functions. In July 2000, the Authority exercised an option to renew the lease for an additional 30-year period ending in January The Hospital has no right of ownership in any of the assets reflected in the accompanying financial statements except through the lease stated above. The Hospital primarily earns revenue by providing inpatient, outpatient and emergency care services to patients in southwestern Oklahoma. The Hospital also operates a rehabilitation unit, a skilled nursing unit, a psychiatric unit, outpatient clinics, a home health agency and provides ambulance services in the same geographic area. Basis of Accounting and Presentation The financial statements of the Hospital have been prepared on the accrual basis of accounting using the economic resources measurement focus. Revenues, expenses, gains, losses, assets and liabilities from exchange and exchange-like transactions are recognized when the exchange transaction takes place. Operating revenues and expenses include exchange transactions. Investment income and interest on capital assets-related debt are included in nonoperating revenues and expenses. The Hospital first applies restricted net assets when an expense or outlay is incurred for purposes for which both restricted and unrestricted net assets are available. 11

90 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 The Hospital prepares its financial statements as a business-type activity in conformity with applicable pronouncements of the Governmental Accounting Standards Board (GASB). Pursuant to GASB Statement No. 20, the Hospital has elected to apply the provisions of all relevant pronouncements of the Financial Accounting Standards Board (FASB) that were issued on or before November 30, 1989, and do not conflict with or contradict GASB pronouncements. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents The Hospital considers all liquid investments with maturities at the date of purchase of three months or less to be cash equivalents. At June 30, 2006 and 2005, cash equivalents consisted of money market mutual funds. Risk Management The Hospital is exposed to various risks of loss from torts; theft of, damage to and destruction of assets; business interruption; errors and omissions; employee injuries and illnesses; natural disasters; and employee health, dental and accident benefits. Commercial insurance coverage is purchased for claims arising from such matters other than employee health, dental, short-term disability and workers compensation claims. Settled claims have not exceeded this commercial coverage in any of the three preceding years. The Hospital is self-insured for a portion of its exposure to risk of loss from employee health, dental, short-term disability and workers compensation claims. Annual estimated provisions are accrued for the self-insured portion of these claims and include an estimate of the ultimate costs for both reported claims and claims incurred but not yet reported. Investments and Investment Income All investments are carried at fair value, which is determined using quoted market prices. Investment income includes interest income and the net change for the year in the fair value of investments. 12

91 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 Patient Accounts Receivable The Hospital reports patient accounts receivable for services rendered at net realizable amounts from third-party payers, patients and others. The Hospital provides an allowance for uncollectible accounts based upon a review of outstanding receivables, historical collection information and existing economic conditions. As a service to its patients, the Hospital bills third-party payers directly and bills the patient when the patient s liability is determined. Patient accounts receivable are due when billed. Accounts are considered delinquent and subsequently written off as bad debts based on individual credit evaluation and specific circumstances of the account. Supplies Supply inventories are stated at the lower of cost, determined using the first-in, first-out method, or market. Capital Assets Capital assets are recorded at cost at the date of acquisition, or fair value at the date of donation if acquired by gift. Depreciation is computed using the straight-line method over the estimated useful life of each asset. Assets under capital lease obligations and leasehold improvements are depreciated over the shorter of the lease term or their respective estimated useful lives. The following estimated useful lives are being used by the Hospital: Land improvements Buildings and fixed equipment Major moveable equipment years years 3 7 years The Hospital capitalizes interest costs as a component of construction in progress, based on the weighted-average rates paid for long-term borrowing. Total interest incurred was: Interest costs capitalized $ 42,824 $ Interest costs charged to expense 4,392,210 4,681,651 Total interest incurred $ 4,435,034 $ 4,681,651 Deferred Financing Costs Deferred financing costs represent costs incurred in connection with the issuance of long-term debt. Such costs are being amortized using the interest method over the term of the respective debt. 13

92 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 Compensated Absences Hospital policies permit most employees to accumulate paid days off benefits that may be realized as paid time off or, in limited circumstances, as a cash payment. Expense and the related liability are recognized as benefits are earned whether the employee is expected to realize the benefit as time off or in cash. Compensated absence liabilities are computed using the regular pay rates in effect at the balance sheet date plus an additional amount for compensation-related payments such as social security and Medicare taxes computed using rates in effect at that date. Net Assets Net assets of the Hospital are classified in three components. Net assets invested in capital assets net of related debt consist of capital assets, net of accumulated depreciation, and reduced by the current balances of any outstanding borrowings used to finance the purchase or construction of those assets. Restricted expendable net assets are noncapital assets that must be used for a particular purpose, as specified by creditors, grantors or donors external to the Hospital, including amounts deposited with trustees as required by revenue bond indentures reduced by the outstanding balances of any related borrowings. Unrestricted net assets are remaining assets less remaining liabilities that do not meet the definition of invested in capital assets net of related debt or restricted expendable. Net Patient Service Revenue The Hospital has agreements with third-party payers that provide for payments to the Hospital at amounts different from its established rates. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payers and others for services rendered and includes estimated retroactive adjustments and a provision for uncollectible accounts. Retroactive adjustments are considered in the recognition of revenue on an estimated basis in the period the related services are rendered and such estimated amounts are revised in future periods as adjustments become known. Charity Care The Hospital provides care without charge or at amounts less than its established rates to patients meeting certain criteria under its charity care policy. Because the Hospital does not pursue collection of amounts determined to qualify as charity care, the amounts are not reported as net patient service revenue. Income Taxes The Hospital is exempt from federal income taxes under Section 115 of the Internal Revenue Code as a political subdivision of the state of Oklahoma. However, the Hospital is subject to federal income tax on any unrelated business taxable income. 14

93 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 Foundation The Hospital is the beneficiary of Comanche County Memorial Hospital Foundation (the Foundation), a separate legal entity with its own board of directors. The Foundation has legal title to all of the Foundation s assets. The Foundation is not a component unit of the Hospital and, thus, not reflected in the accompanying financial statements. Reclassifications Certain reclassifications have been made to the 2005 financial statements to conform to the 2006 presentation. The reclassifications had no effect on the results of operations. Note 2: Net Patient Service Revenue The Hospital has agreements with third-party payers that provide for payments to the Hospital at amounts different from its established rates. Those payment arrangements include: Medicare Inpatient acute care services and substantially all outpatient services rendered to Medicare program beneficiaries are paid at prospectively determined rates. These rates vary according to a patient classification system that is based on clinical, diagnostic and other factors. Inpatient skilled nursing services are paid at prospectively determined rates that are based on the patients acuity. Certain inpatient nonacute services and outpatient services and defined medical education costs are paid on a cost reimbursement methodology. The Hospital is reimbursed for certain services at a tentative rate with final settlement determined after submission of annual cost reports by the Hospital and audits thereof by the Medicare fiscal intermediary. The Medicare fiscal intermediary has audited the Hospital s cost reports through June 30, Medicaid The Hospital has also been reimbursed for services rendered to patients covered by the state Medicaid program on a prospective basis at set per diem rates with no retroactive adjustment. Effective October 1, 2005, the state s Medicaid program changed its basis of reimbursement for inpatient services from a prospective per diem method to a prospective per discharge method with no retroactive adjustments. These new payment rates vary according to a patient classification system that is based on clinical, diagnostic and other factors. Approximately 62% and 65% of net patient service revenues are from participation in the Medicare and state-sponsored Medicaid programs for the years ended June 30, 2006 and 2005, respectively. Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation and change. As a result, it is reasonably possible that recorded estimates will change materially in the near term. 15

94 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 The Hospital has also entered into payment agreements with certain commercial insurance carriers, health maintenance organizations and preferred provider organizations. The basis for payment to the Hospital under these agreements includes prospectively determined rates per discharge, discounts from established charges, prospectively determined daily rates and fixed payments per enrollee in capitated plans in which the Hospital participates. Note 3: Deposits, Investments and Investment Income Deposits Custodial credit risk is the risk that in the event of a bank failure, a government s deposits may not be returned to it. The Hospital s deposit policy for custodial credit risk requires compliance with the provisions of state law which requires collateralization of all deposits with federal depository insurance and other acceptable collateral in specific amounts. At June 30, 2006 and 2005, respectively, the Hospital s bank balances were $7,417,967 and $7,482,116. None of these deposits were exposed to custodial credit risk at June 30, 2006 or Investments The Hospital may legally invest in direct obligations of and other obligations guaranteed as to principal by the U.S. Treasury and U.S. agencies and instrumentalities and in bank repurchase agreements. It may also invest to a limited extent in corporate bonds and equity securities. At June 30, 2006 and 2005, the Hospital had the following investments and maturities: Type Fair Value June 30, 2006 Maturities in Years Less than More than 10 Mortgage- and assetbacked securities of U.S. agencies $ 19,972,735 $ 9,929,652 $ 10,043,083 $ $ Repurchase agreements 5,498,291 3,297,001 2,201,290 Money market mutual funds 5,667,371 5,667,371 U.S. government securities 2,158,641 2,158,641 Accrued investment income 257,679 33,297,038 $ 17,755,664 $ 13,340,084 $ 0 $ 2,201,290 $ 33,554,717 16

95 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 Type Fair Value June 30, 2005 Maturities in Years Less than More than 10 Mortgage- and assetbacked securities of U.S. agencies $ 19,788,402 $ 6,218,905 $ 13,569,497 $ $ Repurchase agreements 6,724,254 4,522,964 2,201,290 Money market mutual funds 4,950,238 4,950,238 U.S. government securities 2,079,231 2,079,231 Accrued investment income 261,947 33,542,125 $ 13,248,374 $ 18,092,461 $ 0 $ 2,201,290 $ 33,804,072 Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. As a means of limiting its exposure to fair value losses arising from rising interest rates, the Hospital s investment policy limits the sale of securities on the open market prior to maturity and directly investing in securities maturing more than five years from the date of purchase. The Hospital has also adopted weighted average limitations to not exceed three years. The repurchase agreements mature in July 2008 and July 2031 and carry fixed interest of 5.13% and 5.75%. The money market mutual funds are presented as an investment with a maturity of less than one year because they are redeemable in full immediately. Credit Risk Credit risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligations. It is the Hospital s policy to limit its investments to securities with a Standard & Poor s credit rating of AAA or Moody s credit rating of Aaa. U.S. Treasury obligations, U.S. government agency and instrumentality obligations, repurchase agreements, certificates of deposit and money market funds are acceptable securities types under the Hospital s policy. At June 30, 2006 and 2005, the Hospital s investments not directly guaranteed by the U.S. government were rated as follows: Investment Moody s S&P Mortgage- and asset-backed securities AAA AAA Repurchase agreements Aa2 to Aa3 A to AA- Money market mutual funds Not Rated Not Rated to AAA 17

96 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 Custodial Credit Risk For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the Hospital will not be able to recover the value of its investment or collateral securities that are in the possession of an outside party. At June 30, 2006 and 2005, $19,972,735 and $19,788,402, respectively, of mortgage- and asset-backed securities and $2,158,641 and $2,079,229, respectively, of U.S. government securities are held by the counterparties in other than the Hospital s name. All of the underlying securities for the Hospital s investments in repurchase agreements at June 30, 2006 and 2005, are held by the counterparties in other than the Hospital s name. The Hospital s investment policy does not address how securities underlying repurchase agreements are to be held. At June 30, 2006 and 2005, the repurchase agreements exceeded the value of securities pledged as collateral by $1,332,772 and $1,226,023, respectively. Concentration of Credit Risk The Hospital limits the types of securities purchased to U.S. Treasury obligations, U.S. government agency and instrumentality obligations and certificates of deposit fully covered by FDIC limits. At June 30, 2006, the following investments exceeded 5% of the total fair value of all investments: Investment Fair Value Percent of Total Federal National Mortgage Association $ 9,995, % Federal Home Loan Mortgage Corporation 1,982, % Republic National Bank of New York repurchase agreement 3,297, % First Union National Bank repurchase agreement 2,201, % $17,476, % At June 30, 2005, the following investments exceeded 5% of the total fair value of all investments. Investment Fair Value Percent of Total Federal National Mortgage Association $ 8,830, % Federal Home Loan Mortgage Corporation 4,617, % Republic National Bank of New York repurchase agreement 4,522, % First Union National Bank repurchase agreement 2,201, % $20,172, % 18

97 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 Summary of Carrying Values The carrying values of deposits and investments shown above are included in the balance sheets as follows: Carrying value Deposits $ 5,150,530 $ 6,752,739 Investments 33,554,717 33,804,072 $ 38,705,247 $ 40,556,811 Included in the following balance sheet captions Cash and cash equivalents $ 6,615,174 $ 6,859,152 Short-term investments 13,554,265 7,904,547 Restricted cash and investments current 4,117,299 4,757,927 Noncurrent cash and investments 14,160,830 20,773,238 Accrued investment income 257, ,947 Investment Income Investment income for the years ended June 30, 2006 and 2005, consisted of: $ 38,705,247 $ 40,556, Interest $ 1,181,109 $ 1,101,493 Net increase in fair value of investments 95,637 18,901 $ 1,276,746 $ 1,120,394 Note 4: Patient Accounts Receivable The Hospital grants credit without collateral to its patients, most of who are southwestern Oklahoma residents and are insured under third-party payer agreements. Patient accounts receivable at June 30, 2006 and 2005, consisted of: Medicare $ 7,595,456 $ 7,643,791 Medicaid 1,442,318 1,070,078 Patients and other third-party payers 39,538,363 40,814,562 Total patient accounts receivable 48,576,137 49,528,431 Less allowance for uncollectible amounts 17,918,000 20,095,000 $ 30,658,137 $ 29,433,431 19

98 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 Note 5: Capital Assets Capital assets activity for the years ended June 30, 2006 and 2005, were: 2006 Balance June 30, 2005 Additions Disposals Transfers Balance June 30, 2006 Land $ 1,758,007 $ $ $ 481,728 $ 2,239,735 Land improvements 4,363,332 3,600,527 7,963,859 Building, improvements and fixed equipment 103,483,508 3,595, ,079,297 Major moveable equipment 62,428,763 3,630,379 (775,757) 1,135,802 66,419,187 Construction in progress 4,966,878 5,044,871 (8,813,846) 1,197, ,000,488 8,675,250 (775,757) 0 184,899,981 Less accumulated depreciation Land improvements 3,598, ,580 3,872,269 Building, improvements and fixed equipment 48,908,066 3,878,719 52,786,785 Major moveable equipment 48,069,498 4,864,750 (718,278) 52,215, ,576,253 9,017,049 (718,278) 0 108,875,024 Capital assets, net $ 76,424,235 $ (341,799) $ (57,479) $ 0 $ 76,024, Balance June 30, 2004 Additions Disposals Transfers Balance June 30, 2005 Land $ 1,702,630 $ 41,604 $ $ 13,773 $ 1,758,007 Land improvements 3,986, ,784 4,363,332 Building, improvements and fixed equipment 101,419,244 (18,000) 2,082, ,483,508 Major moveable equipment 61,642,579 1,574,564 (788,380) 62,428,763 Construction in progress 1,259,033 6,180,666 (2,472,821) 4,966, ,010,034 7,796,834 (806,380) 0 177,000,488 Less accumulated depreciation Land improvements 3,514,529 84,160 3,598,689 Building, improvements and fixed equipment 45,057,969 3,858,197 (8,100) 48,908,066 Major moveable equipment 43,661,059 5,164,494 (756,055) 48,069,498 92,233,557 9,106,851 (764,155) 0 100,576,253 Capital assets, net $ 77,776,477 $ (1,310,017) $ (42,225) $ 0 $ 76,424,235 Note 6: Notes Payable to Banks The Hospital periodically borrows funds from banks to finance insurance cost. The notes payable bear interest at the prime rates, are unsecured and mature in less than one year from issuance. The following is a summary of short-term notes payable to banks transactions for the years ended June 30, 2006 and

99 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and Beginning balance $ $ 703,948 Additions 1,500,000 Deductions (1,500,000) (703,948) Ending balance $ 0 $ 0 Note 7: Accounts Payable and Accrued Expenses Accounts payable and accrued expenses included in current liabilities at June 30, 2006 and 2005, consisted of: Payable to suppliers and contractors $ 11,866,412 $ 13,712,480 Payable to employees (including payroll taxes and benefits) 6,359,602 6,681,548 $ 18,226,014 $ 20,394,028 Note 8: Medical Malpractice Claims The Hospital has purchased medical malpractice insurance for hospital services and physician professional services under a claims-made policy on a fixed premium basis. The medical malpractice insurance provider used by the Hospital to cover hospital services during 2004 experienced financial difficulties and was placed into receivership by the Oklahoma State Insurance Commission because the cost of anticipated future claims exceeded reserves available to pay for those claims. As a result, the Hospital may be exposed to additional liability on certain claims insured by this insurer. Effective July 1, 2004, the Hospital obtained medical malpractice insurance for hospital services from a new insurer under a claims-made policy on a fixed premium basis. Due to this transition, claims for which the underlying alleged incident occurred on or before June 30, 2004, but were not reported until after June 30, 2004, would not be covered under the Hospital s medical malpractice policies. Several claims meet these criteria and in 2006 and 2005, respectively, the Hospital accrued approximately $520,000 and $450,000 based on its claims experience for these claims. It is reasonably possible that this estimate could change materially in the near term. Accounting principles generally accepted in the United States of America require a health care provider to accrue the expense of its share of malpractice claim costs, if any, for any reported and unreported incidents of potential improper professional service occurring during the year by estimating the probable costs of such incidents. Because the Hospital is a division of the Authority, which is a component unit of the County of Comanche, Oklahoma, management believes the limit of liability for any individual tort claim not covered by insurance would be limited to $125,

100 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 Note 9: Self-Insured Claims The Hospital sponsors workers compensation, short-term disability and health and dental care plans for its employees. These plans are self-insured to the extent of the deductible amounts under the excess risk insurance policies the Hospital has obtained. These self-insured amounts are currently as follows: Workers Compensation first $250,000 per accident Health and Dental Care first $250,000 per person per year A provision is accrued for self-insured workers compensation, short-term disability and health and dental care claim costs including both claims reported and claims incurred but not yet reported. The accrual is estimated based on consideration of prior claims experience, recently settled claims, frequency of claims and other economic and social factors. It is reasonably possible the Hospital s estimate will change by a material amount in the near term. Activity in the Hospital s accrued liability for self-insured plans during the years ended June 30, 2006 and 2005, are summarized as follows: Year Ended June 30, 2006 Employee Health and Short-term Workers Dental Benefits Disability Compensation Balance, beginning of year $ 1,061,034 $ 40,767 $ 820,425 Current year claims and changes in estimates 4,795, , ,102 Claim payments, net of reinsurance (4,638,244) (97,393) (666,224) Balance, end of year $ 1,217,817 $ 90,389 $ 562,303 Year Ended June 30, 2005 Employee Health and Short-term Workers Dental Benefits Disability Compensation Balance, beginning of year $ 1,023,926 $ 62,205 $ 573,569 Current year claims and changes in estimates 4,726, , ,704 Claim payments, net of reinsurance (4,689,786) (210,255) (565,848) Balance, end of year $ 1,061,034 $ 40,767 $ 820,425 22

101 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 Note 10: Long-Term Debt The following is a summary of long-term debt transactions for the Hospital for the years ended June 30, 2006 and Beginning Balance Additions Deductions Ending Balance Current Portion Revenue bonds payable $ 80,205,000 $ 32,970,000 $ (36,295,000) $ 76,880,000 $ 2,255,000 Notes payable to bank 2,300,000 (43,524) 2,256, ,659 Capital lease obligations 2,768,567 (1,002,906) 1,765, ,428 Total long-term debt $ 82,973,567 $ 35,270,000 $ (37,341,430) $ 80,902,137 $ 3,358, Beginning Balance Additions Deductions Ending Balance Current Portion Revenue bonds payable $ 82,500,000 $ 18,335,000 $ (20,630,000) $ 80,205,000 $ 2,030,000 Notes payable to individuals 74,536 (74,536) Capital lease obligations 3,731,562 (962,995) 2,768,567 1,002,906 Total long-term debt $ 86,306,098 $ 18,335,000 $ (21,667,531) $ 82,973,567 $ 3,032,906 Revenue Bonds Payable The revenue bonds payable consist of the following: Series 2005 Hospital Revenue Refunding Bonds, in the original amount of $32,970,000 dated November 1, 2005, which bear interest at 4.375% to 5.25%, payable semiannually beginning July 1, Principal is payable in annual installments beginning July 1, 2014 and continuing through July 1, The Hospital is required to make monthly deposits to the debt service fund held by the trustee. All the Bonds still outstanding may be redeemed at the Hospital s option on or after July 1, 2016, at a price of par plus accrued interest to the date of redemption. At June 30, 2006, $32,970,000 of the Bonds were outstanding. The Bonds are secured by the net revenues of the Hospital and the assets restricted under the bond indenture agreement. Series 2004 Hospital Revenue Refunding Bonds, in the original amount of $18,335,000 dated December 8, 2004, which bear interest at 3.50% to 5.00%, payable semiannually beginning July 1, Principal is payable in annual installments through July 1, The Hospital is required to make monthly deposits to the debt service fund held by the trustee. The Bonds may not be redeemed prior to maturity, other than extraordinary optional redemption. At June 30, 2006 and 2005, $16,735,000 and $18,335,000, respectively, of the Bonds were outstanding. The Bonds are secured by the net revenues of the Hospital and the assets restricted under the bond indenture agreement. 23

102 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 Series 2000B Fixed Rate Revenue Bonds, in the original amount of $28,010,000 dated February 1, 2002, which bear interest at 5.35% to 6.60%, payable semiannually. Principal is payable in annual installments through July The Hospital is required to make monthly deposits to the debt service fund held by the trustee. All of the Bonds still outstanding may be redeemed at the Hospital s option on or after July 1, 2012, at a redemption price of 102% decreasing to 101% on July 1, 2013, and to 100% on or after July 1, At June 30, 2006 and 2005, $27,175,000 and $27,605,000, respectively, of the Bonds were outstanding. The Bonds are secured by the net revenues of the Hospital and the assets restricted under the bond indenture agreement. Series 1993A Hospital Revenue Bonds, in the original amount of $67,000,000 dated October 1, 1993, which bear interest at 5.375%, payable semiannually. At June 30, 2006 and 2005, $0 and $34,265,000, respectively, of the Bonds were outstanding. The indenture agreements require that certain funds be established with the trustee. Accordingly, these funds are included as assets held by trustee for debt service in the balance sheets. The indentures also require the Hospital to comply with certain restrictive covenants including minimum insurance coverage, maintaining a debt-service coverage ratio of at least 1.20:1.00 and restrictions on incurrence of additional debt. The debt service requirements as of June 30, 2006, are as follows: Year Ending June 30, Total to be Paid Principal Interest 2007 $ 6,550,628 $ 2,255,000 $ 4,295, ,392,034 2,340,000 4,052, ,392,322 2,445,000 3,947, ,382,259 2,550,000 3,832, ,379,871 2,675,000 3,704, ,940,513 15,655,000 16,285, ,967,279 20,465,000 11,502, ,399,135 17,890,000 5,509, ,703,150 8,540,000 2,163, ,133,145 2,065,000 68,145 $ 132,240,336 $ 76,880,000 $ 55,360,336 During 2005, the Hospital issued $18,335,000 in Series 2004 Hospital Revenue Refunding Bonds with an average interest rate of 4.8% to current refund $18,635,000 of outstanding Series 1993A Hospital Revenue Bonds. The Hospital completed the current refunding to reduce its total debt service payments over the next nine years by approximately $1,400,000 and to obtain an economic gain (difference between the present values of the old and new debt service payments) of approximately $1,200,

103 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 During 2006, the Hospital issued $32,970,000 in Series 2005 Hospital Revenue Refunding Bonds with an average interest rate of 4.6% to current refund $34,265,000 of outstanding Series 1993A Hospital Revenue Refund Bonds. The Hospital completed the current refunding to reduce its total debt service payments over the next 19 years by approximately $5,000,000 and to obtain an economic gain (difference between the present values of the old and new debt service payments) of approximately $3,500,000. Note Payable to Bank The note payable to bank is due March 10, 2016, with principal and interest at 5% payable monthly. The note is secured by collateral assignments of leases. The debt service requirements as of June 30, 2006, are as follows: Year Ending June 30, Total to be Paid Principal Interest 2007 $ 293,766 $ 183,659 $ 110, , , , , ,203 90, , ,741 80, , ,827 68, ,395,393 1,237, ,531 Capital Lease Obligations $ 2,864,223 $ 2,256,476 $ 607,747 The Hospital is obligated under leases for equipment that are accounted for as capital leases. Capital assets acquired using capital leases at June 30, 2006 and 2005, totaled $8,225,795 and $8,225,795, respectively, net of accumulated depreciation of $6,375,729 and $5,070,784, respectively. The following is a schedule by year of future minimum lease payments under the capital leases including interest at rates of 3.68 % to 4.95% together with the present value of the future minimum lease payments as of June 30, Year Ending June 30, 2007 $ 969, , ,373 Total minimum lease payments 1,837,338 Less amount representing interest 71,677 Present value of future minimum lease payments $ 1,765,661 25

104 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 Note 11: Charity Care and Other Community Benefits In support of its mission, the Hospital voluntarily provides free care to patients who lack financial resources and are deemed to be medically indigent. Because the Hospital does not pursue collection of amounts determined to qualify as charity care, they are not reported in net patient service revenue. In addition, the Hospital provides services to other medically indigent patients under certain government-reimbursed public aid programs. Such programs pay providers amounts which are less than established charges for the services provided to the recipients and many times the payments are less than the cost of rendering the services provided. Uncompensated charges relating to these services are as follows: Charity allowances $ 2,700,000 $ 3,500,000 State Medicaid and other public aid programs 30,500,000 32,500,000 $ 33,200,000 $ 36,000,000 In addition to uncompensated charges, the Hospital also commits significant time and resources to endeavors and critical services which meet otherwise unfilled community needs. Many of these activities are sponsored with the knowledge that they will not be self-supporting or financially viable. Such programs include health screening and assessments, prenatal education and care, community educational services and various support groups. Note 12: Pension Plan Plan Description The Authority maintains a single-employer defined benefit pension plan administered by the plan s Board of Trustees who are appointed by the Authority s governing body. The plan provides retirement, disability and death benefits to plan members who are employees of the Hospital and McMahon-Tomlinson Nursing Center, and beneficiaries. The plan also includes supplemental retirement benefits for certain employees. The authority to establish and amend benefit provisions is vested in the Authority s governing body. The plan issues a publicly available financial report that includes financial statements and required supplementary information for the plan. The report may be obtained by writing the plan at Comanche County Memorial Hospital, Administrative Office, 3401 W. Gore Boulevard, Lawton, Oklahoma 73502, or by calling (580) Funding Policy The Authority to establish and amend obligations of plan members and the Hospital is vested in the Authority s governing body. There are no required or permitted contributions by plan members. The Hospital is required to contribute an actuarially determined amount. 26

105 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 Annual Pension Cost and Net Pension Obligation The Hospital s annual pension cost and net pension obligation to the plan for 2006 and 2005 were as follows: Annual required contributions $ 1,900,642 $ 1,784,869 Interest on net pension obligation 99,103 68,803 Adjustment to annual required contribution (171,488) (111,742) Annual pension cost 1,828,257 1,741,930 Contributions made (1,423,665) (1,331,077) Increase in net pension obligation 404, ,853 Net pension obligation at beginning of year 1,343, ,918 Net pension obligation at end of year $ 1,748,363 $ 1,343,771 The annual required contribution for 2006 was determined as part of an actuarial valuation on July 1, 2005, using the projected unit credit actuarial cost method. The actuarial assumptions included 7.375% investment rate of return (net of administrative expenses), projected salary increases of 4.000% per year and an inflation component. The actuarial value of assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a five-year period. The unfunded actuarial accrued liability is being amortized as a level dollar amount on an open basis. The remaining amortization period at July 1, 2005, was five years. Effective June 30, 2004, the plan was amended to provide benefits payable on the earlier of the plan member s 65 th birthday or the date the member s age plus years of service is at least 90. Members with at least 10 years of service at June 30, 2004, are required to have age plus years of service at 80 to receive benefits. Trend Information Year Ended Annual Pension Cost (APC) Percentage of APC Contributed Net Pension Obligation (Asset) 2006 $ 1,828,257 78% $ 1,748, $ 1,741,930 76% $ 1,343, $ 1,814,185 80% $ 932,918 27

106 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 Note 13: Related Party Information Tillman County-City of Frederick Hospital Authority In August 1993, the Authority entered into a sublease agreement with the Tillman County-City of Frederick Hospital Authority (Tillman). Consideration for this sublease is the operation of the premises and assumption of certain debt of Tillman. The lease commenced September 1993 and ends August Through the Hospital, the Authority also guaranteed the payment of certain bonds issued in April 1994 by Tillman of which $920,000 was outstanding at June 30, During December 2003, all of the outstanding 1994 Tillman bonds were redeemed using the proceeds of a $2,295,000 revenue note, of which $1,950,000 and $2,050,000 remains outstanding at June 30, 2006 and 2005, respectively. The Authority has guaranteed approximately 40% of the revenue note. The Hospital also provides certain services and supplies to Tillman. Included in due from related parties on the balance sheets at June 30, 2006 and 2005, are $85,099 and $103,119, respectively, owed by Tillman as a result of these purchases and services. Comanche County Hospital Foundation (the Foundation) The Foundation, a not-for-profit corporation with a separate board of directors, was established in February 1993 to support the educational and charitable purposes of the Hospital. The Hospital provides administrative services and supplies to the Foundation. Included in due from related parties on the balance sheets at June 30, 2006 and 2005, is $32,662 and $3,668, respectively, owed by the Foundation as a result of these purchases and services. McMahon-Tomlinson Nursing Center The Hospital provides certain administrative and purchasing services to McMahon-Tomlinson Nursing Center (the Nursing Center), a division of the Authority. The Hospital bills the Nursing Center monthly for these purchases and services. Included in due from related parties on the balance sheets at June 30, 2006 and 2005, is $593,826 and $169,316, respectively, owed by the Nursing Center as a result of these purchases and services. Note 14: Investment in Southwest Oklahoma Cancer Center, L.L.C. During 2005, the Authority became an approximate 46% member of Southwest Oklahoma Cancer Center, L.L.C. (the LLC). The Hospital s investment in the LLC amounted to approximately $217,000 and $58,000 at June 30, 2006 and 2005, respectively, and is included in other assets on the 2006 and 2005 balance sheets. The LLC was formed for the purpose to develop and operate one or more facilities specializing in providing cancer treatment services for the residents of southwest Oklahoma. 28

107 Comanche County Memorial Hospital Notes to Financial Statements June 30, 2006 and 2005 As of June 30, 2006, there have been no operations of the LLC other than the planning related to the development and eventual construction or renovation of three (3) facilities that will be used for the cancer treatment services. Management of the LLC estimates a total project cost of approximately $19 million with an anticipated construction start date in late calendar 2006 or early calendar The Hospital will be responsible for funding its pro rata share (approximately 46%) of the total project cost. The Hospital s portion of the project funding will be a combination of cash and financing arrangements. Note 15: Restricted Net Assets Under State HMO Statutes At June 30, 2005, restricted net assets include $500,000 related to the Prime Advantage Health Plan which was terminated January 1, This restriction is required to meet the minimum net worth and deposit requirements imposed by the Oklahoma State Department of Health on all health maintenance organizations. The restriction was released by the Oklahoma State Department of Health on August 23, Note 16: Commitments and Contingencies Litigation In the normal course of business, the Hospital is, from time to time, subject to allegations that may or do result in litigation. Some of these allegations are in areas not covered by commercial insurance; for example, allegations regarding employment practices or performance of contracts. The Hospital evaluates such allegations by conducting investigations to determine the validity of each potential claim. Based upon the advice of legal counsel, management records an estimate of the amount of ultimate expected loss, if any, for each. Events could occur that would cause the estimate of ultimate loss to differ materially in the near term. 29

108 Comanche County Memorial Hospital Required Supplementary Information Schedule of Funding Progress June 30, 2006 Actuarial Actuarial Accrued Unfunded (Overfunded) UAAL as a Actuarial Value of Liability (AAL) AAL Funded Covered Percentage of Valuation Assets Unit Credit (UAAL) Ratio Payroll Covered Payroll Date (a) (b) (b-a) (a/b) (c) (b-a)/c 7/1/05 $ 22,178,049 $ 29,516,471 $ 7,338, % $ 40,351, % 7/1/04 $ 20,453,963 $ 27,278,111 $ 6,824, % $ 36,016, % 7/1/03 $ 17,181,508 $ 25,309,933 $ 8,128, % $ 37,211, % The actuarial accrued liability is based on the projected unit credit method. 30

109 Independent Accountants Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance With Government Auditing Standards Board of Trustees Comanche County Memorial Hospital Lawton, Oklahoma We have audited the financial statements of COMANCHE COUNTY MEMORIAL HOSPITAL (the Hospital) as of and for the year ended June 30, 2006, and have issued our report thereon dated September 15, 2006, which contained an explanatory paragraph emphasizing a matter regarding the financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Hospital s internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Hospital s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to the Hospital s management in a separate letter dated September 15, This report is intended solely for the information and use of the governing body and management and is not intended to be and should not be used by anyone other than these specified parties. September 15, 2006 /s/ BKD, LLP 31

110 Comanche County Memorial Hospital Schedule of Findings and Responses Year Ended June 30, 2006 No matters are reportable. 32

111 APPENDIX C DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND INDENTURE AND THE LEASE

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113 APPENDIX C DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND INDENTURE AND THE LEASE Brief descriptions of the Bond Indenture, Series 2006 Supplemental Bond Indenture and the Lease are included hereafter in this Appendix to the Official Statement. Such descriptions do not purport to be comprehensive or definitive. All references herein to the Bond Indenture, Series 2006 Supplemental Bond Indenture and the Lease are qualified in their entirety by reference to each such documents, draft copies of which are available for review prior to the issuance and delivery of the Bonds at the offices of the Authority and the Underwriter; thereafter, copies of executed documents will be available for inspection at the offices of the Trustee. All references to the Series 2006 Bonds are qualified in their entirety by reference to the definitive forms thereof and the information with respect thereto included in the Bond Indenture and the Series 2006 Supplemental Bond Indenture. Certain Provisions Respecting the Bond Insurer Any provision of the Series 2006 Supplemental Bond Indenture expressly recognizing or granting rights in or to the Bond Insurer of the Series 2006 Bonds may not be amended in any manner which affects the rights of the Bond Insurer without the prior written consent of the Bond Insurer. The Bond Insurer's consent shall be required in addition to Bondowner consent, when required, for the following purposes: (i) execution and delivery of any Supplemental Indenture or any amendment, supplement or change to or modification to the Bond Indenture, (ii) removal of the Trustee or Paying Agent and selection and appointment of any successor trustee or paying agent, and (iii) initiation or approval of any action not described in (i) or (ii) above which requires Bondowner consent. The Bond Insurer shall have the sole and exclusive right to control all rights and direct all remedies granted as a result of an Event of Default to the Trustee or to the Owners of the Series 2006 Bonds as if the Bond Insurer were the Owner of the Series 2006 Bonds, and to waive the occurrence of any Event of Default. There are certain covenants contained in the Series 2006 Supplemental Bond Indenture (including those providing additional conditions, restrictions and other modifications relating to provisions of the Bond Indenture otherwise summarized herein) that are solely for the benefit of the Bond Insurer and the same may be waived or modified solely with the consent of the Bond Insurer without notice to or the consent of any of the Owners of the Series 2006 Bonds. DEFINITIONS OF CERTAIN TERMS The following are definitions of certain terms used in the Bond Indenture, the Series 2006 Supplemental Bond Indenture, the Lease and the Official Statement. "Accountant" shall mean a firm of independent certified public accountants selected by the Authority to whom the Bond Trustee makes no reasonable objection. "Accounts Receivable" shall mean any and all right to payment for services rendered or for goods sold or leased which is not evidenced by an instrument or chattel paper, whether or not it has been earned by performance. "Act" shall mean the Oklahoma Public Trust Act, Title 60, Sections 178 et seq., of the Oklahoma Statutes 2001, as amended. "Additional Indebtedness" shall mean any Indebtedness incurred by the Authority subsequent to the issuance of the original bonds under the Bond Indenture.

114 "Authenticating Agent" shall mean the Bond Trustee and any successors to its duties under the Bond Indenture. "Authority" shall mean The Comanche County Hospital Authority, a public trust created under the laws of the State of Oklahoma. "Authority Representative" shall mean the Chairman, Vice Chairman or Secretary of the Authority or such other person as the Authority may designate to act on its behalf by written certificate furnished to the Authority and the Bond Trustee containing the specimen signature of such person and signed on behalf of the Authority by its Chairman or Vice Chairman. Such certificate may designate an alternate or alternates. "Available Monies" shall mean any monies on deposit with the Bond Trustee which are (i) Bond proceeds, (ii) amounts so on deposit for a period of 124 consecutive days during which no petition in bankruptcy under the U.S. Bankruptcy Code has been filed by or against the Authority, and no similar proceedings have been instituted under state insolvency or other laws affecting creditors' rights generally, or (iii) any monies with respect to which an unqualified opinion from nationally recognized bankruptcy counsel has been received by the Bond Trustee to the effect that payments to any Bondholder with such monies would not constitute voidable preferences under Section 547 of the U.S. Bankruptcy Code, or similar state or federal laws with voidable preference provisions in the event of the filing of a petition for relief under the U.S. Bankruptcy Code, or similar state or federal laws with voidable preference provisions by or against the Authority. "Board" shall mean the Trustees of the Authority. "Bond" or "Bonds" shall mean all bonds issued on a parity under the Indenture. "Bond Counsel" shall mean an attorney or firm of attorneys of national recognition experienced in the field of municipal bonds whose opinions are generally accepted by purchasers of municipal bonds selected or employed by the Authority and acceptable to the Bond Trustee. "Bond Account" shall mean the fund created pursuant to Section 7.02(b) of the Bond Indenture. "Bond Indenture" shall mean the original Bond Indenture, dated as of October 1, 1993, by and between the Authority and the Bond Trustee. "Bond Payment Date" shall mean each date on which interest or both principal and interest shall be payable on any of the Bonds according to their respective terms so long as any Bonds are Outstanding. "Bond Trustee" shall mean Bank of Oklahoma, National Association, Oklahoma City, Oklahoma, and any successor to its duties under the Indenture. "Business Day" shall mean any day of the week other than Saturday, Sunday or a day which shall be in the State of Oklahoma or in the jurisdiction of the Bond Trustee or the Registrar a legal holiday or a day on which banking corporations are authorized or obligated by law or executive order to close. "Capitalized Interest" shall mean that portion of the proceeds of any Indebtedness or any other funds (other than Debt Reserves) that are held in trust and are restricted to be used to pay interest due or to become due on Indebtedness. "Code" shall mean the Internal Revenue Code of 1986, as amended. C-2

115 "Construction Fund" shall mean the fund created pursuant to Section 6.01 of the Bond Indenture. "Consultant" shall mean a person or firm selected by the Authority which is not, and no member, stockholder, director, officer or employee of which is, an officer or employee of the Authority, and which is a recognized professional management consultant of favorable reputation or an Accountant (which may be the Authority's external auditing firm) to whom the Bond Trustee makes no reasonable objection and having the skill and experience necessary to render the particular report required by the provisions of the Indenture in which such requirement appears. "County" shall mean Comanche County, Oklahoma. "Credit Enhancement Provider" shall mean any entity providing a Credit Facility under the Indenture or a Supplement, including a Bond Insurer. "Credit Facility" shall mean the Policy or any instrument such as a letter of credit, a committed line of credit, insurance policy, surety bond or standby bond purchase agreement, or any combination of the foregoing, and issued by a bank or banks, other financial institution or institutions, or any combination of the foregoing, which Credit Facility provides for the payment of (i) the purchase price accrued on bonds delivered to a remarketing agent or any depository, tender agent or other party pursuant to a remarketing agreement or Supplement, or (ii) principal of and interest on all bonds becoming due and payable during the term thereof. "Current Assets" shall mean cash and cash equivalent deposits, marketable securities, Accounts Receivable, accrued interest receivable, funds designated by the Board for any specific purpose and any other intangible assets of the Authority ordinarily considered current assets under generally accepted accounting principles. "Debt Reserves" shall mean that portion of the proceeds of any Indebtedness or any other funds (other than Capitalized Interest) that are held in trust and are restricted to be used to pay principal or principal and interest due or to become due on Indebtedness. "Debt Service Coverage Ratio" with respect to any debt for any period means Net Income Available for Debt Service for such period divided by Maximum Annual Debt Service on such debt as of the last day of such period. "Defaulted Interest" means interest on any Bond which is payable but not paid on the date due. "Encumbered" shall mean subject to a Lien mentioned in subsection (v), (vi), (vii), (viii) or (ix) of Section 8.16(b) of the Bond Indenture. "Event of Default" shall mean any one or more of those events set forth in Section 9.01 of the Bond Indenture. "Fiscal Year" shall mean the fiscal year of the Authority for purposes of making historical calculations or determinations set forth in the Indenture on a Fiscal Year basis; PROVIDED, HOWEVER, that for purposes of making any calculations or determinations as set forth in the Indenture, the Authority may designate as the "Fiscal Year" any twelve (12) month period. C-3

116 "Government Obligations" shall mean direct general obligations of, or obligations the timely payment of principal and interest on which are unconditionally guaranteed by, the United States of America. "Guaranty" shall mean all obligations of the Authority guaranteeing in any manner, whether directly or indirectly, any obligation of any other person which would, if such other person were the Authority, constitute Indebtedness hereunder. "Historic Test Period" shall mean, at the option of the Authority, either (i) any twelve (12) consecutive calendar months out of the most recent period of eighteen (18) full calendar months, or (ii) the most recent period of twelve (12) full consecutive calendar months for which the financial statements of the Authority have been reported upon by an Accountant, or (iii) the most recent Fiscal Year of the Authority. "Holder" or "Bondholder" shall mean the registered owner of any Bond. "Indebtedness" shall mean all obligations for payments of principal and interest with respect to money borrowed, incurred or assumed by the Authority, including Guaranties. "Indenture" shall mean the Bond Indenture and all supplements thereto including the Series 2006 Supplemental Bond Indenture. "Insurance Consultant" shall mean a person or firm selected by the Authority and qualified to survey risks and to recommend insurance coverage for hospitals, health-related facilities and services and organizations engaged in such operations to whom the Bond Trustee and the Credit Enhancement Provider makes no reasonable objection. "Interest Payment Dates" means the dates specified for payment of interest on each series of Bonds; PROVIDED, HOWEVER, that, if any such date is not a Business Day, interest shall be paid on the next succeeding date which is a Business Day but such interest will accrue only through the day prior to the Interest Payment Date. "Law or Regulation Circumstances" shall mean the occurrence of the following: (i) applicable laws, governmental regulations, third-party reimbursement methods or private or governmental insurance programs shall prevent, have prevented or will prevent the Authority from generating sufficient Income Available for Debt Service to comply with the particular requirement of the Indenture in question, (ii) the effect upon the Authority of the circumstances set forth in clause (i) above shall have been confirmed by a signed Consultant's opinion delivered to the Bond Trustee, (iii) an Officer's Certificate shall have been delivered to the Bond Trustee stating that the Authority has generated the maximum Income Available for Debt Service which, in the opinion of such officer, could reasonably be generated given the circumstances set forth in clause (i) above, and (iv), but only at the request of the Bond Trustee or a Bond Insurer, there shall have been delivered to the Bond Trustee an Opinion of Counsel as to any conclusions of law supporting the opinion or report of the Consultant. "Lease" shall mean the Lease dated January 13, 1971, between the County, as lessor, and the Authority, as lessee, as amended. "Lien" shall mean any mortgage, pledge, security interest, lien, judgment lien, easement, or other encumbrance on title, including, but not limited to, any mortgage or pledge of, security interest in or lien or encumbrance on any Property of the Authority which secures any Indebtedness or any other obligation of the Authority, or which secures any obligation of any person other than an obligation to the Authority C-4

117 excluding liens applicable to Property in which the Authority has only a leasehold interest (other than the Lease) unless the lien secures Indebtedness of the Authority. "Long-Term Indebtedness" shall mean all Indebtedness, other than Short-Term Indebtedness, Non-Recourse Indebtedness and Subordinated Indebtedness, for any of the following: (i) Payments of principal and interest with respect to money borrowed for an original term, or renewable at the option of the borrower for a period from the date originally incurred, longer than one year; (ii) Payments under leases which are capitalized in accordance with generally accepted accounting principles having an original term, or renewable at the option of the lessee for a period from the date originally incurred, longer than one year; and (iii) of one year. Payments under installment purchase contracts having an original term in excess "Maximum Annual Debt Service" shall mean with respect to any Indebtedness the maximum amount of principal and interest on such Indebtedness payable or accruing for any period in the thencurrent or any future Fiscal Year. "Net Income Available for Debt Service" means, for any period, (i) all operating and nonoperating revenues of the Authority for such period (excluding any nonoperating revenue from sources that are not considered sufficiently certain of receipt by management of the Authority to be taken into account for purposes of establishing the budget of the Authority) minus (ii) all operating expenses of the Authority for such period (exclusive of depreciation, interest and amortization of financing expenses). "Non-Recourse Indebtedness" shall mean any Indebtedness secured by a Lien, which Indebtedness is not a general obligation of the Authority, and the liability for which Indebtedness is effectively limited to the Property subject to such Lien with no recourse, directly or indirectly, to any other Property of the Authority. Board. "Officer's Certificate" shall mean a certificate signed by the Chairman or Vice Chairman of the "Opinion of Counsel" shall mean a written opinion of an attorney or firm of attorneys acceptable to the Bond Trustee and the Authority and, to the extent the Authority is asked to take action in reliance thereon, the Authority, and who may be either counsel for the Authority or for the Bond Trustee. "Outstanding," when used with reference to the Bonds, Guaranties and all other Indebtedness, shall mean, as of any date of determination, all Bonds, Guaranties and all other Indebtedness, theretofore authenticated and delivered except: (a) Bonds theretofore cancelled by the Bond Trustee or delivered to the Bond Trustee for cancellation; (b) Bonds or Guaranties which are deemed paid and no longer Outstanding as provided in the Indenture; (c) Bonds in lieu of which other Bonds have been issued pursuant to the provisions of the Indenture relating to Bonds destroyed, stolen or lost, unless evidence satisfactory to the Bond Trustee has been received that any such Bond is held by a bona fide purchaser; and (d) for purposes of any consent or other action to be taken under the Agreement or under the Indenture by the Holders of a specified percentage of principal amount of Bonds, Bonds held by or for the account of the Authority. C-5

118 "Paying Agent" shall mean the banks or trust companies and their successors designated as the paying agencies or places of payment for the Bonds. "Permitted Investments" shall mean and include any of the following, if and to the extent the same are at the time legal for the investment of the Authority's money: (a) Direct obligations of the United States of America and securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America; and U.S. Treasury STRIPS ("Direct Obligations"); (b) Participation certificates (excluding strip mortgage securities which are purchased at prices exceeding their principal amounts) and senior debt obligations of the Federal Home Loan Mortgage Corporation; consolidated system wide bonds and notes of the Farm Credit System; senior debt obligations and mortgage-backed securities (excluding stripped mortgage securities which are purchased at prices exceeding their principal amounts) of the Federal National Mortgage Association; senior debt obligations (excluding securities that have no fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date) of the Student Loan Marketing Association; debt obligations of the Resolution Funding Corp.; and REFCORP STRIPS (stripped by the Federal Reserve Bank of New York) (collectively, "Agency Obligations") ; (c) Direct obligations of any state of the United States of America or any subdivision or agency thereof whose long-term unsecured general obligation debt is rated "A3" or better by Moody's Investors Service and "A-" or better by Standard & Poor's Corporation or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose long-term, unsecured general obligation debt is rated "A3" or better by Moody's Investors Services and "A-" or better by Standard & Poor's Corporation; (d) Commercial paper rated "Prime-1" by Moody's Investors Service and "A-1" or better by Standard & Poor's Corporation maturing in not more than 365 days; (e) Deposits, Federal funds or bankers acceptances (maturing in not more than 365 days) of any domestic bank (including a branch office of a foreign bank which branch office is located in the United States, provided that the Bond Trustee shall have received a legal opinion or opinions to the effect that full timely payment of such deposit or similar obligation is enforceable against the principal office or any branch of such bank), which: (i) has an unsecured, uninsured and unguaranteed obligation rated "Prime-1" or "A3" or better by Moody's Investors Service and "A-1" or "A-" or better by Standard & Poor' s Corporation, or (ii) is the lead bank of a parent bank holding company with an uninsured, unsecured and unguaranteed obligation meeting the rating requirements in (i) above; (f) Deposits of any bank or savings and loan association which has combined capital, surplus and undivided profits of not less than $10 million, provided such deposits are fully insured by the Federal Deposit Insurance Corporation, the Banking Insurance Fund or the Savings Association Insurance Fund; (g) Investments in a money-market fund rated "Am" or "Am-G" or better by Standard & Poor's Corporation; C-6

119 (h) Repurchase agreements with a term of six months or less with any institution having long-term, unsecured debt rated at least "AA" or commercial paper rated "A-a+" (in each case by Standard & Poor's Corporation); (i) Repurchase agreements collateralized by Direct Obligations or Agency Obligations (the "Collateral Securities") with any registered broker-dealer which is under the jurisdiction of the Securities Investors Protection Corp. or any commercial bank, if such brokerdealer or bank has uninsured, unsecured and unguaranteed debt rated "Prime-1" or "A3" or better by Moody's Investors Service and "A-1" or "A-" or better by Standard & Poor's Corporation, provided that: (i) a master repurchase agreement or other specific written repurchase agreement governs the transaction; (ii) the Collateral Securities are held free and clear of any other lien by the Bond Trustee or an independent third party acting solely as agent for the Bond Trustee, provided that any such third party (A) is (1) a Federal Reserve Bank, (2) a bank which is a member of the Federal Deposit Insurance Corporation and which has combined capital, surplus and undivided profits of not less than $25 million, or (3) a bank approved in writing for such purpose by a Bond Insurer, and (B) certifies in writing to the Bond Trustee (or delivers to the Bond Trustee a written opinion of counsel to such third party) that such third party holds the Collateral Securities free and clear of any lien, as agent for the Bond Trustee; (iii) a perfected first security interest under the Uniform Commercial Code is created in, or book-entry procedures prescribed at 31 C.F.R et seq. or 31 C.F.R et seq. are followed with respect to, the Collateral Securities for the benefit of the Bond Trustee; (iv) such repurchase agreement has a term of thirty days or less, or the Bond Trustee will value the Collateral Securities no less frequently than monthly and will liquidate the Collateral Securities if any deficiency in the required collateral percentage is not restored within two business days of such valuation; (v) such repurchase agreement matures (or permits the Bond Trustee to withdraw all or any portion of the invested funds) at least 10 days (or other appropriate liquidation period) prior to each debt service payment date with respect to the Bonds; (vi) the fair market value of the Collateral Securities in relation to the amount of the repurchase obligation, including principal and interest, is equal to at least 103%; and (vii) the Bond Trustee obtains an opinion of counsel to such broker-dealer or bank (which opinion shall be addressed to the Authority and each Bond Insurer) to the effect that such repurchase agreement is a legal, valid, binding and enforceable agreement of such broker-dealer or bank (and, in the case of a bank which is a branch of a foreign bank, of such foreign bank) in accordance with its terms. (j) Investment agreements with entities rated in either of the two highest rating categories by Standard & Poor s Corporation approved, in writing by each Bond Insurer. C-7

120 "Permitted Liens" shall have the meaning given in Section 8.16 of the Bond Indenture. "Person" shall include an individual, association, unincorporated organizations corporation, partnership, joint venture, or government or agency or political subdivision thereof. "Pledged Revenues" shall mean all receipts, revenues, income and other monies received by or on behalf of the Authority, including, without limitation, contributions, donations and pledges whether in the form of cash, securities or other personal property, revenues derived from the ownership or operation of the Hospital including insurance and condemnation proceeds with respect to any portion thereof, and all rights to receive the same, whether in the form of accounts, accounts receivable, contract rights or other rights, and the proceeds of such rights, and whether now owned or held or hereafter coming into existence; and the proceeds of the Bonds pending their application in accordance with the Indenture; PROVIDED, HOWEVER, that gifts, grants, bequests, donations and contributions heretofore or hereafter made and designated or specified by the granting authority, donor or maker thereof as being for specified purposes and the income derived therefrom to the extent required by such designation or specification shall be excluded from Pledged Revenues. "Principal Office of Trustee" means the address specified in Section of the Bond Indenture or such other address as may be designated in writing to the Authority. "Project Costs" shall include, together with any other proper cost items not specifically mentioned herein, all costs of acquiring, constructing, equipping and furnishing the Project, including but not limited to: the cost of obligations incurred for labor and materials and to contractors, builders and materialmen, the restoration or relocation of property damaged or destroyed in connection with such construction; the premium and costs incident to the issuance of insurance; premiums of contractors' performance, payment and completion bonds; the cost of machinery, equipment or supplies purchased by the Authority for inclusion as part of the Project; any fees, compensation and expenses of the Authority or the Bond Trustee for services rendered during the period of construction of the Project; taxes, fees, charges and expenses due and payable in connection with the Project, the financing thereof, or the issuance of and security for the Bonds; the costs to the Authority of architects, and engineers, services rendered to Authority prior to or during the period of construction of the Project, paying or reimbursing the expenses of the Authority, including interim financing. loans and all costs thereof incident to and properly allocable to the Project and placing the same in operation, as a part of the Project; rating agency fees, bond printing costs; paying legal, financing, financial, administrative and accounting and recording expenses and fees; paying the fees and expenses of Bond Counsel; and paying any premium to the Credit Enhancement Provider for issuance of the Credit Facility. "Property" shall mean any and all land, leasehold interests, buildings, machinery, equipment, hardware, and inventory of the Authority wherever located and whether now or hereafter acquired, any and all rights, titles and interests in and to any and all property whether real or personal, tangible or intangible and wherever situated and whether now or hereafter acquired and shall include all revenues, receipts or other monies, or right to receive any of the same, including, without limitation, Current Assets, Pledged Revenues, accounts, Accounts Receivable, contract rights and general intangibles, and all proceeds of all of the foregoing. "Rebate Fund" shall mean the fund created pursuant to Section 7.02(e) of the Bond Indenture. "Record Date" at any time shall mean the 15th day of the month preceding such Interest Payment Date or, if such day shall not be a Business Day, the next preceding Business Day. C-8

121 "Redemption Price" shall mean, when used with respect to a Bond or a portion thereof to be redeemed, the principal amount of such Bond or portion thereof plus the applicable premium, if any, payable upon redemption thereof. "Registrar" shall mean the Bond Trustee. "Reserve Fund" shall mean the fund created pursuant to Section 7.02(4) of the Bond Indenture. "Reserve Fund Insurance Policy" shall mean an insurance policy or surety bond or irrevocable letter of credit or guaranty or line of credit deposited in the Reserve Fund in lieu of or in partial substitution for cash or securities on deposit or to be deposited therein. Such Reserve Fund Insurance Policy shall be payable without condition, except the giving of notice as required thereunder, on any Interest or Principal Payment Date (for the Indebtedness in respect of which it was deposited) on which a deficiency determined in accordance with Section 7.02(d)(1) of the Bond Indenture exists in the Sinking Fund and shall have a minimum term of not less than one year. The issuer providing such Reserve Fund Insurance Policy shall be (A) an insurer that has been assigned either (i) one of the two highest policyholder ratings accorded insurers by A.M. Best & Company or any comparable nationally recognized service, (ii) for bonds insured by the issuer of such Policy, a rating by Standard & Poor's in one of the two highest rating categories (without regard to gradations such as plus or minus) or (B) a commercial bank, insurance company or other financial institution the bonds payable or guaranteed by which have been assigned a rating by Standard & Poor's in one of the two highest rating categories (without regard to gradations such as "plus" or "minus"). "Reserve Fund Requirement" shall mean, an amount of money, securities or Reserve Fund Insurance Policy equal to the least of (i) the maximum annual principal and interest requirements on the Bonds, (ii) 125% of the average annual debt service on the Bonds, or (iii) ten percent (10%) of the proceeds of the Bonds (and such amount shall not be greater than the least of (i), (ii), or (iii) of the series of bonds then being issued on a parity with the Bonds then outstanding.) "Reserve Fund Value" shall mean the current market value of monies and investments credited to the Reserve Fund "Series 2004 Bonds" shall mean the Authority s Hospital Revenue Refunding Bonds, Series "Series 2005 Bonds" shall mean the Authority s Hospital Revenue Refunding Bonds, Series "Series 2006 Bonds" shall mean the Authority s Hospital Revenue Refunding Bonds, Series "Short-Term Indebtedness" shall mean all Indebtedness, other than Long-Term Indebtedness, for any of the following: (i) Payments of principal and interest with respect to money borrowed for an original term, or renewable at the option of the borrower for a period from the date originally incurred, of one year or less; (ii) Payments under leases which are capitalized in accordance with generally accepted accounting principles having an original term, or renewable at the option of the lessee for a period from this date originally incurred, of one year or less; and C-9

122 (iii) year or less. Payments under installment purchase contracts having an original term of one "Sinking Fund" shall mean the fund created pursuant to Section 7.02(c) of the Bond Indenture. "Special Record Date" means the date fixed by the Trustee pursuant to Section 3.01 of the Bond Indenture for the payment of Defaulted Interest. "State" means the State of Oklahoma. "S&P" or "Standard & Poor's" means Standard & Poor's Corporation, 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, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority by notice to Bond Trustee. "Subordinated Indebtedness" shall mean all obligations incurred or assumed by the Authority, the payment of which is not secured by a lien on the Pledged Revenues or secured by a lien on the Pledged Revenues which is junior and subordinate to the lien securing the Bonds, or the principal of and interest on which would not be paid (whether by the terms of such obligation or by agreement of the obligee) when the Bonds are in default or while bankruptcy, insolvency, receivership or other similar proceedings are instituted and implemented. "Supplement" shall mean an indenture supplementing or modifying the provisions of the Indenture entered into by the Authority and the Bond Trustee in accordance with Article XI of the Bond Indenture. "Tax-Exempt Organization" means a nonprofit organization, organized under the laws, Of the United States of America or any state thereof, that is an organization described in Section 501(c) (3) of the Code, is exempt from federal income taxes under Section 501(a) of the Code, and 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 Regulatory Agreement" shall mean the Tax Regulatory Agreement, dated the date of delivery of the Bonds, by and among the Authority and the Bond Trustee. "Unencumbered" shall mean not subject to a Lien mentioned in subsection (v), (vi), (vii), (viii) or (ix) of Section 8.16(b) of the Bond Indenture. "Value," when used in connection with Property, shall mean at the option of the Authority (a) the cost basis of such Property, net of accumulated depreciation, as it is carried on the books of the Authority and in conformity with generally accepted accounting principles consistently applied', or (b) the appraised value of such property as determined by an M.A.I. appraiser acceptable to the Bond Trustee, such appraisal taking place within six months of the date such value is used in any computation or calculation herein. SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE 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. C-10

123 The Trust Estate Pursuant to the Bond Indenture, the Authority has pledged and assigned as security for the Bonds, equally and ratably, all Pledged Revenues of the Authority consisting of all receipts, revenues, income and other monies received by or on behalf of the Authority, including, without limitation, contributions, donations and pledges whether in the form of cash, securities or other personal property, revenues derived from the ownership or operation of the Hospital including insurance and condemnation proceeds with respect to any portion thereof, and all rights to receive the same, whether in the form of accounts, accounts receivable, contract rights or other rights, and the proceeds of such rights, and whether now owned or held or hereafter coming into existence; and the proceeds of the Bonds pending their application in accordance with the Bond Indenture; PROVIDED, HOWEVER, that gifts, grants, bequests, donations and contributions heretofore or hereafter made and designated or specified by the granting authority, donor or maker thereof as being for specified purposes and the income derived therefrom to the extent required by such designation or specification shall be excluded from Pledged Revenues. General Covenant The Authority covenants that it will promptly pay or cause to be paid the principal of and interest on every Bond issued under the Indenture at the place, on the dates, and in the manner provided in the Indenture and in said Bonds according to the true intent and meaning thereof, but solely from the amounts pledged therefor which are from time to time held by Bond Trustee. The principal of and interest on the Bonds are payable solely out of the Trust Estate. NEITHER THE AUTHORITY, ANY MEMBER, OFFICER OR EMPLOYEE OF THE AUTHORITY, THE STATE, NOR ANY POLITICAL SUBDIVISION OF THE STATE SHALL IN ANY EVENT BE LIABLE FOR THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, PURCHASE PRICE OR INTEREST ON ANY OF THE BONDS OR FOR THE PERFORMANCE OF ANY PLEDGE, OBLIGATION OR AGREEMENT UNDERTAKEN BY THE AUTHORITY EXCEPT TO THE EXTENT THAT PAYMENTS AND MONIES PLEDGED UNDER THE INDENTURE ARE SUFFICIENT THEREFOR. THE BONDS ARE LIMITED AND SPECIAL OBLIGATIONS OF THE AUTHORITY AND DO NOT CONSTITUTE AN OBLIGATION, EITHER GENERAL OR SPECIAL, OF THE STATE OF OKLAHOMA OR THE COUNTY WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISIONS WHATSOEVER. THE AUTHORITY HAS NO TAXING POWER. Revenues and Funds Revenue Fund The Revenue Fund shall be chargeable with the following monthly payments, in the following order of priority: (i) (ii) thereby; Payments into the Bond Account as herein required; Payments into and replenishment of the Reserve Fund when and as required (iii) Payment of the costs and expenses of and incidental to the operation and ordinary maintenance of the Hospital including but not limited to the necessary costs and expenses of and incidental to collecting the revenues to be deposited in the Revenue Fund, and fees and expenses due the Bond Trustee for its services under the Indenture; and (iv) Use of any remainder by the Authority for any proper purpose or purposes of the Authority, including but not limited to redemption prior to maturity of any indebtedness issued C-11

124 under the Indenture or any supplement thereto, and payments to or for the Authority or any fund or funds of the Authority. Bond Account. The Bond Account shall be used for the purpose of providing for the Payments into the Sinking Fund and the Reserve Fund of the Authority. All funds deposited and held in the Bond Account are subject to the lien of the Indenture as security for the performance of the obligations of the Authority under the Indenture and the payment of any indebtedness or obligations of the Authority at any time due or obligatory under the provisions of the Indenture and the Bond Trustee shall have no right of set-off or counterclaim against such funds at any time. Sinking Fund. The Sinking Fund shall be used for the purposes of (i) paying, as the same shall become due and payable, the interest on the Bonds, and (ii) paying, at maturity, the principal of the Bonds as provided in the Indenture, and (iii) retiring Bonds before maturity, as provided in the Indenture, and (iv) paying any money for which the Authority shall become obligated to the Bond Trustee under the Indenture. The Bond Trustee shall hold in trust all money transferred or paid into the Sinking Fund and promptly shall pay from the Sinking Fund money payable therefrom under the Indenture for the purposes specified. Prior to each date on which any interest on any of the Bonds shall become due and payable, the Bond Trustee shall transfer from the Sinking Fund, into a special trust account, an amount sufficient to pay such maturing interest plus an amount sufficient to pay the principal of any of the Bonds maturing on that interest payment date, and shall hold the same uninvested in trust for the payment of such interest and principal; and, at the same time, the Bond Trustee also shall transfer from the Sinking Fund, into the special trust account, an amount sufficient to pay the principal of, premium, if any, and interest on any of the Bonds which shall have been called by it, as provided in Article IV of the Bond Indenture, for redemption prior to maturity on that interest payment date, and shall hold the same uninvested in trust for the redemption of such Bonds. Reserve Fund. The Reserve Fund shall be use for the purpose of supplying any deficiency in the Sinking Fund whenever, on any interest payment date, there shall not be sufficient money in the Sinking Fund to pay all amounts required to be paid from the Sinking Fund on such interest payment date. The Bond Trustee shall hold in trust all money transferred or paid into the Reserve Fund and, on any interest payment date, shall transfer therefrom, to the Sinking Fund, such amount as shall be required to enable the payment from the Sinking Fund of all currently due amounts when the balance in the Sinking Fund on such interest payment date shall not be sufficient for such purposes. Construction Fund. The Construction Fund shall be held by the Bond Trustee in trust and shall be applied to the payment of the costs of a Project, or the financing thereof, and the issuance of Bonds, including necessary incidental expenses and reimbursement to the Authority for such costs and expenses paid by such Authority in connection therewith, and, pending such application, shall be subject to a lien and charge in favor of the holder of Bonds issued and Outstanding under the Indenture and for the further security of such holders until paid out. Investment of Monies by the Bond Trustee (a) Monies in all Funds and Accounts held by the Bond Trustee shall be invested by the Bond Trustee, as soon as possible upon receipt in Permitted Investments as directed, in writing or by telephonic or other means, by the Authority Representative, or as selected by the Bond Trustee in the absence of direction by the Authority; PROVIDED, that (i) the maturity date or the date on which such Permitted Investments may be redeemed at the option of the holder thereof shall coincide as nearly as practicable with (but in no event, shall be later than) the date or C-12

125 dates, in which monies in the Funds or Accounts for which the investments were made will be required for the purposes thereof, (ii) monies in the Reserve Fund may be invested only in obligations described in paragraphs (a), (b), (h) and (i) of the definition of Permitted Investments that have an average aggregate weighted term to maturity not greater than five (5) years, and agreements described in paragraph (j) of the definition of Permitted Investments if such agreement allows for withdrawal of monies at par pursuant to the Indenture, (iii) capitalized interest shall be invested in Government Obligations or in obligations described in paragraph (j) of the definition of Permitted Investments, and (iv) subject to subsection (f) of this Section, the Bond Trustee shall select, in the absence of direction from the Authority, such Permitted Investments in accordance with prudent investment standards reasonably expected to maximize investment yield. Such Permitted Investments shall be valued by the Bond Trustee no less frequently than quarterly in the manner described in paragraph (d) of this Section. (b) Amounts credited to a Fund or Account may be invested, together with amounts credited to one or more other Funds or Accounts, in the same Permitted Investment, PROVIDED: (i) each such investment complies in all respects with the provisions of subsection (a) of this Section as they apply to each Fund or Account for which the joint investment is made and (ii) the Bond Trustee maintains separate records for each Fund and Account and such investments are accurately reflected therein. (c) The Bond Trustee may make any investment permitted by this Section, through or with its own commercial banking or investment departments unless otherwise directed by the Authority. (d) Except as otherwise specifically provided in the Indenture, in computing the amount in any Fund or Accounts Permitted Investments purchased as an investment of monies therein (taking into account straight line amortizations and accretions of premiums and discounts) shall be valued at the face value or the current market value thereof, whichever is the lower, or at the redemption price thereof, if then redeemable at the option of the holder, in either event inclusive of accrued interest. The Reserve Fund Value, however, shall be valued at the current market value of monies and investments credited to the Reserve Fund. Deficiencies in the amount on deposit in any Fund or Account resulting from a decline in market value shall be restored no later than the succeeding valuation date. (e) The Bond Trustee shall sell at the best price obtainable, or present for redemption, any Permitted Investment purchased by it as an investment whenever it shall be necessary in order to provide monies to meet any payment or transfer from the Fund or Account for which such investment was made. (f) Neither the Bond Trustee nor the Authority shall knowingly use or direct or permit the use of any monies of the Authority in its possession or control in any manner which would cause any Bond to be an "arbitrage bond" within the meaning ascribed to such term in Section 148 of the Code, or any successor section of the Code. (g) Notwithstanding any provision of the Indenture, the Authority and the Bond Trustee shall observe their covenants and agreements contained in the Tax Regulatory Agreement, to the extent that and for so long as such covenants and agreements are required by law. Investment Income. Except as provided below, all investment income or interest earnings on all Funds and Accounts shall be transferred upon receipt by the Bond Trustee to the C-13

126 Bond Account. Any loss realized, from investments of monies in any Fund or Account shall be credited, or charged, as the case may be, to such respective Fund or Account. All income and gain from investment of the Reserve Fund, so long as the Reserve Fund Value equals or exceeds the Reserve Fund Requirement shall be transferred to the Authority. The Bond Trustee shall compute the Reserve Fund Value at least annually, on or prior to each January 1, and more often as may be requested by the Authority. Covenants of the Authority Payment of Principal and Interest. Subject to the limited sources of payment specified in the Indenture, the Authority covenants that it will promptly pay or cause to be paid the principal of, premium, if any, and interest on each Bond issued hereunder at the place, on the dates and in the manner provided in the Indenture and in said Bonds according to the terms thereof. The principal of, premium, if any, and interest on the Bonds are payable solely from the Pledged Revenues and monies held by the Bond Trustee, all of which are specifically assigned and pledged to such payment in the manner and to the extent specified in the Indenture and nothing in the Indenture or in the Bonds shall be construed as assigning or pledging any other funds or assets of the Authority. Performance of Covenants. The Authority covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions on its part to be performed as provided in the Indenture, in the Lease, in each and every Bond executed, authenticated and delivered under the Indenture and in all proceedings of the Authority pertaining thereto. Instruments of Further Assurance. The Authority covenants that it will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, such instruments supplemental thereto and such further acts, instruments and transfers as the Bond Trustee may reasonably require for the better assuring, transferring, conveying, pledging, assigning and confirming unto the Bond Trustee the Authority's interest in and to the Pledged Revenues, and all other interests, revenues and receipts pledged by the Indenture to the payment of the principal thereof, premium, if any, and interest on the Bonds in the manner and to the extent contemplated in the Indenture. Protection of Lien. The Authority agrees not to make or create or permit to be made or created any assignment or lien with respect to the Pledged Revenues having priority or preference over the assignment and lien of the Indenture upon the interests granted thereby or any part thereof except as otherwise specifically provided in Section 8.16(b)(xvii) of the Bond Indenture. Indenture Not a Mortgage. The Indenture does not constitute a mortgage on real estate or create a security interest in any tangible personal property constituting the Hospital; however, nothing shall be construed as a limitation upon the ability of the Authority or the Bond Trustee to enforce the security interest in and to the Pledged Revenues. Legal Existence. The Authority covenants to preserve its separate legal existence and all its rights and licenses to the extent necessary or desirable in the operation of its business and affairs and to be qualified to do business in each jurisdiction where its ownership of property or the conduct of its business requires such qualification; PROVIDED, HOWEVER, that nothing in the Indenture contained shall be construed to obligate it to retain or preserve any of its rights or licenses no longer used or useful in the conduct of its business. Maintenance and Repairs. The Authority covenants at all times to cause its business to be carried on and conducted and its Property, including the Hospital, to be maintained, preserved and kept in good repair, including working order and condition and all needful and proper repairs, renewals and C-14

127 replacements thereof to be made; PROVIDED, HOWEVER, that nothing in the Indenture contained shall be construed (i) to prevent it from ceasing to operate any portion of its Property, if in its judgment (evidenced, in the case of such a cessation other than in the ordinary course of business, by a determination by its governing body) it is advisable not to operate the same, or if it intends to sell or otherwise dispose of the same in accordance with the provisions of the Indenture and within a reasonable time endeavors to effect such sale or other disposition, or (ii) to obligate it to retain, preserve, repair, renew or replace any Property, leases, rights, privileges or licenses no longer used or useful in the conduct of its business. Laws and Regulations. The Authority covenants to do all things reasonably necessary to conduct its affairs and carry on its business and operations in such manner as to comply with any and all applicable laws of the United States and the several states thereof and to duly observe and conform to all valid orders, regulations or requirements of any governmental authority relative to the conduct of its business and the ownership of its property; PROVIDED, NEVERTHELESS, that nothing in the Indenture contained shall require it to comply with, observe and conform to any such law, order, regulation or requirement of any governmental authority so long as the validity thereof or the applicability thereof to it shall be contested in good faith; PROVIDED, HOWEVER, that no such contest shall subject the Bond Trustee to the risk of any liability, and, in any event, that the Authority shall indemnify the Bond Trustee against any liability resulting from such contest. Taxes and Governmental Charges. The Authority covenants promptly to pay all lawful taxes, governmental charges and assessments at any time levied or assessed upon or against it or its property; PROVIDED, HOWEVER, that it shall have the right to contest in good faith any such taxes, charges or assessments or the collection of any such sums and pending such contest may delay or defer payment thereof; PROVIDED, HOWEVER, that no such contest shall subject the Bond Trustee to the risk of any liability, and, in any event, that the Authority shall indemnify the Bond Trustee against any liability resulting from such contest. Obligations and Indebtedness. The Authority covenants promptly to pay or otherwise satisfy and discharge all of its obligations and Indebtedness and all demands and claims against it as and when the same become due and payable, other than any thereof whose validity, amount or collectibility is being contested in good faith; PROVIDED, HOWEVER, that no such contest shall subject the Bond Trustee to the risk of any liability, and, in any event, if requested by the Bond Trustee in writing, the Authority shall indemnify the Bond Trustee against any liability resulting from such contest. Licenses and Permits. The Authority covenants to procure and maintain all necessary licenses and permits and maintain accreditation of its health care facilities (other than those of a type for which accreditation is not then available) by the Joint Commission on Accreditation of Healthcare Organizations and the status of its health care facilities (other than those not currently having such status) as a provider of health care services eligible for reimbursement under any appropriate third-party payor programs and comparable programs, including future governmental programs as long as, in the opinion of the Authority, such eligibility or accreditation is in the best interests of the Authority. Rate Covenant. (a) The Authority shall maintain for each Fiscal Year a Debt Service Coverage Ratio equal to or greater than If such Debt Service Coverage Ratio, as calculated at the end of any Fiscal Year, is below 1.10, the Authority covenants to retain a Consultant, within sixty (60) days after the end of such Fiscal Year, to make recommendations to increase such Debt Service Coverage Ratio for subsequent Fiscal Years of the Authority at least to the required level of 1.10 or, if in the opinion of the Consultant the attainment of such level is impracticable, to the highest C-15

128 practicable level; provided, however, such Debt Service Coverage Ratio shall at all times be not less than 1.0. The Authority agrees that it will, to the extent permitted by law, follow the recommendations of the Consultant. So long as the Authority shall retain a Consultant and the Authority shall follow such Consultant's recommendations to the extent permitted by law, this Section shall be deemed to have been complied with even if such Debt Service Coverage Ratio for any subsequent Fiscal Year of the Authority is below the required level of 1.10; provided, however, such Debt Service Coverage Ratio shall at all times be not less than 1.0; and provided further, however, that failure of the Authority to meet the 1.10 rate covenant contained in the Indenture for two (2) consecutive Fiscal Years of the Authority shall constitute an Event of Default hereunder. The Authority shall no longer be required to retain such Consultant if and for so long as such Debt Service Coverage Ratio is restored to and maintained at not less than (b) If Law or Regulation Circumstances exist, which prevent compliance with the Debt Service Coverage Ratio set forth in Section 8.12(b) of the Bond Indenture, the requirements set forth in said Section shall be deemed satisfied as long as an Officer's Certificate is received by the Bond Trustee and each Bond Insurer at least once during each year that Law or Regulation Circumstances exist, which Officer's Certificate confirms the continued existence of the factual circumstances giving rise to the Law or Regulation Circumstances; PROVIDED, HOWEVER, that in no event shall the Debt Service Coverage Ratio for any Fiscal Year be less than Liquidity Covenant. The Authority shall maintain cash, marketable securities (valued at the lower of cost or market value) and unrestricted Authority designated funds (including amounts in the Debt Service Reserve Fund) as of the last day of each Fiscal Year set forth below in an aggregate amount equal to 125% of Maximum Annual Debt Service on all Long-Term Indebtedness outstanding as of the last day of such Fiscal Year Limitations on Incurrence of Additional Indebtedness. The Authority covenants and agrees that it will not incur any Additional Indebtedness other than Additional Indebtedness consisting of one or more of the following: (a) Long-Term Indebtedness may be incurred only if (i) the pro forma Debt Service Coverage Ratio with respect to all existing Long-Term Indebtedness of the Authority and the proposed Additional Indebtedness shall equal 1.35 for each of the two most recent fiscal years preceding the incurrence of the Additional Indebtedness, or (ii) the Debt Service Coverage Ratio with respect to all existing Long-Term Indebtedness of the Authority shall equal no less than 1.20 for each of the two most recent fiscal years preceding the incurrence of the Additional Indebtedness and the projected Debt Service Coverage Ratio with respect to all existing Long- Term Indebtedness and the proposed Additional Indebtedness for each of the two fiscal years immediately succeeding the incurrence of the Additional Indebtedness (or the date on which payment of such debt ceases to be provided for through a funded capitalized interest or other escrow account, if later) shall be no less than All actual and pro forma calculations shall be determined in a written certificate of an independent certified public accountant and all projected calculations shall be determined in a written report of an independent consultant acceptable to the Bond Trustee and each Bond Insurer. For purposes of this subsection (a), "Long-Term Indebtedness" shall include all Indebtedness other than Short-Term Indebtedness. (b) Indebtedness incurred for the purpose of refunding outstanding Indebtedness may be incurred without limitation if Maximum Annual Debt Service on all Indebtedness of the Authority is reduced as a result of the issuance of the refunding Indebtedness. C-16

129 (c) Indebtedness that is not a general obligation of the Authority and is not secured by a pledge of Pledged Revenues or any other collateral securing the Bonds may be incurred in an aggregate principal amount not exceeding at any time 15% of the total Pledged Revenues of the Authority for the most recent fiscal year so long as such Indebtedness is secured solely by the property financed by such Indebtedness and such property does not constitute an essential facility of the Authority. (d) Subordinated Indebtedness may be incurred if the pro forma Debt Service Coverage Ratio with respect to all existing Indebtedness of the Authority and the proposed Subordinated Indebtedness for each of the two fiscal years preceding the incurrence of the proposed Subordinated Indebtedness is equal to or greater than 1.10, as determined by an Accountant. (e) Short-Term Indebtedness may be incurred so long as the aggregate principal amount of such Short-Term Indebtedness at any time does not exceed 10% of the total Pledged Revenues of the Authority for the most recent Fiscal Year, and for at least 20 consecutive days in each Fiscal Year the aggregate principal amount of such Short-Term Indebtedness shall be reduced to zero. (f) Other Indebtedness incurred with the prior written consent of all Bond Insurers. Additional Indebtedness which is permitted to be incurred in accordance with the foregoing provisions is also subject to the following limitations: Variable Rate Debt: No such Additional Indebtedness may be incurred as Variable Rate Debt (Indebtedness which does not bear interest at a fixed rate to maturity) unless the aggregate principal amount of Variable Rate Debt Outstanding upon such incurrence is less than 25% of the aggregate principal amount of all Indebtedness of the Authority then Outstanding. Balloon Debt: No such Additional Indebtedness may be incurred as Balloon Debt. (Indebtedness of which 25% or more in principal amount comes due or may come due in any one year, by maturity, mandatory sinking fund redemption or optional or mandatory tender by the holder thereof) unless the aggregate principal amount of Balloon Debt Outstanding upon such. incurrence is less than 25% of the aggregate principal, amount of al1 Indebtedness of the Authority then Outstanding. Sale, Lease or Other Disposition of Property. The Authority covenants and agrees that it will not, in the aggregate, in any Fiscal Year sell, lease or otherwise dispose of Property the Value of which would cause the aggregate Value of Property so transferred by the Authority in such Fiscal Year to exceed five percent (5%) of the Value of all Property of the Authority at the end of the most recent Fiscal Year, except for transfers, sales or leases of Property: (a) to any person if prior to the sale, lease or other disposition there is delivered to the Bond Trustee an Officer ' s Certificate stating that in the judgment of the signer such Property has, or within the next succeeding twenty-four (24) calendar months is reasonably expected to, become inadequate, obsolete, worn out, unsuitable, unprofitable, undesirable or unnecessary and the sale, lease, removal or other disposition thereof will not impair the structural soundness, efficiency or economic Value of the remaining Property; or (b) to any person in the ordinary course of business; or C-17

130 (c) to any person if such Property is replaced promptly by other Property of equal or greater Value and usefulness; or (d) to any person upon fair and reasonable terms not less favorable to the Authority than would obtain in a comparable arm's-length transaction, if following such transfer the proceeds received by the Authority are applied to acquire Property or to repay the principal of Bonds or Additional Indebtedness; or (e) Upon delivery to the Bond Trustee of: Restrictions on Guaranties (i) an Officer's Certificate (accompanied by the Accountant's reports mentioned below) certifying that during the Fiscal Year immediately preceding the proposed disposition for which financial statements have been reported upon by the Accountant, the pro forma historical Debt Service Coverage Ratio, taking into account such disposition, would not have been reduced by more than 10%, the unrestricted fund balance of the Authority would not have been reduced by more than 10% and the test for the issuance of one dollar of additional Long Term Indebtedness would have been satisfied, or (ii) the written report of a Consultant satisfactory to the Bond Trustee stating that for each of the next two full succeeding fiscal years immediately following the date of such report, taking into account such disposition, (d) the projected Debt Service Coverage Ratio would not be reduced more than 10% from the projected Debt Service Coverage Ratio which would have been estimated or forecasted if it were assumed that such disposition would not occur, (b) the projected unrestricted fund balance of the Authority would not be reduced more than 10% from the projected unrestricted fund balance which would have been estimated or forecasted if it were assumed that such disposition would not occur, and (c) the test for the incurrence of one dollar of additional Long-Term Indebtedness would be satisfied. With respect to any Guaranty, the following percentages of the Guaranty or the debt service thereon may be excluded for the purposes set forth in Section 8.13 of the Bond Indenture, so long as the primary obligor with respect to the Guaranty maintains net income available for debt service covering maximum annual debt service on all of its outstanding indebtedness as follows: Coverage Ratio of Primary Obligor Percentage of Guaranty Which May be Excluded 2-00x or more 80% At least 1.75x but less than 2.00x 75% At least 1.50x but less than 1.75x 50% At least 1.25x but less than 1.50x 25% Less than 1.25x 0% provided that if the Authority has made any payments with respect to the Guaranty at any time, none of the Guaranty or debt service shall be so excluded. Notwithstanding the foregoing, the Authority may guarantee indebtedness incurred by the City of Frederick -Tillman County Hospital Authority in a principal amount of not to exceed $500,000.00, subject to approval of the debt service schedule by each Bond Insurer. C-18

131 Limitations on Creation of Liens. (a) The Authority covenants and agrees that it will not create or suffer to be created or exist any Lien upon Property now owned or hereafter acquired by it, including Property covered by the Lease, other than Permitted Liens. (b) Permitted Liens shall consist of the following: (i) Liens arising by reason of good faith deposits with the Authority in connection with leases of real estate, bids or contracts (other than contracts for the payment of money), deposits by the Authority 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; (ii) 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 the Authority 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, pension or profit sharing plans or other social security, or to share in the privileges or benefits required by companies participating in such arrangement; (iii) Any judgment lien or notice of pending action against the Authority so long as such judgment or pending action is being contested and execution thereon is stayed or while the period for responsive pleadings has not lapsed; (iv) (A) Rights reserved to or vested in any municipality or public authority by the terms of any right, power, franchise, grant, license, permit or provision of law, affecting any Property, to (1) terminate such right, power, franchise, grant, license or permit, PROVIDED, that the exercise of such right would not materially impair the use of such Property or materially and adversely affect the value thereof, or (2) purchase, condemn, appropriate or recapture, or designate a purchaser of, such Property; (B) any liens on any Property for taxes, assessments, levies, fees, water and sewer rents, and other governmental and similar charges and any liens of mechanics, materialmen, laborers, suppliers or vendors for work or services performed or materials furnished in connection with such Property, which are not due and payable or which are not delinquent or the amount or validity of which, are being contested and execution thereon is stayed or, with respect to liens of mechanics, materialmen and laborers, have been due for less than sixty (60) days; (C) easements, rights-of-way, servitudes, restrictions and other minor defects, encumbrances, and irregularities in the title to any Property which do not materially impair the use of such Property or materially and adversely affect the value thereof; and (D) rights reserved to or vested in any municipality or public authority to control or regulate any Property or to use such Property in any manner, which rights do not materially impair the use of such Property or materially and adversely affect the value thereof; (v) Any Lien described in Exhibit "C" to the Bond Indenture existing on the date of authentication and delivery of the original bonds issued thereunder, including renewals thereof, PROVIDED, that no such Lien may be extended or modified to apply C-19

132 to any Property of the Authority not subject to such Lien on such date, unless such Lien as so extended or modified otherwise qualifies as a Permitted Lien hereunder; (vi) Any Lien (other than a Lien on Accounts Receivable) securing Non-Recourse Indebtedness; (vii) Any Lien on Property acquired by the Authority if the assumption of the Indebtedness secured by the Lien by the Authority is Additional Indebtedness permitted under the provisions of Section 8.13 of the Bond Indenture, and if an Officer's Certificate is delivered to the Bond Trustee certifying that (A) the Lien and the Indebtedness secured thereby were created and incurred by a person other than the Authority acquiring such Property prior to acquisition of such Property by the Authority, and (B) the Lien was created prior to the decision of the Authority to acquire the Property and was not created for the purpose of enabling the Authority to avoid the limitations hereof on creation of Liens on Property of the Authority; (viii) Any Lien representing statutory rights of the United States by reason of federal funds made available under 42 U.S.C. 291 et seq., and similar rights under other federal and state statutes; (ix) Liens on Property received by the Authority through gifts, grants or bequests, such Liens being due to restrictions on such gifts, grants or bequests of Property or the income thereon; basis; (x) Any Lien in favor of the Bond Trustee securing all Bonds on a parity (xi) Any Lien in favor of a trustee on the proceeds of indebtedness prior to the application of such proceeds; (xii) Liens on monies deposited by patients or others with the Authority as security for or as prepayment for the cost of patient care; (xiii) Any Lien due to rights of third-party payors for recoupment of amounts paid to the Authority; (xiv) Any Lien granted by the Authority to secure any indebtedness incurred pursuant to Section 8.13(a) or 8.13(b) of the Bond Indenture on a parity with other Bonds issued under the Indenture; (xv) Any Lien representing rights of setoff and banker's liens with respect to funds on deposit in a financial institution in the ordinary course of business; (xvi) Any Lien on any debt service, debt service reserve, depreciation reserve or any similar fund established pursuant to the terms of any Supplement in favor of the Bond Trustee or the holder of the Indebtedness issued pursuant to such Supplement; (xvii) Any Lien on accounts receivable arising as a result of the pledge or sale of such accounts receivable with or without recourse, provided that the principal amount of Indebtedness secured by any such Lien does not exceed the aggregate face amount of such accounts receivable pledged or sold by the Authority; and C-20

133 (xviii) Any Lien on Property securing Subordinated Indebtedness, provided that a superior Lien on the same Property is granted to secure all the Bonds all the parity Bonds issued under the Indenture. Notwithstanding the provisions of Section 8.16 and Section 8.17 of the Bond Indenture, the Authority may create or suffer to be created or exist a Lien upon Property, in favor of the holder of any Indebtedness, with prior notice to the Bond Trustee but without the consent of the Bond Trustee or of the Holders of any Bonds, so long as such Lien, or a Lien at least on a parity therewith, is effectively granted in favor of the Holders of all Outstanding Bonds and all Bonds to become Outstanding under the Indenture. Restrictions on Encumbering Pledged Revenues. The Authority covenants that it will not cause or permit any of its Pledged Revenues, receipts or other monies, or right to receive any of the same, including, without limitation, accounts, Accounts Receivable, contract rights and general intangibles, and all proceeds of all of the foregoing, whether cash or non-cash, to become Encumbered except (i) with respect to a Permitted Lien created under Section 8.16 of the Bond Indenture, or (ii) as permitted by Section 8.20 of the Bond Indenture with respect to insurance or condemnation proceeds or awards. Insurance. The Authority covenants and agrees that it will maintain, or cause to be maintained, insurance (including one or more self-insurance programs considered to be adequate under the provisions of Section 8.19(4) of the Bond Indenture) covering such risks and in such amounts as, in its judgment, is adequate to protect it and its Properties and operations. The insurance required to be maintained pursuant hereto shall be subject to the review of an Insurance Consultant every two (2) years if commercial insurance is being utilized and every year if the Authority is utilizing self-insurance, commencing on the last day of the Fiscal Year ending in 1994, and the Authority agrees that it will follow any recommendations of the Insurance Consultant, except to the extent that its Board determines that such recommendations are unfeasible or uneconomical, the reasons for such determination to be set forth in an Officer's Certificate delivered to the Bond Trustee and each Bond Insurer. The Authority shall deliver copies of such Insurance Consultant's reports to the Bond Trustee and each Bond Insurer as required by Section 8.24(e) of the Bond Indenture not later than 150 days after the end of the fiscal year. If commercial insurance is being utilized, such insurance shall be provided by carriers rated at least "A" by A.M. Best Company, Inc. Reduction and Modification of Insurance Coverage. (a) The Authority covenants to maintain the following types of insurance, and must secure the concurrence of an Insurance Consultant, except to the extent that its Board determines that the Insurance Consultant's failure to concur is unreasonable, the reasons for such determination to be set forth in an Officer's Certificate delivered to the Bond Trustee, and each Bond Insurer, before it may reduce or eliminate the amount of its insurance coverage for the following types of insurance: (i) comprehensive general public liability insurance, including product liability, blanket contractual liability and automobile insurance including owned, nonowned and hired automobiles (excluding collision and comprehensive coverage thereon), (ii) fire, lightning, windstorm, hail, explosions, riots, riot attending a strike, civil commotion, damage from aircraft, smoke and uniform standard coverage and vandalism and malicious mischief endorsements and business interruption insurance covering such perils, (iii) professional liability or medical malpractice insurance, (iv) workmen's compensation insurance, (v) boiler insurance, and (vi) business interruption insurance. C-21

134 (b) In making its decision whether to concur in such reductions or eliminations the Insurance Consultant may take into account whether the Authority has established an adequate self-insurance program with respect to the risk involved in accordance with subsection (d) below. (c) Insurance required under the Indenture may be in the form of a blanket insurance policy or policies and in the case of all policies may include additional names of insureds. Required limits of coverage may be provided by so-called "umbrella" coverages. (d) In lieu of obtaining third-party coverage for the foregoing risks, the Authority may self-insure any of the required coverages (or a portion thereof) except for the coverages described in Section 8.19(a)(ii) and (v) of the Bond Indenture, PROVIDED, the Authority maintains a separate segregated self-insurance fund funded in an amount determined (initially and on at least an annual basis) by an Insurance Consultant employing accepted actuarial techniques and the Authority establishes and maintains a claims processing and risk management program. The Authority will provide the Bond Trustee annually no later than 150 days after the end of each Fiscal Year with a report of an Insurance Consultant concerning the adequacy of reserves and funding and the funding determination processes employed by the Authority for such selfinsurance. (e) The Authority may also arrange insurance coverage through a captive insurance company provided an Insurance Consultant's report indicates that such insurance is consistent with proper management and insurance practices. (f) In the event that the insurance required by the Indenture is not commercially available and the Authority has chosen not to self-insure against such losses, the Authority shall employ an Insurance Consultant acceptable to the Bond Trustee and each Bond Insurer who shall review the insurance coverage of the Property and make recommendations on the amounts and provisions of insurance that should be carried. Insurance requirements shall be modified to conform with the recommendations of the Insurance Consultant except as the Bond Trustee may authorize deviations from such recommendations. Insurance and Condemnation Proceeds. Subject to the terms of the Lease, amounts received by the Authority as insurance proceeds with respect to any casualty loss or as condemnation awards may be used in such manner as the recipient may determine, including, without limitation, applying such monies to the payment or prepayment of any Bond or Bonds in accordance with the terms thereof, subject to compliance with the provisions of the Indenture; PROVIDED, that if the amount of such proceeds or awards received with respect to any casualty loss or condemnation exceeds ten percent (10%) of the Value of the Property, the Authority agrees that it will promptly remit such proceeds or awards to the Bond Trustee and the Authority may elect to direct the Bond Trustee to cause such funds to be applied either (i) to the repair, reconstruction, restoration or replacement of the damaged or condemned facility or the purchase of capital equipment, or (ii) to the prepayment of the Bonds issued and Outstanding, pro rata among all such Bonds. If the Authority elects clause (i) above, any remaining balance of such funds after such repair, reconstruction, restoration or replacement shall be paid to the Authority. Debt Service on Variable Rate Debt. Variable Rate Debt will be deemed to bear interest at an annual rate equal to 120% of the weighted average annual interest rate borne by such Variable Rate Debt over the 24-month period ending on the date of calculation (or with respect to Variable Rate Debt issued during such 24-month period, (i) if the interest on such Variable Rate Debt is excluded from gross income for federal income tax purposes, 120% of the average of the most recent 24-month published Bond Buyer 25 Revenue Bond Index, or (ii) in any other case, 120% of the average of the prime rate of Citibank, N.A., New York, New York, in effect during such 24-month period). C-22

135 Credit for Debt Service. For purposes of the computation of Maximum Annual Debt Service, whether historic or projected, the Authority may subtract from principal due on Indebtedness any Debt Reserves which are available and are held in trust solely to be applied to make such principal payment in the year such Indebtedness matures or is redeemed or otherwise retired, at the time of such computation for the period in question. Credit for Debt Service. For purposes of the computation of Maximum Annual Debt Service, whether historic or projected, the Authority may subtract from interest due on Indebtedness any Capitalized Interest which is available and is held in trust solely to be applied to make such interest payment in the year such interest comes due at the time of such computation for the period in question. Reporting Requirements, Other Information. The Authority covenants that it will: (a) As soon as practicable after they are available but in no event more than 45 days after the expiration of each of the first three quarterly fiscal periods of each Fiscal Year of the Authority, file with the Bond Trustee a combined and combining statement of revenues and expenses and changes in fund balances of the Authority, during such period, and a combined and combining balance sheet as of the end of each such quarterly fiscal period, all in reasonable detail and certified, subject to year-end adjustment, by the Chief Financial Officer or another authorized financial officer of the Authority. (b) As soon as practicable, but in no event later than six (6) months after the end of each Fiscal Year, file with the Bond Trustee, with each owner of 10% or more in aggregate principal amount of the Bonds who may have so requested or in whose behalf the Bond Trustee may have so requested (i) its revenue and expense statement for such Fiscal Year, and (ii) its balance sheet as of the end of such Fiscal Year, each accompanied by the certificate or opinion of an Accountant. (c) As soon as practicable but in no event later than six (6) months after the end of each Fiscal Year, file with the Bond Trustee, and with each Owner of 10% or more in aggregate principal amount of the Bonds who may have so requested or in whose behalf the Bond Trustee may have so requested, an officer's Certificate which shows the computations necessary to ascertain whether or not the ratio set forth in Section 8.12 of the Bond Indenture has been achieved for such Fiscal Year and stating whether or not to the best knowledge of the signers the Authority is in default in the performance of any covenant contained in the Indenture, and, if so, specifying each such default of which the signers may have knowledge. (d) If an Event of Default shall have occurred and be continuing, (i) file with the Bond Trustee such other financial statements and information concerning its operations and financial affairs as the Bond Trustee may from time to time reasonably request, excluding specifically donor records, patient records and personnel records and (ii ) provide access to its facilities for the purpose of inspection by the Bond Trustee during regular business hours or at such other times as the Bond Trustee may reasonably request. (e) Within thirty (30) days after its receipt thereof, file with the Bond Trustee a copy of each report which any provision of the Indenture requires to be prepared by a Consultant or an Insurance Consultant. (f) Such additional information as the Bond Trustee may reasonably request in order to enable the Bond Trustee to determine whether the covenants, terms and provisions of the Indenture have been complied with by the Authority. C-23

136 Events of Default. Each of the following is hereby declared an "Event of Default" hereunder: (a) If payment by the Authority in respect of any installment of interest on any Bond shall not be made in full when the same becomes due and payable; (b) If payment by the Authority in respect of the principal of or redemption premium, if any, on any Bond shall not be made in full when the same becomes due and payable, whether at maturity or by proceedings for redemption or by declaration of acceleration or otherwise; (c) The Authority shall fail to pay when due any of its other Indebtedness Outstanding in an aggregate principal amount in excess of.75% of Pledged Revenues for the most recent Fiscal Year of the Authority. (d) The Authority shall fail duly to observe or perform any covenant or agreement on its part under the Indenture for a period of thirty (30) days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Authority by the Bond Trustee, or to the Authority and the Bond Trustee by the holders of at least twenty-five percent (25%) in aggregate principal amount of Bonds then Outstanding. If the breach of covenant or agreement is one which cannot be completely remedied within the thirty (30) days after written notice has been given, it shall not be an Event of Default as long as the Authority has taken active steps within the thirty (30) days after written notice has been given to remedy the failure and is diligently pursuing such remedy; (e) The entry of a decree or order by a court having jurisdiction in the premises adjudging the Authority a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Authority under the Federal Bankruptcy Code or any other applicable Federal or state law, or appointing a receiver, liquidator, assignee, or sequestrator (or other similar official) of the Authority or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of sixty (60) consecutive days; and (f) The institution by the Authority of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Code or any other similar applicable Federal or state law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Authority or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due. Acceleration. Upon the Bond Trustee's having actual knowledge of the occurrence of any Event of Default hereunder, the Bond Trustee with the consent of each Bond Insurer may, and upon the written request of a Bond Insurer, or upon the written request of the holders of not less than a majority in aggregate principal amount of Bonds then Outstanding with the consent of each Bond Insurer, the Bond Trustee shall, by notice in writing sent to the Authority, declare the principal of all Bonds then Outstanding (if not then due and payable) and the interest accrued thereon to be due and payable immediately, and, upon the date of said declaration, such principal and interest shall become and be immediately due and payable. Pursuant to such declaration, interest on the Bonds shall accrue to the date of such declaration and shall not thereafter accrue. Upon acceleration as aforesaid, a Bond Insurer shall C-24

137 have the option (but not the obligation) to provide for the payment to the holders of the Bonds which it insures of the principal due upon such acceleration. Promptly following any such declaration of acceleration, the Bond Trustee shall mail notice of such declaration and of any determination by a Bond Insurer to pay the principal due upon acceleration with respect to the Bonds by first class mail to the Owner of each Bond at its last address appearing on the registration books of the Authority. Any defect in or failure to give such notice of such declaration shall not affect the validity of such declaration. Additional Remedies and Enforcement of Remedies. (a) Upon the occurrence and continuance of any Event of Default, the Bond Trustee may, or upon the written request of a Bond Insurer or upon the written request of the Holders of not less than twenty-five percent (25%) in an aggregate principal amount of the Bonds Outstanding with the consent of the Bond Insurer, together with indemnification of the Bond Trustee to its satisfaction therefor, shall proceed forthwith to protect and enforce its rights and the rights of the Bondholders hereunder and under the Act and the 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; and (iii) Enforcement of any other right of the Bondholders conferred by law or by the Indenture. (b) Regardless of the happening of an Event of Default, the Bond Trustee, if requested in writing by a Bond Insurer or by the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding with the consent of each Bond Insurer, 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 hereunder by any acts which may be unlawful or in violation of the 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 Indenture and, in the sole judgment of the Bond Trustee, is not unduly prejudicial to the interest of the Holders of Bonds not making such request. Application of Revenues and Other Monies After Default. During the continuance of an Event of Default all monies 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 costs and expenses of the proceedings resulting in the collection of such monies and of the fees, expenses and advances incurred or made by the Bond Trustee with respect thereto, be deposited in the Bond Fund, and all amounts held by the Bond Trustee hereunder shall be applied as follows: (a) Unless the principal of all Outstanding Bonds shall have become or have been declared due and payable: FIRST: To the payment to the persons entitled thereto of all installments of interest then due on the Bonds in the order of maturity of such installments, and, if the amount C-25

138 available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon to the person entitled thereto, without any discrimination or preference; and SECOND: To the payment to the persons entitled thereto of the unpaid principal amounts or Redemption Price of any Bonds which shall have become due (other than Bonds previously called for redemption for the payment of which monies are held pursuant to the provisions of the Indenture), whether at maturity or by call for redemption, in the order of their due dates, and if the amounts available shall not be sufficient to pay in full all the Bonds due on any date, then to the payment thereof ratably, according to the principal amounts or Redemption Price due on such date, to the persons entitled thereto, without any discrimination or preference. (b) If the principal amounts of all Outstanding Bonds shall have become or have been declared due and payable, to the payment of the principal amounts and interest then due and unpaid upon the Bonds 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 Bond, ratably, according to the amounts due respectively for principal amounts and interest, to the persons entitled thereto without any discrimination or preference. (c) If the principal amounts of all Outstanding Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of the Bond Indenture, then, subject to the provisions of paragraph (b) of this Section in the event that the principal amounts of all Outstanding Bonds shall later become due or be declared due and payable, the monies shall be applied in accordance with the provisions of paragraph (a) above. Whenever monies are to be applied by the Bond Trustee pursuant to the provisions of this Section, such monies shall be applied by it at such times, and from time to time, as the Bond Trustee shall determine, having due regard for the amount of such monies available for application and the likelihood of additional monies. becoming available for such application in the future. Whenever the Bond Trustee shall apply such monies, it shall fix the date (which shall be a Bond Payment Date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the principal amounts to be paid on such dates shall cease to accrue. The Bond Trustee shall give such notice as it may deem appropriate of the deposit with it of any such monies and of the fixing of any such date, and shall not be required to make payment to the Holder of any Bond until such Bond shall be presented to the Bond Trustee for appropriate endorsement of any partial payment or for cancellation if fully paid. Whenever all Bonds and interest thereon have been paid under the provisions of this Section and all expenses and charges of the Bond Trustee have been paid, any balance remaining shall be paid to the person entitled to receive the same; if no other person shall be entitled thereto, then the balance shall be paid to the Authority or as a court of competent jurisdiction may direct. Remedies Not Exclusive. No remedy by the terms of the 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 thereunder or existing at law or in equity or by statute (including the Act) on or after the date of the Indenture. Remedies Vested in the Bond Trustee. All rights of action (including the right to file proof of claims) under the Indenture or under any of the Bonds may be enforced by the Bond Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceedings relating thereto. C-26

139 Any such suit or proceeding instituted by the Bond Trustee may be brought in its name as the Bond Trustee without the necessity of joining as plaintiffs or defendants any Holders of the Bonds. Subject to the provisions of Section 9.04 of the Bond Indenture, any recovery or judgment shall be for the equal benefit of the Holders of the Outstanding Bonds. Bondholders' Control of Proceedings. If an Event of Default shall have occurred and be continuing, notwithstanding anything in the Indenture to the contrary, a Bond Insurer or Holders of a majority in aggregate principal amount of Bonds then Outstanding with the consent of each Bond Insurer shall have the right, at any time, by any instrument 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 Indenture, PROVIDED, that such direction is in accordance with law and the provisions of the Indenture (including indemnity to the Bond Trustee as provided in the Indenture) and, in the sole judgment of the Bond Trustee, is not unduly prejudicial to the interest of Bondholders not joining in such direction and PROVIDED FURTHER, that nothing in the Indenture shall impair the right of the Bond Trustee in its discretion to take any other action hereunder which it may deem proper and which is not inconsistent with such direction by Bondholders. Individual Bondholder Action Restricted. (a) No Holder of any Bond shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of the Indenture or for the execution of any trust thereunder or for any remedy under the Indenture unless: (i) an Event of Default has occurred (A) under subsection (a), (b) or (c) of Section 9.01 of the Bond Indenture of which the Bond Trustee is deemed to have notice, or (B) under subsection (d), (e) or (f) of Section 9.01 as to which the Bond Trustee has actual knowledge or as to which the Bond Trustee has been notified in writing; (ii) a Bond Insurer or the Holders of at least twenty-five percent (25%) in aggregate principal amount of Bonds Outstanding shall have made written request to the Bond Trustee to proceed to exercise the powers granted therein or to institute such action, suit or proceeding in its own name; (iii) a Bond Insurer or such Bondholders shall have offered the Bond Trustee indemnity as provided in the Indenture; (iv) the Bond Trustee shall have failed or refused to exercise the powers in the Indenture granted or to institute such action, suit or proceedings in its own name for a period of sixty (60) days after receipt by it of such request and offer of indemnity; and (v) during such sixty (60) day period no direction inconsistent with such written request has been delivered to the Bond Trustee by a Bond Insurer or by the Holders of a majority in aggregate principal amount of Bonds then Outstanding in accordance with the Indenture. (b) No one or more Holders of Bonds shall have any right in any manner whatsoever to affect, disturb or prejudice the security of the Indenture or to enforce any right hereunder except in the manner in the Indenture provided and for the equal benefit of the Holders of all Bonds Outstanding. C-27

140 (c) Nothing contained in the Indenture shall affect or impair, or be construed to affect or impair, the right of the Holder of any Bond (i) to receive payment of the principal of or interest on such Bond on or after the due date thereof, or (ii) to institute suit for the enforcement of any such payment on or after such due date; PROVIDED, HOWEVER, no Holder of any Bond may institute or prosecute any such suit or enter judgment therein if, and to the extent that, the institution or prosecution of such suit or the entry of judgment therein would, under applicable law, result in the surrender, impairment, waiver or loss of the lien of the Indenture on the monies, funds and properties pledged hereunder for the equal and ratable benefit of all Holders of Bonds. Termination of Proceedings. In case any proceeding taken by the Bond Trustee on account of an Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Bond Trustee or to the Bondholders, then the Authority, Bond Insurer, Bond Trustee and Bondholders shall be restored to their former positions and rights hereunder, and all rights, remedies and powers of the Bond Trustee and the Bondholders shall continue as if no such proceeding had been taken. Waiver of Event of Default. (a) No delay or omission of the Bond Trustee, a Bond Insurer or of any Holder of the 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 an acquiescence therein. Every power and remedy given by this Article to the Bond Trustee, the Bond Insurer and the Holders of the Bonds, respectively, may be exercised from time to time and as often as may be deemed expedient by them. (b) 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 by it under the provisions of the Indenture, or before the completion of the enforcement of any other remedy under the Indenture. (c) Notwithstanding anything contained in the Indenture to the contrary, the Bond Trustee, upon the written request of a Bond Insurer, or upon the written request of the Holders of at least a majority of the aggregate principal amount of Bonds then Outstanding with the consent of each Bond Insurer, shall waive any Event of Default and its consequences; PROVIDED, HOWEVER, that, except under the circumstances set forth in subsection (b) above, a default in the payment of the principal amount 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 Bonds at the time Outstanding. (d) In case of any waiver by the Bond Trustee of an Event of Default hereunder, the Authority, Bond Trustee, each Bond Insurer and Bondholders shall be restored to their former positions and rights hereunder, 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 any one for waiving or refraining from waiving any Event of Default in accordance with this Section. Limitation of the Authority's Liability. No agreements or provisions contained in the Indenture nor any agreement, covenant or undertaking by the Authority contained in any document executed by the Authority in connection with the Project or the issuance, sale and delivery of the Bonds shall give rise to any pecuniary liability of the Authority or a charge against its general credit, or shall obligate the Authority financially in any way, except with respect to the Pledged Revenues and their application as provided in the Indenture. No failure of the Authority to comply with any term, covenant or agreement in C-28

141 the Indenture or in any document executed by the Authority in connection with the Project, shall subject the Authority to liability for any claim for damages, costs or other financial or pecuniary charge except to the extent that the same can be paid or recovered from the Pledged Revenues. Nothing in the Indenture shall preclude a proper party in interest from seeking and obtaining, to the extent permitted by law, specific performance against the Authority for any failure to comply with any term, condition, covenant or agreement in the Indenture; PROVIDED, that no costs, expenses or other monetary relief shall be recoverable from the Authority except as may be payable from the Pledged Revenues. Limitations on Remedies. It is the purpose and intention of the Indenture to provide rights and remedies to the Bond Trustee and the Bondholders which may be lawfully granted under the provisions of applicable law, but should any right or remedy in the Indenture granted be held to be unlawful, the Bond Trustee and the Bondholders shall be entitled as above set forth, to every other right and remedy provided in the Indenture and by law. The Bond Trustee Removal and Resignation of the Bond Trustee. The Bond Trustee may resign or may be removed at any time by the Authority or by an instrument or instruments in writing signed by the Holders of not less than a majority of the principal amount of Bonds then Outstanding. Written notice of such resignation or removal shall be given to the Authority and such resignation or removal shall take effect upon the appointment and qualification of a successor Bond Trustee. In the event a successor Bond Trustee has not been appointed and qualified within sixty (60) days of the date notice of resignation is given, the Bond Trustee or the Authority may apply to any court of competent jurisdiction for the appointment of a successor Bond Trustee to act until such time as a successor is appointed as provided in this paragraph. In the event of the resignation or removal of the Bond Trustee or in the event the Bond Trustee is dissolved or otherwise becomes incapable to act as the Bond Trustee, the Authority shall be entitled to appoint a successor Bond Trustee. In such event, the successor Bond Trustee shall cause notice to be mailed to the Holders of all Bonds then Outstanding in such manner deemed appropriate by the Authority. If the Bond Trustee resigns, the resigning Bond Trustee shall pay for such notice. If the Bond Trustee is removed, is dissolved, or otherwise becomes incapable of acting as Bond Trustee, the Authority shall pay for such notice. If the holders of a majority of the principal amount of Bonds then Outstanding object to the successor Bond Trustee so appointed by the Authority and if such Holders designate another person qualified to act as the Bond Trustee, the Authority shall then appoint as the Bond Trustee the person so designated by the Holders. Unless otherwise ordered by a court or regulatory body having competent jurisdictions or unless required by law, any successor Bond Trustee shall be a trust company or bank having the powers of a trust company as to trusts, qualified to do and doing trust business in the State and having an officially reported combined capital, surplus, undivided profits and reserves aggregating at least $50,000,000, if there is such an institution willing, qualified and able to accept the trust upon reasonable or customary terms. Every successor Bond Trustee howsoever appointed hereunder shall execute, acknowledge and deliver to its predecessor and also to the Authority, an instrument in writing, accepting such appointment hereunder, and thereupon such successor Bond Trustee, without further action, shall became fully vested with all the rights, immunities, powers, trusts, duties and obligations of its predecessor, and such predecessor shall execute and deliver an instrument transferring to such successor Bond Trustee all the C-29

142 rights, powers and trusts of such predecessor. The predecessor Bond Trustee shall execute any and all documents necessary or appropriate to convey all interest it may have to the successor Bond Trustee. The predecessor Bond Trustee shall promptly deliver all records relating to the trust or copies thereof and communicate all material information it may have obtained concerning the trust to the successor Bond Trustee. Each successor Bond Trustee, not later than ten (10) days after its assumption of the duties under the Indenture, shall mail a notice of such assumption to each Holder of a registered Bond. Supplements Supplements Not Requiring Consent of Bondholders. The Authority and the Bond Trustee may, without the consent of or notice to any of the Holders but with the consent of each Bond Insurer, enter into one or more Supplements for one or more of the following purposes: (a) to release property from the Trust Estate which was included by reason of an error or other mistake; To cure any ambiguity or formal defect or omission in the Indenture; or (b) To grant to or confer upon the Bond Trustee for the benefit of the Bondowners any additional rights, remedies, powers or authority that may lawfully be granted to or conferred upon the Bondowners or the Bond Trustee or either of them; (c) thereto; (d) (e) To more precisely identify a Project or to substitute or add additional property To subject to the Indenture additional revenues, properties or collateral; To issue Additional Obligations as provided in the Indenture; (f) To modify, amend or supplement the Indenture in such manner as to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as then amended, or any similar federal statute hereafter in effect or to permit the qualification of the Bonds for sale under the securities laws of any state of the United States; (g) Obligations; To provide for the refunding or advance refunding of any Bonds or Additional (h) To evidence the appointment of a separate trustee or the succession of a new trustee hereunder; (i) To modify, amend or supplement the Indenture in such manner as to permit the issuance of coupon Bonds of any series hereunder and to permit the exchange of Bonds from fully registered form to coupon form and vice versa; (j) To make any other change which, in the sole judgment of the Bond Trustee, does not materially adversely affect the interests of the Bondowners. In exercising such judgment the Bond Trustee may rely on an opinion of Bond Counsel. (k) To preserve the exemption of the interest income payable on the Bonds from Federal income taxes; and C-30

143 (1) To effect any changes necessary in order that the a rating assigned to Bonds by Standard & Poor's shall be the highest rating which may be assigned by such rating agency to such Bonds. Supplements Requiring Consent of Bondholders. (a) Other than Supplements referred to above and subject to the terms and provisions and limitations contained in the Indenture and not otherwise, a Bond Insurer and the Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, from time to time, anything contained in the Bond Indenture to the contrary notwithstanding, to consent to and approve the execution by the Authority and the Bond Trustee of such Supplements as shall be deemed necessary and desirable by the Authority for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Bond Indenture; PROVIDED, HOWEVER, nothing in this paragraph shall permit or be construed as permitting a Supplement which would: (i) extend the stated maturity of or time for paying interest on any Bond or reduce the principal amount of or the redemption premium or rate of interest payable on any Bond without the consent of the applicable Bond Insurer and the Holder of such Bond; (ii) prefer or give a priority to any Bond over any other Bond without the consent of the applicable Bond Insurer and the Holder of each Bond then Outstanding not receiving such preference or priority; or (iii) reduce the aggregate principal amount of Bonds then Outstanding the consent of a Bond Insurer and the Holders of which is required to authorize such Supplement without the consent of the Holders of all Bonds then Outstanding. (b) If at any time the Authority shall request the Bond Trustee to enter into a Supplement pursuant to this paragraph, the Bond Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution of such Supplement to be mailed by first class mail, postage prepaid, to each Bond Insurer and to all Holders of Bonds then Outstanding at their addresses as they appear on the registration books provided for in the Indenture. The Bond Trustee shall not, however, be subject to any liability to any Bondholder by reason of its failure to mail, or the failure of such Bondholder to receive, the notice required by this paragraph, and any such failure shall not affect the validity of such Supplement when consented to and approved as provided in this paragraph. Such notice shall briefly set forth the nature of the proposed Supplement and shall state that copies thereof are on file at the office of the Bond Trustee for inspection by all Bondholders. (c) If within such period, not exceeding three (3) months, as shall be prescribed by the Institution, following the mailing of such notice, the Bond Trustee shall receive an instrument or instruments purporting to be executed by a Bond Insurer and by the Holders of not less than the aggregate principal amount or number of Bonds specified in subparagraph (a) for the Supplement in question which instrument or instruments shall refer to the proposed Supplement described in such notice and shall specifically consent to and approve the execution thereof in substantially the form of the copy thereof referred to in such notice as on file with the Bond Trustee, thereupon, but not otherwise, the Bond Trustee may execute such Supplement in substantially such form, without liability or responsibility to any Holder of any Bond, whether or not such Holder shall have consented thereto. C-31

144 (d) Any such consent shall be binding upon the applicable Bond Insurer and upon the Holder of the Bond giving such consent and upon any subsequent Holder of such Bond and of any Bond issued in exchange therefor (whether or not such subsequent Holder thereof has notice thereof), unless such consent in revoked in writing by the applicable Bond Insurer or the Holder of such Bond giving such consent or by a subsequent Holder thereof by filing with the Bond Trustee, prior to the execution by the Bond Trustee of such Supplement, such revocation. At any time after a Bond Insurer and Holders of the required principal amount or number of Bonds shall have filed their consents to the Supplement, the Bond Trustee shall make and file with the Authority a written statement to that effect. Such written statement shall be conclusive that such consents have been so filed. (e) If a Bond Insurer or the Holders of the required principal amount or number of the Bonds Outstanding shall have consented to and approved the execution of such Supplement as provided in the Indenture, neither the Bond Insurer nor the Holder of any Bond shall have any right to object to the execution thereof, or 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 Bond Trustee or the Authority from executing the same or from taking any action pursuant to the provisions thereof. Execution and Effect of Supplements. (a) In executing any Supplement permitted by the Indenture, the Bond Trustee shall be entitled to receive and to rely upon an Opinion of Counsel stating that the execution of such Supplement is authorized or permitted by the Indenture. The Bond Trustee may but shall not be obligated to enter into any such Supplement which affects the Bond Trustee's own rights, duties or immunities. (b) Upon the execution and delivery of any Supplement in accordance with the Indenture, the provisions of the Indenture shall be modified in accordance therewith and such Supplement shall form a part of the Indenture for all purposes and every Holder of a Bond theretofore or thereafter authenticated and delivered under the Indenture shall be bound thereby. (c) Any Bond authenticated and delivered after the execution and delivery of any Supplement in accordance with the Indenture may, and if required by the Authority or the Bond Trustee shall, bear a notation in form approved by the Authority and Bond Trustee as to any matter provided for in such Supplement. If the Authority shall so determine, new bonds so modified as to conform in the opinion of the Bond Trustee and the Authority to any such Supplement may be prepared and executed by the Authority and authenticated and delivered by the Bond Trustee in exchange for and upon surrender of Bonds then Outstanding. Satisfaction and Discharge Discharge. If payment of all principal of, premium, if any, and interest on the Bonds in accordance with their terms and as provided in the Indenture is made, or is provided for in accordance with the Indenture, and if all other sums payable by the Authority under the Indenture shall be paid or provided for, then the liens, estates and security interests granted by the Indenture shall cease. Thereupon, upon the request of the Authority, and upon receipt by the Bond Trustee of an Opinion of Counsel stating that all conditions precedent to the satisfaction and discharge of the lien of the Indenture have been satisfied, the Bond Trustee shall execute and deliver proper instruments acknowledging such satisfaction and discharging the lien of the Indenture and the Bond Trustee shall transfer all property held by it under the Indenture, other than monies or obligations held by the Bond Trustee for payment of amounts due or C-32

145 to become due on the Bonds, to the Authority or such other person as may be entitled thereto as their respective interests may appear. Such satisfaction and discharge shall be without prejudice to the rights of the Bond Trustee thereafter to charge and be compensated or reimbursed for services rendered and expenditures incurred in connection with the Indenture. The Authority may at any time surrender to the Bond Trustee for cancellation any Bonds previously authenticated and delivered which the Authority or the Institution may have acquired in any manner whatsoever and such Bond upon such surrender and cancellation shall be deemed to be paid and retired. Providing for Payment of Bonds. Payment of all of the Bonds may be provided for by the deposit with the Bond Trustee of monies or non-callable Government Obligations, or any combination thereof constituting Available Monies. The monies and the maturing principal and interest income on such Government Obligations, if any, shall be sufficient to pay when due the principal or Redemption Price of and interest on such Bonds. The monies and Government Obligations shall be held by the Bond Trustee irrevocably in trust for the Holders of such Bonds solely for the purpose of paying the principal or Redemption Price of and interest on such Bonds as the same shall mature, come due or become payable upon prior redemption, and, if applicable, upon simultaneous direction, expressed to be irrevocable, to the Bond Trustee as to the dates upon which any such Bonds are to be redeemed prior to their respective maturities. If payment of the Bonds is so provided for, the Bond Trustee shall mail a notice so stating to each Holder of a Bond. Bonds the payment of which has been provided for in accordance with this paragraph shall no longer be deemed Outstanding under the Indenture or secured by the Indenture. The obligation of the Authority in respect of such Bonds shall nevertheless continue but the Holders thereof shall thereafter be entitled to payment only from the monies, Government Obligations or Advance-Refunded Municipal Bonds deposited with the Bond Trustee to provide for the payment of such Bonds. No Bond may be so provided for if, as a result thereof or of any other action in connection with which the provision for payment of such Bond is made, the interest payable on any Bond is made subject to Federal income taxes. The Bond Trustee may rely upon an opinion of Bond Counsel (which opinion may be based upon a ruling or rulings of the Internal Revenue Service) to the effect that the provisions of this paragraph will not be breached by so providing for the payment of any Bonds. Payment of Bonds After Discharge. Notwithstanding the discharge of the lien of the Indenture as therein provided, the Bond Trustee shall nevertheless retain such rights, powers and duties under the Indenture as may be necessary and convenient for the payment of amounts due or to become due on the Bonds and the registration, transfer, exchange and replacement of Bonds as provided in the Indenture. Nevertheless, any monies held by the Bond Trustee or any Paying Agent for the payment of the principal of, premium, if any, or interest on any Bond remaining unclaimed for five (5) years after the principal of all Bonds has become due and payable, whether at maturity or upon proceedings for redemption or by declaration as provided in the Indenture, shall then be paid to the Authority and the Holders of any Bonds not theretofore presented for payment shall thereafter be entitled to look only to the Authority for payment thereof as unsecured creditors and all liability of the Bond Trustee or any Paying Agent with respect to such monies shall thereupon cease. C-33

146 SUMMARY OF CERTAIN PROVISIONS OF THE SERIES 2006 SUPPLEMENTAL BOND INDENTURE Incorporation of Bond Indenture. The Series 2006 Supplemental Bond Indenture has been approved by the Authority and the Bank Trustee and is authorized pursuant to the Bond Indenture which Bond Indenture, as previously supplemented and amended, is incorporated in the Series 2006 Supplemental Bond Indenture by reference to the end that the grant and pledge and the rights, powers, privileges and immunities granted and set out in the Indenture shall enure to the benefit of the owners of the Series 2006 Bonds and all obligations issued on a parity therewith. For purposes of the summary of the Series 2006 Supplemental Bond Indenture "Insurer" shall refer to Radian Asset Assurance Inc. and "Policy" shall refer to the financial guaranty insurance policy issued thereby. Payments Into Bond Fund. The additional monthly payments or transfers required to be made into the Bond Fund by the Authority or from the Revenue Fund pursuant to the provisions of Sections 7.01 and 7.02 of the Bond Indenture insofar as such pertains to the Series 2006 Bonds is more specifically set out as follows: (A) Between and including January 2007, and final maturity of the Series 2006 Bonds, an amount equal to one-sixth (1/6th) of the interest due and payable on the Series 2006 Bonds on the next succeeding Interest Payment Date shall be deposited in the Interest Account of the Bond Fund by the tenth day of the month. (B) Between and including January 2007 and June 2007 an amount equal to one-sixth (1/6 th ) and between and including July 2007, and final maturity of the Series 2006 Bonds, an amount equal to one-twelfth (1/12th) of the principal amount of the Series 2006 Bonds to mature on the next succeeding Principal Payment Date shall be deposited in the Principal Account of the Bond Fund by the tenth day of the month. Replenishment of Bond Reserve Fund. Section 7.02(d)(3) of the Bond Indenture shall be supplemented as follows while the Series 2006 Bonds shall be outstanding: Any deficiency in the Bond Reserve Fund determined upon the quarterly valuation thereof, shall be replenished in three equal monthly payments prior to the next succeeding valuation date. Permitted Investments. So long as the Series 2006 Bonds are Outstanding the term "Permitted Investments" as used in the Bond Indenture shall be limited in meaning as follows: (i) Certificates or interest-bearing notes or obligations of the United States, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest. (ii) Investments in any of the following obligations provided such obligations are backed by the full faith and credit of the United States (a) direct obligations or fully guaranteed certificates of beneficial interest of the Export-Import Bank of the United States, (b) debentures of the Federal Housing Administration, (c) guaranteed mortgage backed bonds of the Government National Mortgage Association, (d) certificates of beneficial interest of the Farmers Home Administration, (e) obligations of the Federal Financing Bank or (f) project notes and local authority bonds of the Department of Housing and Urban Development. C-34

147 (iii) Investments in (a) senior obligations of the Federal Home Loan Bank System, (b) participation certificates or senior debt obligations of the Federal Home Loan Mortgage Corporation, (c) mortgage-backed securities and senior debt obligations (excluding stripped mortgage securities that are valued greater than par on the portion of unpaid principal) of the Federal National Mortgage Association or (d) senior debt obligations of the Student Loan Marketing Association. (iv) S.E.C. registered money market mutual funds conforming to Rule 2a-7 of the Investment Company Act of 1940 that invest primarily in direct obligations issued by the U.S. Treasury and repurchase agreements backed by those obligations, including funds for which the Bond Trustee or an affiliate of the Bond Trustee acts as an advisor, and rated in the highest category by Standard & Poor's Corporation and Moody's Investors Service, Inc. (v) Certificates of deposit of any bank (including the Bank Trustee), trust company or savings and loan association whose short term obligations are rated, at all times, A-1 or better by Standard & Poor's Corporation and P-1 by Moody's Investors Service, Inc., provided that such certificates of deposit are fully secured by the obligations described in (i) or (ii) above, at the levels set forth below, the Bank Trustee has a perfected first security interest in the obligations securing the certificates and the Bank Trustee holds (or shall have the option to appoint a bank, trust company or savings and loan association as its agent to hold) the obligations securing the certificates. (vi) Certificates of deposit of any bank (including the Bank Trustee), trust company or savings and loan association which certificates are fully insured by the Federal Deposit Insurance Corporation. (vii) Commercial paper rated, at all times, P-1 or better by Moody's Investors Service, Inc., and A-1+ by Standard & Poor's Corporation. (viii) Obligations of, or obligations fully guaranteed by, any state of the United States of America or any political subdivision thereof which obligations, at all times, are rated by Standard & Poor's Corporation and Moody's Investors Service, Inc., in the highest rating categories (without regard to any refinement or graduation of rating category by numerical modifier or otherwise) and without regard to credit enhancement assigned by such rating agencies to obligations of that nature. (ix) Repurchase agreements with primary dealers and/or banks rated, at all times, AA or AA2 or better by Standard & Poor's Corporation or Moody's Investors Service, Inc., respectively, collateralized with the obligations described in (i) or (ii) above, held by a third-party custodian, at the Collateral Levels set forth below, which repurchase agreements have been approved by the Insurer. Collateral Levels for United States Government Securities: Remaining Maturity 1 Year or less 5 Years or less 10 Years or less 15 Years or less 30 Years or less Frequency of Valuation Daily Weekly Monthly Quarterly C-35

148 Further Requirements: (1) On each valuation date the market value of the collateral will be an amount equal to the requisite collateral percentage of the obligation (including unpaid accrued interest) that is being secured. (2) In the event the collateral level is below its collateral percentage on a valuation date, such percentage shall be restored within the following restoration periods: one business day for daily valuations, two business days for weekly valuations, and one month for monthly and quarterly valuations. The use of different restoration periods affect the requisite collateral percentage. (3) The Bank Trustee shall be required to terminate the repurchase agreement upon a failure to maintain the requisite collateral percentage after the restoration period and, if not paid by the counterparty in federal funds against transfer of the repo securities, liquidate the collateral. Valuation of Investments; Duration; Other Restrictions. Investments on deposit in all funds and accounts shall be valued at market value at least quarterly. No forward delivery agreements, hedge, purchase and resale agreements or par-put agreements may be used with respect to the investment of any fund or account under the Indenture without the prior written consent of the Insurer. Amounts contained in the Series 2006 Account of the Bond Fund Reserve shall be invested only in the instruments set forth in paragraphs (i), (ii) and (iv) above, with maturities of not longer than five years. No additional Series 2006 Account of the Bond Fund Reserve credit facilities, insurance policies, forward delivery agreements, investment agreements, hedge or par-put agreements may be used without the prior written consent of the Insurer. Additional Covenants Regarding Insurance. The Authority covenants to continuously maintain insurance on its properties and against such risks (including casualty, accident and worker's compensation) in such amounts and with such deductibles, as are consistent with customary coverage, as from time to time in effect, in connection with the operation of properties of type and size comparable to properties as maintained by entities similar to the Authority; provided, that property and casualty coverage shall at all times be maintained in an amount at least equal to the outstanding principal amount of the Series 2006 Bonds which have been or are issued on a parity therewith. The Authority shall (i) cause an independent insurance consultant to annually review the insurance coverage and to make recommendations, and (ii) comply with such recommendations. The Authority will not self-insure without the consent of the Insurer. During construction periods, provide and continuously maintain insurance coverages and amounts ordinarily used under similar circumstances including a performance and payment bond in an amount covering the cost of the contract. The contract shall be based on a "guaranteed maximum price" basis. Additional Limitations on Additional Indebtedness. The following additional provisions shall apply so long as the Policy shall be in full force and effect provided these provisions shall not be read to be more permissive than the Bond Indenture: (a) Additional Long-term Indebtedness secured by the Pledged Revenues shall have the same semi-annual principal and interest payment dates as the Series 2006 Bonds. (b) No additional Bonds, notes, certificates, contracts or any other obligations for borrowed money shall be issued by the Authority unless no Event of Default shall have occurred and be continuing with respect to the Series 2006 Bonds. (c) Any debt of the Authority which is subordinate to the lien of the Bondholders on the Pledged Revenues, shall have the same payment dates as the Series 2006 Bonds and provide that such debt may not be accelerated without the consent of the Insurer. C-36

149 (d) The use of support agreements, interest rate swap or hedge agreements with respect to the Series 2006 Bonds shall be subject to the prior approval of the Insurer. (e) So long as the Policy shall be in full force and effect the reference to "total Pledged Revenues" in Section 8.12(e) of the Bond Indenture shall be read as "operating revenues." (f) So long as the Policy shall be in full force and effect the provisions of Section 8.13(c) of the Bond Indenture shall be read as if the 15% of the Total Pledged Revenues were 10% of operating revenues. (g) While the Series 2006 Bonds are outstanding, the following provision shall apply provided this provision shall not be read to be more permissive than Section 8.12(a) of the Bond Indenture: Long-Term Debt may be incurred if: (a) the Debt Service Coverage Ratio for the previous two fiscal years, taking into account outstanding and proposed Long-Term Debt, was at least 1.30X; or (b) the Debt Service Coverage Ratio for the most recent fiscal year, taking into account outstanding Long-Term Debt, was at least 1.30X and a report of an independent consultant or accountant shows the projected Debt Service Coverage Ratios for the first two fiscal years after project or refinancing completion will be at least 1.40X (or an officer's certificate forecasting coverage of at least 1.60X for that same period). In addition, there shall be no provision for reduced requirements for effect of "applicable laws," as applied to the issuance of additional debt. Subordination Provisions Applicable to Subordinated Debt (a) The indebtedness evidenced by the Subordinated Indebtedness, shall at all times be wholly subordinate and junior in right of payment to any and all indebtedness of the Authority under the Indenture or the Series 2006 Bonds (herein called "Superior Indebtedness"), in the manner and with the force and effect hereafter set forth: (1) In the event of any liquidation, dissolution or winding up of the Authority, or of any execution, sale, receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization, or other similar proceeding relative to the Authority or its property, all principal and interest owing on all Superior Indebtedness shall first be paid in full before any payment is made upon the Subordinated Indebtedness, provided, however, that, except for Pledged Revenues, this sentence shall not apply to payments made on such Subordinated Indebtedness from the proceeds of collateral specifically securing such Subordinated Indebtedness; and in any such event any payment or distribution of any kind or character from sources other than the proceeds of collateral specifically securing the Subordinated Indebtedness, except for Pledged Revenues, whether in cash, property or securities (other than in securities, including equity securities, or other evidences of indebtedness, the payment of which is subordinated to the payment of all Superior Indebtedness which may at the time be outstanding) which shall be made upon or in respect of the Subordinated Indebtedness shall be paid over to the holders of such Superior Indebtedness, pro rata, for application in payment thereof unless and until such Superior Indebtedness shall have been paid or satisfied in full; and (2) In the event that the Subordinated Indebtedness is declared or become due and payable because of the occurrence of any event of default under the Indenture (or under the Agreement or Indenture, as appropriate) or otherwise than at the option of the Authority, under C-37

150 circumstances when the foregoing clause (1) shall not be applicable, the holders of the Subordinated Indebtedness shall be entitled to payments only after there shall first have been paid in full all Superior Indebtedness outstanding at the time the Subordinated Indebtedness so become due and payable because of any such event, or payment shall have been provided for in a manner satisfactory to the holders of such Superior Indebtedness, provided, however, that, except for Pledged Revenues, this sentence shall not apply to payments made on such Subordinated Indebtedness from the proceeds of collateral specifically securing such Subordinated Indebtedness. (b) The Authority agrees, for the benefit of the holders of Superior Indebtedness, that in the event that any Subordinated Indebtedness is declared due and payable before its expressed maturity because of the occurrence of a default under the Indenture, (i) the Authority will give prompt notice in writing of such happening to the holders of Superior Indebtedness and (ii) all Superior Indebtedness shall forthwith become immediately due and payable upon demand, regardless of the expressed maturity thereof. (c) Any default in the covenants contained in this section shall be an immediate "Event of Default" without regard to any "grace period" otherwise contained herein. (d) If the holder of the Subordinated Indebtedness is a commercial bank, savings bank, savings and loan association or other financial institution which is authorized by law to accept and hold deposits of money or issue certificates of deposit, such holder must agree to waive any common law or statutory right of setoff with respect to any deposits of the Authority maintained with or held by such holder. Changes to Rate Covenant. So long as the Policy shall be in full force and effect the Rate Covenant provisions of Section 8.12 of the Bond Indenture shall be read as if the 1.1X coverage were 1.2X. Liquidity Covenant. So long as the Policy shall be in full force and effect, the Authority must maintain on a semi annual basis not less than (i) 46 Days Cash on Hand through June 30, 2007, and (ii) 50 Days Cash on Hand from July 1, 2007 and thereafter (the "Liquidity Requirement"). Days Cash on Hand is defined as the quotient produced by dividing the sum of unrestricted cash, investments and board designated funds by operating expenses minus depreciation and amortization, and then multiplying the quotient by 365. Failure to meet the Liquidity Requirement will necessitate an outside consultant's review and recommendations to be implemented. If the consultant is hired and the recommendations are being followed no Event of Default shall be deemed to have occurred unless the Liquidity Requirement is not met for an additional two consecutive test periods or Days Cash on Hand declines below 35 days. Casualty Insurance Proceeds. The provisions of this Section shall be applicable to the use of insurance and condemnation proceeds to the extent these provisions do not conflict with applicable related provisions contained in the Bond Indenture. Notice will be provided to the Insurer in the event of damage or destruction to Property in excess of 1% book value (book value will be based on last audited financials.) (1) Insurance proceeds shall be applied in the following manner: (a) In the event of damage or destruction to the property in an amount equal to or less than, 5% of book and/or current value, and not affecting more than 5% of operating revenues, the Authority may apply insurance proceeds for any lawful corporate purpose. C-38

151 (b) In the event of damage or destruction to Property in excess of 5% of book value and/or reducing net patient service revenues by more than 5%, and provided certain tests are met as set forth below, the Authority may apply insurance proceeds to (i) rebuild the facility or construct a replacement facility, or (ii) redeem the Insurer insured bonds on a pro rata basis, or as otherwise approved by the Insurer. shall: (c) Rebuilding or Replacing: If the Authority elects to rebuild or replace, it (i) provide evidence certified by a feasibility consultant that rate covenants will be met during the construction period and for each of the two years subsequent to the completion of repair or replacement; (ii certify that insurance proceeds plus funds available for rebuilding or replacing shall be sufficient to complete the project; and (iii) determine how insurance proceeds will be applied within twelve months after damage or destruction to the Property. (Any insurance proceeds received within such twelve month period and prior to the making of such decision by the Authority shall be held in trust until such time as a decision is rendered regarding use of insurance proceeds.) (d) Use of Proceeds for any Corporate Purpose. If the Authority does not want to utilize insurance proceeds to redeem bonds or rebuild or replace damaged Property, it may use such proceeds for any lawful corporate purpose, provided that a feasibility consultant certifies that the rate covenant will be met for each of the succeeding two fiscal years and such coverage will not be reduced by more than 15% from what such coverage was during the fiscal year prior to such damage occurring. (2) Condemnation Proceeds. The tests applicable under (1) above apply in the use of condemnation awards. In addition, a feasibility consultant must certify that the Authority will meet its rate covenant during any construction, replacement or relocation of its facilities. In the event that the rate covenant will not be met, the Authority must utilize condemnation proceeds to pro rata redemption or purchase of outstanding bonds, unless otherwise approved by the Insurer. Permitted Encumbrances. The Authority shall not hereafter make or suffer to exist any pledge or assignment of, lien on, or security interest in the Pledged Revenues that ranks prior to or on a parity with the pledge granted under the Indenture, or file any financing statement describing any such pledge, assignment, lien, or security interest, except as expressly permitted under the Indenture. The following provisions shall be applicable to the encumbrance of the Authority's property to the extent the Series 2006 Bonds remain outstanding and these provisions do not conflict with applicable related provisions contained in the Bond Indenture. Permitted encumbrances shall be limited to the following: 1. Any lien or encumbrance created or incurred in the ordinary course of business which does not secure, directly or indirectly, the repayment of borrowed money or the payment of installment sales contracts of capital leases individually or in the aggregate, and which does not materially impair the value or the utility of the property subject to such lien or encumbrance. C-39

152 2. Liens arising by reason of good faith deposits with any obligor in connection with tenders, leases or real estate, bid or contracts (other than contracts for the payment of money), deposits by any obligor 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. 3. Statutory rights of the United States of America to recover against any obligor by reason of any Federal loan, grant or subsidy made available to the Authority and similar rights under state statutes. 4. Any lien arising by reason of deposits to enable any obligor to maintain self-insurance or to participate in any funds established to cover any insurance risks or in connection with worker's compensation, unemployment insurance, pension or profit-sharing plans, or other social security, or to share in the privileges or benefits required for companies participating in such arrangements. 5. Any judgment lien against any obligor so long as such judgment is being contested and execution thereon is stayed and so long as such judgment lien will not materially interfere with or impair the operations conducted on all property. 6. (i) Rights reserved to or vested in any municipality or public authority by the terms of any right, power, franchise, grant, license, permit or provision of law, affecting any property, (ii) any liens on any Property for taxes, assessments, levies, fees, water and sewer rents, and other governmental and similar charges and any liens of mechanics, materialmen, laborers, suppliers or vendors for work or services performed or materials furnished in connection with such property, which are not due and payable or which are being contested and execution thereon is stayed or which have been due for less than 90 days and (iii) easements, rights-of-way, servitudes, restrictions and other minor defects, encumbrances and irregularities in the title of any property that do not materially impair the use of such property in any manner. 7. Any lien on the property of the Authority that is existing on the date of bond closing, provided that no lien so described may be extended, renewed or replaced by another lien, nor may it be modified to apply to any Property of any obligor not subject to such lien on the date of bond closing, unless the lien qualifies as a Permitted Encumbrance; and provided further that no additional indebtedness may be incurred that is secured by such lien unless the foregoing conditions are met. (Note: The Authority will have submitted to the Insurer a title report or copies of a title insurance policy prior to the Insurer's issuance of a municipal bond insurance policy. Consequently, the Insurer will be aware of all pre-existing liens.) 8. Any liens on pledges of grants or gifts which secure payment of Short-Term Debt. 9. Any lease and leaseback, lien security interest or similar arrangements entered into by the Authority with an issuer, to the extent that such arrangement is required by law in connection with the issuance of bonded indebtedness. Such arrangements entered into pursuant to a Trust Indenture or similar and on a parity lien for revenues with indebtedness insured by the Insurer shall be subject to the approval of the Insurer. 10. Any lien with respect to property acquired after the date of the issuance of the Bonds, which lien either secures the purchase price of such property or is a lien to which such property is subject at the time of its acquisition. 11. Any lien imposed by the grantor, expressed or implied, on property of an obligor received as a gift, grant or bequest, pursuant to the terms thereof. C-40

153 12. Liens on moneys deposited by patients or others with the Authority as security for, or as prepayment for, the cost of patient care; or any rights of residents of life care or similar facilities to endowment or similar funds deposited by or on behalf of such residents. 13. Operating leases or ground leases of five years or less whereunder the Authority is the lessor; or any license or other use agreement made with respect to property where revenues generated inure to the benefit of the Authority. 14. Any lien on money (or the investment made with such money) held in any depreciation reserve, debt service reserve, construction, debt service or similar fund and granted by the Authority to secure payment of indebtedness (including any commitment indebtedness, whether or not then drawn upon); and any lien on money (or the investment made with such money) held in any escrow or similar fund to defease indebtedness. 15. Liens securing Non-Recourse Debt. 16. Any lien on property (other than real estate) in the nature of a purchase money security interest resulting from installment sale agreements or borrowings, financing leases, or similar agreements relating to the acquisition of property; or liens of a lessee or a vendee on the property being leased or sold under a lease, installment sale or similar agreement. 17. Such minor defects and irregularities of title 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. 18. Any lien on pledges, gifts or grants to be received in the future, including any income derived from the investment thereof and liens on or in property given, bequeathed or devised to the owner thereof existing at the time of such gift, bequest or devise, provided that (i) such liens attach solely to the property which is the subject of such gift, bequest or devise, and (ii) the indebtedness secured by such liens is not assumed the Authority. 19. Any lien securing all debt on a parity basis. 20. The Authority may guarantee the payment of another entity's debt subject to the following requirements: -If the guaranteed entity has a Debt Service Coverage greater than 2.0 times in its latest fiscal year, then 25% of the guaranteed debt service shall be included in the debt service requirements of the guarantor; -If the guaranteed entity has a coverage ratio of 1.5 to 2.0 times, then 50% of the debt service shall be included; -If the guaranteed entity has a coverage ratio of 1.25 to 1.50 times, then 75% of the debt service shall be included; -If the Debt Service Coverage Ratio of the guaranteed entity is below 1.25 times or guarantor has made a payment on the guaranteed entity's debt during any of the last three fiscal years, then 100% of the guaranteed entity's debt service shall be included in the debt service calculations for the guarantor. C-41

154 21. While the Series 2006 Bonds are outstanding, the following provisions shall apply provided these provisions shall not be read to be more permissive than Section 8.14 of the Bond Indenture: The Authority may, among other things (a) sublease or license the use of its property pursuant to a resident's agreement or for use in performing services necessary for use of Authority's facilities for health care and related purposes in accordance with customary practices in the industry; or (b) remove, sell or dispose of operating assets in the ordinary course of business; or (c) remove, sell or dispose of operating assets up to an aggregate value equal to 10% of the fair market value of property, plant and equipment in any two consecutive fiscal years with or without consideration. In addition, the Authority will not sell, lease, donate, exchange or dispose of any non-operating assets (including cash and cash equivalents) with or without consideration in other than the ordinary course of business without (i) an officer's certificate stating that the Authority or successor, as applicable, immediately following the transfer or disposition, will be in compliance with the Liquidity Covenant; (ii) an officer's certificate stating that the Authority or successor, as applicable, immediately following the transfer or disposition, will be able to issue at least one dollar of additional Long-Term Debt; and (iii) an officer's certificate stating that the Debt Service Coverage Ratio of the Authority or successor, as applicable, after giving effect to the transaction, will not be less than 1.40X and 75% of what it was prior to the transaction, or alternatively, with the consent of the Insurer, the Debt Service Coverage Ratio must be higher than it was prior to the transaction. 22. While the Series 2006 Bonds are outstanding, the following definitions shall apply with respect to calculations regarding the Series 2006 Bonds: "Net Income Available for Debt Service" means the excess of the unrestricted revenues of the Authority adjusted by subtracting realized and unrealized gains or losses on investments, and pledges made by donors during the relevant period but not actually collected during such period; less all unrestricted operating expenses and nonoperating expenses of the Authority as shown on its financial statements, less any depreciation, amortization, interest expense and loss or gain on extinguishment of debt included in unrestricted operating or nonoperating expenses. "Long-Term Debt" means debt with a stated term greater than one year or with a term greater than one year or with a term that may be extended beyond one year at the option of the Authority. SUMMARY OF CERTAIN PROVISIONS OF THE LEASE A Lease (the "Lease") was entered into by and between Comanche County, Oklahoma, as Lessor, and The Comanche County Hospital Authority, as Lessee, effective as of January 13, 1971, whereby the County leased to the Authority all hospitals, hospital sites, equipment and facilities, now owned and hereafter constructed or acquired, both real and personal. The following is a summary only of certain provisions of the Lease and reference is made to the document itself, a copy of which is on file at the corporate trust office of the Trustee, for a complete recital of its terms. The lease of the hospitals, hospital sites, equipment and facilities to the Authority by the County is for a term of thirty (30) years extending to and including January 12, 2001, with provisions for renewal for additional thirty (30) year terms. The Lease term was extended in July of 2000 until January 12, 2031, C-42

155 and so long thereafter as any indebtedness incurred by the Authority secured by the revenues of any of the property leased thereunder shall remain unpaid. The Lease provides that the Authority will operate and maintain the hospitals, hospital sites, equipment and facilities in proper condition and hold harmless the County from any loss, cost, expense or damage connected with such operation or maintenance. Upon termination of the Lease, the Authority is required to deliver to the County the leased property and all substitutions therefor in good and serviceable condition, ordinary wear and natural deterioration excepted. C-43

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157 APPENDIX D PROPOSED FORM OF OPINION OF BOND COUNSEL

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159 FAGIN, BROWN, BUSH, TINNEY & KISER A PROFESSIONAL CORPORATION ATTORNEYS & COUNSELORS AT LAW 120 NORTH ROBINSON SUITE 1900 WEST FIRST NATIONAL CENTER OKLAHOMA CITY, OKLAHOMA TELEPHONE TELECOPIER We have acted as bond counsel in connection with the issuance by The Comanche County Hospital Authority (the "Issuer") of $ Hospital Revenue Refunding Bonds, Series 2006 (the "Bonds"), in accordance with a resolution adopted by the Issuer (the "Bond Resolution") and pursuant to a Bond Indenture dated as of October 1, 1993, as previously supplemented, and as supplemented by a Series 2006 Supplemental Bond Indenture, dated as of December 1, 2006, and being by and between the Issuer and Bank of Oklahoma, National Association (the "Trustee"). In preparation for rendering the opinion expressed hereinbelow, we have examined the Bond Resolution, the Bond Indenture and Series 2006 Supplemental Bond Indenture (together and as further supplemented, the "Indenture") and the Lease. We have also examined the law and such certified proceedings and other documents and instruments as we have deemed necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon the representations of the Issuer contained in the Indenture and in the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation. We have not passed upon any matters relating to the business, properties, affairs or condition, financial or otherwise, of the Issuer and no inference should be drawn that we have expressed an opinion on matters relating to the financial ability of the Issuer to perform its obligations under the agreements described herein. Based upon the foregoing, we are of the opinion, under existing law, as follows: 1. The Issuer is duly created and validly existing as a public trust with Comanche County, Oklahoma as its beneficiary, with full power and authority to adopt the Bond Resolution and approve and execute the Indenture and perform the agreements on its part contained therein and issue the Bonds. 2. The Bond Resolution and Indenture, together with other documents and instruments incident to the issuance of the Bonds and the application of the proceeds derived therefrom, have been duly adopted or approved by the Issuer and the Bond Resolution and Indenture constitute valid and binding obligations of the Issuer, enforceable in accordance with their respective terms. 3. The Indenture creates a valid lien on the Pledged Revenues, as therein defined, for the security of the Bonds. 4. The Bonds have been duly authorized, executed and delivered by the Issuer and constitute valid and binding limited obligations of the Issuer, payable solely from the sources provided in the Indenture.

160 5. The interest on the Bonds (including any original issue discount properly allocable to a holder thereof) is excluded from gross income for Federal income tax purposes and is not an item of tax preference for purposes of the Federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that for the purpose of computing the alternative minimum tax imposed on corporations (as defined for Federal income tax purposes), such interest is taken into account in determining adjusted current earnings. The opinions set forth in the preceding sentence are subject to the condition that the Issuer comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for Federal income tax purposes. The Issuer has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for Federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other Federal tax consequences arising with respect to the Bonds. 6. Interest on the Bonds is exempt from taxation by the State of Oklahoma. 7. The Bonds are exempt from registration under the Securities Act of 1933 and the Indenture is exempt from qualification under the Trust Indenture Act of It is to be understood that the rights of the holders of the Bonds and the enforceability of the Bonds, the Indenture and the Lease may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. Respectfully submitted, D-2

161 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT

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163 FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (this Agreement ), dated as of December 1, 2006, is executed and delivered by the Comanche County Hospital Authority (the Authority ) in connection with the issuance of its Hospital Revenue Refunding Bonds, Series 2006 (the Series 2006 Bonds ). The Series 2006 Bonds are issued under and pursuant to the Bond Indenture (the Original Bond Indenture ), dated as of October 1, 1993, by and between the Authority and Bank of Oklahoma, N.A., as trustee (the Trustee ), as previously supplemented by a Loan Agreement and Supplemental Bond Indenture dated as of January 1, 2002 (the 2002 Supplemental Indenture ), as supplemented by the Series 2004 Supplemental Bond Indenture (the Series 2004 Supplemental Indenture ) dated as of December 1, 2004, as supplemented by the Series 2005 Supplemental Bond Indenture (the Series 2005 Supplemental Indenture ) dated as of November 1, 2005, and as supplemented by the Series 2006 Supplemental Bond Indenture (the Series 2006 Supplemental Indenture ) dated as of December 1, 2006, by and between the Authority and the Trustee, (the Original Bond Indenture, as previously supplemented and as supplemented by the Series 2006 Supplemental Indenture is collectively referred to herein as the Bond Indenture ). Capitalized terms used but not otherwise defined herein shall have the meanings assigned thereto in the Bond Indenture. Section 1. Purpose of Agreement. This Agreement is being executed and delivered by the Authority for the benefit of holders of the Series 2006 Bonds and to assist First Southwest Company and BOSC, Inc., A subsidiary of BOK Financial Corp. (the Underwriters ), in complying with paragraph (b)(5) of Securities and Exchange Commission Rule 15c2-12 (17 C.F.R c2-12) (the Rule ). Section 2. Defined Terms. Central Post Office means DisclosureUSA, any successor thereto, or any other conduit entity recognized, authorized or approved by the Securities and Exchange Commission for the submission of Annual Reports and Material Events notices to the NRMSIRs. The Central Post Office currently approved by the Securities and Exchange Commission is DisclosureUSA to which notices and filings may be effected as follows: For electronic submissions: For paper submissions: (permitted only through December 31, 2007): Mailing Address: Disclosure USA, P.O. Box , Austin, Texas Physical Address: Disclosure USA, 600 West 8 th Street, Austin, Texas NRMSIR means a nationally recognized municipal securities information repository, as recognized from time to time by the Securities and Exchange Commission for the purposes referred to in the Rule. The NRMSIRs as of the date of this Agreement are Bloomberg Municipal Repository, Attention: Municipal Department, 100 Business Park Drive, Skillman, New Jersey 08558, Phone: (609) and Fax: (609) , [email protected]; FT Interactive Data, Attention: NRMSIR, 100 William Street, 15 th Floor, New York, New York 10038, Phone: (212) or (800) , Fax: (212) (Secondary Market Information), [email protected]; Standard & Poor s Securities Evaluations, Inc., 45 th Floor, 55 Water Street, New York, New York 10041, Phone: (212) and Fax: (212) , [email protected]; and DPC Data Inc., One Executive Drive, Fort Lee, New Jersey 07024, Phone: (201) and Fax: (201) , [email protected]. The names and addresses of all current NRMSIRs should be verified each time information is delivered pursuant to this Agreement. Updates of the foregoing list are available at

164 SID means the state information depository, if any, located in the State of Oklahoma. There is not a SID as of the date of this Agreement. Section 3. Annual Financial Information and Operating Data. The Authority, as the obligated person for purposes of the Rule, hereby agrees to provide or cause to be provided at least annually to each NRMSIR and SID, if any (and to any holder of $1,000,000 or more of the Series 2006 Bonds who files a written request for same with the Authority), financial information and operating data, as of the end of the Authority s fiscal year, regarding the Authority, the Hospital and the Series 2006 Bonds of the type set forth in the Official Statement dated December, 2006 (the Official Statement ), under the following captions or in the following Appendices (or portions thereof): Cover Bonds of each maturity originally issued and still Outstanding. Appendix A Updates to the following information appearing under the following headings: Page A-8, Bed Complement Current year number of licensed and staffed beds. Page A-9, Medical Staff Current year number of admitting physicians. Page A-12, Personnel Current year number of full-time equivalent employees. Page A-18, Utilization Current year totals as per table. Page A-19, Outstanding Indebtedness Current year balances as per table. Page A-20, Revenue Payor Mix Current year percentages as per table. year. Appendix B Financial Statements and Audit Report as of and for the immediately preceding fiscal The financial and operating information described above will be filed no later than 180 days after the end of the fiscal year of the Authority, beginning with the Authority s fiscal year ending June 30, 2007, and may be provided in one document or in multiple documents. Such information also will include audited financial statements prepared in conformity with generally accepted accounting principles generally accepted in the United States and audited in accordance with auditing standards generally accepted in the United States and the standards for financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, as in effect from time to time; provided, however, that if audited financial statements are not available within 180 days after the end of the preceding fiscal year, unaudited financial statements will be provided with audited financial statements to follow when available. The Authority may provide additional or more current information if it so desires. The financial and operating information described above shall be provided at least annually notwithstanding a fiscal year longer than 12 calendar months. The Authority may change its current fiscal year, but must promptly notify each NRMSIR and SID, if any, of each such change within 30 days after the later of the adoption of a new fiscal year and the end of the fiscal year that occurs before the former fiscal year would have ended. All or any portion of the annual financial and operating information may be provided by way of cross-reference to other documents previously provided to each NRMSIR and to the SID, if any, or filed with the U.S. Securities and Exchange Commission. If the cross-referenced document is a final official statement within the meaning of the Rule, it shall be available from the Municipal Securities Rulemaking Board (the MSRB ). In addition to providing the annual financial and operating information required to be filed described immediately hereinabove, the Authority hereby agrees to provide or cause to be provided to each NRMSIR and SID, if any, unaudited financial information to consist of a (i) Consolidated Balance Sheet and (ii) Statements of Revenues, Expenses, and Changes in Net Assets of the Hospital (such unaudited financial E-2

165 information being hereinafter referred to as a Quarterly Report and to any holder of $1,000,000 or more of the Series 2006 Bonds who files a written request for such Quarterly Reports with the Authority in substantially the form attached to this Agreement as Exhibit A (a Disclosure Request ). Commencing with the Quarterly Report for the fiscal quarter of the Authority ending December 31, 2006, not later than 60 days after the end of each such fiscal quarter, the Authority shall provide a Quarterly Report to each holder who made a Disclosure Request. In the event any Quarterly Report is provided to a holder pursuant to this paragraph, the Authority also shall provide, at the same time, a copy of each such Quarterly Report to each NRMSIR and SID, if any. Section 4. Failure to File Annual Financial and Operating Information. The Authority agrees to provide or cause to be provided, in a timely manner, (i) to each NRMSIR or to the MSRB and (ii) to the SID, if any, notice of a failure by the Authority to provide the annual financial and operating information described in Section 3 above on or prior to the date specified in Section 3. Section 5. Material Events. The Authority agrees to provide or cause to be provided, in a timely manner (provided that notice of h and i need not be given prior to notice to the Bondholders as provided in the Bond Indenture), (i) to each NRMSIR or to the MSRB and (ii) to the SID, if any, notice of the occurrence of any of the following events with respect to the Series 2006 Bonds, if material under applicable federal securities laws: a. principal and interest payment delinquencies; b. nonpayment related defaults; c. unscheduled draws on debt service reserves reflecting financial difficulties; d. unscheduled draws on credit enhancements reflecting financial difficulties; e. substitution of credit or liquidity providers, or their failure to perform; f. adverse tax opinions or events affecting the tax-exempt status of the Series 2006 Bonds; g. modifications to rights of the holders of the Series 2006 Bonds; h. Series 2006 Bond calls (other than mandatory scheduled redemptions, not otherwise contingent upon the occurrence of an event, the terms of which are set forth in the Official Statement); i. defeasances; j. release, substitution, or sale of property securing repayment of the Series 2006 Bonds; and k. rating changes. Each material event notice shall be so captioned and shall prominently state the date, title and (to the extent less than all of the Series 2006 Bonds are affected by the related material event) CUSIP numbers of the Series 2006 Bonds. The Authority may from time to time choose to provide notice of the occurrence of certain other events, in addition to those listed above, but the Authority does not undertake any commitment to provide such notice of any event except those events listed above. E-3

166 Section 6. Use of Central Post Office. Any notices to or filings with the NRMSIRs and the SID, if any, under this Agreement may be effected by sending the notice or filing to the Texas Municipal Advisory Council (the MAC ) at the address provided in the definition of Central Post Office above unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC dated September 7, Section 7. Dissemination Agent. The Authority may, from time to time, engage or appoint an agent to assist the Authority in disseminating information hereunder (the Dissemination Agent ). The Authority may discharge any Dissemination Agent with or without appointing a successor Dissemination Agent. Section 8. Termination of Obligations. Pursuant to paragraph (b)(5)(iii) of the Rule, the Authority s obligation to file annual financial and operating information and notice of material events, as set forth herein, shall terminate if and when the Authority no longer remains an obligated person with respect to the Series 2006 Bonds, which shall occur upon either payment of the Series 2006 Bonds in full at maturity or by means of prior redemption or the legal defeasance of the Series 2006 Bonds in accordance with the Bond Indenture. Section 9. Enforceability and Remedies. This Agreement is intended to be for the sole benefit of the holders of the Series 2006 Bonds (for such purpose beneficial owners of the Series 2006 Bonds as registered on the books of The Depository Trust Company as book-entry-only holder of the Series 2006 Bonds shall be considered holders of the Series 2006 Bonds) and the Underwriters and shall create no rights in any other person or entity (except the Trustee, and then only as set forth below). This Agreement shall be enforceable by or on behalf of any such holder of the Series 2006 Bonds, provided that the right of any Bondholder to challenge the timely filing, failure to file or the adequacy of the information furnished pursuant to this Agreement shall be limited to an action by or on behalf of Series 2006 Bondholders representing at least twenty-five percent (25%) of the aggregate outstanding principal amount of the Series 2006 Bonds. This Agreement is also enforceable on behalf of the holders of the Series 2006 Bonds by the Trustee and the Trustee may, and upon the written direction of the owners of not less than twenty-five percent (25%) of the aggregate outstanding principal amount of the Series 2006 Bonds or the Underwriters shall, proceed to protect and enforce the rights of the owners of the Series 2006 Bonds pursuant to this Agreement; provided that in all cases the Trustee shall be entitled to the indemnification and other provisions of the Bond Indenture with regard to any actions, and prior to proceeding at the request or direction of the Underwriters or Bondholders, as applicable, the Trustee may require the same types of indemnification and related protections from the Underwriters or Bondholders to which the Trustee would otherwise be entitled under the Bond Indenture if so requested or directed by the Bondholders. Any failure by the Authority to comply with the provisions of this Agreement shall not be an Event of Default under the Bond Indenture. The Series 2006 Bondholders and Trustee s 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 Authority s obligations under this Agreement and the Authority, its trustees, officers and employees shall incur no liability under this Agreement by reason of any act or failure to act hereunder. Without limiting the generality of the foregoing, neither the commencement nor the successful completion of an action to compel performance under this Section shall entitle the Trustee or any other person to attorney s fees, financial damages of any sort or any other relief against the Authority other than an order or injunction compelling performance; provided that the Trustee shall nevertheless be entitled to attorney s fees and such other rights and amounts as provided in the Bond Indenture. Section 10. Amendment. Notwithstanding any other provision of this Agreement, the Authority may amend this Agreement, and any provision of this Agreement may be waived, without the consent of the Series 2006 Bondholders, under the following conditions: E-4

167 (1) The amendment or waiver may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law or change in the identity, nature or status of the Authority, or type of business conducted thereby; (2) This Agreement, as amended or with the provision so waived, would have complied with the requirements of the Rule at the time of the primary offering, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (3) The amendment or waiver does not materially impair the interest of holders of the Series 2006 Bonds, as determined either by parties unaffiliated with the Authority (which shall include the Trustee or nationally recognized bond counsel, or any other party determined by any of them to be unaffiliated), or by approving vote of holders of the Series 2006 Bonds pursuant to the terms of the Bond Indenture at the time of the amendment or waiver. The Authority shall provide notice of each amendment or waiver to each then existing NRMSIR or the MSRB and the SID, if any. The initial annual financial or operating information provided by the Authority after the amendment or waiver shall explain, in narrative form, the reasons for the amendment or waiver and the effect of the change in the type of operating data or financial information being provided. Section 11. Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute one instrument. Section 12. Choice of Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Oklahoma, provided that to the extent this Agreement addresses matters of federal securities laws, including the Rule, this Agreement shall be construed in accordance with such federal securities laws and official interpretations thereof. [Exhibit A to Continuing Disclosure Agreement on next page] E-5

168 EXHIBIT A TO CONTINUING DISCLOSURE AGREEMENT WRITTEN REQUEST OF BONDHOLDER Re: Comanche County Hospital Authority (Lawton, Oklahoma) Hospital Revenue Refunding Bonds, Series 2006 Comanche County Hospital Authority, 3401 Gore Boulevard Lawton, OK Attention: Chief Financial Officer (the Bondholder ) hereby requests that Comanche County Hospital Authority provide or cause to be provided to the Bondholder at the address shown below such annual and quarterly information as has been agreed to be provided to bondholders pursuant to Section 3 of the Continuing Disclosure Agreement, dated as of December 1, 2006, relating to the Series 2006 Bonds. The Bondholder hereby certifies as follows: 1. The Bondholder is the beneficial owner of $1,000,000 or more in aggregate principal amount of the Series 2006 Bonds; and 2. In the event the Bondholder ceases to be the beneficial owner of $1,000,000 or more in aggregate principal amount of the Series 2006 Bonds, the Bondholder agrees to notify Comanche County Hospital Authority of such fact at the address shown above. Date: [Name of Bondholder] By: [Name/Title] Mailing Address ( ) Phone ( ) Facsimile Address E-6

169 APPENDIX F SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY

170 [This Page Intentionally Left Blank]

171 FINANCIAL GUARANTY INSURANCE POLICY Obligor: Bonds: Bond Trustee: Insurance Trustee: Policy Number: Premium: Radian Asset Assurance Inc. ("Insurer"), a corporation organized under the laws of the State of New York, in consideration of the payment of the premium and subject to the terms of this Policy, hereby unconditionally and irrevocably guarantees the payment of the Obligation (hereinafter defined) to the Insurance Trustee for the benefit of the Holders (hereinafter defined) from time to time of the Bonds. This Policy does not insure against any risk other than nonpayment of the Obligation by or on behalf of the Obligor or any other obligor to the Bond Trustee. Nonpayment includes recovery from a Holder of Bonds or the Bond Trustee of any portion of the Obligation pursuant to a final judgment by any court of competent jurisdiction holding that such payment constituted a voidable preference within the meaning of any applicable bankruptcy law. Upon receipt by the Insurer of telephonic or telegraphic notice, such notice subsequently confirmed to the Insurer in writing by registered or certified mail, from the Insurance Trustee that the Obligor (or other obligor responsible for payment of the Obligation) has failed to provide the Bond Trustee with sufficient funds for payment of the Obligation on the Due Date (hereinafter defined), the Insurer shall, not later than such Due Date or the first business day after receipt of such notice, whichever is later, pay to the Insurance Trustee for the benefit of the Holders of the Bonds an amount which shall be sufficient to pay the Obligation, but only upon receipt by the Insurer, in a form reasonably satisfactory to it, of (a) evidence of the Holder's right to receive such payment and (b) evidence, including any appropriate instruments of assignment, that all the Holder's rights with respect to such payment shall thereupon vest in the Insurer. "Due Date" means, when referring to the principal of the Obligation, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund prepayment and does not refer to any earlier date on which payment is due by reason of any other call for redemption, acceleration or other advancement of maturity unless the Insurer shall elect, in its sole discretion, to pay such principal due upon such redemption, acceleration or other advancement of maturity together with any accrued interest to the date of redemption, acceleration or other advancement of maturity. Tendering of payment, to the Bond Trustee, of such principal due upon such redemption, acceleration or other advancement of maturity, together with any accrued interest to the date of such redemption, acceleration or other advancement of maturity, shall satisfy the Insurer's obligations under this Policy, in full. When referring to interest on the Obligation, "Due Date" means the stated date for payment of interest. FMSI-0101-OK (rev. 10/02) Page 1 of 2

172 The Insurer shall, to the extent of any payment made by it pursuant to this Policy, be deemed to have acquired and become the Holder of the Bonds or portions thereof or interest thereon paid from such payment and shall be fully subrogated to all rights to payment thereof. As used herein, the term Holder or "Holders" means the registered owners of the Bonds as indicated in the registration books maintained by the Bond Trustee for such purpose at the time of nonpayment of the Obligation. The terms Holder or Holders shall not include the Obligor or any person or entity whose direct or indirect obligation constitutes the underlying security for the Obligation. As used herein, the term "Bond Trustee" means the Bond Trustee above named and any successor trustee duly appointed. As used herein, the term "Insurance Trustee" means the Insurance Trustee above named and any successor insurance trustee duly appointed. As used herein, the term "Obligation" means the payment of principal and interest regularly scheduled to be paid on the Bonds, which shall have become due for payment but shall be unpaid on the Due Date, but does not include any premium payable with respect to the Bonds, nor any redemption (except mandatory sinking fund redemption), acceleration or other advancement of maturity. This Policy is non-cancelable for any reason. Premiums paid on this Policy are not refundable for any reason including without limitation the payment prior to maturity of the Bonds. IN WITNESS WHEREOF, the Insurer has caused this Policy to be issued to the Insurance Trustee for the benefit of the Holders from time to time of the Bonds and to be executed and delivered by its duly authorized officer to become effective and binding upon the Insurer by virtue of the execution and delivery thereof as of 12:01 a.m. Standard Time at the above-named insured s address on this [DATE]. RADIAN ASSET ASSSURANCE INC. By: Name: [ANALYST] Title: [TITLE] WARNING: Any person who knowingly, and with intent to injure, defraud or deceive any insurer, makes any claim for the proceeds of an insurance policy containing any false, incomplete or misleading information is guilty of a felony. Connecticut Florida New York Texas INSURANCE GUARANTY FUND NOTICES In the event the Company becomes insolvent, any claims arising under this Policy are excluded from coverage by the Connecticut Insurance Guaranty Association. The insurance provided by this Policy is not covered by the Florida Insurance Guaranty Association created under part II of chapter 631 of the Florida Insurance Code. This Policy is not covered by the Property/Casualty Insurance Security Fund established by Article 76 of the New York Insurance Law. In the event the insurer is unable to fulfill its contractual obligation under this Policy, the policyholder is not protected by the Texas Property and Casualty Insurance Guaranty Act. FMSI-0101-OK (rev. 10/02) Page 2 of 2