OFFICIAL STATEMENT DATED FEBRUARY 10, 2012

NEW ISSUE - BOOK-ENTRY ONLY Ratings: S&P: AA- (Stable Outlook)(Assured Guaranty Insured)S&P: A+ (Stable Outlook)

(Underlying)

In the opinion of Rhoads & Sinon LLP, bond counsel, under existing statutes, regulations and judicial decisions, interest on the Bonds is excluded from gross income of the owners of the Bonds for purposes of federal income taxation and is not an item of tax preference of the owners of the Bonds for purposes of the federal alternative minimum tax imposed on individuals and corporations, although in the case of corporations (as defined for federal income tax purposes) such interest is taken into account in determining adjusted current earnings for purposes of such alternative minimum tax. Such opinion of bond counsel is given in reliance upon certain certifications made by or on behalf of the Authority and the Hospital and subject to the continuing compliance by the Authority and the Hospital with their covenants in the Indenture, the Loan Agreement and other documents to comply with requirements of the Internal Revenue Code of 1986, as amended, and applicable regulations thereunder.

Bond counsel is also of the opinion that under the laws of the Commonwealth of Pennsylvania (the “Commonwealth”), as presently enacted and construed, and subject to the qualification set forth below, the Bonds are exempt from personal property taxes in the Commonwealth and the interest on the Bonds is exempt from the Commonwealth’s Personal Income Tax and the Commonwealth’s Corporate Net Income Tax.

The Bonds have been designated, or “deemed designated”, by the Authority as “qualified tax-exempt obligations” for purposes and effect contemplated by Section 265 of the Code (relating to expenses and interest relating to tax-exempt income of certain financial institutions). For further information concerning federal and state tax matters relating to the Bonds, see “Tax Exemption and Other Tax Matters” herein.

$6,000,000CARBON COUNTY HOSPITAL AUTHORITY

County Guaranteed Hospital Revenue Bonds (Gnaden Huetten Memorial Hospital Refunding Project), Series of 2012

Dated: February 23, 2012 Principal Due: November 15, as shown below

Interest is payable initially on May 15, 2012, and semiannually thereafter on each May 15 and November 15. The $6,000,000 aggregate principal amount County Guaranteed Hospital Revenue Bonds (Gnaden Huetten Memorial Hospital Refunding Project), Series of 2012 (the “Bonds”) of the Carbon County Hospital Authority (the “Authority”), will be registered in the name of Cede & Co., as holder and nominee for The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Bonds. Purchases of the Bonds will be made in book-entry form, in the denomination of $5,000 and multiples thereof. Purchasers will not receive certificates representing their ownership interest in Bonds purchased. So long as Cede & Co. is the holder of the Bonds references herein to the Bondholders or holders shall mean Cede & Co., and shall not mean the Beneficial Owners of the Bonds. See “The Bonds - Book-Entry Only System” herein.

The Bonds are subject to optional, mandatory and extraordinary redemption as described herein under “The Bonds”.

Proceeds of the Bonds and other funds will be loaned to Gnaden Huetten Memorial Hospital (the “Hospital”), in Lehighton, Pennsylvania, and applied to (1) currently refund the Authority’s County Guaranteed Hospital Revenue Bonds (Gnaden Huetten Memorial Hospital), Series 1999, (2) fund a deposit to the Debt Service Reserve Fund established under the Indenture (described herein); and (3) to pay certain costs of issuing and insuring the Bonds.

The Bonds and other parity bonds will be secured under the Indenture and the Loan Agreement (as each is described and referred to herein) by a gross revenue pledge of:

and are additionally secured by a Guaranty Agreement (the “County Guaranty”), between the County of Carbon, Pennsylvania, as guarantor, and the Trustee, pledging the County’s full faith, credit and taxing power to secure the Bonds. In addition, the payment of principal of and interest on the Bonds will be insured by:

The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by ASSURED GUARANTY MUNICIPAL CORP.

THE BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY AND ARE NOT A DEBT OR OBLIGATION OF THE COMMONWEALTH OF PENNSYLVANIA OR, EXCEPT AS PROVIDED IN THE COUNTY GUARANTY, ANY POLITICAL SUBDIVISION THEREOF. THE AUTHORITY HAS NO TAXING POWER.

The Bonds are offered, subject to prior sale, when, as and if issued by the Authority and accepted by the Underwriter, subject to the approval of legality by Rhoads & Sinon LLP, Harrisburg, Pennsylvania, Bond Counsel. Certain legal matters will be passed upon for the Authority by Stevens & Lee, Reading, Pennsylvania, Counsel to the Authority, for the Hospital by Tallman Hudders & Sorrentino, P.C., Allentown, Pennsylvania, Counsel to the Hospital, and for the County by Daniel A. Miscavige, Esquire, Weatherly, Pennsylvania, Solicitor to the County. Certain legal matters will be passed upon for the Underwriter by Rhoads & Sinon LLP, Harrisburg, Pennsylvania, Counsel to the Underwriter. It is expected that the Bonds in definitive form will be available for delivery in New York, New York on or about February 23, 2012.

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$6,000,000CARBON COUNTY HOSPITAL AUTHORITY

County Guaranteed Hospital Revenue Bonds (Gnaden Huetten Memorial Hospital Refunding Project), Series of 2012

Maturity(November 15)

PrincipalAmount Coupon Yield Price CUSIP

2012 $ 45,000 0.45% 0.45% 100.000% 140868 EF32013 $ 45,000 0.85% 0.85% 100.000% 140868 EG12014 $ 45,000 3.00% 1.09% 105.118% 140868 EH92015 $1,110,000 3.00% 1.42% 105.715% 140868 EJ52016 $1,140,000 4.00% 1.65% 110.643% 140868 EK22017 $1,190,000 4.00% 1.83% 111.746% 140868 EL02018 $1,235,000 2.00% 2.14% 99.125% 140868 EM82019 $1,190,000 2.25% 2.36% 99.225% 140868 EN6

Interest on the Bonds shall be payable semi-annually on each May 15 and November 15, commencing May 15, 2012, to the registered owners thereof as of the close of business on the last day (whether or not a Business Day) of the calendar month immediately preceding such payment date (each, a “Regular Record Date”), as shown on the Bond Register, by check of the Trustee mailed to such registered owners on the applicable Interest Payment Date, or at the option of any registered owner of $1,000,000 or more in aggregate principal amount of Bonds, by wire transfer of immediately available funds to the wire transfer address of a bank account located in the United States as such owner shall specify in writing to the Trustee not later than the close of business on the Regular Record Date for the payment of such interest.

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AUTHORITYCarbon County Hospital Authority

Lehighton, Pennsylvania

HOSPITALGnaden Huetten Memorial Hospital

Lehighton, Pennsylvania

COUNTYCounty of Carbon

Pennsylvania

BOND COUNSELRhoads & Sinon LLP

Harrisburg, Pennsylvania

HOSPITAL’S COUNSELTallman, Hudders & Sorrentino, P.C.

Allentown, Pennsylvania

AUTHORITY’S COUNSELStevens & Lee

Reading, Pennsylvania

COUNTY’S COUNSELDaniel A. Miscavige, Esquire

Weatherly, Pennsylvania

UNDERWRITERJanney Montgomery Scott LLC

Philadelphia, Pennsylvania

UNDERWRITER’S COUNSELRhoads & Sinon LLP

Harrisburg, Pennsylvania

TRUSTEEThe Bank of New York Mellon Trust Company, N.A.

Philadelphia, Pennsylvania

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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

No dealer, broker, salesman or any other person has been authorized by the Carbon County Hospital Authority, Gnaden Huetten Memorial Hospital, the County of Carbon, Pennsylvania or the Underwriter to give any information or to make any representation other than as contained in this Official Statement in connection with the offering described herein, and if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer of any securities other than those described on the cover page or an offer to sell or a solicitation of any offer to buy any securities in any jurisdiction in which it is unlawful to make such offer, solicitation, or sale.

The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale hereunder shall under any circumstances create an implication that there has been no change in the affairs of the Carbon County Hospital Authority, Gnaden Huetten Memorial Hospital or the County of Carbon, Pennsylvania, since the date hereof or any earlier date as of which such information is given.

Assured Guaranty Municipal Corp. (“AGM”) makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading “Bond Insurance” and “Exhibit F -Specimen Municipal Bond Insurance Policy”.

_________________

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TABLE OF CONTENTS

INTRODUCTORY STATEMENT..................................................................................................................1THE AUTHORITY............................................................................................................................................3BLUE MOUNTAIN HEALTH SYTEM .........................................................................................................4REFUNDING PROJECT..................................................................................................................................4SECURITY FOR THE BONDS.......................................................................................................................5BOND INSURANCE .........................................................................................................................................6THE BONDS.......................................................................................................................................................8TOTAL DEBT SERVICE REQUIREMENTS ............................................................................................13BONDHOLDERS' RISKS ..............................................................................................................................13APPROVAL OF LEGALITY ........................................................................................................................26TAX EXEMPTION AND OTHER TAX MATTERS .................................................................................26UNDERWRITING ...........................................................................................................................................29RATINGS ..........................................................................................................................................................29CONTINUING DISCLOSURE ......................................................................................................................29HOSPITAL INDEPENDENT AUDITORS ..................................................................................................32LITIGATION ...................................................................................................................................................32REPRESENTATIONS AND RELATIONSHIPS........................................................................................32OTHER MATTERS.........................................................................................................................................32

APPENDIX A -- Gnaden Huetten Memorial Hospital ...........................................................................A-1APPENDIX B -- Audited Consolidated Financial Statements of Gnaden Huetten Memorial Hospital, Inc. and Controlled Entity Fiscal Years Ended June 30, 2011 and 2010............................... B-1APPENDIX C -- Financial and Other Information Pertaining to the County of Carbon, Pennsylvania ........................................................................................................................ C-1APPENDIX D -- Audited Financial Statement of the County for its Fiscal Year Ended December 31, 2010.....................................................................................................................D-1APPENDIX E -- Summary of Principal Documents............................................................................... E-1APPENDIX F -- Specimen Municipal Bond Insurance Policy................................................................F-1APPENDIX G -- Form of Opinion of Bond Counsel .............................................................................G-1

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OFFICIAL STATEMENT

$6,000,000

Carbon County Hospital AuthorityCounty Guaranteed Hospital Revenue Bonds

(Gnaden Huetten Memorial Hospital Refunding Project), Series of 2012

INTRODUCTORY STATEMENT

The descriptions and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference should be made to each document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. See “Definitions of Certain Terms” in Appendix E hereto for definitions of certain terms and phrases used herein. Capitalized terms and phrases not otherwise defined herein shall have the meanings assigned to them in the Indenture (hereinafter defined).

Purpose of Official Statement. The purpose of this Official Statement, including the cover page and the Appendices hereto, is to set forth certain information in connection with the offering of $6,000,000 aggregate principal amount of the County Guaranteed Hospital Revenue Bonds (Gnaden Huetten Memorial Hospital Refunding Project), Series of 2012 (the “Bonds” or the “2012 Bonds”), of the Carbon County Hospital Authority (the “Authority”).

The Authority. The Authority is a body politic and corporate incorporated under the Pennsylvania Municipality Authorities Act, by the Board of County Commissioners of the County of Carbon (the “County”), Pennsylvania. See “THE AUTHORITY” herein. The Authority is governed by a five member Board appointed by the County Commissioners for staggered five year terms.

Principal Documents. The Bonds will be issued pursuant to a Resolution of the Authority adopted by its Board on December 15, 2011 (the “Resolution”), and secured by a Second Supplemental Trust Indenture, to be dated the date of the Bonds (the “Second Supplemental Indenture”), amending and supplementing the Trust Indenture, dated as of November 1, 1990 (the “Original Indenture”), as amended and supplemented by the First Supplemental Trust Indenture, dated as of May 1, 1999 (the “First Supplemental Indenture”), between the Authority and The Bank of New York Mellon Trust Company, N.A., as successor trustee (the “Trustee”), having a corporate trust office in Philadelphia, Pennsylvania. (The Original Indenture, as amended and supplemented by the First Supplemental Indenture and the Second Supplemental Indenture, are collectively referred to as the “Indenture”.)

Gnaden Huetten Memorial Hospital. Gnaden Huetten Memorial Hospital (the “Hospital”) is a Pennsylvania corporation not-for-profit founded in 1947 operating a 111-bed acute care hospital and a 91-bed skilled care nursing facility located in Lehighton, Pennsylvania. The Hospital is the largest and most comprehensive healthcare facility in Carbon County, Pennsylvania, its primary service area. The Hospital’s services include both inpatient and outpatient care, including home healthcare, medical surgical services, maternal and child services, mental health services, acute rehabilitation services, and long-term care services. See Appendices A and B for a more complete description of the Hospital and its services, operations and financial performance.

Security. The Bonds are secured by a pledge and assignment by the Authority to the Trustee under the Indenture of all loan payments and other revenues received or receivable from the

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Hospital under a Second Supplemental Loan and Security Agreement, to be dated the date of the Bonds (the “Second Supplemental Loan Agreement”), amending and supplementing the Loan and Security Agreement, dated as of November 1, 1990 (the “Original Loan Agreement”), as amended and supplemented by the First Supplemental Loan and Security Agreement, dated as of May 1, 1999 (the “First Supplemental Loan Agreement”), between the Authority and the Hospital (the Original Loan Agreement, as amended and supplemented by the First Supplemental Loan Agreement and the Second Supplemental Loan Agreement, are collectively referred to as the “Loan Agreement”). Pursuant to the Loan Agreement, the Authority will lend the proceeds of the Bonds to the Hospital and the Hospital will pledge its Gross Revenues to make loan repayments in amounts sufficient to pay the debt service requirements on the Bonds, and related costs. The Bonds also are secured by the terms of a Guaranty Agreement, to be dated the date of the Bonds (the “County Guaranty”), delivered by County of Carbon, Pennsylvania (the “County”), as guarantor, to the Trustee, for the benefit of the holders of the Bonds, under which the County has pledged its full faith, credit and taxing power for the full and timely payment of the principal of and the interest due on the Bonds. For a more detailed discussion of the Indenture, the Loan Agreement and the County Guaranty, see “SECURITY FOR THE BONDS” herein, and Appendix E “Summary of Principal Documents” hereto.

Payment of the principal of and interest on the Bonds when due will be insured by a municipal bond insurance policy to be issued by Assured Guaranty Municipal Corp. (“AGM”), simultaneously with the delivery of the Bonds. See “BOND INSURANCE” and Appendix F “Specimen of Municipal Bond Insurance Policy” herein.

Additional Parity Debt. Under the terms and conditions set forth in the Indenture, the Authority may issue Additional Bonds secured by the Indenture on an equal and ratable basis with other Outstanding Bonds of the Authority issued thereunder to make additional loans to the Hospital for capital project or refunding purposes. The Bonds constitute Additional Bonds issued under the Indenture, currently secured on a parity basis with the 2000 Bonds (described below).

The Authority heretofore issued for the benefit of the Hospital $11,195,000 original aggregate principal amount of its County Guaranteed Refunding Hospital Revenue Bonds (Gnaden Huetten Memorial Hospital), Series 2000, dated as of September 15, 2000, of which $3,025,000 aggregate principal amount remain Outstanding as of the date herof and mature on November 15, 2014 (the “2000 Bonds”). The 2000 Bonds were issued to currently refund the Series 1990A Bonds issued by the Authority for the benefit of the Hospital.

Upon compliance with terms and conditions in the Indenture, the Authority, at the request of the Hospital, may issue Additional Bonds (such “Additional Bonds”, together with the 2000 Bonds and the Bonds, being collectively referred to as the “Parity Bonds”), for the purpose of making additional loans to the Hospital. Such Additional Bonds, if issued, shall be issued pursuant to additional supplements to the Indenture and the Loan Agreement and, except as otherwise provided in the Indenture, shall be equally and ratably secured with the Bonds and the 2000 Bonds under the Indenture, including funds held in the Debt Service Reserve Fund established under the Indenture. Additional Bonds will not be secured by the County Guaranty, but may be secured by separate guarantees of the County. See descriptions of the “Indenture” andthe “Loan Agreement” in Appendix E hereto for summaries of provisions relating to the issuance or incurrence of and security for Additional Bonds and other indebtedness.

Risk Factors Affecting the Hospital and the Health Care Industry Generally. For a discussion of possible risks associated with the purchase of the Bonds see the section entitled “BONDHOLDERS' RISKS” herein.

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

THE AUTHORITY

The Authority, the issuer of the Bonds, is a body corporate and politic existing under the laws of the Commonwealth of Pennsylvania and was formed pursuant to the Pennsylvania Municipality Authorities Act (the “Authorities Act”) by an ordinance enacted by the Board of County Commissioners of the County (the “Commissioners”) in 1983. The Authority may acquire, hold, construct, finance, improve, maintain, own, operate, and lease hospitals and health centers in the capacity of either lessor or lessee, or as a lender. The Authority was created to provide funds through the issuance of bonds or notes to assist nonprofit hospitals and other healthcare facilities, and is authorized by the Authorities Act to issue the Bonds. The Authority’s existence will continue for 50 years from its incorporation in 1983, unless such corporate life is extended.

The governing body of the Authority is a Board of five members appointed by the Commissioners to serve staggered five-year terms. The present members of the Board are as follows:

Name Position

Scott Rehrig Chairman

Edith Lukasevich Vice-Chairman

Randall Smith Secretary/Treasurer

Norman Richards Member

Jeremy Melber Member

Other Bonds issued by the Authority not relating to the Hospital

The Authority will be issuing, concurrently with the Bonds, County Guaranteed Hospital Revenue Bonds (Palmerton Hospital Refunding Project), Series of 2012 (the “Palmerton Hospital Bonds”) in the approximate aggregate principal amount of $2,380,000, the proceeds of which will be lent by the Authority to Palmerton Hospital, located in the Borough of Palmerton, Carbon County, Pennsylvania, to refund its County Guaranteed Hospital Revenue Bonds (Palmerton Hospital Refunding Project), Series 1999. Palmerton Hospital is affiliated with Gnaden Huetten as part of the Blue Mountain Health System pursuant to an System Agreement, as described in Appendix A, which provides for cost and revenue sharing between the two entities.

The Authority may issue additional bonds for Palmerton Hospital or other qualified entities from time to time. The Palmerton Hospital Bonds are being issued under a separate trust indenture and are not secured on a parity basis or otherwise with the Bonds. The Palmerton Hospital Bonds are secured by and payable solely from revenues, reserves and deposits associated with Palmerton Hospital, subject to the terms of the System Agreement (See Appendix A).

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BLUE MOUNTAIN HEALTH SYSTEM

On July 1, 2004, Gnaden Huetten Memorial Hospital and Palmerton Hospital entered into combined their organizations to create an integrated health care system. See Appendix A for a summary of the terms of the System Agreement. The creation of the Blue Mountain Health System ended an era of competition and started a new era of cooperation between Carbon County's two hospitals. While competition in most industries is generally good for the consumer, competition in health care tends to result in duplication of services and in higher costs. Palmerton Hospital and Gnaden Huetten Memorial Hospital faced the same challenges as hospitals across the nation straining under the burden of increasing labor costs, higher malpractice insurance premiums, increasing costs of pharmaceuticals and supplies, and declining reimbursement. By working together, the hospitals of the Blue Mountain Health System have been able to continue to provide quality, compassionate healthcare to the residents of Carbon County and the surrounding areas.

REFUNDING PROJECT

Project Description

The proceeds from the sale of the Bonds, together with funds currently held in the Debt Service Reserve Fund, and additional funds contributed by the Hospital, will be used as follows: (1) to currently refund the Authority’s County Guaranteed Hospital Revenue Bonds (Gnaden Huetten Memorial Hospital), Series 1999 (the “1999 Bonds” or “Refunded Bonds”); and (2) to cause the Debt Service Reserve Fund (see “Debt Service Reserve Fund” below) to equal 100% of the Maximum Annual Debt Service on the Bonds and the 2000 Bonds, and (3) to pay the costs of issuing and insuring the Bonds (hereafter collectively referred to as the “Refunding Project”).

Estimated Sources and Uses of Funds

The proceeds of the Bonds, together with other available funds will be applied as follows:

Estimated Sources of Funds:Bonds Par Amount $ 6,000,000.00Plus: Net Original Issue Premium 306,818.45Existing Debt Service Reserve Fund 1,423,089.19Hospital Contribution 6,338.58

Total Estimated Sources of Funds $ 7,736,246.22

Estimated Uses of Funds:Redemption Price of the Refunded Bonds $ 6,220,334.42Required Debt Service Reserve Fund1 1,341,565.00Bond Insurance Premium 41,347.71Costs of Issuance:2

Paid from Bond Proceeds 126,136.36Paid by Hospital Contribution 6,338.58

Deposit to Debt Service Fund 524.15Total Estimated Uses of Funds $ 7,736,246.22

_______________1 Amount necessary to fund the Debt Service Reserve Fund under the Indenture to equal the maximum annual debt service requirements on the Bonds and the 2000 Bonds combined.2 Includes underwriter’s discount, legal fees, printing and miscellaneous fees and expenses.

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SECURITY FOR THE BONDS

General

The Bonds are limited obligations of the Authority, secured by the Indenture and the County Guaranty, and otherwise payable solely from loan payments and other revenues received and receivable from the Hospital pursuant to the Loan Agreement. Under the Loan Agreement, the Authority will loan to the Hospital a sum equal to the principal amount of the Bonds and the Hospital will make payments to the Authority corresponding in times and amounts to the debt service payments on the Bonds. The Authority will assign all its rights to receive payments under the Loan Agreement (except for certain fees, expenses and indemnification payments) to the Trustee. The Bonds are secured by a pledge to the Trustee of all the Authority's right, title, and interest in and to (i) the Loan Agreement; (ii) the money held in and any income on the funds and accounts established and held by the Trustee pursuant to the Indenture (except the Rebate Fund); and (iii) the Pledged Revenues (as defined in the Indenture).

Rate Covenant

The Hospital covenants in the Loan Agreement to use its best efforts to maintain its rates and charges in each Fiscal Year so as to maintain a ratio of Income Available for Debt Service to Maximum Annual Debt Service which is equal to at least 1.20 under the conditions described in the Loan Agreement (the “Rate Covenant”). (See Appendix E - Definitions of Certain Terms). The Rate Covenant is more fully described under “The Loan Agreement - Rate Covenant” in Appendix E hereto.

Debt Service Reserve Fund

The Bonds are secured on a parity basis with all other Bonds issued under the Indenture, by the Debt Service Reserve Fund created under the Indenture. Prior to the issuance of the Bonds, the sum of $1,423,089.19 was held in the Debt Service Reserve Fund, representing proceeds of the 1999 Bonds and 2000 Bonds, equal to the Maximum Annual Debt Service Requirements on both series combined. The sum of $1,341,565.00 (consisting of $1,137,149 transferred from the Debt Service Reserve Fund for the 2000 Bonds and $204,416 from proceeds of the Bonds) will be deposited to the Debt Service Reserve Fund so that the total amount on deposit therein will equal the Maximum Annual Debt Service Requirements on all parity bonds Outstanding under the Indenture (the 2000 Bonds and the 2012 Bonds). The remaining $81,524.19 will be applied to the redemption of the 1999 Bonds.

Money in the Debt Service Reserve Fund may be withdrawn by the Trustee to make payments of the principal of and interest on the Bonds in the event that funds in the Debt Service Fund are inadequate. Any such withdrawals from the Debt Service Reserve Fund are required to be made up by the Hospital in equal monthly deposits, to be commenced in the month in which the withdrawal is made, and completed not later than twelve (12) months after such deficiency is determined, until the amount on deposit is equal to at least the Maximum Annual Debt Service Requirement on all Bonds then Outstanding. If on any Valuation Date the value of the investments in the Debt Service Reserve Fund is less than 95% of the Reserve Fund Requirement (except as a result of a withdrawal described above or the issuance of Additional Bonds not requiring the immediate funding of the Debt Service Reserve Fund), such deficiency is required to be made up by the Hospital within 120 days of such Valuation Date.

County Guaranty

The Bonds are further secured by the County Guaranty under which the County pledges its full faith, credit and taxing power for the full and prompt payment of the principal of and interest on the

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Bonds. See Appendix C and D for a description of the County and its financial statements. The County covenants to budget, appropriate, and pay, subject to credits for amounts made available to the Authority by the Hospital in each year during which the Bonds are Outstanding, any amounts necessary to meet the County’s obligations under the County Guaranty. At present, the County has guaranteed the payment of the principal and interest on the 2012 Bonds and the 2000 Bonds. The County also guaranteed the Palmerton Hospital 2012 Bonds and 2003 Bonds.

The County and the Hospital will enter into a Reimbursement Agreement concurrently with the County Guaranty obligating the Hospital to reimburse the County for any amounts advanced by the County under the County Guaranty. Such reimbursement is due upon demand of the County, together with interest at the rate of 10% per annum.

Additional Indebtedness

Pursuant to the Loan Agreement, the Hospital is permitted to request the Authority to issue Additional Bonds for its benefit as specified under the Indenture, and to issue guaranties and other indebtedness, not evidenced by Bonds, and to secure such obligations with liens on the Hospital’s Gross Revenues and other property securing the Bonds. See Appendix E “Summary of Principal Documents-Loan Agreement-Additional Indebtedness”.

BOND INSURANCE

Bond Insurance Policy

Concurrently with the issuance of the Bonds, AGM will issue its Municipal Bond Insurance Policy for the Bonds (the "Policy"). The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement.

The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law.

Assured Guaranty Municipal Corp.

AGM is a New York domiciled financial guaranty insurance company and a wholly owned subsidiary of Assured Guaranty Municipal Holdings Inc. ("Holdings"). Holdings is an indirect subsidiary of Assured Guaranty Ltd. (“AGL”), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol “AGO”. AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. No shareholder of AGL, Holdings or AGM is liable for the obligations of AGM.

AGM’s financial strength is rated “AA-” (stable outlook) by Standard and Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”) and “Aa3” (negative outlook) by Moody’s Investors Service, Inc. (“Moody’s”). An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of AGM in its sole discretion. In addition, the rating agencies may at any time change AGM’s long-term rating outlooks or place such ratings on a watch list for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, the

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assignment of a negative outlook to such ratings or the placement of such ratings on a negative watch list may have an adverse effect on the market price of any security guaranteed by AGM. AGM only guarantees scheduled principal and scheduled interest payments payable by the issuer of bonds insured by AGM on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurance policy), and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn.

Current Financial Strength Ratings

On November 30, 2011, S&P published a Research Update in which it downgraded AGM’s financial strength rating from “AA+” to “AA-“. At the same time, S&P removed the financial strength rating from CreditWatch negative and changed the outlook to stable. AGM can give no assurance as to any further ratings action that S&P may take. Reference is made to the Research Update, a copy of which is available at www.standardandpoors.com, for the complete text of S&P’s comments.

The most recent rating action by Moody’s on AGM took place on December 18, 2009, when Moody’s issued a press release stating that it had affirmed the “Aa3” insurance financial strength rating of AGM, with a negative outlook. Reference is made to the press release, a copy of which is available at www.moodys.com, for the complete text of Moody’s comments. Moody’s is in the process of reviewing AGL and its subsidiaries and there can be no assurance as to any ratings action that Moody’s may take with respect to AGM.

For more information regarding AGM’s financial strength ratings and the risks relating thereto, see AGL’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as amended by its Form 10-K/A; its Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2011 and June 30, 2011, each as amended by its Form 10-Q/A; and its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011.

Capitalization of AGM

At September 30, 2011, AGM’s consolidated policyholders’ surplus and contingency reserves were approximately $3,105,604,840 and its total net unearned premium reserve was approximately $2,207,101,966, in each case, in accordance with statutory accounting principles.

AGM’s statutory financial statements for the fiscal year ended December 31, 2010 and for the quarterly periods ended March 31, 2011, June 30, 2011 and September 30, 2011, which have been filed with the New York State Department of Financial Services and posted on AGL’s website at http://www.assuredguaranty.com, are incorporated by reference into this Official Statement and shall be deemed to be a part hereof.

Incorporation of Certain Documents by Reference

Portions of the following documents filed by AGL with the Securities and Exchange Commission (the “SEC”) that relate to AGM are incorporated by reference into this Official Statement and shall be deemed to be a part hereof:

(i) the Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as amended by Amendment No. 1 on Form 10-K/A (filed by AGL with the SEC on March 1, 2011 and October 31, 2011, respectively);

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(ii) the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, as amended by Amendment No. 1 on Form 10-Q/A (filed by AGL with the SEC on May 10, 2011 and November 14, 2011, respectively);

(iii) the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, as amended by Amendment No. 1 on Form 10-Q/A (filed by AGL with the SEC on August 9, 2011 and November 14, 2011, respectively); and

(iv) the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 (filed by AGL with the SEC on November 14, 2011).

All information relating to AGM included in, or as exhibits to, documents filed by AGL pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, after the filing of the last document referred to above and before the termination of the offering of the Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC’s website at http://www.sec.gov, at AGL’s website at http://www.assuredguaranty.com, or will be provided upon request to Assured Guaranty Municipal Corp.: 31 West 52nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) 826-0100).

Any information regarding AGM included herein under the caption “BOND INSURANCE – Assured Guaranty Municipal Corp.” or included in a document incorporated by reference herein (collectively, the “AGM Information”) shall be modified or superseded to the extent that any subsequently included AGM Information (either directly or through incorporation by reference) modifies or supersedes such previously included AGM Information. Any AGM Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded.

Miscellaneous Matters

AGM or one of its affiliates may purchase a portion of the Bonds or any uninsured bonds offered under this Official Statement and may hold such Bonds or uninsured bonds for investment or may sell or otherwise dispose of such Bonds or uninsured bonds at any time or from time to time.

AGM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the informationregarding AGM supplied by AGM and presented under the heading “BOND INSURANCE”.

THE BONDS

Description

The principal amount of the Bonds being issued is $6,000,000. The Bonds are dated the date of their issuance and delivery by the Authority (the “Delivery Date”), and will bear interest at the rates and mature in the amounts and on the dates set forth on the cover page of this Official Statement. Interest will be payable semiannually, on May 15 and November 15 of each year (each a “Scheduled Interest Payment Date”), commencing May 15, 2012. The Bonds will be issued in denominations of $5,000 and integral multiples thereof, under the book entry only registration and payment system of the DTC.

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

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

The provisions of this Section are subject to the provisions discussed under “The Bonds -Book-Entry Only System” below.

Issuance, Transfer and Exchange of Bonds

The Bonds shall be initially issued in book-entry form only as more fully described below “Book-Entry Only System”. In the event that the book-entry only system is discontinued for any reason, the Bonds will be issued as fully registered bonds in denominations of $5,000 and integral multiples thereof. Any certificated Bonds may be transferred only upon surrender thereof at the designated corporate trust office of the Trustee presently located in Philadelphia, Pennsylvania, whereupon the Trustee will authenticate and deliver new certificated Bonds of the same maturity and in the same denomination as the Bonds surrendered for transfer or in different authorized denominations equal in the aggregate to the principal amount of the surrendered Bonds. The Trustee is not required to transfer or exchange any Bonds during the fifteen (15) days immediately preceding the date of mailing of any notice of redemption or, in the case of any Bonds selected for redemption, at any time following the mailing of any such notice.

Book-Entry Only System

The information set forth herein concerning The Depository Trust Company (“DTC”) and the book-entry only system described below has been extracted from materials provided by DTC for such purpose and is not guaranteed as to the accuracy or completeness, and is not to be construed as a representation by the Hospital, the Authority (in this section referred to as the “Issuer”) or the Underwriter.

The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or in such other name as may be requested by an authorized representative of DTC. One fully-registered certificate for the Bonds of each maturity will be issued in principal amount equal to the aggregate principal amount of such maturity, and will be deposited with DTC.

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

Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond (the “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 Owners entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of the Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds except in the event that use of the book-entry system for the Bonds is discontinued.

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

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

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to provide their names and addresses to the Trustee and request that copies of the notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Bonds (or all Bonds of a particular maturity) are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue (or maturity) to be redeemed.

Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails on Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

So long as the Bonds are held by DTC under a book-entry system, payments of the principal of and interest on the Bonds and, if applicable, any premium payable upon redemption thereof, will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants' accounts upon DTC’s receipt of funds and corresponding detail information from the Issuer or the Trustee on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participants and not of DTC, the Trustee or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of the principal of and interest on Bonds and, if applicable, any premium payable upon redemption thereof to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue its services as a securities depository for the Bonds at any time by giving reasonable notice to the Issuer or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered.

THE ISSUER, THE HOSPITAL AND THE TRUSTEE CANNOT AND DO NOT GIVE ANY ASSURANCES THAT THE DIRECT PARTICIPANTS OR THE INDIRECT PARTICIPANTS WILL DISTRIBUTE TO THE BENEFICIAL OWNERS OF THE BONDS (1) PAYMENTS OF PRINCIPAL OR INTEREST AND PREMIUM, IF ANY, ON THE BONDS, (2) CERTIFICATES REPRESENTING AN OWNERSHIP INTEREST OR OTHER CONFIRMATION OF BENEFICIAL OWNERSHIP INTERESTS IN BONDS, OR (3) NOTICES OF REDEMPTION OR OTHER NOTICES SENT TO DTC OR ITS NOMINEE, CEDE & CO., AS THE REGISTERED OWNER OF THE BONDS, OR THAT THEY WILL DO SO ON A TIMELY BASIS OR THAT DTC, DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE CURRENT “RULES” APPLICABLE TO DTC ARE ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE CURRENT "PROCEDURES” OF DTC TO BE FOLLOWED IN DEALING WITH DIRECT PARTICIPANTS MAY BE OBTAINED FROM DTC.

THE ISSUER, THE HOSPITAL AND THE TRUSTEE DO NOT HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DIRECT PARTICIPANT, INDIRECT PARTICIPANT OR ANY BENEFICIAL OWNER OR ANY OTHER PERSON WITH RESPECT TO: (1) THE BONDS;

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(2) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT; (3) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS; (4) THE DELIVERY BY ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE INDENTURE TO BE GIVEN TO BONDHOLDERS; (5) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (6) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS BONDHOLDER.

The book-entry system for registration of the ownership of the Bonds may be discontinued at any time if (i) DTC resigns as securities depository for the Bonds; or (ii) the Hospital determines (and notifies the Issuer of its determination) that continuation of the system of book-entry transfers though DTC (or through a successor securities depository) is not in the best interests of the Beneficial Owners. In either such event (unless the Issuer appoints a successor securities depository), Bonds will then be delivered in registered certificate form to such persons, and in such maturities and principal amounts, as may be designated by DTC, but without any liability on the part of the Issuer, the Hospital, or the Trustee for the accuracy of such designation. Whenever DTC requests the Issuer or the Trustee to do so, the Issuer or the Trustee shall cooperate with DTC in taking appropriate action after reasonable notice to arrange for another securities depository to maintain custody of certificates evidencing the Bonds.

Redemption Provisions

Optional Redemption. The Bonds maturing on or after November 15, 2018, are subject to redemption prior to maturity by the Authority at the direction of the Hospital, on or after November 15, 2017, as a whole at any time, or in part from time to time on any Scheduled Interest Payment Date, in the order of maturities as designated by the Hospital, and by lot within a maturity, upon payment of the Redemption Price of 100% percent of the principal amount of Bonds to be redeemed plus accrued interest to the date of redemption.

Extraordinary Redemption. The Bonds are subject to redemption in the event of damage to, or destruction or condemnation of, any part of the Hospital Facilities, in whole or in part at any time, in any order of maturity, at the principal amount thereof, plus accrued interest to the date of redemption, upon the terms and conditions described more fully in the Indenture.

Notice of Redemption. The Trustee shall give notice of redemption to the holders of the Bonds to be redeemed at the addresses shown on the registration books maintained by the Trustee not less than 30 nor more than 60 days prior to the date fixed for redemption. So long as DTC or its nominee is the Bondholder, the Trustee shall send such notice of redemption to DTC or its nominee as Bondholder. Any failure on the part of DTC or failure on the part of a nominee of a Beneficial Owner (having received notice from a DTC Participant or otherwise) to notify the Beneficial Owner so affected, shall not affect the validity of the redemption.

So long as DTC or its nominee is the Bondholder, the Authority and the Trustee will recognize DTC or its nominee as the Bondholder for all purposes, including notices and voting. 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 and regulatory requirements as may be in effect from time to time.

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TOTAL DEBT SERVICE REQUIREMENTS

YearMaturing Principal Interest

Annual Debt Service on

2012 Bonds

Annual Debt Service on

2000 Bonds

Total Annual Combined

Debt Service

2012 $ 45,000 $ 130,934.50 $ 175,934.50 $ 1,123,350.00 $ 1,299,284.502013 45,000 179,707.50 224,707.50 1,116,510.00 1,341,217.502014 45,000 179,325.00 224,325.00 1,117,240.00 1,341,565.002015 1,110,000 177,975.00 1,287,975.00 0.00 1,287,975.002016 1,140,000 144,675.00 1,284,675.00 0.00 1,284,675.002017 1,190,000 99,075.00 1,289,075.00 0.00 1,289,075.002018 1,235,000 51,475.00 1,286,475.00 0.00 1,286,475.002019 1,190,000 26,775.00 1,216,775.00 0.00 1,216,775.00

$6,000,000 $989,942.00 $6,989,942.00 $ 3,357,100.00 $ 10,347,042.00

BONDHOLDERS' RISKS

General

The Bonds are limited obligations of the Authority payable solely from payments to be made by the Hospital pursuant to the Loan Agreement, and from funds held by the Trustee pursuant to the Indenture. The County has guaranteed the timely payment of the principal of and interest on the Bonds when due pursuant to the County Guaranty. Concurrently with the issuance of the Bonds, AGM will issue its Municipal Bond Insurance Policy for the Bonds.

The ability of the Hospital to generate revenues sufficient to pay the debt service on the Bonds is subject to a number of factors, including the capabilities of the Hospital's management, confidence of physicians in the Hospital, receipt of grants, contributions and interest earnings, the economic conditions of the Hospital's service area, the level of and methods of federal reimbursement under Medicare, federal and state reimbursement under Medicaid and reimbursement from other third-party payors, demand for the Hospital's services, competition with other facilities offering comparable services and with various health plans, government regulation and licensing requirements and future economic and other conditions (including the impact of inflation) that are unpredictable and are not quantifiable or determinable at this time. Some of the factors that might significantly affect the Hospital's revenue-generating abilities are discussed further below, as are certain other risks associated with the purchase of the Bonds. The Hospital also shares revenues and expenses with the Palmerton Hospital pursuant to the terms of the System Agreement as described in Appendix A.

Factors that Could Affect the Future Financial Condition of The Hospital

The future financial condition of the Hospital may be adversely affected by, among other things, legislation, regulatory actions, increased competition from other health care providers, demand for health care services, demographic changes and malpractice claims and other litigation. Some of such factors might include the following:

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Federal and State Legislation and Regulation

Governmental funding for health care programs is subject to statutory and regulatory changes, administrative rulings, interpretations of policy, intermediary determinations and governmental funding restrictions, all of which may materially increase or decrease program reimbursement to health care facilities. In recent years, both Federal and the Pennsylvania legislatures have attempted to curb the growth of federal and state spending on health care programs. Recent actions include limitations on payments to hospitals and physicians under the Medicare and Medicaid programs. No assurance can be given that the future funding of Medicare and Medicaid programs will remain at levels comparable to the present levels.

Health Care Reform

The “Patient Protection and Affordable Care Act” and “The Health Care and Education Affordability Reconciliation Act of 2010” (together referred to herein as the “Health Reform Act”) were signed into law by President Obama on March 23, 2010, and March 30, 2010, respectively, and are expected to have a significant impact on the entire healthcare industry. Some of the provisions of the Health Reform Act have taken effect immediately and others will be phased in during a period of time ranging from one to ten years. New guidelines and regulations related to the Health Reform Act will likely be enacted.

The Health Reform Act provides changes with respect to how consumers will pay for their own and their families' health care and how employers will procure health insurance for their employees. In addition, the Health Reform Act requires insurers to change certain underwriting practices and benefit structures in order to cover individuals who previously would have been ineligible for health insurance coverage. As a result, there is expected to be a tremendous increase in the number of individuals eligible for health insurance coverage.

The overall stated goal of the Health Reform Act is to provide access to health insurance coverage to an additional 32,000,000 people. The legislation intends to accomplish this objective through various provisions, including: (i) creating active markets (referred to as exchanges) in which individuals and small employers can purchase health insurance for themselves and their families or their employees and dependents, (ii) providing subsidies for premium costs to individuals and families based upon their income relative to federal poverty levels, (iii) mandating that individuals obtain and certain employers provide a minimum level of health insurance, and providing for penalties or taxes on individuals and employers that do not comply with these mandates, (iv) establishing insurance reforms that expand coverage generally through such provisions as prohibitions on denials of coverage for pre-existing conditions and elimination oflifetime or annual cost caps, and (v) expanding existing public programs, including Medicaid, for individuals and families. It is expected that there will be an increase in demand for health care services as a result of the increase in people now eligible for health care coverage.

The following provisions of the Health Reform Act may affect the operations or financial condition of the Hospital:

With varying effective dates, the annual Medicare market basket updates for many providers, including hospitals, will be reduced, and adjustments to payments for expected productivity gains will be implemented.

There will be an expansion of Medicaid programs to a broader population with incomes up to 133% of federal poverty levels.

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Commencing in federal fiscal year 2012, Medicare payments that would otherwise be made to hospitals will be reduced by specified percentages to account for excess and “preventable” hospital readmissions.

Commencing in federal fiscal year 2015, Medicare payments to certain hospitals for hospital acquired conditions such as infections will be reduced by 1%. Commencing in federal fiscal year 2011, federal payments to states for Medicaid services related to health care-acquired conditions will be prohibited.

Effective in 2012, a value-based purchasing program will be established under the Medicare program designed to pay hospitals based on performance on quality measures.

With varying effective dates, the Health Reform Act mandates a reduction of waste, fraud, and abuse in public programs by allowing provider enrollment screening, enhanced oversight periods for new providers and suppliers, and enrollment moratoria in areas identified as being at elevated risk of fraud in all public programs, and by requiring Medicare and Medicaid program providers and suppliers to establish compliance programs. The legislation requires the development of a database to capture and share healthcare provider data across federal healthcare programs and also provides for increased penalties for fraud and abuse violations, and increased funding for antifraud activities.

Effective for tax years commencing immediately after enactment, additional requirements for tax-exemption will be imposed upon tax-exempt hospitals, including obligations to conduct a community needs assessment every three years; adopt an implementation strategy to meet those identified needs; adopt and publicize a financial assistance policy; limit charges to patients who qualify for financial assistance to the lowest amount charged to insured patients; and control the billing and collection processes. Failure to satisfy these conditions may result in the imposition of fines or threaten a hospital's tax-exempt status.

Commencing in 2014, the establishment of an Independent Payment Advisory Board to develop proposals to improve the quality of care and limitations on cost increases. Those proposals would be automatically implemented if Congress does not act to invalidate them.

The Health Reform Act also provides for the implementation of various demonstration programs and pilot projects to test, evaluate, encourage and expand new payment structures and methodologies to reduce health care expenditures while maintaining or improving quality of care, including bundled payments under Medicare and Medicaid, and comparative effectiveness research programs that compare the clinical effectiveness of medical treatments and develop recommendations concerning practice guidelines and coverage determinations. Other provisions encourage the creation of new health care deliveryprograms, such as accountable care organizations, or combinations of provider organizations, that voluntarily meet quality thresholds to share in the cost savings they achieve for the Medicare program.

Management of the Hospital cannot predict the effect of the Health Reform Act, including its effect on payments to the Hospital, or the Hospital's overall financial performance.

Medicare Reimbursement

Medicare is a federal health benefits program enacted as part of the Social Security Amendments of 1965, and a number of subsequent amendments thereto, to provide health insurance to beneficiaries who are 65 years of age or older, disabled or who qualify for the End Stage Renal Disease Program. Part A of Medicare covers inpatient hospital, skilled nursing, hospice, home health and certain

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other services. Part B covers hospital outpatient, physician fees, equipment and other items and services. The Hospital derived approximately 43% of its revenues from fiscal year ending June 30, 2011, from Medicare. See “Sources of Revenue” in Appendix “A”. The Hospital has projected the potential reimbursement reductions for Medicare included in the Patient Protection and Affordable Care Act of 2010 in their future projections.

Inpatient Services. Medicare payment for most hospital inpatient care is based on a predetermined rate for each hospital discharge. Most discharges are classified according to a list of Medicare Severity Diagnosis Related Groups (“MS-DRGs”). The formula used to calculate a hospital's payment for a specific case under this “prospective payment system” (“PPS”) multiplies a hospital's predetermined per case payment rate by the weight of the applicable MS-DRG. A hospital's MS-DRG rate consists of a standardized federal rate adjusted for the hospital's local area wage index. In calculating the wage index, the Hospital have been considered Pennsylvania Rural. However, effective October 1, 2010, the Hospital was reclassified to the Allentown-Bethlehem-Easton MSA 0240 for the current federal fiscal year for purposes of the wage index. The Medicare Geographical Reclassification Board makes a determination of whether or not a hospital should be reclassified to another MSA based on specified criteria and the Hospital's meeting those criteria in their application. The determination is valid for a three-year period which expires September 30, 2013. Standardized rates are updated annually (the “update factor”) based on a statistical estimate of the increase in the cost of goods, called the market basket. For federal fiscal year 2012, the update factor is proposed to be offset by a factor representing the perceived inflation recognized when the new MS-DRG system was enacted. In succeeding years, the update factor will be specified.

Additional adjustments to the Federal base rate may include medical education, and for hospitals serving a disproportionate share of patients subsidized by federal funds. With the exception of certain atypical or “outlier” cases for which an additional payment is made, PPS payments are not adjusted for actual costs or variations in service or length of stay. The PPS amount and adjustments described above are calculated using formulae established by Medicare that are revised from time to time pursuant to federal budgetary policy. The Hospital also maintains separate inpatient units for Mental Health and Physical Rehabilitation services which are reimbursed on prospectively determined rates.

Outpatient and Physician Services. Payments for outpatient services and physician services are based on the prospectively determined rate per encounter known as an Ambulatory Payment Classification (“APC”). Some hospital services such as laboratory, and physical medicine and physician payments are paid based on a fee schedule of prevailing charges in the locality for the same services.

Medicare Managed Care. In recent years, the growth of Medicare Managed Care, or Medicare Advantage, has been significant. The Hospital has contracts with several commercial insurance companies who offer a Medicare managed care product. It is typical for the Hospital to receive a percentage above the normal Medicare rate for most services covered by Medicare Advantage plans. However, it is expected that this growth will start to dissipate as the Medicare Advantage plans were cut significantly in the recent Health Care Reform legislation.

Medicaid Reimbursement

Pursuant to the Medicaid program, the federal government supplements funds provided by the various states for medical assistance to the medically indigent. Payment for such medical and health services is made to hospitals in an amount determined in accordance with procedures and standards established by state law under federal guidelines. Overall, the Hospital received approximately 12.1% of its revenues for fiscal year ending June 30, 2011, from Medicaid.

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Inpatient Services. Since 1984, Medicaid payment for the operating and capital-related costs of acute care services has been based on a prospective payment system similar to the federal Medicare DRG-based, prospective payment system described above. However, Medicaid has not updated their current DRG system to the MS-DRG classification program. There currently are ongoing negotiations between the Commonwealth of Pennsylvania and the Hospital Association of Pennsylvania to modernize the DRG system for Medicaid payments and to seek opportunities to access additional federal stimulus funds for payment. There can be no assurance that future Medicaid inpatient reimbursement rates will remain at the negotiated levels, or that such rates will be adequate to reimburse the Hospital for the costs of providing inpatient care to Medicaid patients.

Outpatient and Physician Services. Medicaid provides payment for outpatient services and physician services rendered based on the lower of the usual charge to the general public for the same service or the Medicaid maximum allowable fee.

Medicaid Managed Care. DPW has obtained a waiver of certain federal Medicaid requirements to enable it to require most Medicaid recipients to obtain benefits through managed care plans became effective January, 2010. Medicaid beneficiaries would be required to enroll in a managed care plan that provides services on a prepaid basis. Such a program could result in stricter utilization review of Medicaid-reimbursed hospital services and reduced lengths of stay and/or reimbursement compared with the current system.

Blue Cross, Managed Care and Commercial Insurance

Blue Cross. Capital Blue Cross, Blue Cross of Northeast Pennsylvania and Independence Blue Cross (hereafter, “Blue Cross”) reimburses providers for patient care pursuant to contractual arrangements and on the basis of various formulas. The Hospital is currently being reimbursed by Blue Cross based on a per case arrangement for most inpatient services, per diem rates for mental health and rehab inpatient services, and on a percentage of charges for the majority of outpatient services, except ambulatory surgery which is reimbursed on a per case rate. Physician services are reimbursed based on negotiated fee schedules. These rates will remain in effect until new contracts are entered into with Blue Cross. There can be no assurance that the payment rates and methodology employed in a new contract will continue to reimburse the Hospital at adequate levels. The Hospital received approximately 22.2% of its revenues during fiscal year ending June 30, 2011 from Blue Cross. See “Sources of Revenue” in Appendix A.

HMOs and Managed Care. Certain commercial insurance companies and other organizations contract with providers 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 providers which contract with the plans. Under an exclusive provider plan, which includes most health maintenance organizations (“HMOs”), private payers limit coverage to those services provided by selected providers. These kinds of private payors may direct patients away from non-selected providers by denying coverage for services provided by them.

Most PPOs and HMOs currently pay providers on a discounted fee-for-services basis or on a discounted fixed rate per day of care. Payments under HMO and PPO contracts may be insufficient to meet the providers' costs of care. HMO and PPO contracts generally are enforceable for a stated term regardless of provider losses. Further, HMO contracts may contain a requirement that the provider care for HMO enrollees for a certain period of time regardless of whether the HMO has funds to make payment to the providers. In cases where an HMO is a major purchaser of services from the particular provider, contract rate reduction, contract cancellation, inability to pay, business failure or bankruptcy of the HMO may have a

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substantial negative effect on the system’s financial condition. Recently, certain HMOs and PPOs have experienced financial difficulties, and some have been subject to bankruptcy or insolvency proceedings. It is not possible at this time to predict the future financial viability of the managed care industry in general or of specific HMOs and PPOs or to predict what impact the state of financial health of such organizations might have on health systems. Failure to participate and maintain such PPO and HMO contracts could have the effect of reducing patient base or revenues. Conversely, participation may maintain or increase the patient base, but may result in reduced payment and lower net income from operations.

The Hospital also has contractual relationships with certain health maintenance organizations (“HMOs”) individually and through their physician hospital organization, to act as designated providers of hospital-based care for HMO members. Reimbursement under these contractual arrangements is typically based on a discounted percentage of charge arrangement, case rates or selected per diem rates negotiated with HMOs.

Commercial Insurance. The Hospital also receives reimbursement for services from commercial insurance plans. Most plans pay for covered services on the basis of established charges, subjectto various limitations, coinsurance provisions and deductibles. The Hospital received approximately 7.9% of its revenues during fiscal year ending June 30, 2011, from commercial insurers. See “Sources of Revenue” in Appendix A. No assurance can be given as to whether revenues received under existing or future contractual arrangements will be sufficient to cover patient care costs in the future.

AuditsHospitals and other health care providers are subject to audits and retroactive audit

adjustments with respect to reimbursement claimed under the Medicare, Medicaid, and commercial programs. Applicable regulations and guidelines may provide for withholding payments in certain circumstances. While the Hospital does not anticipate that a substantial withholding or audit adjustment will be made under the government or commercial programs, there can be no assurance that, if such withholdings or audit adjustments were to be assessed, they would not have a material adverse effect on the Hospital’s financial position.

Restrictions on Provider Relationships and Other Fraud-and-Abuse Issues

A variety of federal and state laws affect a health care provider's ability to enter into business arrangements with physicians and other health care providers, suppliers and payers. The Federal Medicare/Medicaid Anti-Fraud and Abuse Amendments to the Social Security Act (the “Anti- KickbackLaw”) make it a felony knowingly and willfully to offer, pay, solicit, or receive remuneration in order to induce business for which reimbursement is provided under the Medicare or Medicaid programs. In addition to criminal penalties, violations of the Anti-Kickback Law can lead to civil monetary penalties and exclusion from the Medicare and Medicaid programs. The scope of prohibited payments in the Anti-Kickback law is broad and may include economic arrangements involving hospitals, physicians and other health care providers, including joint ventures, space and equipment rentals, purchases of physician practices, management and personal services contracts and physician recruitment activities. HHS regulations describe certain arrangements or “safe harbors” that will not be deemed to constitute violations of the Anti-Kickback Law. However, the safe harbors 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 statute. 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. Consequently, conduct which falls outside the safe harbors is not necessarily violative of the Anti-Kickback Law.

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Federal Medicare and Medicaid Law (the Ethics in Patient Referrals Act of 1989, as amended, commonly referred to as the “Stark I” and “Stark II”) currently prohibit referrals of Medicare beneficiaries and Medicaid recipients by physicians to or for designated health care facilities or services (including hospitals) in which the referring physician or any immediate family member has an ownership or financial interest or compensation arrangement, subject to certain fact-specific statutory exceptions. Stark I and Stark II also prohibit the entity from billing Medicare, Medicaid, or any other governmental payer for services rendered pursuant to a prohibited referral unless one of several delineated exceptions applies. Violations can result in denial or recoupment of payment, imposition of substantial civil money penalties and exclusion from Medicare and Medicaid. Stark I and Stark II contain a number of statutory exceptions for certain arrangements, such as employment arrangements, personal services arrangements and physician recruitment activities meeting specified criteria, which are not considered violative of the Stark I and Stark II prohibitions. Regulations promulgated under Stark I, which HHS has stated are indicative of its position with respect to interpretation of Stark II, provide further clarification regarding the application of the statute.

The Hospital, which receives Medicare and Medicaid reimbursements, believes that the relationships it has with physicians, other providers, and other sources of patient referrals either qualify for safe harbor protection under the Anti-Kickback Law or do not constitute violations of that law. In addition, the Hospital believes the financial relationships it has with physicians complies with the terms of Stark I and Stark II. However, in light of the narrowness of the safe harbor regulations, and the scarcity of case law interpreting the Anti- Kickback Law, Stark I and Stark II, there can be no assurance that each has complied with the Anti-Kickback Law or Stark I or Stark II, and if not, whether any sanction imposed would have a material adverse effect on their financial condition.

Enforcement of federal and state antitrust laws against health care providers is becoming more common, and antitrust liability may arise in a wide variety of circumstances, including medical staff privilege disputes, third party contracting, hospital-physician and multi-physician relations and joint ventures, and merger, affiliation and acquisition activities. Enforcement activity by federal and state agencies appears to be increasing. Violation of the antitrust laws could result in criminal and civil enforcement by federal and state agencies, as well as by private litigants. Under certain circumstances, immunity from liability for damages may be available under federal and state peer review law.

Integrated Delivery System

Many hospitals are pursuing integrated delivery systems generally designed to conform to existing trends in the delivery of health care services, to implement anticipated aspects of health care reform, to increase physician availability to the community, and to enhance the managed care capability of the affiliated hospital and physicians. Such strategies include medical service organizations which may provide a combination of administrative services, premises and equipment to physicians; medical practice foundations, which may purchase and own physician practices and provide all administrative services for such practices; physician hospital organizations; managed care contract vehicles between hospitals and physicians on their staff; and other organizational forms, including HMOs which may contract with or employ physicians. Generally, the start-up funding for such developments, as well as operational deficits, may be provided by the sponsoring hospital and these capital requirements may be substantial.

Such integrated delivery developments create legal or regulatory risks in varying degrees. Common risks to such developments include compliance with the Medicare and Medicaid Anti- Kickback Statute and anti-referral laws (discussed above under “Restrictions on Provider Relationships and Other Fraud-and-Abuse Issues”) and relevant antitrust laws. Other related legal and regulatory risks may arise, including and in connection with reimbursement arrangements, employment, pension and benefits, retention of 501(c)(3) status, and the corporate practice of medicine. There can be no assurance that the integrated

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delivery system activities of the Hospital or other service area providers will not result in the incurrence of material adverse consequences for the Hospital.

Risk-Sharing Contracts

As an increasing percentage of patients come under the control of managed care entities, the Hospital believe that its success will, in part, be dependent upon the ability to negotiate contracts with HMOs, employer groups, and other private third party payers pursuant to which services will be provided on a risk-sharing or capitated basis. Under some of these agreements, a health care provider accepts a predetermined amount per member per month in exchange for providing all covered services to patients. Such contracts pass much of the economic risk of providing care from the payer to the provider. The Hospital’s success in implementing its strategy of entering into such contracts in markets served by the system could result in greater predictability of revenues, but increased risk to the Hospital resulting from uncertainty regarding expenses. To the extent that patients or enrollees covered by such contracts require more frequent or extensive care than is anticipated, additional costs would be incurred, resulting in a reduction in operating margins. There is no assurance that the revenues associated with risk-sharing contracts or capitated provider networks will be sufficient to cover the costs of the services provided. Any such reduction or elimination of earnings could have a material adverse effect on the Hospital. Moreover, there is no certainty that the Hospital will be able to establish and maintain satisfactory relationships with third party payers, many of which already have existing provider structures in place and may not be able or willing to rearrange their provider networks. The Hospital does not have any capitated contracts currently.

Labor Union Activity

None of the employees or staff of the Hospital are currently represented by a labor union. There can be no assurance that future collective bargaining agreements and other labor contracts will not significantly increase the cost to operate and staff the Hospital.

Legislative Activities Related to Tax Exempt/Non-Profit Corporations

In recent years, the activities of tax-exempt hospitals and other health care providers have been subjected to increasing scrutiny by federal, state and local legislative and administrative agencies (including the United States Congress, the Internal Revenue Service (the “IRS”), and local taxing authorities). Various proposals either have been considered previously or are presently being considered at the federal, state, and local level which could restrict the definition of tax-exempt status, impose new restrictions on the activities of tax-exempt corporations, and/or tax or otherwise burden the activities of such corporations (including proposals to broaden or strengthen federal tax provisions respecting unrelated business income of non-profit, tax-exempt corporations or proposals requiring the provision of free care to indigent patients or the amount of care provided to Medicare or Medicaid patients). There can be no assurance that future changes in the laws, rules, regulations, interpretations and policies relating to the definition, activities, or taxation of tax-exempt corporations will not have material adverse effects on the future operations of the Hospital.

Compliance with current and future regulations and rulings of the IRS could adversely affect the ability of the Hospital to charge and collect revenues, finance or incur indebtedness on a tax-exempt basis, or otherwise generate revenues necessary to provide for payment of the Bonds. Although each of the members of the Hospital has covenanted to maintain its tax-exempt status, loss of tax-exempt status by any of the members of the Hospital would likely have a significant adverse effect on the Hospital and could result in the inclusion of interest on the Bonds in gross income for federal income tax purposes retroactive to the date of issue or acceleration of the maturity of the Bonds.

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Continuing Legal Requirements

Failure to comply with certain legal requirements may cause interest on the Bonds to become subject to federal income taxation retroactive to the date of issuance. The IRS has indicated that it is giving greater scrutiny to certain business arrangements entered into by hospitals. Such arrangements include, but are not limited to, physician joint ventures and physician recruitment activities. Specifically, the IRS has expressed concern that under certain circumstances, such arrangements may result in prohibited private inurement or private benefit. Additionally, the IRS has announced that, if such an arrangement violates the fraud and abuse statute, the organization involved in such an arrangement could lose its tax-exempt status. See “Referral Restrictions” above. The Hospital has engaged in certain transactions of the type receiving greater scrutiny from the IRS. However, the Hospital believes that these arrangements are in compliance with tax laws and the fraud and abuse statute. There can be no assurance, however, that the IRS will not pursue an action against the any member of the Hospital on account of such arrangements. The Bond Indenture does not provide for redemption prior to maturity or the payment of any additional interest or penalty in the event of the taxability of the interest on the Bonds.

Other Legislative and Regulatory Actions

Each member of the Hospital is currently subject to regulations, certification, and accreditation by various federal, state, and local government agencies and by certain nongovernmental agencies such as the Joint Commission on Accreditation of Healthcare Organizations (“JCAHO”). No assurance can be given as to the effect on future operations of the Hospital of existing laws, regulations, and standards for certification or accreditation or of any future changes in such laws, regulations, and standards.

Various health and safety laws and regulations apply to the Hospital and are enforced by various state agencies. Violations of certain health and safety standards could result in closure of a member of the Hospital or a portion thereof, or requirements that such standards be immediately achieved. Such standards are subject to change. There can be no guarantees that in the future the facilities of the Hospital will meet changed standards or that they will not be required to expend significant sums to comply with changed standards. Other possible legislation which could have an adverse effect on the Hospital would include: (a) any change in the taxation of not-for-profit corporations or in the scope of their exemption from income or property taxes; (b) limitations on the amount of charitable contributions which are deductible for income tax purposes; (c) limitations on the amount or availability of tax-exempt financing for Section 501(c)(3) corporations; and (d) regulatory limitations affecting the Hospital’s ability to undertake capital projects or develop new services.

Potential Effects of Bankruptcy

If the Hospital filed a petition for relief under the Federal Bankruptcy Code, the filing would act as an automatic stay against the commencement or continuation of any judicial or other proceedings against the Hospital and its property. In addition, upon the filing of the petition, the Hospital's Gross Revenues in the form of accounts receivable which are acquired after (or, under certain conditions, prior to) the filing would not be subject to the security interests granted under an agreement, such as the Loan Agreement. If the Bankruptcy Court so ordered, the Hospital's property, including its Gross Revenues, could be used for the benefit of the Hospital provided the “adequate protection” is given to lien holders.

The Hospital may file a plan for the adjustment of its debts in a proceeding under the Federal Bankruptcy Code 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, would bind all creditors who had notice or knowledge of the plan and discharge all claims against the debtor provided

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for in the plan. No plan may be confirmed unless certain conditions are met, including that the plan is in the best interests of creditors, is feasible and has been accepted by each class of claims impaired thereunder. Each class of claims will be deemed to have accepted the plan if at least two-thirds in dollar amount and more than one-half in number of the allowed claims of the class that are voted with respect to the plan are cast in its favor. Even if such plan is not so accepted, it may be confirmed if the court finds that the plan is fair and equitable with respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly.

Environmental Laws Affecting Health Care Facilities

Hospitals and other health care providers are subject to a wide variety of federal, state, and local environmental and occupational health and safety laws and regulations that address, among other things, hospital operations or facilities and properties owned or operated by hospitals. Among the types of regulatory requirements faced by hospitals and other health care 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 operators of properties or facilities, hospitals or other health care providers may be subject to liability for investigating and remedying any hazardous substances that have come to be located in the property, including any such substances that may have migrated off of the property. Typical hospital operations include, in various combinations, the handling, use, storage, transportation, disposal and discharge of hazardous materials, wastes, pollutants or contaminants. For this reason, hospital operations are particularly susceptible to the practical, financial and legal risks associated with compliance with such laws and regulations. Such risks may result in damage to individuals, property or the environment; may interrupt operations or increase their cost or both; may result in legal liability, damages, injunctions or fines, or may trigger investigations, administrative proceedings, penalties or other government agency actions. 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 of the Hospital is not aware of any pending or threatened claim, investigation, or enforcement action regarding such material adverse consequences upon the Hospital.

Covenant to Maintain Exempt Status of the Bonds

The tax-exempt status of the Bonds is based on the continued compliance by the Authority and the Hospital with applicable covenants contained in the Indenture, the Loan Agreement, and the tax certificate executed by the Hospital and the Authority. These covenants relate generally to restrictions on the use of facilities financed or refinanced with proceeds of the Bonds, arbitrage limitations, rebate of certain excess investment earnings to the federal government, restrictions on the amount of issuance costs financed with the proceeds of the Bonds and maintenance of the Hospital's tax exemption under Section 501(c)(3) of the Code. Failure to comply with such covenants could cause interest on the Bonds to become subject to federal income taxation retroactive to the date of issuance of the Bonds.

Enforceability of Remedies

The remedies available to owners of the Bonds upon the occurrence of an Event of Default under the Indenture, the Loan Agreement, or the County Guaranty are in many respects dependent upon

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judicial action which is subject to discretion or delay. Under existing law and judicial decisions, including specifically Title 11 of the United States Code, the remedies specified in the Indenture, the Loan Agreement or the County Guaranty may not be readily available or may be limited. A court may decide not to order specific performance.

The various legal opinions to be delivered concurrently with the original delivery of the Bonds will be qualified as to enforceability of the various legal instruments by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws or legal or equitable principles affecting creditors' rights.

Local Tax Assessments

In recent years, a number of local taxing authorities in Pennsylvania have sought to subject the facilities of nonprofit hospitals and other traditionally exempt organizations to local real estate and business privilege taxes, primarily by challenging their status as “institutions of purely public charity” as described in the Pennsylvania Constitution, notwithstanding the fact that Pennsylvania hospital facilities historically have been viewed as exempt from such taxes. Decisions of local courts in these cases have produced differing results on the question. In November 1997, the Pennsylvania legislature enacted H.B. 55, The Institution of Purely Public Charity Act (the “PPCA”), the intent of which is to grant certainty with respect to the standards for all not-for-profit organizations, that are purely public charities from challenges to their tax-exempt status. The PPCA adopts a five-part test similar to that developed by the courts as the criteria for determining if an organization is an institution of purely public charity.

It is not possible to predict the scope or effect of future legislation or regulatory actions with respect to taxation of nonprofit corporations, since such actions and proposals as have been made have been vigorously challenged and contested. There can be, however, no assurance that future changes in thelaws and regulations of the federal, state, or local governments will not materially and adversely affect the operations and revenues of the Hospital by requiring the Hospital to pay income or real estate taxes.

The Hospital currently does not make any payments in lieu of taxes. Historically, on an as-needed basis, donations have been made to support community causes which would defer the use of taxpayer funds for said projects.

Competition and Services Area

The Hospital currently faces competition and could face competition in the future from other health systems and health care providers that offer comparable health care services to the population which the Hospital presently serves. Competition could be increased in the future from the initiation of newhealth care services and the construction or the renovation of hospitals, ambulatory surgical centers, private laboratories and radiological services. The elimination of the Certificate of Need law in Pennsylvania, as of December 18, 1996, removes a significant regulatory barrier to entry for new health care services and facilities in the Commonwealth, and has had the effect of increasing competition to the Hospital from new and existing providers. One of the chief effects of both the Medicare and Medicaid prospective payment systems has been an increase in competition among health care providers.

There are now federal incentives to control costs and deliver services in a more efficient and economical fashion and health care providers, including the Hospital, are attempting to respond to these incentives. This change in federal reimbursement policy coincides with the development of alternative forms of health care delivery to replace inpatient care. The alternative forms of health care services, such as ambulatory surgical centers and skilled nursing facilities, are being pursued by HMOs and other insurance

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organizations as a way to reduce costs. No assurance can be given that utilization of the Hospital will not be adversely affected by competition from other health facilities in the primary service area of the Hospital. The financial performance of the Hospital is also, to some extent, dependent upon the economic vitality of its service area. If there were a general economic downturn in the geographic areas served by the Hospital, it could result in a decrease of the population served by the Hospital. See “Service Area” Appendix “A”.

Need Review Requirements

On December 18, 1996, the Commonwealth of Pennsylvania's longstanding Certificate of Need (“CON”) program expired as the Pennsylvania General Assembly attempted, but failed, to enact an extension of the program The CON program previously regulated, and often prohibited, the establishment of new health care services and facilities in the Commonwealth. With the expiration of the CON program in the Commonwealth, many providers initiated new health care services and may initiate other such programs or construct new facilities that were previously subject to regulation under the CON program. At the same time, the Departments of Health and Public Welfare also began to implement need review requirements that may affect health care providers such as the Hospital. These requirements are evolving, and no assurance can be given that any new services or facilities established by providers following the CON repeal will not be required to be discontinued or abandoned, or that the entity will be able to proceed with the implementation of any proposed or modified new services or facilities.

Hospital Mergers and Physician Practice Acquisitions

In recent years, many health systems in Pennsylvania as well as throughout the country have responded to changes in the health care delivery system, including changes brought about by the increasing acceptance and penetration of managed care, by merging with previously competing health systems, or entering into other types of close affiliations with other health care organizations. The Hospital has affiliated with Palmerton Hospital pursuant to the System Agreement described in Appendix A and has explored potential affiliations with other healthcare providers. As the Hospital entertains future affiliations, its Board of Directors, as representative of the Hospital, has expressed its strong desire to maintain local control. For similar reasons, many hospitals in Pennsylvania have begun to acquire the professional practices of certain primary care physicians and specialists located in their patient service area and to engage the professionals from the acquired practices as exclusive employees of the Hospital or an affiliated physician organization, or to pursue other similar physician recruitment strategies. The Hospital does not anticipate the acquisition of any physician practices. See “Medical Staff' in Appendix “A” attached hereto.

Competition for the Hospital could be increased in the future as merged hospitals that are part of larger health systems might be able to exercise their collective power to obtain favorable contractual arrangements with certain managed care organizations and other third party payers that are unavailable to the Hospital. Competition for the Hospital could also be increased in the future if physicians who currently admit patients to, and provide care at, the Hospital sell their professional practices to other hospitals and become employees of those other health care organizations. No assurance can be given that utilization of the Hospital will not be adversely affected by the mergers, close affiliations, and physician practice acquisitions entered into or embarked upon by other hospitals located in the Hospital’s patient service area.

Changes in Health Care Delivery

Efforts by persons responsible for paying for health care, such as health insurers, governmental agencies, and employers, to limit the cost of health care services and to reduce utilization of hospital facilities may reduce future revenues of the Hospital. In addition, scientific and technological advances, new procedures, drugs and appliances, preventive medicine, occupational health and safety and

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outpatient health care delivery may reduce utilization and revenues of the Hospital in the future. Technological advances in recent years have accelerated the trend toward the use by health care services of sophisticated and costly equipment and services for diagnosis and treatment. The acquisition and operation of certain equipment and services may continue to be a significant factor in health care services utilization, but the ability to offer such equipment or services may be subject to the availability of equipment or service specialists, governmental approval, or the ability of the Hospital to finance such acquisitions and operations.

Exposure to Liability

Due to the nature of its business, the Hospital from time to time may become involved as a defendant in medical malpractice lawsuits, and are subject to the attendant risk of substantial damage awards. The most significant source of potential liability in this regard is the negligence of physicians employed or contracted by the Hospital. To the extent such physicians are employees of the Hospital or were regarded as their agents in the practice of medicine, the Hospital could be held liable for their negligence. In addition, the Hospital could be found in certain instances to have been negligent in performing its management services under contractual arrangements even if no agency relationship with physicians were found to exist. Contracts with third party payers generally require the Hospital to indemnify such other parties for losses resulting from the negligence of physicians who were employed or managed by or affiliated with the Hospital. The Hospital maintains professional and general liability insurance on a claims made basis in amounts deemed appropriate by management, based upon historical claims and the nature and risks of its business. There can be no assurance, however, that an existing or future claim or claims will not exceed the limits of available insurance coverage, that any insurer will remain solvent and able to meet its obligations to provide coverage for any such claim or claims or that such coverage will continue to be available or available with sufficient limits and at a reasonable cost to adequately and economically insure operations in the future. A judgment against the Hospital in excess of such coverage could have a material adverse effect on the Hospital.

See “Litigation” in Appendix “A” attached hereto for a discussion of certain litigation currently pending against the Hospital.

Other Risks Associated With Health Care Facilities

In the future, the following factors, among others, may adversely affect the operations of health care facilities, including the Hospital, to an extent that cannot be determined at this time:

• Adoption in the Commonwealth of legislation that would establish a rate-setting agency with statutory control over hospitals in the Commonwealth.

• Employee strikes and other adverse labor actions that could result in a substantial reduction in revenues without corresponding decreases in cost.

• The reduced need for hospitalization or other services arising from future medical and scientific advances.

• Efforts by insurers and governmental agencies to limit the cost of hospital services and to reduce utilization of inpatient hospital facilities by such means as preventive medicine, improved occupational health and safety, and outpatient care.

• Cost and availability of medical malpractice and other insurance. See the heading “Malpractice Insurance” in Appendix “A” hereto.

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• Availability of nurses and other qualified health care technicians and personnel.

• Imposition of wage and price controls for the health care industry.

• Reduce demand for the services that might result from decreases in population.

• Regulatory actions and policy changes by the National Labor Relations Board, applicable professional review organizations, accrediting organizations and other governmental and private agencies.

• Adoption of legislation proposing a national health insurance program.

• Natural disasters, including floods and earthquakes, which could damage the Hospital's facilities or otherwise impair the operation of the Hospital and the generation of revenues from the Hospital's facilities.

• Inability of the Hospital to obtain future governmental approvals to undertake projects necessary to remain competitive as to rates and charges as well as quality and scope of care.

• Increased unemployment or other adverse economic conditions in the service area of the Hospital which would increase the proportion of patients who are unable to pay fully for the cost of their care.

• Any increase in the quantity of indigent care provided which is mandated by law or required due to increased needs of the community in order to maintain the charitable status of a member of the Hospital.

APPROVAL OF LEGALITY

The Bonds are offered subject to prior sale when, as and if issued by the Authority and accepted by the Underwriter, subject to the approval of legality by Rhoads & Sinon LLP, Harrisburg, Pennsylvania, Bond Counsel. The form of opinion of Bond Counsel is attached hereto as Appendix G. Legal matters pertaining to the Authority will be passed upon by its Counsel, Stevens & Lee, Reading, Pennsylvania; for the Hospital by its Counsel, Tallman, Hudders & Sorrentino, P.C., Allentown, Pennsylvania, for the County by its solicitor, Daniel A. Miscavige, Esquire; and for the Underwriter by its Counsel, Rhoads & Sinon LLP, Harrisburg, Pennsylvania.

TAX EXEMPTION AND OTHER TAX MATTERS

Federal Income Tax Matters

On the date of delivery of the Bonds, Rhoads & Sinon LLP, Harrisburg, Pennsylvania, as Bond Counsel to the Borough, will issue an opinion to the effect that under existing statutes, regulations and judicial decisions, interest on the Bonds is excluded from gross income for purposes of federal income taxation and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, but that in the case of corporations (as defined for federal income tax purposes) such interest is taken into account in determining adjusted current earnings for purposes of such alternative minimum tax. This opinion of Bond Counsel will assume the accuracy of representations made by the Authority and the Hospital and will be subject to the condition that the Authority and the Hospital will comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excluded from gross income for federal income tax purposes. The Authority and the Hospital have covenanted to comply with all such requirements, which include, among others, restrictions upon the yield at which proceeds of the Bonds and other money held for the payment of the Bonds and deemed to be "proceeds"

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thereof may be invested and the requirement to calculate and rebate any arbitrage that may be generated with respect to investments allocable to the Bonds. Failure to comply with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issuance of the Bonds.

Ownership of the Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, certain Subchapter S corporations with substantial passive income and Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Bonds. Bond Counsel will express no opinion as to such collateral tax consequences, and prospective purchasers of the Bonds should consult their tax advisors.

No representation is made or can be made by the Authority or the Hospital, or any other party associated with the issuance of the Bonds, as to whether or not any legislation now or hereafter introduced and enacted will be applied retroactively so as to subject interest on the Bonds to inclusion in gross income for Federal income tax purposes or so as to otherwise affect the marketability or market value of the Bonds. Enactment of any legislation that subjects the interest on the Bonds to inclusion in gross income for federal income tax purposes or otherwise imposes taxation on the Bonds or the interest paid thereon may have an adverse effect on the market value or marketability of the Bonds.

Future and Proposed Legislation

From time to time, there are Presidential proposals, proposals of various federal committees, and legislative proposals in the Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to herein or adversely affect the marketability or market value of the Bonds or otherwise prevent holders of the Bonds from realizing the full benefit of the tax exemption of interest on the Bonds. Further, such proposals may impact the marketability or market value of the Bonds simply by being proposed. One such proposal is the American Jobs Act of 2011 (S.1549) (the "Jobs Bill") which was introduced in the Senate on September 13, 2011, at the request of the President. If enacted in its current form, the Jobs Bill could adversely impact the marketability and market value of the Bonds and prevent certain bondholders (depending on the financial and tax circumstances of the particular bondholder) from realizing the full benefit of the tax exemption of interest on the 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. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value, marketability or tax status of the Bonds. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the Bonds would be impacted thereby.

Pennsylvania Tax Matters

On the date of delivery of the Bonds, Bond Counsel will issue an opinion to the effect that under the laws of the Commonwealth of Pennsylvania (the "Commonwealth"), as presently enacted and construed, the Bonds are exempt from personal property taxes within the Commonwealth and the interest on the Bonds is exempt from the Commonwealth's Personal Income Tax and the Commonwealth's Corporate Net Income Tax.

Profits, gains or income derived from the sale, exchange or other disposition of the Bonds are subject to state and local taxation within the Commonwealth, in accordance with Pennsylvania Act No. 1993-68.

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Federal Income Tax Interest Expense Deductions for Financial Institutions

Under Section 265 of the Internal Revenue Code of 1986, as amended (the "Code"), financial institutions are disallowed 100 percent of their interest expense deductions that are allocable, by a formula, to tax-exempt obligations acquired after August 7, 1986. An exception, which reduces the amount of the disallowance, is provided for certain tax-exempt obligations that are designated or "deemed designated" by the issuer as "qualified tax-exempt obligations" under Section 265 of the Code.

Each of the Bonds has been designated, or is "deemed designated", as a "qualified tax-exempt obligation" for purposes and effect contemplated by Section 265 of the Code (relating to expenses and interest relating to tax-exempt income of certain financial institutions).

Financial institutions intending to purchase Bonds should consult with their professional tax advisors to determine the effect of the interest expense disallowance on their federal income tax liability.

Accounting Treatment of Original Issue Discount and Amortizable Bond Premium

The Bonds maturing November 15, 2018, and November 15, 2019, are herein referred to as the “Discount Bonds.” In the opinion of Bond Counsel, the difference between the initial public offering price of the Discount Bonds set forth on the inside cover page and the stated redemption price at maturity of each such Bond constitutes “original issue discount,” all or a portion of which will, on the disposition or payment of such Bonds, be treated as tax-exempt interest for federal income tax purposes. Original issue discount will be apportioned to an owner of the Discount Bonds under a “constant interest method,” which utilizes a periodic compounding of accrued interest. If an owner of a Discount Bond who purchases it in the original offering at the initial public offering price owns that Discount Bond to maturity, that Bondholder will not realize taxable gain for federal income tax purposes upon payment of the Discount Bond at maturity. An owner of a Discount Bond who purchases it in the original offering at the initial public offering price and who later disposes of the Discount Bond prior to maturity will be deemed to have accrued tax-exempt income in a manner described above; amounts realized in excess of the sum of the original offering price of such Discount Bond and the amount of accrued original issue discount will be taxable gain. Purchasers of Discount Bonds should consider possible state and local income, excise or franchise tax consequences arising from original issue discount on the Discount Bonds. Prospective purchasers of the Discount Bonds should consult their tax advisors regarding the Pennsylvania tax treatment of original issue discount.

The Bonds maturing on November 15, 2014 through November 15, 2017, are hereinafter referred to as the “Premium Bonds.” An amount equal to the excess of the initial public offering price of a Premium Bond set forth on the inside cover page over its stated redemption price at maturity constitutes premium on such Premium Bond. A 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. As premium is amortized, the purchaser’s basis in such Premium Bond is 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 is reduced, no federal income tax deduction is allowed. Purchasers of any Premium Bonds, whether at the time of initial issuance or subsequent thereto, should consult their own tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to state and local tax consequences of owning Premium Bonds.

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UNDERWRITING

The Bonds are being purchased by the Underwriter, Janney Montgomery Scott LLC The Underwriter has agreed to purchase the Bonds at a price of $6,258,818.45 (equal to par plus net original issue premium of $383,470.55, less underwriter’s discount of $48,000.00). The agreement under which the Underwriter agrees to buy the Bonds provides that the Underwriter will purchase all the Bonds, if any are purchased, and, in accordance with its terms, the Hospital agrees to indemnify the Underwriter and the Authority against losses, claims, damages and liabilities arising out of any incorrect statements or information contained in, or information omitted from, the Official Statement relating to the Hospital. The initial public offering prices set forth on the cover page may be changed by the Underwriter, and the Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts) and others at prices lower than the offering prices set forth on the cover page.

RATINGS

Standard & Poor’s Corporation (“S&P”) is expected to assign its municipal bond rating of AA- (Stable outlook) to this issue of Bonds with the understanding that upon delivery of the Bonds, a municipal bond insurance policy insuring the payment when due of the principal of and interest on the Bonds will be issued by AGM. S&P has also assigned the County an underlying rating of “A+” (Stable outlook). This underlying rating may be changed, suspended or withdrawn as a result in, or unavailability of, information.

Generally, rating agencies base their ratings on information and materials furnished to them and on investigations, studies and assumptions made by them. A rating reflects only the view of the rating agency assigning the same, and an explanation of the significance of such rating may be obtained only from such rating agency. There is no assurance that a particular rating, once assigned, will be maintained for any given period of time or that it may not be revised downward or withdrawn entirely by the rating agency assigning the same if, in its judgment, circumstances so warrant. Note that a downward change in, or withdrawal of, a rating may have an adverse effect on the market price of the rated bonds. Neither the Underwriter nor the County has undertaken any responsibility after issuance of the Bonds to oppose a revision or withdrawal of any rating assigned to the Bonds.

CONTINUING DISCLOSURE

In accordance with the requirements of Rule 15c2-12 (the “Rule”) promulgated by the United States Securities and Exchange Commission, the Hospital and the County (each being an “obligated person” with respect to more than $10 million of outstanding securities, including the Bonds, within the meaning of the Rule) have covenanted in a Joint Continuing Disclosure Agreement (the “Disclosure Agreement”), to provide to the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System, as follows: (1) in the case of the Hospital, not later than 180 days after the end of each of its fiscal years, commencing with its fiscal year ending June 30, 2012, and (2) in the case of the County, not later than October 1 of each year, commencing on October 1, 2012 (for the County’s fiscal year ending on December 31, 2011), certain financial information and other operating data with respect to the Hospital and the County, respectively (collectively, the “Annual Report”), as follows:

Hospital Data

The financial statements of the Hospital for the most recently completed fiscal year, with information of the type presented in Appendix B hereto and prepared in accordance with generally accepted accounting principles and audited by the

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Hospital’s public accountants in accordance with generally accepted auditing standards;

a summary of the budget for the Hospital’s current fiscal year; and

An update of the information set forth in Appendix A hereto regarding accreditation, the profile of the Hospital’s medical staff, utilization statistics, market share, sources of revenue, major third party reimbursement or payment programs and pending litigation.

County Data:

The financial statements of the County for the most recent fiscal year, with information of the type presented in Appendix D hereto and prepared in accordance with generally accepted accounting principles for local government units and audited by the County’s public accountants in accordance with generally accepted auditing standards;

A list of the 10 largest taxpayers in the County and, for each, the total assessed value of real estate for the current fiscal year;

The assessed value and market value of all taxable real estate for the current fiscal year;

The taxes and millage rates imposed for the current fiscal year; and

The real property tax collection results for the preceding fiscal year, including (1) the real estate levy imposed (expressed both as a millage rate and an aggregate dollar amount), (2) the dollar amount of real estate taxes collected that represented current collections (expressed both as a percentage of such fiscal year’s levy and as an aggregate dollar amount), (3) the amount of real estate taxes collected that represented taxes levied in prior years (expressed as an aggregate dollar amount), and (4) the total amount of real estate taxes collected (expressed both as a percentage of the current year’s levy and as an aggregate dollar amount).

In the Disclosure Agreement, the Hospital and the County will undertake to provide notice to Municipal Securities Rulemaking Board of the occurrence of any of the following events with respect to the Bonds, not in excess of ten business days after the occurrence of the event: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax-exempt status of the Bonds, or other material events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the County; (13) the consummation of a merger, consolidation, or acquisition involving the County or the sale of all or substantially all of the assets of the County, other than in the ordinary course of business, the entry into a

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definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material.

The Hospital and the County are required under the Disclosure Agreement to notify the Municipal Securities Rulemaking Board of any failure by the Hospital or the County to timely provide any of the annual financial information and operating data described above.

Each such filing by the Hospital and the County with the MSRB is to be made in such electronic format as is prescribed by the MSRB and to be accompanied by such identifying information as is prescribed by the MSRB. Effective as of July 1, 2009, any filings with the MSRB may be made solely by transmitting such filing to the MSRB through its electronic Municipal Market Access system (http://emma.msrb.org).

The Hospital or the County may from time to time choose to provide notice of the occurrence of certain other events, or to provide other information which may be relevant to an investment in the Bonds, in addition to the notices of material events or other information specified above, but neither the Hospital nor the County is obligated to provide notice of any event, whether or not material, or to provide any information, other than the notices and information described herein.

The Disclosure Agreement may be amended without the consent of the holders of the Bonds if such amendments are permitted by Rule 15c2-12, taking into account any amendments or interpretations of Rule 15c2-12, as applicable to the Bonds. Prior to executing any requested amendment, the Hospital or the County will obtain an opinion of counsel knowledgeable in federal securities laws to the effect that the proposed amendment satisfies the requirements described in the Disclosure Agreement. Inthe event of any amendment or waiver of a provision of the Disclosure Agreement, the Hospital or the County shall describe such amendment in the next annual report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the financial information or operating data being presented by the Hospital or the County, as applicable.

The Hospital and the County each reserves the right to terminate its obligation to provide Annual Reports and notices of material events, as set forth above, if and when the Hospital or the County no longer remains an “obligated person” with respect to the Bonds within the meaning of the Rule as when, for example, the Bonds have been fully paid and discharged or the Bonds have been defeased in accordance with the Indenture (see the “INDENTURE – Defeasance” in Appendix E hereto).

The obligations of the Hospital and the County set forth in the Disclosure Agreement are intended by the Hospital and the County to be for the benefit of the Beneficial Owners of the Bonds and may be enforced by any Beneficial Owner of the Bonds; provided, however, that the right of a Beneficial Owner of the Bonds to enforce the provisions of such undertaking is limited to a right to obtain specific enforcement of the Hospital’s or the County’s obligations thereunder, and any failure by the Hospital or the County to comply with the provisions of such undertaking will not constitute an Event of Default with respect to the Bonds.

During the past five years, the Hospital has complied in all material respects with their existing continuing disclosure agreements in accordance with SEC Rule 15c2-12.

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HOSPITAL INDEPENDENT AUDITORS

The audited consolidated financial statements of the Hospital as of June 30, 2011 and 2010 and for the years then ended included in Appendix B have been audited by Parente Beard, LLC, independent auditors, as indicated in their report appearing therein.

LITIGATION

The Authority, the Hospital and the County, and their respective counsel, will deliver certificates and opinions, respectively, at the time of issuance and delivery of the Bonds stating, among other things, that there is no action, suit, proceeding or investigation at law or in equity, before any court, public board of body, pending or, to the best of the signatory’s knowledge, threatened against such party, wherein an unfavorable decision would adversely affect the validity or enforceability of the Bonds, the tax-exempt status of the Bonds or the principal documents.

REPRESENTATIONS AND RELATIONSHIPS

Bond Counsel, Rhoads & Sinon LLP, representing the Authority, is also simultaneously representing the Underwriter in connection with this transaction. Rhoads & Sinon LLP has represented the County as bond counsel on previous bond issues. Authority Counsel, Stevens & Lee, has represented the County as bond counsel on previous bond issues, and has also represented the Underwriter on unrelated matters.

OTHER MATTERS

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

The summaries or descriptions of provisions of the Bonds, the Loan Agreement, the Indenture, the County Guaranty, the Disclosure Agreement and all references to other materials not purporting to be quoted in full, are only brief outlines of some of the provisions thereof and do not purport to summarize or describe all of the provisions thereof. Reference must be made to the aforesaid documents for a full and complete statement of the provisions thereof, copies of which are on file at the designated corporate trust office of the Trustee.

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The Official Statement is issued by the Authority and approved by the Hospital.

CARBON COUNTY HOSPITAL AUTHORITY

By: /s/ Scott Rehrig Chairman

APPROVED:

GNADEN HUETTEN MEMORIAL HOSPITAL

By: /s/ Andrew E. Harris President and CEO

(THIS PAGE LEFT BLANK INTENTIONALLY)

APPENDIX A

GNADEN HUETTEN MEMORIAL HOSPITALHISTORY AND BACKGROUND

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GNADEN HUETTEN MEMORIAL HOSPITAL

HISTORY AND BACKGROUND

Gnaden Huetten Memorial Hospital (the “Hospital” or “GHMH”), located in Lehighton, Pennsylvania, was established in 1947 and dedicated to Carbon County citizens who lost their lives in World War II. The Hospital’s original mission, “People Helping People”, remains its focus today. The Gnaden Huetten name and mission reflect the spirit of the pre-colonial Moravian settlers of the area.

The 101-bed, not-for-profit general acute care hospital serves the residents of Carbon, Schuylkill and Monroe Counties. The Hospital’s services provide both inpatient and outpatient care, including home health care, medical/surgical services, mental health services, acute rehabilitation services and long-term care services which are provided through the Hospital’s on-campus 91-bed skilled nursing unit. The Hospital also offers a broad array of ancillary services such as radiology, emergency, cardiology and rehabilitation services.

The Hospital is located in Lehighton, Carbon County, Pennsylvania, approximately 25 miles north of Allentown, Pennsylvania. Lehighton is easily accessible via the northeast extension of the Pennsylvania Turnpike (I-476). The Hospital resides approximately 10 minutes from the Mahoning Valley Turnpike Exit #34, by following routes 209 South, 443 West and then to 902 West to Mahoning Street and then to 12th Street. The Hospital’s campus faces 12th Street in Lehighton, spanning the area between 11th and 12th Streets and between Hamilton and Cypress Streets. A helipad is situated across 12th Street from the Hospital’s physical plant, and accommodates the air transport system between hospitals whenever necessary. The Carbon County Transportation Authority provides handicapped van service directly to the Hospital on an as-needed basis.

SUMMARY OF RECENT HOSPITAL ADDITIONS, RENOVATIONS AND

EXPANSIONS

The past five years have been a time of growth and expansion for the Blue Mountain Health System. Listed below are some of the major additions, renovation and expansions that were made:

2007-2011: -Opened 16-bed Older Adult Behavioral Health Unit at the Palmerton Hospital campus-Upgraded MRI and CT equipment at the Gnaden Huetten Memorial Hospital-Upgraded the CT equipment at the Palmerton Hospital -Opened a Sleep Lab at the Palmerton Hospital-Opened a 22-bed Adult Behavioral Health Unit at the Gnaden Huetten campus-Upgraded to Digital Mammography at both Gnaden Huetten and Palmerton -Purchased a PACS System for all radiology modalities to improve access to images-Added ECT (electroconvulsive therapy) at the Palmerton campus-Upgraded surgical equipment to state-of-the-art technology at both campuses

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-Opened Outpatient Cardiology Program by the Gnaden Huetten campus-Upgraded cardiac telemetry units at the Gnaden Huetten campus-Expansion of the Gnaden Huetten Acute Rehab Unit to 20 beds-Creation of Outpatient Diabetic Education Program at both campuses-Purchase of West End Physical Therapy outpatient practice by Palmerton campus-Recruitment of 37 new physicians to both campuses in addition to a new Hospitalist group

Additionally, the following new programs will be open in the first month of 2012:

-Opening of Outpatient Cardiology Program by the Palmerton campus-Opening of Acute Partial Hospitalization Program by the Palmerton campus

CORPORATE STRUCTURE

Gnaden Huetten Memorial Hospital is a not-for-profit corporation located in Lehighton, Pennsylvania. Its primary service area includes Lehighton and surrounding communities in Carbon, Schuylkill and Monroe counties, Pennsylvania. The Hospital operates acute inpatient care and long-term care beds and provides outpatient, emergency and home health services to patients in its service area.

CMS Medical Care Corporation is a not-for-profit corporation, wholly owned by Gnaden Huetten Memorial Hospital. CMS Medical Care Corporation’s general purpose is to own and operate ambulatory care centers in various communities in Carbon County which provide primary and specialty medical and health care services.

Effective July 1, 2004, Gnaden Huetten Memorial Hospital, Inc. and its controlled entity, CMS Medical Care Corporation, along with Palmerton Hospital, entered into a System Agreement in connection with the formation of Blue Mountain Health System, Inc (the “System”).

The System serves as the Parent Corporation and sole member of Gnaden Huetten Memorial Hospital and Palmerton Hospital. Through the exercise of extensive Reserved Powers, as defined in the System Agreement, the System supervises, directs and maintains a single health care system that is administratively, financially and clinically integrated. The identities of the individual Hospitals are maintained through independent ownership of assets.

SYSTEM AGREEMENT

As part of their affiliation, Gnaden Huetten Memorial Hospital (“GHMH”) and Palmerton Hospital entered into a System Agreement (the “System Agreement”) to create a regional integrated healthcare delivery system. In accordance with the Agreement, the parent corporation known as Blue Mountain Health System, Inc. (“BMHS”) was created. BMHS is the sole corporate member of each of GHMH and Palmerton Hospital, and through the exercise of extensive reserved powers, it supervises, directs and maintains the health care system that is known as Blue Mountain Health System, which is administratively, financially and clinically

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integrated. Among the reserved powers of BMHS with respect to the hospitals are: the power to require its approval prior to the incurrence of additional debt and the power to require the hospitals to participate in the incurrence of debt of BMHS as the sole member; the power to establish and approve annual capital expenditure and operating budgets of the hospitals; and thepower to approve the transfer of assets by the hospital outside of the health care system.

The System Agreement provides further that GHMH and Palmerton Hospital shall share equally in the financial risk and rewards of the affiliation; and to that end the hospitals have established a global budgeting settlement process. The global budget settlement process is intended to help assure the financial viability of certain entities within the health care system. The following entities are included in the global budget settlement process:

GHMH Group: Gnaden Huetten Memorial Hospital, Inc. CMS Medical Care Corporation

PH Group: Palmerton Hospital Palmerton Hospital Assisted Living, LLC

The GHMH Group and the PH Group are referred to collectively as the “Affiliated Groups”.

The key aspect of the global budget settlement process is the equal sharing of financial risk and reward by the Affiliated Groups. At the end of each fiscal year, a global budget settlement is computed based on the revenues in excess of expenses of each Affiliated Group and recorded as an item of revenue or expense by each Affiliated Group. After the global budget settlement is recorded, each Affiliated Group’s revenues in excess of expenses will be equal.

HOSPITAL BOARD OF DIRECTORS

The governance of the Hospital shall be vested in the Board of Directors, who shall represent and have full powers to act for the Hospital in the exercise of all its rights, privileges and powers and in the general management of its business.

The Board of Directors shall consist of not less than nine (9) nor more than twenty (20) persons, as the Directors may from time to time determine, who shall be natural persons of full age. At all times, three (3) of the Directors shall be the then president of the medical staff and one other member of the medical staff, and the President of the Corporation, who shall be ex officio members of the Board (with vote).

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CURRENT HOSPITAL BOARD MEMBERS

TERM EXPIRATION MEMBER ADDRESS2012 Patrick Reilly (CHAIR) Jim Thorpe, PA2012 Michael Harleman (VICE CHAIR) Palmerton, PA2012 Patrick Hanley, D.O. (SECRETARY) Lehighton, PA2013 Conrad Biege (TREASURER) Palmerton, PAN/A Andrew E. Harris Schnecksville, PA2013 Barbara Green Lehighton, PA2013 Jaime Mendes Palmerton, PA2012 Shelba Scheffner Kunkletown, PA2014 William H. Fegley, Jr. North Wales, PA2014 William M. Markson, M.D. Allentown, PA2013 William R. Mason Jim Thorpe, PA2012 Stephen R. Serfass Palmerton, PA2014 Louis Sportelli, D.C. Palmerton, PA2012 Mark A. Sverchek Lehighton, PA2013 Richard Rothfleisch, M.D. Wyomissing, PA2014 Robert Grob, D.O. Lehighton, PA2014 Rev. Robert VonFrisch Lehighton, PA

MANAGEMENT OF THE HOSPITAL

The day to day management of the Hospital is the responsibility of its President and Chief Executive Officer who is appointed by, and serves at the pleasure of, the Board of Directors of the Hospital. The principal executives of the Hospital’s management team are listed below with brief summaries of their respective backgrounds.

Andrew E. Harris, President and Chief Executive Officer – Mr. Harris holds a Bachelor of Arts degree in Psychology and Sociology from the State University of New York at Buffalo and received his Master’s of Science degree in Health Service Administration from Wagner College in Staten Island, New York. He joined the Blue Mountain Health System in October 2006. Prior to this role, Mr. Harris served as Chief Executive Officer for Tenet Health System’s Philadelphia hospitals - Warminster Hospital and Elkins Park Hospital, and Chief Executive Officer of Mercy Community Hospital, President of Mercy Surgery Center. Mr. Harris has extensive experience in hospital turnarounds, medical staff development and medical school relationships. Mr. Harris maintains several professional and community affiliations, is a Diplomat in the American College of Health Care Executives and a member of the College of Osteopathic Health Care Executives.

Andrea L. Andrae, Chief Financial Officer – Ms. Andrae received a Bachelors of Science degree in Accounting from Kings College, Wilkes-Barre, Pennsylvania in 2000 and received designation as a Certified Public Accountant in 2004. Ms. Andrae was recently appointed as Chief Financial Officer for Gnaden Huetten Memorial Hospital in June 2011. Prior to her current

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position, Ms. Andrae was the Associate Vice President of Finance and Controller for Gnaden Huetten Memorial Hospital from 2006-2011. Ms. Andrae has also served as the Controller for Berwick Hospital Center, Berwick, Pennsylvania and as a Senior Associate with PricewaterhouseCoopers, Harrisburg, Pennsylvania. Ms. Andrae has over ten years of progressive accounting experience. She is currently serving as the Secretary of the Northeastern Pennsylvania Chapter of the Healthcare Financial Management Association.

Clement McGinley, MD – Vice President, Medical Affairs – Dr. Clem McGinley has been the Vice President of Medical Affairs of the Blue Mountain Health System since July 2007. He began practicing Family Medicine and Sports Medicine in the area in 1979, first with the Mauch Chunk Medical Center (now Switchback Medical Center) from 1979 to 1999, then with Paragon Medical (1999 – 2002) and most recently with the St. Luke’s Urgent Care Center – Jim Thorpe (2003 – 2007). He graduated from Franklin & Marshall College with a BA in Biology in 1972 and received his MD degree from the Milton S. Hershey Medical Center of Penn State University in 1976. He completed his Family Medicine Residency and served as Chief Resident at the Allentown – Sacred Heart Combined Family Medicine Residency from 1976 to 1979. Dr. McGinley served as the Co – Director of the Mauch Chunk Medical Center from 1979 to 1995 and other Directorships include: Lehigh Valley Hospice (1999 – 2002), St. Luke’s VNA Hospice (2002 – 2006), St. Luke’s Miners Hospital (2002 – 2004) and St. Luke’s Urgent Care (2004 –2007). Through the years he has taught in the Sacred Heart Family Medicine Residency Program and medical students from Penn State University, Temple University and the Philadelphia College of Osteopathic Medicine. He was an instructor in physician assistant and/or nurse practitioner training programs at Penn State, Temple, the University of Pennsylvania, Kings College and College Misericordia. He is member of the Ancient Order of Hibernians – Carbon County Division, The Knights of Columbus (Damian Council), the Jim Thorpe Rotary, the Jim Thorpe Area Sports Hall of Fame and serves on the Board of Directors of the Jim Thorpe Area School District.

Terrence J. Purcell, Vice President, Ambulatory and Support Services – Mr. Purcell received a Bachelors of Science degree in Business Administration from Bloomsburg University in 1984 and a Master in Business Administration from Wilkes University in 1991. Mr. Purcell is the Vice President of Ambulatory and Support Services since 2006. Prior to his present position, he served as Vice President of Human Resources for the Blue Mountain Health System and Gnaden Huetten since 1995. Mr. Purcell also served as the Director of Human Resources for Gnaden Huetten Memorial Hospital in 1994. Mr. Purcell was employed as the Assistant Director of Human Resources for the Good Samaritan Regional Medical Center, Pottsville, Pa, from 1988 to 1994. Mr. Purcell serves as Chairman of the Board of Directors for Hospital Central Supply Corporation located in Allentown, PA.

Dorothy Patzek, Vice President, Nursing – Ms. Patzek earned her Associate Degree in Nursing in 1990, then earned her BSN from Immaculata College in 2008 and is currently enrolled in the MSN program at Cedar Crest College. Ms Patzek was recently appointed CNO for the Blue Mountain Health System. Ms Patzek has over 20 years of nursing experience including medical surgical, intensive care and management in acute care settings and long term care, most recently as the Director for Blue Mountain Home Care. Ms Patzek was nominated for a nurse excellence

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award in 1992, and is a member of the National Honor Society Alpha Sigma Lambda Society. She is a member of the Pennsylvania Homecare Association and the Hospital Association of Pennsylvania homecare division.

Antoinette Gibson, Associate Vice President, Nursing – Ms. Gibson has been a nurse at Gnaden Hospital since June, 1977. She has been a Licensed Practical Nurse (LPN) and received an Associate Degree in Nursing from Northampton County Community College in 1986. She worked in the Intensive Care Unit as a critical care nurse until 1983 when she became the clinical coordinator for the ICU. In 1995, she became the director of critical care services and in 1998, the responsibility of the Medical Surgical unit was added. She graduated from Kutztown University with a Bachelor of Science degree in Nursing and completed a Masters in Healthcare Administration from University of Phoenix in 2009. She has been in this role since 2007. Ms. Gibson is a member of Sigma Theta Tau International Honor Society of Nursing and the Pennsylvania Eastern Region Organization of Nurse Leaders (PERONYL).

Ruth Ann Brennan, Vice President, Ancillary Services – Ms. Brennan received an Associate in Science Degree in Allied Health and worked as a Registered Respiratory Therapist for ten years. She received a Bachelors of Arts degree in from Western Michigan University, a Master in Science Education from Arcadia University and a Master in Business Administration from the Fox School of Business, Temple University. Prior to her current position at Blue Mountain Health System Ms. Brennan was Director of Performance Improvement with primary responsibility for quality and financial performance improvement at the community, pediatric and behavioral health hospitals of the Temple University Health System and is a Six Sigma Green Belt. Ms Brennan has over 30 years of progressive hospital management experience, having served as was a member of the senior management team at Jeanes Hospital with responsibility for physician recruitment and physician satisfaction in addition to new business development and product line management. Ms. Brennan is the current president elect of the Eastern PA Executive Healthcare Network where she has served as a board member for the past four years.

Elizabeth “Lisa” Johnson, Vice President, Public Relations and Marketing - Ms. Johnson received her Bachelor of Arts degree in Mass Communications from King’s College in 1987. Ms. Johnson was appointed to Vice President of Public Relations and Marketing for the Blue Mountain Health System in July of 2008. Prior to her current position, she served as the Director of Internal Communications and Regional Director of Public Relations for Diakon Lutheran Social Ministries from 2000 – 2007. Ms. Johnson has than 20 years of healthcare public relations and communications experience in small, community hospitals as well as large, tertiary hospital systems and has received awards from the Hospital and Health System Association of Pennsylvania as well as awards for public relations, advertising and marketing campaigns. She is currently serving her second term as an executive board member of the Public Relations Society of America’s Health Academy for and was appointed as co-chair for the PRSA Health Academy Conference in 2012.

Alicia Silliman, Nursing Home Administrator – Ms. Silliman received a Masters in Health Services Administration from St. Francis University, Joliet Illinois in December 1995 and a

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Bachelors of Science Degree with a concentration in Nursing from Wilkes University in 1985.Ms. Silliman was boarded as a nursing home administrator in June 1989. She joined the Blue Mountain Health System in 1981 and has held several positions including Director of Surgical Services. While always employed at BMHS, Ms. Silliman also had a career as the Director of Nursing at Slate Belt Nursing & Rehabilitation Center in Bangor, PA and served as an Educator in the Educational Development Department at Lehigh Valley Hospital. Ms. Silliman is certified as a Director of Nursing by the American Society for Long Term Care and holds membership in the Pennsylvania Association Directors of Nursing Administration/Long-Term Care. Currently Silliman serves on the nursing assistant advisory committee at the Carbon Career and Technical Institute and is a member of several community organizations, including the Palmerton & Palmerton Lions Clubs, the Carbon County Fair (treasurer) and serves on the Telethon committee for the Carbon-Tamaqua Unit of the American Cancer Society.

Joseph C. Guardiani, Director of Fund Development/Government Relations – Mr. Guardiani received a Bachelors of Science degree in Human Services from the University of Scranton in 1979. Mr. Guardiani came to BMHS to head up its fund development office in 2007. In 2010 Mr. Guardiani added government relations duties to his current job description. Mr. Guardiani started his professional career in 1979 as a psychotherapist working in both inpatient and outpatient treatment programs at the Gnaden Huetten Memorial Hospital. In 1983 he left the hospital to become the Director of Prevention/Early Intervention services at the Carbon-Monroe-Pike Drug and Alcohol Commission (CMP D&A). In 1988 Mr. Guardiani was promoted to Associate Administrator at CMP D&A and assumed all administrative responsibilities for Commissions Prevention, Intervention, Case Management and Treatment units. Currently, Mr. Guardiani serves as the Chairperson of the East Central Area Health Education Center (ECAHEC) a local not-for-profit, as well as the volunteer treasurer for the Carbon County Partners for Progress.

MEDICAL STAFF COMPOSITION

The Blue Mountain Health System (Gnaden Huetten Memorial and Palmerton Hospitals) has an open medical staff. Any physician who is licensed to practice in the Commonwealth of Pennsylvania and who practices medicine within the general geographic area served by the Hospital may apply for staff privileges subject to the approval of the Medical Executive Committee and the Hospital’s Board of Directors.

The Medical Staff is divided into the following Medical Staff categories: Active, Provisional Active, Consulting, Consulting Telemedicine, Affiliate and Emeritus.

Active StaffRegularly admits patients to the Hospitals or is otherwise involved on a regular basis in the provision of medical care to at least: (1) 15 patients in the Hospitals during the first year of appointment; and (2) 30 patients in the Hospitals during each two year reappointment period. Exceptions to this patient contacts requirement may be recommended by the Credentials Committee and approved by the MEC and the Boards in unusual circumstances and for good

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reasons provided that the department chair can adequately assess the Active Staff member’s performance within the Hospitals pursuant to Section 5.3-2.

Resides and practices close enough to the Hospitals to provide continuity of care and can be easily reached when necessary;

Discharges with due diligence and in a responsible manner his Active Staff responsibilities (or in the case of a new applicant or an applicant for advancement to the Active Staff, is reasonably likely to do so).

Consulting StaffAn authority in an area of medical practice; requested by a department to provide consultative services in the department; and willing to provide consultative services in a timely fashion upon the request of a practitioner.

Consulting Telemedicine StaffConsulting Telemedicine privileges means the authorization granted by the Hospitals to render a diagnosis or otherwise provide clinical treatment to a patient at the Hospitals through the use of electronic communication or other communication technologies.

Affiliate StaffAffiliate Staff members are permitted to visit their patients while in the Hospitals and view their charts if they desire; however, they cannot write orders or act as consultants.

Affiliate Staff members history and physical examinations on their private patients will be acceptable for elective procedures performed by other members of the Medical Staff.

Affiliate Staff members have no clinical privileges.

Emeritus StaffThe Emeritus Staff member is a retired former member of the Medical Staff.

MEDICAL STAFF OFFICERSPatrick Hanley, D.O. PresidentThomas Munshower, D.O. Vice-PresidentRonald Stein, M.D. Secretary Treasurer

The Hospital’s Medical Staff consists of the following specialties by classification:

SPECIALTY ACTIVE CONSULTING TOTALAnesthesia 5 1 6Cardiology 3 13 16Chiropractic 2 2Colon and Rectal Surgery 1 1

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Dentistry / Oral Surgery 2 1 3Dermatology 1 1 2Emergency Medicine 8 8Family Practice 4 6 10Gastroenterology 2 2General Surgery 5 5Geriatric Medicine 1 1Gynecology 3 3Hematology 4 4Hospitalists 4 4Infectious Disease 10 10Internal Medicine 3 2 5Nephrology 3 3Neurology 2 2 4Ophthalmology 1 4 5Orthopedic Surgery 2 2 4Otolaryngology 2 5 7Pain Management 3 3Pathology 2 2Pediatrics 4 1 5Physical Medicine/ Rehab 1 2 3Podiatric Medicine / Surgery 8 1 9Psychiatry 3 1 4Pulmonary Medicine 1 1Radiation Oncology 1 1Radiology 2 28 30Rheumatology 1 1Urogynecology 1 1Urology 1 1 2Vascular Surgery 4 3 7

TOTAL 80 94 174

DESCRIPTION OF FACILITIES

Hospital Facilities. The main hospital campus consists of two buildings housing acute care and outpatient services and skilled nursing care.

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Licensed Bed Complement. The following reflects the classification of beds as of November 30, 2011:

Medical/Surgical 40Monitored Care 8

48

Intensive Care 6Pediatrics 5Acute Rehab 20Adult Behavioral Health 22

Total Beds 101

Extended Care Facility 91

ACCREDITATIONS AND MEMBERSHIPS

ACCREDITATIONS Joint Commission on Accreditation of Healthcare Organizations

American College of Radiologists/Mammography

LICENSES Pennsylvania Department of Health

Clinical Lab Improvement Amendments

MEMBERSHIPS American Hospital Association

The Hospital and Health System Association of Pennsylvania

PROFESSIONAL MEMBERSHIP AFFILIATIONS AND ACCREDITATIONS BY DEPARTMENT

LABORATORY Joint Commission on Accreditation of Healthcare Organization Accreditation

National Committee for Clinical Laboratory Standards

Food and Drug Administration Inspections

American Association of Blood Banks Accreditation

Pennsylvania Department of Health Inspections

Health Care Financing Administration – Clinical Lab Improvement Amendments

Occupation Safety/Health Administration Inspections

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RADIOLOGISTS American College of Radiology

American Medical Association

Pennsylvania Medical Society

Carbon County Medical Society

American Interests Institute of Ultrasonography in Medicine

Radiology Society of North America

RADIOLOGY TECHNICIANS American Registry of Radiologic Technology

American Association of Radiology Technicians – Computered Tomography Technicians

American Association of Radiology Technicians – Mammography Technicians

Association of Hospital Radiology Administrators

Society of Nuclear Medicine

Lehigh Valley Society of Nuclear Medicine Technologists

American Registered Diagnostic Medical Sonographers

Northeastern Pennsylvania Society of Ultrasound

American Institute of Ultrasound and Medicine

MENTAL HEALTH SERVICES Pennsylvania Department of Public Welfare

SUMMIT NURSING & CONVALESCENT CENTER Pennsylvania Department of Health Licensure

Joint Commission on Accreditation of Healthcare Organizations Accreditation

HOME HEALTH Pennsylvania Department of Health Licensure

Joint Commission on Accreditation of Healthcare Organizations Accreditation

INSURANCE CONSIDERATIONS

Professional Liability Insurance Coverage. The Hospital maintains primary insurance coverage in compliance with the limits stated in the Commonwealth of Pennsylvania Healthcare Services Malpractice Act No. 111. Excess coverage is provided through a multi-provider insurance arrangement as well as the Commonwealth of Pennsylvania Catastrophic Loss Fund. The Hospital also provides other insurance coverages for property, directors and officers, workers compensation and other liabilities with limits that are deemed reasonable and customary for health care providers of comparable size and condition.

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The Hospital’s medical malpractice insurance coverages are provided under the provisions of the three insurance arrangements as follows:

Primary coverage – Primary coverage is provided under the terms of an insurance contract which covers losses, if any, which are reported during the period the contract is in force, “claims-made coverage”, subject to the per occurrence and aggregate limits of such contract.

MCARE Fund coverage – The Pennsylvania Medical Care Availability and Reduction of Error Fund (“MCARE Fund”) provides excess coverage per the Pennsylvania law governing the MCARE Fund. Pursuant to the per occurrence and aggregate limits set forth in the controlling Pennsylvania statutes, the MCARE Fund provides coverage for losses in excess of the primary coverage that was in effect on the date of the incident.

Umbrella coverage – The Hospital has an umbrella liability insurance contract which insures against losses in excess of the above coverages reported during the period of policy coverage.

Excess coverage – The Hospital has an excess liability insurance contract which insures against losses in excess of the above coverages reported during the period of policy coverage.

LITIGATION

To the Hospital’s knowledge, there is no malpractice or other litigation pending or threatened against the Hospital wherein an unfavorable decision would adversely affect its ability to carry out its obligation under the Indenture or the Loan Agreement, or would have a material adverse impact on the financial position or operations of the Hospital.

TAXES

Income Taxes. The Hospital is a not-for-profit corporation as described in Section 501(c)(3) of the Internal Revenue Code and is exempt from federal income taxes on its exempt income under Section 501(a) of the code.

Real Estate Taxes. Protracted litigation on the tax-exempt status of the Hospital’s real estate was concluded in January 1999, with a favorable decision for the Hospital by the Pennsylvania Supreme Court.

CORPORATE COMPLIANCE

The Hospital has established a Corporate Compliance program that decreases the risk of inappropriate and potential criminal action by the organization’s employees, physicians and agents and reaffirms key organizational themes such as quality service and ethical, compassionate care. The Corporate Compliance Plan and Standards of Conduct are located in the Administrative Policy manual. The Compliance Officer will maintain a “master plan” of

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compliance-related documents, policies and procedures. The Compliance Plan will be reviewed annually by the Revenue Review & Compliance Committee and updated as necessary.

All members of the health care team will receive initial compliance training and then, periodic update training as determined necessary. Department specific training may also be conducted as the need for such in identified. Compliance training is incorporated into the orientation program and the yearly mandatory training booklet. Pertinent bulletins, publications, articles, etc…will be distributed to departments as necessary.

The Hospital promotes compliance by utilizing audits and other monitoring tools. An auditing plan is developed annually. Departments are notified when they are required to perform an audit of an assigned topic and audit results are reported back to the Revenue Review & Compliance Committee. A summary of the audits is presented to the Audit Committee by the Compliance Officer.

The Hospital relies on the members of the health care team to report wrongdoing or non-compliance. A system has been established which allows individuals to report suspected wrongdoing to the Compliance Officer, to their supervisor, to any member of Senior Management or through the “Employee Hot Line”. The Hospital will investigate all reports of alleged violations. Investigation results will be treated confidentially to the extent consistent with legal obligations. If the results of the investigation indicate that corrective action is required, the Hospital will decide the appropriate steps to take, including discipline, termination of employment and possible legal proceedings. Outside investigators may assist in the inquiry. It is the Hospital’s policy to cooperate with valid government investigations.

EMPLOYEES

Hospital Employment. As of November 30, 2011, the employee complement of the Hospital consisted of 729 full-time, part-time and per diem employees. These employees are classified as follows:

TypeAdministrative 49Professional 256Technical 117Office/Clerical 128Maintenance/Service 179

Totals 729

Benefits. The Hospital offers a varied benefit plan, including group health and dental insurance as well as major medical coverage, group life and long-term disability insurance. Employees may also elect voluntary life and short-term disability insurance. Effective January 1, 2005, the Hospital started a 403(b) defined contribution plan which allows for employee contributions, with a Hospital match, as well as employee control of investments.

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MARKET SHARE AND UTILIZATION STATISTICS

The Hospital’s original physical plant structure was completed in 1951. The main hospital building has expanded by just two wings over the 60 years of providing healthcare services to the community. As the community has grown during this half century, and the complexity of the Hospital’s operations has evolved, the Hospital faces the pressing need to adapt its physical plant to the changing healthcare climate. Situated within the most densely populated southern third of Carbon County, the Hospital draws nearly 75% of its patients from seven zip code areas. Those include six zip codes within Carbon County and one zip code from an adjacent municipality in Schuylkill County. The following zip codes represent the Hospital’s primary service area:

Zip Code Area/Municipality Pennsylvania County18235 Lehighton Carbon18229 Jim Thorpe Carbon18232 Lansford Carbon18250 Summit Hill Carbon18240 Nesquehoning Carbon18071 Palmerton Carbon18252 Tamaqua Schuylkill

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Utilization Statistics

5 Months Ended

5 Months Ended

FY 2010 FY 2011 11/30/2010 11/30/2011

Inpatient

Admissions 2,968 3,202 1,305 1,520

Patient Days 16,215 15,953 6,594 7,477

Average Length of Stay 5.5 5.0 5.1 4.9

Beds Available 95 95 95 97

Average Daily Census 44.4 43.7 43.1 48.9

Occupancy 46.8% 46.0% 45.4% 50.4%

Outpatient

ER Visits 21,580 20,644 8,789 8,518 Home Health Care Visits 15,755 18,075 7,056 8,086 Extended Care Facility

Admissions 231 228 86 114

Patient Days 47,447 47,862 13,504 13,143

Average Length of Stay 205.4 209.9 157.0 115.3

Beds Available 91 91 91 91

Average Daily Census 86.0 87.0 88.3 85.9

Occupancy 94.5% 95.6% 97.0% 94.4%

MAJOR THIRD PARTY REIMBURSEMENT PROGRAMS

The Hospital has agreement with third party payors that provide for payments to the Hospital at amounts different from its established rates. A significant portion of the Hospital’s net patient service revenues are derived from those third-party payor programs. A summary of the principal payment arrangements with major third party payors follows:

Medicare – Inpatient acute, rehabilitation and outpatient services rendered to Medicare program beneficiaries are paid at prospectively determined rates. These rates vary according to patient classification systems that are based on clinical, diagnostic and other factors. Skilled nursing services provided to Medicare Part A beneficiaries are paid at prospectively determined rates per day and services to Medicare Part B beneficiaries are paid at the lesser of a published fee schedule or actual charges, subject to an annual limitation. The Hospital is reimbursed for cost reimbursable items 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

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Hospital’s Medicare cost reports have been settled by the Medicare fiscal intermediary through June 30, 2007.

Blue Cross – Inpatient acute and non-acute services rendered to Blue Cross subscribers are reimbursed at prospectively determined rates per discharge. These rates vary according to patient classification systems that are based on clinical, diagnostic and other factors. Outpatient services are reimbursed at agreed-upon percentage of charges. Home health services are paid based on prospective rates subject to payment limitations.

Medical Assistance – Inpatient acute care services rendered to Medical Assistance programbeneficiaries are paid at prospectively determined rates per discharge. These rates vary according to a patient classification system that is based on clinical, diagnostic and other factors. Extended care services related to Medical Assistance beneficiaries are paid based on a case mix rate. Outpatient services are paid based on a published fee schedule.

Other – The Hospital has also entered into payment agreements with certain commercial insurance carriers, health maintenance organization and preferred provider organizations. The basis for payment to the Hospital under these agreements includes prospectively determined rates per discharge, discounts from established charges or prospectively determined daily rates.

Patient Revenue – The following table summarizes the percentage of patient revenues of the Hospital by source of payment for the two fiscal years ended June 30, 2010 and 2011, and the five months ended November 30, 2010 and 2011:

5 Months Ended

5 Months Ended

FY 2010 FY 2011 11/30/2010 11/30/2011

Medicare 43.6% 43.0% 43.4% 44.0%

Blue Cross 24.0% 22.2% 21.9% 22.1%

Medicaid 10.2% 12.1% 12.2% 13.1%

HMO 9.1% 9.1% 8.6% 8.6%

Commercial 7.3% 7.9% 8.3% 6.2%

Other 5.8% 5.7% 5.6% 6.0%

100.0% 100.0% 100.0% 100.0%

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SUMMARY OF FINANCIAL DATA

The following balance sheets of the Hospital and Controlled Entity as of June 30, 2010 and 2011 and Statements of Operations for the years ended June 30, 2010 and 2011 have been derived from the audited consolidated financial statements of the Hospital, as prepared by the Hospital and Controlled Entity. The financial information for the five months ended November 30, 2011 is derived from unaudited internal financial statements of the Hospital and Controlled Entity and are prepared on a basis consistent with the audited financial statements. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full year. This data should be read in conjunction with the audited consolidated financial statements and related notes of the Hospital and Controlled Entity included in Appendix B.

BALANCE SHEET

(Consolidated) (Unaudited)

Fiscal Years Ended June 30 (Consolidated)

Five Months Ended

2010 2011 Nov. 30, 2011

Current Assets

Cash and cash equivalents $1,345,920 $635,686 $1,225,420

Assets whose use is limited under trust indenture 559,922 584,739 147,907

Accounts receivable:

Patient receivables, net 5,542,679 6,139,564 7,186,830

Other receivables 341,166 556,072 168,733

Total Receivables 5,883,845 6,695,636 7,355,563

Due from Palmerton Hospital 1,450,173 2,321,298 1,777,639

Estimated third-party payor settlements 979,000 899,931 198,188

Inventories of drugs and supplies 746,891 831,467 801,134 Prepaid expenses and other current assets 426,788 621,002 620,299

Total Current Assets $11,392,539 $12,589,759 $12,126,150

Assets Whose Use is Limited

By Board for future capital $503,722 $433,212 $444,792

Under trust indenture 1,425,119 1,422,990 1,423,049

Long-Term Investments 84,311 86,624 86,624

Property and Equipment, net 18,169,720 16,388,649 16,415,734

Deferred Financing Costs, net 163,992 121,893 107,231

Other Assets 782,503 673,094 717,513

TOTAL ASSETS $32,521,906 $31,716,221 $31,321,093

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(Consolidated) (Unaudited)

Fiscal Years Ended June 30 (Consolidated)

Five Months Ended

2010 2011 Nov. 30, 2011

Current Liabilities:

Current maturities of

Hospital revenue bonds $875,000 $920,000 $960,000

Obligations under capital lease 429,501 379,469 392,280

Mortgage and note payable 0 0 48,094

Accounts Payable 3,749,802 3,843,073 4,095,495

Blue Cross working capital advance 304,227 304,227 304,227

Accrued expenses 3,183,291 3,038,844 3,356,534

Total Current Liabilities $8,541,821 $8,485,613 $9,156,630

Long Term Debt

Hospital revenue bonds $10,080,000 $9,160,000 $8,200,000

Obligations under capital lease 1,218,414 847,427 692,956

Mortgage and note payable 0 0 220,171

Deferred Gift Annuities Payable 271,385 109,314 104,016

Pension Liability 17,030,161 12,524,440 11,888,812 Estimated Medical Malpractice Claims Liability 547,503 702,524 702,524

Total Liabilities $37,689,284 $31,829,318 $30,965,109

Net Assets: (Deficit)

Unrestricted ($5,251,689) ($199,721) $269,360

Permanently restricted 84,311 86,624 86,624

Total Net Assets (Deficit) ($5,167,378) ($113,097) $355,984

TOTAL LIABILITIES AND

NET ASSETS $32,521,906 $31,716,221 $31,321,093

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STATEMENT OF OPERATIONS

(Unaudited)

Fiscal Years Ended June 30 (Consolidated)

Five Months Ended Nov. 30

UNRESTRICTED REVENUES 2010 2011 2010 2011

Net patient service revenues $57,571,489 $60,855,109 $24,054,574 $26,424,711

Other revenues 600,385 705,437 278,402 264,955

Global Budget Settlement (639,038) (1,295,860) (23,183) (1,017,109)

Net assets released from restriction used for operations 26,526 13,479 0 0

Total unrestricted revenues $57,559,362 $60,278,165 $24,309,793 $25,672,557

EXPENSES

Salaries and wages $22,010,322 $23,156,064 $9,609,828 $10,263,006

Supplies and expenses 17,276,392 17,498,358 6,728,643 7,126,279

Employee benefits 7,599,199 8,491,092 3,216,830 3,576,461

Provision for doubtful collections 4,288,031 3,950,896 1,685,092 1,946,761

Depreciation and amortization 2,869,337 2,405,981 1,282,871 998,923

Interest 717,782 683,156 309,689 278,664

Other 3,226,912 3,609,018 1,306,144 1,392,952

Total Expenses $57,987,975 $59,794,565 $24,139,097 $25,583,046

Operating Income (Loss) ($428,613) $483,600 $170,696 $89,511

Investment income 57,142 38,794 305 90

Revenues in excess of expenses (less than) Expenses ($371,471) $522,394 $171,001 $89,601

Pension Liability Adjustment (4,450,040) 4,276,526 0 0

Net assets released from restrictions used for purchase of PP&E 565,944 110,102 0 379,480

Transfers from Affiliate 95,000 142,946 0 0

Increase (Decrease) in Unrestricted Net Assets ($4,160,567) $5,051,968 $171,001 $469,081

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MANAGEMENT’S DISCUSSION OF RECENT FINANCIAL PERFORMANCE AND OPERATIONS AND PREPARING FOR HEALTHCARE REFORM

Over the past five years the financial performance of the Hospital has improved from a nearly $5,000,000 loss from operations in fiscal year 2006 to closing out fiscal year 2011 with an operating profit of approximately $500,000. Senior management of the Hospital continues to focus their efforts on revenue growth and expense reductions. In July 2010 the Board of Directors held a Strategic Planning Retreat at which time management presented a 3-Year Strategic Plan encompassing fiscal years 2011 through 2013 to the Board culminating in a 3% operating margin for the System by the end of fiscal year 2013. This plan was reviewed by an outside consultant specializing in the Healthcare field and was unanimously approved by the Board. The Plan focuses on the following areas:

Service additions and expansion: Continued development of Inpatient Adult Behavioral Health UnitAddition of Digital Mammography Technology Partnership with large group of sub-specialty RadiologistsDevelopment of an Outpatient Cardiology Center

Revenue cycle initiatives:Expansion of Revenue Capture ProgramsNegotiation of Commercial Insurance contracts

Capital and Liquidity creation activities:Sale of assets nonessential to primary mission of the Hospital Elimination/renegotiation of certain clinical partnerships where the management fees exceeded the benefits of partnershipDevelopment of improved relations with legislators and initiation of grant writing

Physician Recruitment ActivitiesRecruited two new general surgeonsA new primary care physician (Geriatrician) began in September 2009A new neurologist joined in November 2009A new GI Surgeon joined in May 2010Recruiting physicians to begin outpatient oncology programRecruitment of an additional six primary care physicians to targeted areas over the next three yearsRecruitment of an additional orthopedic surgeon

The Blue Mountain Health System also entered into a clinical affiliation agreement with Lehigh Valley Health Network in February 2009. Since that time this affiliation has benefited the Gnaden Huetten Memorial Hospital through the use of telemedicine in the areas of infectious disease and obstetrics. Additionally, the Hospital has been able to benefit through vendor pricing by taking advantage of volume discounts received by the larger Health System. Most recently, effective December 2011, Blue Mountain Health System and Lehigh Valley Physician Group

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(LVPG) entered into an agreement for emergency medicine whereby LVPG will be responsible for administrative oversight of the emergency medicine physicians.

Management of the System is keeping abreast of the changes coming as part of healthcare reform. Medicare, Medicaid and other commercial payors are moving towards a “pay-for-performance” or “value-based purchasing” model where those providers who deliver high quality, low cost healthcare will be rewarded through increases in their payments. The Hospital has long had a Quality compliance program to track those areas that are now being looked at by the Medicare program and continues to monitor them on a daily basis to ensure compliance.

The System also entered into a managed services agreement with Siemens which began in March 2011 for information technology services. The System is contractually obligated to pay annual fees to Siemens through 2020, which total approximately $15,000,000. This partnership was fostered by the rules issued by the federal government that will reward hospitals for the “meaningful use” of electronic health records. Palmerton Hospital is on track to meet the requirements of “meaningful use” in fiscal year 2013 and as such will be eligible for incentive payments from the federal government. During fiscal year 2011 the System was also awarded grant monies of approximately $700,000 from the Pennsylvania Local Share funds to assist Gnaden Huetten Memorial Hospital and Palmerton Hospital purchasing some of the infrastructure needed to support and sustain an electronic health record.

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APPENDIX B

Audited Consolidated Financial Statements of Gnaden Huetten Memorial Hospital, Inc.

and Controlled Entity Fiscal Years Ended June 30, 2011 and 2010

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APPENDIX C

FINANCIAL AND OTHER INFORMATION PERTAINING TO THE COUNTY OF CARBON, PENNSYLVANIA

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DESCRIPTION OF THE AREA

General

Carbon County (the “County”) was created on March 13, 1843, from parts of Northampton and Monroe Counties. Located in northeastern Pennsylvania, approximately 90 miles west of New York City and 90 miles northeast of Philadelphia, the County is bordered on the north by Luzerne County, on the east by Monroe County, on the west by Schuylkill County and on the south by Lehigh and Northampton Counties. The County draws its name from its extensive anthracite coal deposits, primarily in the western portion of the County. The northern and eastern portions of the County are part of the Pocono Mountains region of the Commonwealth. Jim Thorpe, the county seat, was originally incorporated on January 26, 1850, as the borough of Mauch Chunk, a Native American name meaning “bear mountain”. It was renamed Jim Thorpe in 1954 for the famous Native American athlete who is buried there.

The population of the County grew from the early nineteenth century through the 1920s, fell with the declines in the anthracite coal industry through the early 1960s, and has been growing again since then. At the current time, the County is experiencing growth in population and industry primarily related to the westward movement of the East Coast metropolitan area. In the last several years, the growth has been primarily due to the growth of the Pocono Mountain region with the opening of the last portion of Interstate 78 into Pennsylvania, opening up a second and faster direct route into the New York metropolitan area from eastern and central Pennsylvania.

Government

Carbon is a county of the sixth class, a classification established on the basis of population by the State Legislature on October 20, 1967. Counties of the sixth class have a population between 45,000 and 94,999 people. Including Carbon, there are 24 sixth class counties in the Commonwealth.

Carbon County functions under the County Code (which governs counties of the third though eighth classes), which delegates various duties to the County Commissioners, including, among others, the responsibility for the adoption of an annual budget and the levying of taxes, assessment of property for tax purposes, administration of elections and registration of voters, care of prisoners, maintenance of roads and bridges, care of the aged, dependent and indigent ill, planning, and civil defense. There are three Commissioners elected at-large for four year terms, one of whom is elected to be chairman. Provisions are made for minority party representation as no party may place more than two candidates on the ballot for the three positions. Other elected offices in the County include: Controller, Coroner, District Attorney, Recorder of Deeds, Sheriff, Treasurer and Common Pleas Judgeships.

Population

The County's population increased by 11.0% from 2000 to 2010(1). The table below shows population comparisons for Carbon County, Pennsylvania and the United States.

2000 DensityArea in Percentage (Persons/

Sq. Miles 2000 2010 Increase/(Decrease) Sq. Miles

Carbon County 383 58,802 65,249 11.0% 170.4Pennsylvania 44,817 12,281,054 12,702,379 3.4 283.4U.S. 3,537,441 281,421,906 308,745,538 9.7 87.3_____________Source: Pennsylvania State Data Center; U.S. Census Bureau(1) 2010 Census results. 2010 Census results for certain other data found in this document have not yet been released.

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Age Composition (2010)

Percent Percent Percent 65Median Age Under 18 18 - 64 and Over

Carbon County 43.9 20.8% 61.4% 17.8%Pennsylvania 40.1 22.0 62.2 15.4U.S. 37.2 24.0 63.0 13.0_____________Source: U.S. Census Bureau

Income Characteristics

2000 2000 2000Per Capita Income Household Median Family Median

Carbon County $17,064 $35,113 $42,118Pennsylvania 20,880 40,106 49,184U.S. 21,587 41,994 50,046_____________Source: Pennsylvania State Data Center; U.S. Census Bureau

Housing Characteristics

Total Percent Percent MedianHousing Units Occupied Vacant (1) Owner Occupied

(2010) (2010) (2010) (2000)(2)

Carbon County 34,299 77.8% 22.2% $81,100Pennsylvania 5,567,315 90.1 9.9 97,000U.S. 131,704,730 88.6 11.4 119,600_____________Source: Pennsylvania State Data Center; U.S. Census Bureau(1) Includes seasonal, recreational or occasional use housing units.(2) 2010 Census data not yet released.

Occupied Housing Units (2010)

Total Total Owner Occupied Total Renter OccupiedOccupied

Housing Units Units % of Total Units % of Total

Carbon County 26,684 20,643 77.4% 6,041 22.6%Pennsylvania 5,018,904 3,491,722 69.6 1,527,182 30.4U.S. 116,706,292 75,986,074 65.1 40,730,218 34.9_____________Source: U.S. Census Bureau

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Recent Trends in Labor Force, Employment and Unemployment Rates

The following chart shows recent trends in employment and unemployment for Carbon County and the Commonwealth of Pennsylvania. (Data in thousands)

2006 2007 2008 2009 2010 2011Carbon County Civilian Labor Force (000) 30.8 31.3 31.7 31.3 30.9 30.9 Employment (000) 29.2 29.5 29.1 27.8 27.6 27.8 Unemployment (000) 1.6 1.8 2.6 3.5 3.3 3.1 Unemployment Rate 5.2 5.6 8.3 11.2 10.5 10.1

Pennsylvania Civilian Labor Force (000) 6,335.0 6,377.0 6,461.0 6,338.0 6,326.0 6,322.0 Employment (000) 6,064.0 6,087.0 6,043.0 5,787.0 5,791.0 5,865.0 Unemployment (000) 270.0 290.0 418.0 551.0 535.0 457.0 Unemployment Rate 4.3 4.5 6.5 8.7 8.5 7.2

____________* Data may not add to totals due to rounding. Data as of December of each year.Source: Labor Market Analysis, Not Seasonally Adjusted, www.paworkstats.state.pa.us website.

TEN LARGEST EMPLOYERS

Within Carbon County, the ten largest employers include:ApproximateNumber of

Company Product/Business Employees

Blue Mountain Health System Healthcare 852Pencor Services Communiciations 851Kovatch Corporation Manufacturing 675Vacation Charters, Ltd. Resort 600Pocono Whitewater/Skirmish Entertainment 520Wal-Mart Retail 350Lehighton Area School District Education 300County of Carbon Government 281Jim Thorpe Area School District Education 250New England Motor Freight Trucking 223____________Source: County Officials

COUNTY EMPLOYEES AND LABOR RELATIONS

There are approximately 281 full-time and 114 part-time employees employed by the County.

Approximately 31% (86 employees) of the County’s full-time employees are represented through three (3) separate unions. AFSCME represents 49 employees under contracts expiring on December 31, 2012 and December 31, 2013, and the Teamsters represent 37 employees under a contract that expires on December 31, 2012.

___________Source: County Officials

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Employee Retirement Plan (Retirement Pension Trust Fund)

The County Employees’ Retirement System Pension Trust Fund (the “Retirement Fund”) is funded by contributions by both the employees and the County. In accordance with Act 96 of 1971 (Commonwealth Statute), all new full-time employees are required to contribute five (5) percent of their salary in accordance with the provisions of the amended plan adopted January 1, 1984 and may voluntarily contribute an additional ten (10) percent of their salary; the County is required to contribute an amount which, based upon actuarial tables, is computed to be sufficient to provide retirement benefits to the members as they retire.

From 2006 to 2010, the County’s actual annual pension contributions were equal to the County’s required contributions. Five-Year Trend Information for the County of Carbon Retirement Fund:

Fiscal Year Required ActualEnding Contribution Contribution

12/31/06 $ 124,191 $ 124,19112/31/07 227,998 227,99812/31/08 11,400 11,40012/31/09 1,357,359 1,357,35912/31/10 1,312,262 1,312,262

__________Source: County officials.

REAL ESTATE TAX COLLECTIONS

Current Collections Total Collections(1)

YearAssessed Valuation

Tax Rate Mills Levy Amount Percent Amount Percent

2001 $1,290,268,247 5.271 6,801,004 6,077,494 89.4% 6,701,559 98.5%2002 1,290,364,289 6.893 8,894,481 8,145,495 91.6% 8,864,587 99.7%2003 1,348,080,832 6.893 9,292,321 8,529,793 91.8% 9,152,119 98.5%2004 1,389,820,330 6.893 9,580,032 8,980,649 93.7% 9,630,811 100.5%2005 1,435,017,998 6.893 9,891,579 9,214,048 93.2% 9,906,690 100.2%2006 1,477,724,992 6.893 10,185,958 9,635,439 94.6% 10,332,793 101.4%2007 1,513,731,043 6.893 10,434,148 9,804,628 94.0% 10,431,611 100.0%2008 1,574,989,023 6.893 10,856,399 10,177,238 93.7% 10,905,522 100.5%2009 1,600,597,609 6.893 11,032,919 10,324,992 93.6% 11,072,450 100.4%2010 1,633,840,798 6.893 11,262,065 10,399,852 92.3% 11,178,646 99.3%

__________(1) Includes delinquent collections and interest.Source: County Officials

LARGEST TAXPAYERS

The ten largest taxpayers in the County with their 2011 assessed valuations are shown below:

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2011 AssessedTaxpayer Type of Business Valuation

Vacation Charters LTD Resort 11,223,541 Wal-Mart Stores East LP Retail 6,146,417 Dack-Carbon Associates Commercial 4,223,500 Pencor Services Inc. Communications 3,791,450 Panther Creek Partners Manufacturing 2,944,050 Jack Frost Ski Lodge Resort 2,857,035 Big Boulder Corporation Resort 2,624,260 GEC Real Estate at Weatherly, LP Nursing Home 2,541,595 Blue Ridge Real Estate Land Development 2,365,035 Westwood Condominium Assoc Housing 2,330,515

TOTAL $41,047,398

Total as a percentage of the County’s 2011 Budgeted Assessed Value 2.46%

___________Source: County Officials

REAL ESTATE VALUATION

Trends in Value of Real Property

The trend in assessed valuation of real estate in the County for the last eleven years is shown below. Since the County’s reassessment in 2001, the assessed valuation of real property within the County has increased 26.7%.

Year Market Valuation Assessed ValueCommon

Level Ratios

2000 $ 2,108,141,449 $ 187,624,589 8.9%2001(1) 2,649,421,452 1,290,268,247 48.72002 2,867,476,198 1,290,364,289 45.02003 3,040,114,627 1,313,329,519 43.22004 3,431,485,398 1,362,299,703 39.72005 3,854,260,025 1,406,804,909 36.52006 4,596,935,657 1,475,616,346 32.12007 4,845,625,470 1,516,680,772 31.32008 4,753,455,545 1,578,147,241 33.22009 4,383,922,030 1,613,283,307 36.82010 3,810,264,592 1,634,603,510 42.9______________Source: 2000 - 2010 State Tax Equalization Board (STEB) total Assessed Valuations for municipalities within the County. Market Values based upon the STEB Common Level Ratios for the County. (1) County reassessment.

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Component of Assessed Valuation

The 2011 assessed values of real properties in the County are as follows:

Classification Assessed Value Percent

Residential $1,296,456,281 81.69%Commercial 170,636,232 10.75Commercial Apartment 12,030,384 0.76Agriculture 57,697,611 3.64Industrial 26,823,961 1.69Leased 10,622,785 0.67Other 12,825,782 0.81

TOTAL $1,587,093,069 100.00%___________Source: County Officials

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FINANCIAL FACTORS OF THE COUNTY

Market Valuation of Real Estate (2010) ........................................................... $3,810,264,592Assessed Valuation of Real Estate (2010)........................................................ 1,634,603,510Ratio of Assessed to Market Valuation ............................................................ 43.99%

Population: 1990 Federal Census............................................................... 56,8462000 Federal Census............................................................... 58,8022010 Federal Census............................................................... 65,249

Non-Electoral Debt:General Obligation Bonds, Series A of 2011 ...................................... $5,605,000General Obligation Bonds, Taxable Series B of 2011......................... 2,065,000General Obligation Note, Series of 2000............................................. 150,000

Total Non-Electoral Debt........................................................ $7,820,000

Lease Rental Debt ............................................................................................. $12,975,000 Less Debt Deemed Self-liquidating ............................................................... 12,605,000 Net Lease Rental Debt ................................................................................... 370,000

Total Direct Debt .............................................................................................. $8,190,000

Overlapping Debt:School Districts(2)(3) .............................................................................. $99,436,200Municipalities(3) ................................................................................... 74,168,005

Total Direct Debt & Overlapping Debt ............................................................ $181,794,205

Ratio of Total Direct Debt to:Market Valuation of Real Estate.......................................................... 0.215%Assessed Valuation of Real Estate ...................................................... 0.501%Population (2010) ................................................................................ $125.51

Ratio of Total Direct Debt & Overlapping Debt to:Market Valuation of Real Estate.......................................................... 4.771%Assessed Valuation of Real Estate ...................................................... 11.122%Population (2010) ................................................................................ $2,786.169

_____________(1) Does not subtract subsidies payable by the Commonwealth of Pennsylvania to School Districts.(2) Source: Department of Community and Economic Development; as of January 1, 2012.

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Medical facilities

There are 2 general acute care hospitals that serve Carbon County. These hospitals, their licensed bed capacities and number of employees (full-time and part-time) are as follows:

Institution Location Licensed Beds Staff

Gnaden Huetten Memorial Hospital Lehighton 95 699Palmerton Hospital Palmerton 68 341_____________Source: Pennsylvania Department of Health, Bureau of Health Statistics; 2009/2010 reporting period.

The health care system of the County is complemented by three nursing home facilities with a total of 433 beds.

Transportation

Road access to the County is provided by the Northeast Extension of the Pennsylvania Turnpike, which runs from north to south, and Interstate 80, which runs from east to west. Rail service to the County is provided by Conrail and two Shortline Railroads, which interchange with Conrail.

Utilities

Those utilities serving the major portions of the County include PPL Energy Resources, which provides electric service to the area, Verizon, which provide telephone services. Water and sewer service is primarily provided by municipal owned systems and private on-lot wells and septic systems.

Schools and Institutions

Presently, there are 5 public school districts serving the County. These districts are comprised of 9 elementary schools, 5 middle and junior schools and 5 senior high schools. In addition, 7 parochial and private schools serve the County. The County is also home to Lehigh Carbon Community College and the Carbon County Area Vocational Technical School. Many other post secondary educational institutions are within easy commuting distances including: Lehigh University, Wilkes University, East Stroudsburg University, Lafayette College, Muhlenburg College, Cedar Crest College and the Hazleton, Allentown, Schuylkill Haven and Wilkes-Barre campuses of Pennsylvania State University.

Recreation

Within the borders of the County, recreation abounds. Residents and tourists alike find a diversity of activities. The Commonwealth maintains three parks in the County, Lehigh Gorge Park for biking, hiking, fishing, hunting, cross country skiing and snowmobiling; Hickory Run Park for camping, swimming, picnicking, hunting, fishing, ice skating, cross country skiing and snowmobiling; and Beltzville Park for fishing, hunting, picnicking, boating, camping, swimming, water skiing, ice fishing and cross country skiing. There are also recreational programs and facilities publicly and privately supported in the municipalities within the County.

APPENDIX D

AUDITED FINANCIAL STATEMENTOF THE COUNTY FOR ITS FISCAL YEAR ENDED

DECEMBER 31, 2010

The following pages contain the audited financial statements for the County for its fiscal year ended December 31, 2010.

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APPENDIX E

SUMMARY OF PRINCIPAL DOCUMENTS

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DEFINITIONS OF CERTAIN TERMS AND

SUMMARY OF PRINCIPAL DOCUMENTS

The following are definitions of certain terms used in the Indenture, the Loan Agreement and the County Guaranty, and summaries of certain provisions of such documents. The summaries set forth below should not be regarded as full statements of the documents themselves, or of the portions summarized. Reference is made to the documents in their entireties for the complete statements of the provisions thereof. Copies of the Indenture, the Loan Agreement and the County Guaranty are on file at the designated corporate trust office of the Trustee.

DEFINITIONS

“Additional Bonds” shall mean any Bonds or series of Bonds, other than the Series 2012 Bonds and the Series 2000 Bonds, authenticated and delivered under the Indenture.

“Additional Indebtedness” means any Indebtedness incurred by the Hospital subsequent to the issuance of the Bonds.

“Additional Parity Indebtedness” means any Indebtedness of the Hospital secured by a pledge of Gross Revenues of the Hospital on a parity basis with the Bonds.

“Administrative Expenses” means the reasonable fees and expenses of the Authority (including the initial Authority fee) and the Trustee, including legal fees and expenses, in connection with any Bonds or the administration of the Indenture, the Loan Agreement or the County Guaranty.

“Annual Debt Service” means the Debt Service Requirement for the Fiscal Year in question.

“Architect” means an architect, engineer or construction manager or firm thereof or other Person who is Independent and qualified to pass on questions relating to the design and construction of the Hospital’s facilities, has a favorable reputation for skill and experience in performing similar services in respect of facilities of a comparable size and nature, has been appointed as such by the Hospital and is not unsatisfactory to the Authority.

“Authority” shall mean the Carbon County Hospital Authority.

“Authority Representative” shall mean the Chairman or Vice Chairman or any other officer of the Authority or other person designated by certified resolution of the governing body

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of the Authority to act for the Authority, either generally or with respect to the execution of any particular document or other specific matter, a copy of which shall be on file with the Trustee.

“Balloon Indebtedness” means (a) Long-Term Indebtedness, or Short-Term Indebtedness which is intended to be refinanced upon or prior to its maturity (and which Short-Term Indebtedness is subject to a commercially reasonably binding commitment for such refinancing) so that such Short-Term Indebtedness will be outstanding, in the aggregate, for more than one year as certified in a Hospital Certificate, twenty-five percent or more of the initial principal amount of which matures (or is payable at the option of the holder) during any twelve-month period, if such twenty-five percent or more is not amortized to below twenty-five percent by mandatory redemption prior to the beginning of such twelve-month period, or (b) any balloon maturity or maturity payable prior to maturity at the option of the holder, constituting a portion of an issue of Long-Term Indebtedness which portion, if treated as a separate issue of Indebtedness, would meet the test set forth in clause (a) of this definition and which portion of Indebtedness is designated as Balloon Indebtedness in a Hospital Certificate stating that such portion shall be deemed to constitute a separate issue of Balloon Indebtedness.

“Bondholder”, “holder” or “owner” shall mean, when used with respect to Bonds, the Person in whose name any Bond is registered in the registration books kept pursuant to the Indenture.

“Bonds” shall mean the Series 2012 Bonds, the Series 2000 Bonds, and any additional series of bonds authenticated and delivered pursuant to the Indenture.

“Bond Index” means the index or interest rate as may be submitted in writing to the Trustee by a firm of investment bankers or a financial advisory firm selected by the Hospital, as the index or interest rate reasonably reflecting the terms and provisions of the Indebtedness in question.

“Business Day” shall mean any day on which the designated corporate trust office of the Trustee is open for business; provided that, when used with respect to any required drawing under a Reserve Fund Credit Facility, such term shall mean a day on which both the designated corporate trust office of the Trustee and the office at which drawings are to be made under the Reserve Fund Credit Facility are open for business.

“Capital Additions” shall mean any and all additions, improvements or extraordinary repairs to or replacements of all or any part of the Property, Plant and Equipment of the Hospital, the cost of which is properly chargeable to a plant or property account under generally accepted accounting principles.

“Capitalized Interest” means that portion of the proceeds of any Indebtedness or any other funds (other than the Debt Service Fund, the Debt Service Reserve Fund or any other bond fund or debt service reserve fund securing Indebtedness) that are held in trust and are restricted to

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be used to pay interest due or to become due on Indebtedness, including funds held in connection with an advance refunding or a cross-over refunding.

“Certificate” shall mean a certificate or report, in form and substance satisfactory to the Authority and the Trustee, executed: (a) in the case of an Authority Certificate, by an Authority Representative; (b) in the case of the Hospital Certificate, by the Hospital Representative; and (c) in the case of a Certificate of any other Person, by such Person, if an individual, and otherwise by an officer, partner or other authorized representative of such Person.

“Certified Resolution” shall mean, as the context requires: (a) one or more resolutions or ordinances of the governing body of the Authority, certified by the Secretary or Assistant Secretary of the Authority, under its seal, to have been duly adopted or enacted and to be in full force and effect as of the date of certification; or (b) one or more resolutions of the governing body of the Hospital or a duly authorized committee thereof, certified by the Secretary or Assistant Secretary of the Hospital or other officer serving in a similar capacity, under its corporate seal, to have been duly adopted and to be in full force and effect as of the date of certification.

“Code” means the Internal Revenue Code of 1986, as amended, and the applicable Treasury regulations thereunder, as the same may be amended from time to time. Reference herein to any specific provision of the Code shall be deemed to refer to any successor provision of the Code.

“Completion Indebtedness” shall mean any Indebtedness incurred by the Hospital for the purpose of (a) financing the completion of constructing or equipping facilities for which Indebtedness has theretofore been incurred in accordance with the provisions of the Loan Agreement, to the extent necessary to provide a completed and equipped facility of the type and scope contemplated at the time of the initial funding of the facilities.

“Consultant” means an Independent, nationally recognized consulting firm which is appointed by the Hospital for the purpose of passing on questions relating to its financial affairs, management or operations, has a favorable reputation for skill and experience in performing similar services in respect of entities of a comparable size and nature and is not unsatisfactory to the Authority.

“Counsel” means an attorney or law firm (which may be counsel to the Authority and/or the Hospital) not unsatisfactory to the Authority.

“County” means the County of Carbon, Pennsylvania.

“Credit Facility” means any irrevocable transferable letter of credit, confirming letter-. of credit, insurance policy, guaranty or other agreement constituting a credit enhancement or liquidity facility which is in a commercially reasonable form or any combination thereof.

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“Current Assets” means cash and cash equivalent deposits, marketable securities, Accounts Receivable, accrued interest receivable, and funds designated by the board of Trustees of the Hospital ordinarily considered current assets under generally accepted accounting principles.

“Debt Service Coverage Ratio” means, for any period of time, the ratio of Income Available for Debt Service to Maximum Annual Debt Service.

“Debt Service Requirement” means, for any period of time, the aggregate of the scheduled payments to be made (other than from amounts irrevocably deposited with the Trustee or otherwise held for the benefit of a lender for purposes of such payments, including funds held in connection with an advance refunding or a cross-over refunding) in respect of principal of and interest on Long-Term Indebtedness of the Hospital during such period, also taking into account (a) with respect to Balloon Indebtedness, the provisions pertaining to debt service on Balloon Indebtedness, (b) with respect to Variable Rate Indebtedness, the provisions pertaining to debt service on Variable Rate Indebtedness, (c) with respect to Capitalized Interest, the provisions pertaining to credit for Capitalized Interest, and (d) with respect to Indebtedness represented by a Guaranty of obligations of a person, the provisions pertaining to restrictions on Guaranties.

“Event of Default” means any of the events described as an event of default under the headings “THE INDENTURE - Events of Default and Remedies” and “THE LOAN AGREEMENT - Events of Default and Remedies” in this Appendix E.

“Fiscal Year” means the annual accounting year of the Hospital, which currently begins on July 1 in each calendar year.

“Government Obligations” shall mean (a) direct obligations of, or obligations the timely payment of the principal of and interest on which is guaranteed by, the United States of America, (b) evidences of ownership of a proportionate interest in specified direct obligations of, or specified obligations the timely payment of the principal of and the interest on which are unconditionally and fully guaranteed by, the United States of America, which obligations are held by a bank or trust company organized and existing under the laws of the United States of America or any state thereof in the capacity of custodian and (c) obligations which are issued by any state or political subdivision thereof or any agency or instrumentality of such a state or political subdivision and which are fully secured as to principal and interest by obligations described in clause (a) or (b) above.

“Governmental Restriction” means the occurrence of the following: (a) changes in applicable laws, governmental regulations or governmental insurance programs shall have occurred which prevent, have prevented or will prevent the Hospital from generating sufficient Income Available for Debt Service to comply with the particular requirement of the financing document in question, (b) the effect upon the Hospital of the circumstances set forth in clause (a)above shall have been confirmed by a signed Consultant’s opinion or report delivered to the

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Trustee, (c) a Hospital Certificate shall have been delivered to the Trustee stating the Hospital has generated the highest level of Income Available for Debt Service which, in the opinion of the Hospital, could reasonably be generated given the circumstances set forth in clause (a) above, and (d) there shall have been delivered to the Trustee an Opinion of Counsel as to any conclusions of law supporting the opinion or report of the Consultant.

“Gross Revenues” shall mean all receipts, revenues, income and other moneys received by or on behalf of the Hospital from the operation, ownership or leasing of its Property and all rights to receive the same whether in the form of accounts receivable, contract rights, chattel paper, instruments, general intangibles, or other rights and the proceeds thereof, including any insurance proceeds and any condemnation awards derived therefrom, whether now existing or hereafter coming into existence and whether now owned or held or hereafter acquired by the Hospital in connection with its Property; provided, however, that there shall be excluded from Gross Revenues gifts, grants, bequests, donations and contributions heretofore or hereafter made, designated or restricted at the time of making thereof by the donor or maker as being for certain specified purposes inconsistent with the application thereof to the payments due under the Loan Agreement or not subject to pledge, and the income derived therefrom to the extent required by such designation or restriction.

“Guaranty” means all obligations of the Hospital guaranteeing in any manner, whether directly or indirectly, any obligation of any other Person which would, if such other Person were the Hospital, constitute Indebtedness, unless the obligation of such other Person is other than for the payment of a sum certain.

“Historic Test Period” means (a) the most recent Fiscal Year of the Hospital, if audited financial statements with respect to such Fiscal Year are available for the Hospital or (b) if such audited financial statements are not available, the most recent period for which such audited financial statements are available.

“Hospital Representative” means the President or Vice President or any other person or persons at the time designated to act on behalf of the Hospital, either generally or with respect to the execution of any particular document or other specific matter, as set forth in By-Laws of the Hospital or a certified resolution of its governing body, copies of which shall be on file with the Authority and the Trustee.

“Income Available for Debt Service” means, with respect to the Hospital, as to any period of time, net income, or excess of revenue over expenses (including investment income; gifts and bequests, but excluding donor restricted funds and the income thereon to the extent restricted by the donor thereof to other than operating expenses) before depreciation,’ amortization and interest, as determined in accordance with generally accepted accounting principles consistently applied; provided, that no determination thereof shall take into account (a) any gain or loss resulting from either the extinguishment of Indebtedness or the sale, exchange, revaluation or other disposition of capital assets or other long-term assets not in the ordinary

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course of business, (b) all items which under generally accepted accounting principles are considered extraordinary items and which are substantially non-cash charges, or (c) the netproceeds of insurance (other than business interruption insurance) and condemnation awards.

“Indebtedness” means all obligations for payment of principal and interest With respect to money borrowed, incurred or assumed by the Hospital, and all purchase money mortgages, financing or capital leases, installment purchase contracts, or other similar instruments in the nature of a borrowing by which the Hospital will be unconditionally obligated to pay. Nothing in this definition or otherwise shall be construed to count Indebtedness more than once, and Indebtedness incurred pursuant to the Loan Agreement shall be counted only to the extent the reimbursement obligation on amounts drawn or, in the reasonable judgment of the Hospital, likely to be drawn on the liquidity or credit facility exceeds the obligation on the Indebtedness for which liquidity or credit support is provided.

“Indenture” shall mean the Trust Indenture, dated as of November 1, 1990, between the Authority and The Bank of New York Mellon Trust Company, N.A., as successor trustee, as amended or supplemented from time to time.

“Independent” shall mean (a) in the case of an individual, one who is not a member of the governing body of the Authority or the Hospital or an officer or employee of the Authority or the Hospital, and (b) in the case of a partnership, corporation or association, one which does not have a partner, director, officer, member or substantial stockholder who is a member of the governing body of the Authority or the Hospital or an officer or employee of the Authority or the Hospital; provided, however, that the fact that a Person is retained regularly by or transacts business with the Authority or the Hospital shall not make such Person an employee within the meaning of this definition.

“Independent Public Accountant” shall mean an Independent accounting firm which is appointed by the Hospital for the purpose of examining and reporting on or passing on questions relating to its financial statements, has all certifications necessary for the performance of such services, has a favorable reputation for skill and experience in performing similar services in respect of entities of a comparable size and nature and is not unsatisfactory to the Authority.

“Insured Bonds” shall mean the Series 2012 Bonds, the Series 2000 Bonds and any other series of bonds issued under the Indenture and guaranteed by a Municipal Bond Insurance Policy.

“Insurance Consultant” means an Independent firm of insurance agents, brokers or consultants which is appointed by the Hospital for the purpose of reviewing and recommending insurance coverages for the facilities and operations of the Hospital, has a favorable reputation for skill and experience in performing such services in respect of facilities and operations of acomparable size and nature, and is not unsatisfactory to the Authority.

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“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, Current Asset or Gross Revenues of the Hospital which secures any Indebtedness or any other obligation of the Hospital, or which secures any obligation of any person other than an obligation to the Hospital, excluding liens applicable to Property in which the Hospital has only a leasehold interest unless the lien secures Indebtedness of the Hospital or an obligation of any person other than an obligation to the Hospital.

“Long-Term Indebtedness” shall mean all Indebtedness other than Short-Term Indebtedness, including the following: (a) Indebtedness 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; (b) Indebtedness with respect to leases which are capitalized in accordance with generally accepted account 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 (c) Indebtedness with respect to installment sales obligations having an original term in excess of one year.

“Maximum Annual Debt Service” shall mean the highest annual Debt Service Requirement for the then current or any future Fiscal Year.

“Moody’s” means Moody’s Investors Service or any successor organization providing securities rating services.

“Municipal Bond Insurance Policies” or “Municipal Bond Insurance Policy” shall mean any and all municipal bond insurance policies insuring the payment when due of the principal of and interest on a series of Bonds as provided in each such Policy.

“Non-Recourse Indebtedness” means any Indebtedness secured by a Lien on any real property, fixtures and tangible property, which Indebtedness is not a general obligation of the Hospital, 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.

“Outstanding” shall mean:

(a) with respect to the Bonds, all such Bonds authenticated and delivered under the Indenture as of the time in question, except (i) all Bonds theretofore canceled or required to be canceled under the Indenture, (ii) Bonds for the payment or redemption of which provision has been made in accordance with the provisions described under the heading “THE INDENTURE - Defeasance”; provided that, if such Bonds are being redeemed, the required notice of redemption shall have been given or provision satisfactory to the Trustee shall have been made therefor, and that if such Bonds are being purchased, there shall be a firm commitment for the purchase and sale thereof,

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and (iii) Bonds in substitution for which other Bonds have been authenticated and delivered pursuant to the Indenture; and

(b) with respect to other Indebtedness, all such Indebtedness incurred as of the time in question except (i) Indebtedness theretofore canceled or required to be canceled in accordance with the applicable financing documents, (ii) Indebtedness for the payment or redemption of which provision has been made in accordance with the applicable financing documents if, upon the making of such provision, all payment obligations, covenants and agreements of the Hospital under the applicable financing documents shall cease to be binding upon the Hospital and all Liens securing the Indebtedness (other than Liens upon moneys and securities deposited in escrow to provide for the payment or redemption of the Indebtedness) shall be discharged, and (iii) Indebtedness evidenced by any bond, note or other similar instrument in substitution for which a replacement bond, note or other instrument has been issued in accordance with the applicable financing documents.

“Original Indenture” shall mean the Indenture dated as of November 1, 1990, between the Authority and the Trustee.

“Permitted Encumbrances” shall have the meaning set forth under the heading “THE LOAN AGREEMENT - Permitted Encumbrances” in this Appendix E.

“Person” shall mean an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization, a governmental body or a political subdivision, a municipality, a Municipal authority or any other group or organization of individuals.

“Pledged Revenues” shall mean the loan payments received or receivable by the Authority from the Hospital under the Loan Agreement, any and all other amounts payable to the Trustee as specified in the Indenture, and all income and receipts on the funds held by the Trustee under the Indenture.

“Property” shall mean any and all right, title and interest in and to any and all property whether real or personal, tangible or intangible and wherever situated.

“Property, Plant and Equipment” shall mean all Property of the Hospital which is property, plant and equipment under generally accepted accounting principles.

“Qualified Investments” shall mean and include any of the following, to the extent permitted under the applicable laws of the Commonwealth:

(a) direct obligations of (including obligations issued or held in book entry form on the books of) the Department of Treasury of the United States of America;

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(b) obligations of any of the following federal agencies, which obligations represent the full faith and credit of the United States of America: (i) Export-Import Bank; (ii) Farmers Home Administration; (iii) General Services Administration; (iv) U.S. Maritime Administration; (v) Small Business Administration; (vi) Government National Mortgage Association; (vii) -U.S. Department of Housing & Urban Development; and (viii) Federal Housing Administration;

(c) bonds, notes or other evidences of indebtedness rated “AAA” by S&P or “Aaa” by Moody’s issued by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation with remaining maturities not exceeding three years;

(d) U.S. dollar denominated deposit accounts, federal funds and banker’s acceptances with domestic commercial banks which have a rating on their short-term certificates of deposit on the date of purchase of “A-1” or “A-1 +” by S&P and “P-1” by Moody’s and maturing no more than 360 days after the date of purchase (ratings on holding companies are not considered as the rating of the bank);

(e) commercial paper which is rated at the time of purchase in the single highest classification, “A-1+” by S&P and “P-1” by Moody’s and which matures not more than 270 days after the date of purchase;

(f) investments in a money market fund rated “AAAm” or AAAm-G” or better by S&P;

(g) pre-refunded municipal obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (i) which are rated, based on the escrow, in the highest rating category of S&P and Moody’s or any successors thereto; or (ii) (A) which are fully secured as to principal and interest and redemption premium, if any, by a fund consisting only of cash or obligations described in subparagraph (a) above, which fund may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (B) which fund is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this subparagraph on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate;

(h) investment agreements approved in writing by the applicable issuer of a Municipal Bond Insurance Policy with notice to S&P; and

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(i) other forms of investments approved in writing by the applicable issuer of a Municipal Bond Insurance Policy with notice to S&P.

“Redemption Price” shall mean the principal amount of any Bond to be redeemed pursuant to the Indenture, plus the applicable premium, if any, payable upon redemption.

“Reserve Fund Credit Facility” shall mean a letter of credit, surety bond or other similar instrument which (a) is issued in favor of the Trustee, (b) is deposited in the Debt Service Reserve Fund and (c) satisfies the requirements described under the heading “THE INDENTURE - Debt. Service Reserve Fund” in this Appendix E.

“Reserve Fund Requirement” shall mean an amount equal to the Maximum Annual Debt Service Requirements on all Bonds Outstanding as of the date of determination which are secured by the Debt Service Reserve Fund; provided that the amount deposited at the time of issuance of each series of Bonds secured by the Debt Service Reserve Fund shall not exceed 10% of the principal amount (net of original issue discount) of such series of Bonds.

“S&P” means Standard & Poor’s Corporation or any successor organization providing securities rating services.

“Short-Term Indebtedness” means all Indebtedness, other than Long-Term Indebtedness, which meets one or more of the following criteria:

(a) Indebtedness with respect to money borrowed payable on demand or 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;

(b) Indebtedness with respect to 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 of one year or less; and

(c) Indebtedness with respect to installment purchase contracts having an original term of one year or less (other than contracts entered into in the ordinary course of business).

“Subordinated Indebtedness” means any obligations incurred or assumed by the Hospital, the payment of which is by its terms specifically subordinated to payments on the Bonds and any Additional Parity Indebtedness, or the principal of and interest on which would not be paid (whether by the terms of such obligation or agreement of the obligee) when the Bonds or Additional Parity Indebtedness are in default or while bankruptcy, insolvency, receivership or other similar proceedings are instituted and implemented.

“Supplemental Indenture” shall mean any indenture amending or supplementing the Indenture which may be entered into in accordance with the provisions of the Indenture.

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“Total Operating Revenues” means the gross operating revenues of the Hospital less applicable deductions from operating revenues as determined in accordance with generally accepted accounting principles consistently applied.

“Trustee” means The Bank of New York Mellon Trust Company, N.A., as successor trustee under the Indenture, and any other successors as trustee thereunder.

“Value” means when used in connection with Property, Plant and Equipment, Property, Current Assets or Accounts Receivable of the Hospital the cost basis of such property, net of accumulated depreciation, as it is carried on the books of the Hospital and in conformity with generally accepted accounting principles consistently applied.

“Valuation Date” shall have the meanings set forth under the heading “THE INDENTURE - Investment of Funds” in this Appendix E.

“Variable Rate Indebtedness” means Indebtedness that bears interest at a variable, adjustable or floating rate.

THE INDENTURE

Pledge and Assignment

Under the Indenture, the Authority has pledged to the Trustee all of its right, title and interest in and to the Loan Agreement (except for certain rights to receive payment of its Administrative Expenses and Indemnification against liabilities), all Funds and Accounts established under the Indenture and all Pledged Revenues. Except as otherwise provided in the Indenture, the foregoing shall be held by the Trustee for the equal and ratable benefit of all Bonds issued under the Indenture, the Series 2012 Bonds, the Series 2000 Bonds and any Additional Bonds hereafter issued.

Series 2012 Bonds and Series 2000 Bonds to Constitute Additional Bonds

Upon the issuance thereof pursuant to the terms of the Indenture, each of the Series 2012 Bonds and the Series 2000 Bonds shall be deemed to be “Additional Bonds” issued under the Indenture, and shall be equally and ratably secured (except as otherwise provided in the Indenture) with all other Bonds issued and Outstanding under the Indenture as provided therein.

Additional Bonds

The Authority may issue one or more series of Additional Bonds from time to time and lend the proceeds thereof to the Hospital pursuant to the Loan Agreement to provide funds for the cost of undertaking or completing a Capital Addition or the cost of refunding or refinancing all or a portion of the Outstanding Bonds of any one or more series or of any Long-Term Indebtedness other than Bonds. Such Additional Bonds may be issued upon compliance with

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certain specified requirements under the Indenture, including the delivery to the Trustee of appropriate supplements to the Indenture and Loan Agreement, and, if applicable, the County Guaranty, and appropriate certificates demonstrating that the Hospital’s payment obligations under the Loan Agreement in respect of the Additional Bonds have been properly incurred in accordance with the applicable provisions described under the heading “THE LOAN AGREEMENT -Additional Indebtedness” in this Appendix E.

Funds and Accounts Established Under the Indenture

Revenue Fund. The Trustee shall establish a Revenue Fund into which it will deposit loan repayments made by the Hospital as described under the heading “THE LOAN AGREEMENT - Repayment of Loan” in this Appendix E, and certain other moneys available for such deposit under the Indenture. Moneys so deposited will be transferred to the Debt Service Fund when needed for the purposes thereof.

Debt Service Fund. The Trustee shall establish a Debt. Service Fund for the payment of the principal or Redemption Price (upon Mandatory Redemption) of and interest on all Outstanding Bonds. Subject to certain conditions specified in the Indenture, moneys in the Debt Service Fund will also be available for purchases of Bonds for cancellation prior to the maturity or redemption thereof.

Construction Fund. The Trustee shall establish a Construction Fund for the payment of costs of Capital Additions to be paid from the proceeds of Additional Bonds or from insurance proceeds, condemnation awards (or similar sums) in accordance with the Loan Agreement (see “THE LOAN AGREEMENT - Insurance Proceeds and Condemnation Awards” in this Appendix E). The costs of such Capital Additions shall be paid by the Trustee upon requisition therefor by the Hospital as prescribed by the Indenture. The Trustee is authorized to establish sub-accounts within the Construction Fund in accordance with the applicable provisions of the Indenture.

Debt Service Reserve Fund. The Trustee shall establish a Debt Service Reserve Fund into which the Trustee will make the deposits as required in connection with the issuance of Additional Bonds as described below. The amount of any withdrawal to cure a deficiency in the Debt Service Fund shall be restored in no more than twelve equal, consecutive, monthly installments; provided that, if any withdrawal is made and, prior to the restoration of the such initial amount withdrawn, an additional withdrawal is made, such additional withdrawal shall be restored in equal monthly installments over the remainder of the restoration period for the initial withdrawal. In addition, if the value of the Debt Service Reserve Fund is less than 95% of the Reserve Fund Requirement on all Bonds Outstanding as of any Valuation Date (except to the extent that such deficiency relates to any withdrawal or any incremental funding in connection with the issuance of Additional Bonds as described below), the difference between such Reserve Fund Requirement and the value of the Debt Service Reserve Fund shall be restored within 120 days from the day on which the valuation revealing the deficiency is made.

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Moneys on deposit in the Debt Service Reserve Fund shall be used to cure deficiencies in the Debt Service Fund. Subject to the provisions of the Indenture described below under “Investment of Funds”, excess moneys in the Debt Service Reserve Fund shall be transferred to the Revenue Fund, except that during the construction period for any Capital Addition for which a Construction Fund is established, such portion of the excess as may be necessary to cure a deficiency in the Construction Fund shall be transferred thereto. During the twelve month period preceding the final maturity date of any particular series of Bonds, the amount on deposit in the Debt Service Reserve Fund and allocable to such series of Bonds, subject to the provisions of the Indenture shall also be available for transfers to the Debt Service Fund for application to the payment of debt service on such Bonds.

The Reserve Fund Requirement shall be recalculated in connection with the issuance of any Additional Bonds; provided that the Authority may, at the request of the Hospital, issue Additional Bonds which are not secured by or otherwise entitled to any payments from the Debt Service Reserve Fund, in which case no such recalculation shall be required. If any recalculation of the Reserve Fund Requirement is made which indicates that excess moneys are on deposit in the Debt Service Reserve Fund, such excess shall be applied in such manner as the Hospital may direct in writing, provided that such direction shall be accompanied by a written opinion of nationally recognized bond counsel to the effect that such application will not adversely affect any applicable exemption from federal income taxation of the interest on any Bonds then Outstanding or •on the Additional Bonds then to be issued. If any recalculation indicates that the amount on deposit in the Debt Service Reserve Fund is less than the Reserve Fund Requirement, an additional deposit to cure such deficiency shall be made on the settlement date for the Additional Bonds provided that, in the case of Additional Bonds issued to finance Capital Additions involving construction or renovations, the deficiency may be cured in specified installments over the period, if any, for which interest on the Additional Bonds has been funded from the proceeds thereof.

At the option of the Hospital, all or any portion of the Reserve Fund Requirement may be satisfied by a Reserve Fund Credit Facility, subject to the following requirements: (a) each Reserve Fund Credit Facility shall have a term of not less than five years and permit the Trustee to make specified drawings thereunder; (b) prior to its acceptance of any Reserve Fund Credit Facility (including any replacement for a Reserve Fund Credit Facility previously issued), the Trustee shall have received written confirmation from Moody’s and S&P that the unsecured, longterm senior debt obligations of the issuer of such Reserve Fund Credit Facilities are rated in one of the two highest rating categories (disregarding qualifications of such categories by numerical symbols or symbols such as “+” or “-”); and (c) the Trustee shall be required to draw the full amount available under any such Reserve Fund Credit Facility and to deposit such amount in the Debt Service Reserve Fund (i) on the first Business Day which is less than six months prior to the expiration of the Reserve Fund Credit Facility, unless the Reserve Fund Credit Facility is renewed or replaced prior to such Business Day, (ii) on the last Business Day on which a drawing can be made under the Reserve Fund Credit Facility, if it is to be terminated prior to expiration (other than by reason of a reduction or release of the Reserve Fund Requirement as described

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below), unless the Reserve Fund Credit Facility is replaced prior to such. Business Day, or (iii) on the first Business Day which is more than 12 months after the Trustee has received written notice from Moody’s or S&P that the issuer of the Reserve Fund Credit Facility no longer meets the requirements of clause (b):above, unless the Reserve Fund Credit Facility is replaced prior to such Business Day.

If any Reserve Fund Credit Facility is issued to replace moneys then on deposit in the Debt Service Reserve Fund, such moneys shall be applied in such manner as the Hospital Representative may direct in writing, which direction shall be accompanied by a written opinion of nationally recognized bond counsel to the effect that such application will not adversely affect any applicable exemption from federal income taxation of the interest on any Outstanding Bonds.

Redemption Fund. The Trustee shall establish a Redemption Fund into which it shall deposit such amounts as are required or permitted under the Indenture to be used to pay the Redemption Price of Bonds upon any redemption (other than a Mandatory Redemption) pursuant to the Indenture. Moneys deposited in the Redemption Fund shall be used to pay the Redemption Price of Bonds upon any such redemption.

Rebate Fund. The First Supplemental Indenture authorizes and directs the Trustee to establish a Rebate Fund and within such Fund, separate accounts for the Series 2012 Bonds and the Series 2000 Bonds. The Trustee is authorized and directed to make Rebate Payments in such amounts as are determined to be required to comply with the requirements of the Code to maintain the exemption from federal income taxation of the interest on any Outstanding Bonds.

Investment of Funds

All moneys on deposit in any Fund or Account established under the Indenture shall be considered trust funds, shall not be subject to lien or attachment and shall, except as provided in the Indenture, be deposited in the commercial department of the Trustee, until or unless invested or deposited as provided below. All deposits in the commercial department of the Trustee shall, to the extent not insured, be fully secured as to principal by Government Obligations.

All investments shall constitute Qualified Investments and shall mature, or be subject to repurchase, withdrawal without penalty, or redemption at the option of the holder on or before the dates on which the amounts invested are reasonably expected to be needed for the purposes ofthe Indenture.

All investments shall be made at the direction of the Hospital or, in the absence of such direction, at the discretion of the Trustee. No investments shall be made which would cause the Bonds to become “arbitrage bonds” within the meaning of Section 148 of the Internal Revenue Code.

The principal of the Qualified Investments and the interest, income and gains received in respect thereof shall be applied as follows: (a) unless otherwise provided in the supplement to the

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Indenture relating thereto, during the construction period for any Capital Addition for which a Construction Fund is established, all interest, income and profits received in respect of the Qualified Investments or upon the sale or other disposition thereof shall (after deduction of any losses) be retained in or transferred to the Construction Fund and, after the completion of such construction, shall be retained in or transferred to the Revenue Fund and credited against subsequent deposit requirements; and (b) whenever any other transfer or payment is required to be made from any particular Fund, such transfer or payment shall be made from such combination of maturing principal, redemption or repurchase prices, liquidation proceeds and withdrawals of principal as the Trustee deems appropriate for such purpose.

Neither the Authority nor the Trustee shall be accountable for any depreciation in the value of the Qualified Investments or any losses incurred upon any authorized disposition thereof.

The Trustee shall determine the value of the assets in each of the Funds established under the Indenture as of each April 30 and October 30 (each, a “Valuation Date”). As soon as practicable after each such Valuation Date, the Trustee shall furnish to the Authority and the Hospital a report of the status of each Fund as of such date. The Trustee shall also advise the Hospital at such time of the amount then available in the Revenue Fund as a credit against future deposits prior to the next Valuation Date in direct order of the due dates of such deposits. In computing the value of assets in any Fund or Account, investments shall be valued at the lower of the cost or market value thereof, except that investments in the Debt Service Reserve Fund shall be valued at the market value thereof, and all investments (valued as aforesaid) and accrued interest thereon shall be deemed a part of such Funds and Accounts.

Covenants of the Authority

The Authority covenants, among other things, promptly to pay, but only from Pledged Revenues, the principal of the Bonds and interest thereon. The Authority shall enforce all of its rights and privileges under the Loan Agreement and honor all of its obligations thereunder and require the Hospital to perform all of its obligations and covenants under the Loan Agreement. The Authority shall not, without the consent of the Trustee, amend the Loan Agreement so as to affect adversely the Authority’s ability to perform its covenants under the Indenture.

Events of Default and Remedies

Each of the following is an Event of Default (“Event of Default”) under the Indenture:

(a) If the principal or Redemption Price of any Bond is not paid when the same shall become due and payable at maturity, upon redemption or otherwise; or

(b) If an installment of interest on any Bond is not paid when the same shall become due and payable; or

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(c) If the Hospital shall fail to pay, when due and payable, any sum due pursuant to the provisions of the Loan Agreement and such failure continues to exist as of the expiration of any grace period provided in the Loan Agreement; or

(d) If any other event of default under the Loan Agreement shall occur and be continuing; or

(e) If the Authority fails to comply with any provision of the Act which renders it incapable of fulfilling its obligations thereunder or under the Indenture; or

(f) If the Authority fails to comply with any applicable provisions of the Code; or

(g) If the Authority fails to perform any of its covenants, conditions, agreements and provisions contained in the Bonds or in the Indenture (other than as specified in paragraphs (a) and (b) above).

Provided, however that no default under paragraph (d) or (f) above shall constitute an Event of Default until actual notice of such default by registered or certified mail shall be given to the Authority and the Hospital by the Trustee or by the holders of not less than 25 percent in aggregate principal amount of all Bonds Outstanding and until the Authority and the Hospital shall have had 30 days after receipt of such notice to correct such default, and shall not have corrected it; provided further, that, if the default is such that it cannot be corrected within such 30 day period, it shall not constitute an Event of Default if corrective action is instituted by the Authority or the Hospital within such 30 day period and is diligently pursued to completion by the Authority or the Hospital.

Should any Event of Default occur and be continuing, then the Trustee may, by notice in -

writing delivered to the Authority, the Hospital, the applicable issuer of a Municipal Bond Insurance Policy and the Bondholders, declare the principal of all Bonds then Outstanding to be due and payable immediately, and upon such declaration the said principal, together with interest accrued thereon, shall become due and payable immediately; provided, however, that (i) no such declaration shall be made if the Hospital cures such Event of Default prior to the date of the declaration, (ii) no such declaration shall apply to any Series of Bonds guaranteed by the County (including the Series 2012 Bonds and the Series 2000 Bonds) if the County is paying principal or Redemption Price of and interest on such Bonds when due, and (iii) unless the applicable issuer of a Municipal Bond Insurance Policy is in default under any Municipal Bond Insurance Policy, no such declaration shall apply to the Insured Bonds unless directed or consented to by the applicable issuer of a Municipal Bond Insurance Policy.

The Trustee shall be required to take the foregoing actions if requested in writing to do so by the applicable issuer of a Municipal Bond Insurance Policy or by the holders of at least 25% in aggregate principal amount of all Outstanding Bonds (with the consent of the applicable issuer of a Municipal Bond Insurance Policy). The Trustee may, subject to the provisions of the Indenture,

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annul any such declaration and its consequences if all Events of Default are cured after the declaration is made. Any such annulment shall be binding upon the Trustee and upon all holders of Outstanding Bonds; but no such annulment shall extend to or affect any subsequent default.

Upon the happening of an Event of Default, the Trustee may, and upon the written request of the holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding under the Indenture shall, proceed to protect and enforce its rights and the rights of the Bondholders under the laws of the Commonwealth and under the Loan Agreement, the County Guaranty and the Indenture by such suits, actions or special proceedings in equity or at law, or by proceedings in the office of any board or officer having jurisdiction, either for the specific performance of any covenant, condition or agreement contained therein or in aid of execution of any power granted to the Trustee or for the enforcement of any proper legal or equitable remedy, as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce such rights.

Upon the occurrence of specified Events of Default and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bondholders under the Indenture, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver or receivers with respect to the Hospital, its Property and the rents, revenues, issues, earnings, income, products and profits thereof, pending such proceedings, with such powers as the court making such appointment shall confer.

If any proceeding taken by the Trustee on account of any Event of Default is discontinued or abandoned for any reason, or determined adversely to the Trustee, then and in every case the Authority, the Trustee and the Bondholders shall be restored to their former positions and rights under the Indenture.

Actions by Bondholders

Subject to the rights of the applicable issuer of a Municipal Bond Insurance Policy, the holders of a majority in principal amount of the Outstanding Bonds under the Indenture shall have the right to direct the method and place of conducting all remedial proceedings by the Trustee. In addition, no Bondholder shall have any right to pursue any remedy under the Indenture unless (a) the Trustee shall have been given written notice of an Event of Default, (b) the holders of at least 25% in principal amount of the Outstanding Bonds shall have requested the Trustee, in writing, to exercise the powers granted under the Indenture or to pursue such remedy in its or their name or names, (c) the Trustee shall have been offered indemnity satisfactory to it against costs, expenses and liabilities, and (d) the Trustee shall have failed to comply with such request within a reasonable time.

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Rights of County to Consent to Certain Actions

Any action with respect to an Event of Default taken pursuant to the applicable provisions of the Indenture which requires the approval of specified percentages of owners of the Series 2012 Bonds or the 2000 Bonds shall also require the consent of the County thereto.

Application of Moneys Upon Default

Following an Event of Default, any moneys on deposit in any Fund or Account (other than the Rebate Fund) established under the Indenture and any moneys received by the Trustee Upon the exercise of remedies under the Indenture shall be applied:

First: to the payment of the costs of the Trustee, including counsel fees, any disbursements of the Trustee with interest thereon and its reasonable compensation;

Second: (subject to the provisions of the Indenture relating to moneys theretofore set aside for specified redemptions and other payments past due), to the payment of all interest then due on Outstanding Bonds or, if the amount available before the payment of interest is insufficient for such purpose, to the payment of interest ratably in accordance with the amount due in respect of each Bond; and

Third: (subject to the provisions of the Indenture relating to moneys theretofore set aside for specified redemptions and other payments past due), to the payment of the Outstanding principal amount of all Bonds or, if the amount available for the payment of principal is insufficient for such purpose, to the payment of principal ratably in accordance with the amount due in respect of each Bond.

Certain Matters Relating to the applicable issuer of a Municipal Bond Insurance Policy

All rights of the applicable issuer of a Municipal Bond Insurance Policy to grant or withhold consents or approvals, and all rights to direct any actions under the Indenture are subject in all respects to the condition that the applicable issuer of a Municipal Bond Insurance Policy is not in default under the Municipal Bond Insurance Policy and that all such Policies are in full force and effect in accordance with their terms, Anything in the Indenture to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default as defined in the Indenture, the applicable issuer of a Municipal Bond Insurance Policy shall be entitled to control and direct the enforcement of all rights and remedies granted to the holders of the Insured Bonds or the Trustee for the benefit of the Insured Bonds under the Indenture, including, without limitation, enforcement of the obligations of the County under the County Guaranty, acceleration of the maturity of the Insured Bonds as described in the Indenture, and the right to annul any declaration of acceleration, and the applicable issuer of a Municipal Bond Insurance Policy shall also be entitled to approve all waivers of Events of Default; provided however, that an Event of Default under subparagraph (c) or (d) under the heading “Events of Default and Remedies” shall not be considered an Event of Default for the purpose of this paragraph so long as the County is

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paying principal or Redemption Price of and interest on the Insured Bonds pursuant to the County Guaranty.

Unless otherwise provided under the Indenture, the applicable issuer of a Municipal Bond Insurance Policy’s consent shall be required in addition to Bondholder consent, when required, for the following purposes: (a) execution and delivery of any supplemental indenture, or any amendment, supplement or change to or modification of the Loan Agreement; (b) removal of the Trustee or selection and appointment of any successor trustee; and (c) initiation or approval of any action not described in (a) or (b) above which requires Bondholder consent.

Any provision of the Indenture expressly recognizing or granting rights in or to the applicable issuer of a Municipal Bond Insurance Policy may not be amended in any manner which affects the rights of the applicable issuer of a Municipal Bond Insurance Policy under the Indenture without the prior written consent of the applicable issuer of a Municipal Bond Insurance Policy.

Amendments to Indenture

The Indenture may be amended or supplemented from time to time, without the consent of the Bondholders, for one or more of the following purposes: (a) in connection with the issuance of Additional Bonds, to set forth matters which are specifically required or permitted by the Indenture or other matters which will not adversely affect the holders of the Bonds then Outstanding; (b) to add additional covenants of the Authority or to surrender any right or power conferred upon the Authority; (c) to make conforming changes in connection with any amendment of the Loan Agreement or the County Guaranty; or (d) to cure any ambiguity or to cure, correct or supplement any defective provision of the Indenture (whether because of any inconsistency with any other provision of the Indenture or otherwise) or make any other amendments, provided that, in either case, the amendment in question does not impair the security of the Indenture or adversely affect the Bondholders.

The Indenture may be amended from time to time with the approval of the holders of at least 51% in aggregate principal amount of the Bonds then Outstanding; provided, that (a) no amendment shall be made which adversely affects one or more but less than all series of Bonds without the consent of the holders of at least 51% of the then Outstanding Bonds of each series so affected, (b) no amendment shall be made which affects the rights of some but less than all the Outstanding Bonds of any one series without the consent of the holders of 51% of the Bonds so affected, and (c) no amendment which alters the interest rates on any Bonds, the maturities, interest payment dates or redemption provisions of any Bonds or the security provisions of the Indenture may be made without the consent of the holders of all Outstanding Bonds adversely affected thereby.

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Amendments to Loan Agreement

The Loan Agreement may be amended without the consent of the Bondholders (a) to cure any ambiguity, inconsistency or formal defect or omission therein, (b) in connection with the issuance of Additional Bonds, to set forth such matters as are permitted or required under the Indenture in connection with such issuance or to set forth such other matters as will not adversely affect the holders of the Bonds then Outstanding, or (c) to make any other change in the Loan Agreement which, in the judgment of the Trustee, does not materially adversely affect the rights of the holders of any Bonds. No prior notice to the Bondholders of any proposed amendments described in this paragraph shall he required.

Except for amendments, changes or modifications described above, neither the Authority nor the Trustee shall consent to any amendment., change or modification of the Loan Agreement or waive any obligation or duty of the Hospital under the Loan Agreement without the written consent of the holders of not less than 51% in aggregate principal amount of the Outstanding Bonds affected thereby; provided, however, that no such waiver, amendment, change or modification shall permit termination or cancellation of the Loan Agreement, reduce the amounts payable by the Hospital under the provisions described under the heading “THE LOAN AGREEMENT - Repayment of Loan” in this Appendix E or change the date when such payments are due without the consent of the holders of all the Bonds then Outstanding.

Defeasance

When the principal or Redemption Price of and interest on all Outstanding Bonds have been paid, or there shall have been deposited with the Trustee an amount, evidenced by moneys or obligations described in clause (a) of the definition of Qualified Investments, the principal of and interest on which, when due, will provide sufficient moneys fully to pay the Bonds at the maturity date or date fixed for redemption thereof, as well as all other sums payable under the Indenture by the Authority, the right, title and interest of the Trustee under the Indenture shall thereupon cease and the Trustee, on demand of the Authority, shall release the Indenture and shall execute such documents to evidence such release as may be reasonably required by the Authority and shall turn over to the Authority or to such Person, body or authority as may be entitled to receive the same all balances remaining in any funds established under the Indenture. Upon such maturity date or date set for redemption, interest on the Bonds paid in such manner will cease to accrue and the Bondholders shall be restricted to refunds set aside for such purpose.

In the event that the principal and/or interest due on any Insured Bonds shall be paid by the applicable issuer of a Municipal Bond Insurance Policy pursuant to the Municipal Bond Insurance Policy, the Insured Bonds so paid • shall remain outstanding for all purposes, shall not be defeased or otherwise satisfied and shall not be considered paid by the Authority, and the assignment and pledge of the Pledged Revenues and all covenants, agreements and other obligations of the Authority to the registered owners of such Insured Bonds shall continue to exist and shall run to the benefit of the applicable issuer of a Municipal Bond Insurance Policy,

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and the applicable issuer of a Municipal Bond Insurance Policy shall be subrogated to the rights of such registered owners.

Unclaimed Moneys

Moneys deposited with the Trustee for the payment of Bonds which remain unclaimed four (4) years after the date payment thereof becomes due shall, upon written request of the Authority, if the Authority is not at the time to the knowledge of the Trustee in default with respect to any covenant in the Indenture or the Bonds contained, be paid to the Authority or, at the direction of the Authority to the Hospital; and the holders of the Bonds for which the deposit was made shall thereafter be limited to a claim against the Authority; provided, however, that before making any such payment to the Authority or the Hospital, the Trustee shall mail notice of such payment to the holders of all Bonds for which unclaimed moneys are being held.

Certain Matters Relating to the Trustee

The Indenture sets forth the rights and obligations of the Trustee relating to the performance of its duties under the Indenture, and specifies the conditions under which the Trustee may resign or be replaced. Pursuant to the Loan Agreement, the Hospital has agreed to indemnify the Trustee against specified losses and damages except those caused by its negligence or wilful misconduct.

THE LOAN AGREEMENT

Loan of the Proceeds of the Series 2012 Bonds

Upon or within 90 days of the issuance of the Series 2012 Bonds, the Authority will redeem the Series 1999 Bonds. The proceeds of the Series 2012 Bonds shall be deposited with the Trustee in the manner and for the purposes set forth in the Indenture.

The Loan Agreement will remain in effect until such time as all Outstanding Bonds have been paid or provision for such payment has been made as described under the heading “THE INDENTURE — Defeasance” in this Appendix E.

Payments in Respect of the Series 2012 Bonds and the Series 2000 Bonds

The Loan Agreement requires the Hospital to pay to the Trustee, as the assignee of the Authority, the following sums at the following times:

(a) On or before the first day of December 1, 2012 and the first day of each month thereafter, the amount which is necessary to accumulate, in equal monthly installments, funds for the payment of the principal of the Series 2012 Bonds becoming due on the immediately succeeding principal maturity or mandatory redemption date, subject to credit for other available funds in the manner provided in the Indenture.

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(b) On or before the first day of June 1, 2012 and the first day of each month thereafter, the amount which is necessary to accumulate, in equal monthly installments, funds for the payment of the interest on the Series 2012 Bonds becoming due on the immediately succeeding interest payment date, subject to credit for other available funds in the manner provided in the Indenture.

(c) On or before the first day of December 1, 2012 and the first day of each month thereafter, the amount which is necessary to accumulate, in equal monthly installments, funds for the payment of the principal of the Series 2000 Bonds becoming due on the immediately succeeding principal maturity or mandatory redemption date, subject to credit for other available funds in the manner provided in the Indenture.

(d) On or before the first day of June 1, 2012 and the first day of each month thereafter, the amount which is necessary to accumulate, in equal monthly installments, funds for the payment of the interest on the Series 2000 Bonds becoming due on the immediately succeeding interest payment date, subject to credit for other available funds in the manner provided in the Indenture.

(e) At the times required under the Indenture, such additional amounts as are required to make up any deficiency which may occur in any of the funds established under the Indenture, including the Debt Service Reserve Fund and the applicable account within the Rebate Fund.

If Additional Bonds are issued under the Indenture, the payment obligations described in subparagraph (a) and (b) above shall be amended to the extent necessary to provide the Trustee with sufficient funds to pay the principal of and interest on such Additional Bonds.

In addition to the foregoing, the Hospital will be required to pay specified Administrative Expenses of the Authority.

Pursuant to the Loan Agreement, the Hospital is permitted, at any time and from time to time, to prepay all or any part of the amounts payable as described above, together with such other amounts as shall be sufficient to redeem all or a portion of the Series 2012 or the Series 2000 Bonds, as applicable, in accordance with the provisions of the Indenture.

Nature of Obligations; Security Therefore

The obligations of the Hospital under the Loan Agreement are general obligations of the Hospital to which its full faith and credit are pledged. As security for its obligations thereunder, the Hospital has pledged to the Authority a lien on and security interest in its Gross Revenues. Upon the occurrence and continuance of an Event of Default under the Loan Agreement, the Hospital is required to transfer to the Trustee all Gross Revenues then on hand and not yet commingled with other funds of the Hospital to the extent necessary for the purpose of making any payments or deposits required thereunder or under the Indenture, and the Hospital is

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thereafter required to cause the Gross Revenues to be deposited with or transferred to the Trustee for such purpose.

Rate Covenant

The Hospital is required to use its best efforts to maintain for each Fiscal Year a ratio of Income Available for Debt Service to Maximum Annual Debt Service of at least 1.20. If such ratio, as calculated at the end of any Fiscal Year, is below 1.20, the Hospital covenants to retain a Consultant, within sixty (60) days after the receipt of all audits for such Fiscal Year, to make recommendations to increase such ratio for subsequent Fiscal Years-of the Hospital at least to the level required or, if in the opinion of the Consultant the attainment of such, level is impracticable, to the highest practicable level. The Hospital shall notify the Trustee and all Bondholders of the retention of any Consultant. The Hospital agrees that it will, to the extent permitted by law, follow the recommendations of the Consultant. So long as the Hospital complies with the foregoing covenants (subject to the limitations set forth below), the foregoing covenants shall be deemed to have been complied with even if such ratio for any subsequent Fiscal Year of the Hospital is below 1.20, provided, however, that in no event shall the ratio of Income Available for Debt Service to Annual Debt Service be for any Fiscal Year less than 1.00.

If Government Restrictions exist which prevent compliance with the ratios set forth above, the above-described requirements shall be deemed satisfied as long as a Hospital Certificate is received by the Trustee at least once during each Fiscal Year to the effect that: (i) the Government Restrictions continue to exist; and (ii) the factual circumstances giving rise to the Government Restrictions continue to exist. Notwithstanding the foregoing, however, in no event shall the ratio of Income Available for Debt Service to Annual Debt Service for any Fiscal Year be less than 1.00.

Additional Indebtedness

The Hospital is not permitted to incur any additional Indebtedness other than the following:

(a) Long-Term Indebtedness, including Additional Bonds, Additional Parity Indebtedness and Guaranties, if:

(i) prior to incurrence of the Long-Term Indebtedness, there is delivered to the Trustee a Hospital Certificate certifying that the Debt Service Coverage Ratio for the Historic Test Period, taking into account the current aggregate outstanding principal amount of all Long-Term Indebtedness, and the proposed additional Long-Term Indebtedness, as if it had been incurred at the beginning of such Period, is not less than 1.20 (provided that such Certificate shall in all instances be based upon the most recent financial statements of the Hospital); or

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(ii) prior to incurrence of the Long-Term Indebtedness, there is delivered to the Trustee’(A) a Hospital Certificate certifying that the. Debt Service Coverage Ratio for the Historic Test Period, not taking the proposed additional Long-Term Indebtedness into account, is not less than 1.10 (or 1.00 if a Consultant determines that Government Restrictions prevented the realization of 1.10), and (B) a Consultant’s report (1) certifying that the projected Debt Service Coverage Ratio for each of the next two full Fiscal Years following the incurrence of such Long-Term Indebtedness or, in the case of the incurrence of such Long-Term Indebtedness for capital improvements, following the completion of the facilities being financed, taking the proposed additional Long-Term Indebtedness into account, is not less than 1.25, and (2) indicating that sufficient revenues and cash flow would be generated to meet the projected operating expenses (including debt service on the proposed Indebtedness) of the Hospital during such two full Fiscal Years. The requirements of this section shall be deemed satisfied if Government Restrictions exist, and if there is delivered to the Trustee a signed Consultant’s opinion to the effect that the projected Debt Service Coverage Ratio for each of the next two full Fiscal Years following the borrowing in question will not be less than 1.00; or

(iii) (A) the total principal amount of Long-Term Indebtedness to be incurred at such time, when added to the aggregate principal amount of all other Long-Term Indebtedness theretofore issued pursuant to this clause (iii) and then Outstanding, will not exceed ten percent (10%) of the Total Operating Revenues of the Hospital for the Historic Test Period and (B) the Hospital is in compliance with the provisions described under the heading “THE LOAN AGREEMENT — Rate Covenant” above. Any Long-Term Indebtedness or portion thereof incurred under this subsection (a)(iii) which is Outstanding at any time shall be deemed to have been incurred under another provision of this subsection (a) if at any time subsequent to the incurrence thereof there shall be filed with the Trustee a Hospital Certificate to the effect that such Outstanding Indebtedness or portion thereof would satisfy such other provision, specifying such other provision, and thereupon the amount deemed to have been incurred and to be outstanding under this subsection (a) (iii) shall be deemed to have been reduced by such amount and to have been incurred under such other provision. If the terms of such other provision require a Consultant’s report or opinion, such report or opinion shall also be obtained and filed with the Trustee; or

(iv) prior to the incurrence of the Long-Term Indebtedness, there is delivered to the Trustee a Hospital. Certificate certifying that Long-Term Indebtedness, taking into account the current aggregate outstanding principal amount of all Long-Term Indebtedness and the proposed Additional Long-Term Indebtedness, will not exceed .60% of the total capitalization, including all fund balances, of the Hospital as reflected on the audited financial statements of the Hospital for the most recent Fiscal Year.

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(b) Completion Indebtedness, other than Additional Bonds, without limitation, provided there is delivered to the Trustee a Hospital Certificate (1) specifying the estimated cost of completing the construction or equipping of the facilities to be completed and (ii) demonstrating that the proceeds of such Completion Indebtedness and other available moneys will be sufficient to finance the cost of completion.

(c) Long-Term Indebtedness incurred for the purpose of refunding or refinancing, including advance refunding or cross-over refunding, any Outstanding Long-Term Indebtedness; provided that the Maximum Annual Debt Service for each of the years that the refunded Indebtedness would have been Outstanding will not be increased by more than fifteen percent (15%), as evidenced by a Hospital Certificate filed with the Trustee.

(d) Short-Term Indebtedness, provided that immediately after the incurrence of such Indebtedness the aggregate Outstanding principal amount of all such Short-Term Indebtedness does not exceed fifteen percent (15%) of the aggregate of Total Operating Revenues for the Historic Test Period; and provided, further, that for a period of at least twenty (20) days in each Fiscal Year the Outstanding principal amount of all such Indebtedness shall not exceed five percent (5%) of the aggregate of Total Operating Revenues of the Hospital for such Historic Test Period, unless there is filed with the Trustee a Hospital Certificate to the effect that such Short-Term Indebtedness, because of Government Restrictions, must or reasonably should remain Outstanding in excess of such five percent (5%) limitation. Short-Term Indebtedness may also be incurred if such Short-Term Indebtedness could be incurred under the Loan Agreement assuming it were Long-Term Indebtedness.

(e) Non-Recourse Indebtedness or Subordinated Indebtedness, without limitation; provided that there is filed with the Trustee a Hospital Certificate projecting that the provisions of the Rate Covenant described herein shall be complied with for the then current and the next following Fiscal Year, taking into consideration projected revenues and the proposed Indebtedness.

(f) Indebtedness in the form of installment purchase contracts, capitalized leases, purchase money mortgages, loans, sales agreements or other typical borrowing instruments; provided that the aggregate Annual Debt Service on the Indebtedness permitted under this clause shall not in any Fiscal Year exceed two percent (2%) of Total Operating Revenues for the most recent completed Fiscal Year; and provided further that such indebtedness may exceed two percent (2%) of Total Operating Revenues for the most recent completed Fiscal Year if it could have been incurred under subparagraph (a) above assuming such Indebtedness was Long-Term Indebtedness.

(g) Any Indebtedness represented by a letter of credit reimbursement agreement or other similar reimbursement agreement entered into by the Hospital and an institution providing a Credit Facility with respect to any other Indebtedness incurred in accordance with any other provision described under this subheading.

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(h) Indebtedness incurred or deemed incurred by, virtue of any recourse obligation associated with any sale or assignment of Accounts Receivable, but in no event in any amount in excess of the monetary consideration received from any sale or assignment.

(i) Any Indebtedness represented by a letter of credit reimbursement agreement or other similar reimbursement agreement entered into by the Hospital and an institution providing a Reserve Fund Credit Facility for deposit in the Debt Service Reserve Fund pursuant to the Indenture.

Additional Provisions Concerning Calculation of Debt Service

For purposes of the computation of the Debt Service Requirement, Annual Debt Service or Maximum Annual Debt Service, whether historic or projected, Balloon Indebtedness shall, at the election of the Hospital, be deemed to be Indebtedness which, at the later of the date of its original incurrence or the date of calculation, is payable over a twenty-five (25) year term, with level annual debt service, at a rate of interest equal to that set forth in writing by a nationally recognized firm of investment bankers or a financial advisory firm selected by the Hospital.

For purposes of the computation of the projected (but not historic) Debt Service Requirement, Annual Debt Service or Maximum Annual Debt Service, Variable Rate Indebtedness shall be deemed Indebtedness which bears interest at a rate equal to that derived from the Bond Index.

For purposes of the computation of the Debt Service Requirement, Annual Debt Service or Maximum Annual Debt Service, whether historic or projected, the Hospital may, at its election, subtract from interest due on Indebtedness any Capitalized Interest which is available and is 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, for the payment of such interest on such Indebtedness.

Restrictions on Guaranties

The Hospital agrees that it will not enter into, or become liable after the date of the Loan Agreement in respect of, any Guaranty unless such Guaranty could then; be incurred as Indebtedness under the Loan Agreement.

For purposes of any covenants or computations provided for in the Loan Agreement, the aggregate annual principal and interest payments on, and the principal amount of, any indebtedness which is the subject of a Guaranty thereunder and which would, if such obligation were incurred by the Hospital, constitute Long-Term Indebtedness, shall be deemed equivalent to twenty percent (20%) of the actual Annual Debt Service on, and principal amount of, such indebtedness, for so long as such Guaranty constitutes a contingent liability under generally accepted accounting principles; provided, however, that if the primary obligor under such Guaranty can demonstrate a Debt Service coverage Ratio equal to at least 1:10 for at least three

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full consecutive years, none of the actual Annual Debt Service on; and principal amount of, such Indebtedness shall be included for so long as such Debt Service Coverage Ratio is maintained at 1.10 or higher; and, provided, further, that the Annual Debt Service on, and principal amount of, any Long-Term Indebtedness represented by a Guaranty shall be deemed equivalent to all of the actual Annual Debt service on, and principal amount of, such Indebtedness, for so long as payments have been and continue to be required to be made by the Hospital on such Guaranty and for a period of 12 months thereafter.

Additional Covenants

Sale, Lease or Other Disposition of Assets. Additional Covenants the Hospital agrees that it will not, in the aggregate, in any Fiscal Year sell, lease or otherwise dispose of Property or Current Assets the Value of which would cause the aggregate Value of Property and Current Assets so transferred in such Fiscal Year to exceed 5% of the total general fund assets of the Hospital as shown on the financial statements for the Historic Test Period, except for the following transfers, sales or leases of Property or Current Assets; provided that, transfers, sales or leases described below shall require the prior written consent of the Trustee for any period during which an Event of Default has occurred and is continuing:

(a) to any person if, in the judgment of the Hospital, 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) in the ordinary course of business; or

(c) if the Hospital receives fair market value therefor and the proceeds of such disposition are applied to the purchase of additional capital assets or applied to the defeasance, discharge, redemption or retirement of Indebtedness or applied by the Hospital for its general corporate purposes; or

(d) with respect to Property to any person provided that either (i) (A) for the Historic Test Period prior to the sale, lease or other disposition, the Hospital delivers a Hospital Certificate to the Trustee which demonstrates that the Debt Service Coverage Ratio was equal to at least 1.10; and (B) for the two full Fiscal Years immediately following such sale, lease or disposition, the Hospital delivers a Consultant’s report to the Trustee which demonstrates that the Projected Debt Service Coverage Ratio, taking into consideration the proposed sale, lease or disposition will be equal to at least 1.25 and would not be reduced by more than 25% of what it had been prior to the proposed sale, lease or disposition; or (ii) for the two Fiscal Years immediately prior to the sale, lease or other disposition the Hospital delivers a Hospital Certificate to the Trustee which demonstrates that the Debt Service Coverage Ratio, taking into

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consideration the proposed sale, lease or disposition, was at least 1.25 and would not be reduced by more than 25% of what it had been prior to the proposed sale, lease or disposition; or

(e) to any person if the transfer consists of Accounts Receivable and the Hospital receives fair market value therefor; or

(f) to any person if the transfer consists of Current Assets in an aggregate amount not greater than 25% of the excess of revenues over expenses of the Hospital as shown on the financial statements of the Hospital for the Historic Test Period; or

(g) to any person if the transfer consists of Current Assets in an aggregate amount greater than 25% of the excess of revenues over expenses of the Hospital for the Historic Test Period if the Hospital delivers a Hospital Certificate to the Trustee which demonstrates that the Debt Service Coverage Ratio for the Historic Test Period, calculated after deducting the amount of such transfer from Income Available for Debt Service, would have been at least 1.25.

Consolidation, Merger or Conveyance. The Hospital is permitted to merge or consolidate with or transfer all or substantially all of its assets to another Person only if:

(a) either it will be the continuing corporation, or the successor shall be a corporation organized and existing under the laws of the United States of America or a state thereof and shall expressly assume in writing the due and punctual payment of the principal of and premium, if any, and interest .on all Outstanding Bonds and Additional Indebtedness issued under the Loan Agreement and the due and punctual performance and observance of all of the Hospital’s obligations under the Loan Agreement;

(b) the Authority and the Trustee shall have received an opinion of nationally recognized bond counsel to the effect that the consummation of such merger, consolidation or transfer will not adversely affect the validity of the Bonds or the exclusion from gross income for federal income tax purposes of the interest payable on the Outstanding Bonds; and

(c) the Hospital delivers a Hospital Certificate to the Trustee which demonstrates that immediately after such consolidation, merger, sale or conveyance, such corporation could incur one dollar of additional Long Term Indebtedness under the Loan Agreement taking into account such consolidation, merger, sale or conveyance.

Permitted Encumbrances. The Hospital has covenanted not to create or suffer to be created or permit the existence of any Lien upon Property, Gross Revenues or Current Assets currently owned or thereafter acquired by the Hospital other than Permitted Encumbrances, which consist of the following:

(a) Liens arising by reason of good faith deposits with the Hospital in connection with leases of real estate, bids or contracts (other than contracts for the payment of money), deposits by the Hospital to secure public or statutory obligations, or to secure, or in lieu

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of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or other similar charges;

(b) Any Lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation for any purpose at any time as required by law or governmental regulation as a condition to the transaction or any business or the exercise of any privilege or license, or to enable the Hospital 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, employee benefit plans or pension or profit sharing plans Or other social security, or to share in the privileges or benefits required for companies participating in such arrangements;

(c) Any judgment lien against the Hospital, or so long as such judgment is being contested and execution thereon is stayed or, in the absence of such contest any stay, such judgment lien will not materially impair the Property, Current Assets or Gross Revenues or subject the Property; Current Assets or Gross Revenues to material loss or forfeiture;

(d) (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, Gross Revenues or Current Assets; (ii) any liens on any Property, Gross Revenues or Current Assets 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, Gross Revenues or Current Assets, which are not due and payable or which are not delinquent or which, or the amount or validity of which, are being contested and execution thereon is stayed or the existence of which will not subject the Property, Current Assets or Gross Revenues to material loss or forfeiture; (iii) easements, rights-of-way, servitudes, restrictions, oil, gas or other mineral reservations and other minor defects, encumbrances, and irregularities in the title to any Property, Gross Revenues or Current Assets which do not materially impair the use of such Property, Gross Revenues or Current Assets or materially and adversely affect the value thereof; (iv) rights reserved to or vested in any municipality or public authority to control or regulate any Property, Gross Revenues or Current Assets or to use such Property, Gross Revenues or Current Assets in any manner, which rights do not materially impair the use of such Property, Gross Revenues or Current Assets or materially and adversely affect the value thereof; and (v) the Loan Agreement to the extent that it affects title to any Gross Revenues;

(e) Any Lien on Property, Gross Revenues or Current Assets which was existing on the date of authentication and delivery of the Series 2012 Bonds and the Series 2000 Bonds, including renewals thereof, provided that no such Lien may be extended or modified to apply to any Property, Gross Revenues or Current Assets of the Hospital not subject to such Lien on such date, unless such Lien as so extended or modified otherwise qualifies as a Permitted Encumbrance;

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(f) Any lease of Property which, in the judgment of the Hospital, is reasonably necessary or appropriate for or incidental to the use of such Property, taking into account the nature and terms of the lease and the nature and purposes of the Property;

(g) Any Lien on Property which Lien secures Long-Term Indebtedness incurred in compliance with the provisions of the Loan Agreement, if, after giving effect to the Lien, the Value of the Property which is encumbered in accordance with this clause (g) will not exceed (i) fifteen percent (15%) of the Value of the Property, Plant and Equipment as of the end of the Historic Test Period and (ii) 125% of the principal amount of the Long-Term Indebtedness secured thereby;

(h) Any parity Lien on all or a portion of Gross Revenues to secure any Long-Term Indebtedness or Short-Term Indebtedness incurred pursuant to the Loan Agreement.

(i) Any Lien subordinated to the Bonds and any Additional Parity Indebtedness on all or a portion of Gross Revenues to secure any Long-Term Indebtedness or Short-Term Indebtedness incurred pursuant to the Loan Agreement;

(j) Any Lien on Accounts Receivable securing or deemed to secure any Indebtedness incurred or deemed incurred by virtue of any recourse obligation associated with any assignment, sale, or pledge of Accounts Receivable which is permitted under the Loan Agreement;

(k) Any Lien on Property securing Indebtedness incurred pursuant to subparagraph under the heading “Additional Indebtedness,” above; and

(l) Any parity Lien on Gross Revenues to secure Indebtedness incurred pursuant to subparagraph (i) under the heading “Additional Indebtedness” above.

In addition to the foregoing, the Hospital may create or suffer to be created or exist a Lien upon Property or Current Assets, in favor of the holder of any Indebtedness, with prior written notice to the Trustee but without the consent of the 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 Bonds and Additional Parity Indebtedness then Outstanding.

Maintenance of Insurance on Hospital Property and Operations. The Hospital is required to maintain insurance covering such risks and in such amounts as are customary in the case of corporations engaged in the same or similar activities and similarly situated and are adequate to protect it and its Property and operations. In addition, such insurance or self-insurance shall be subject to review by an Insurance Consultant every other year, and the Hospital will be required, subject to specified limitations, to follow any recommendations .of the Insurance Consultant. The Hospital is required to deliver to the Trustee and the Authority each report of the Insurance Consultant.

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The Hospital may adopt a self-insurance program, subject to the provisions of the Loan Agreement.

Application Insurance Proceeds and Condemnation Awards

The Hospital shall notify the Authority and the Trustee promptly of the occurrence of any damage to or destruction, condemnation or conveyance in lieu of condemnation of all or any portion of its Property, Plant and Equipment. Subject to the applicable provisions of any documents creating a superior Lien upon the affected Property or a Lien on Property which is not included in the Mortgaged Property, all insurance proceeds, condemnation awards or other similar sums received as a result of any such occurrence may be applied, at the election of the Hospital:

(a) to pay the cost of reconstructing, replacing or repairing the affected Property, if the Hospital determines that (i) such action is practicable, taking into account the nature of the affected Property, the estimated cost of the proposed reconstruction, replacement or repair and the adequacy of available funds to pay such costs, and (ii) the projected Debt Service Coverage Ratio of the Hospital will not be less than 1.00 during each Fiscal Year to and including the year in which the reconstruction, replacement or repair is expected to be completed, and such projected Debt Service Coverage Ratio will not be less than 1.10 during the first Fiscal Year following such completion; or

(b) to pay the Redemption Price of Bonds upon Extraordinary Redemption if (i) all outstanding Bonds are so to be redeemed, or (ii) less than all Bonds are so to be redeemed and the Hospital determines that its projected Debt Service Coverage Ratio will not be less than 1.10 during the Fiscal Year immediately following the proposed redemption; or

(c) for such other lawful purposes as the Hospital may deem appropriate if the Hospital determines that its Projected Coverage Ratio will not be less than 1.10 during the Fiscal Year immediately following such determination.

The foregoing determinations shall be set forth in the Hospital Certificate delivered to the Authority and the Trustee, supported by such additional Certificates (including an Architect’s Certificate or Consultant’s Certificate) as the Authority or the Trustee may reasonably request.

If the Hospital determines in good faith that the conditions set forth above cannot be satisfied with respect to any proposed action, it shall deliver the Hospital Certificate to such effect to the Trustee, and the insurance proceeds, condemnation award or other similar sum shall be required to be used to pay the Redemption Price of Bonds upon Extraordinary Redemption.

If the affected Property is subject to Liens which secure the Bonds and other Indebtedness on an equal and ratable basis, a proportionate amount of any moneys otherwise permitted or required to be used to redeem Bonds pursuant to the foregoing provisions may be used to redeem any such other Indebtedness.

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Further Covenants. In addition to the foregoing, the Loan Agreement contains covenants which require the Hospital, among other things, to:

(a) comply in all material respects with applicable laws affecting the Hospital and the property in operation of the Hospital;

(b) furnish to the Authority and the Trustee not later than 150 days after the end ofeach Fiscal Year, the audited financial statements of the Hospital, together with the Hospital Representative’s certificate stating whether the Hospital is in default under any provision of the Loan Agreement;

(c) indemnify the Authority and the Trustee for liabilities arising out of the issuance of the Bonds or any actions taken or omitted under the Indenture or the Loan Agreement;

(d) pay specified taxes, charges, and assessments which are imposed upon the Hospital or its property, subject to the right of the Hospital to contest such taxes, charges and assessments in good faith; and

(e) take all actions which are within the control of the Hospital and are necessary in order to maintain the exemption of interest on the Bonds from Federal income taxation.

Events of Default and Remedies

Each of the following shall constitute an Event of Default under the Loan Agreement:

(a) If the Hospital fails to make any payment corresponding to principal or interest on the Bonds within 5 clays after the due date thereof or any other payment or deposit required pursuant to the Loan Agreement within 15 days after the due date thereof;

(b) If the Hospital fails to perform any other covenant, condition or agreement contained in the Loan Agreement on its part to be performed;

(c) if the Hospital proposes or makes an assignment for the benefit of creditors or a composition agreement with all or a material part of its or their creditors, or a trustee, receiver, executor, conservator, liquidator, sequestrator or other judicial representative, similar or dissimilar, is appointed for the Hospital or any of its assets or revenues, or there is commenced any proceeding in liquidation, bankruptcy, reorganization, arrangement of debts, debtor rehabilitation, creditor adjustment or insolvency, local, state or federal, by or against the Hospital and if such is not vacated, dismissed or stayed on appeal within sixty (60) days.

If an acceleration has not occurred, a default under subparagraph (b) above shall not constitute an Event of Default until actual notice of such default has been given to the Hospital by the Authority or the Trustee and the Hospital shall have had 30 days after receipt of such

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notice to correct the default and shall not have corrected it; and provided further that, if such Default cannot be corrected within such 30-day period, it shall not constitute an Event of Default if corrective action is instituted by the Hospital within the period and diligently pursued until the default is corrected.

If any Event of Default occurs and is continuing, the Authority may at its option exercise any one or more of the following remedies: (a) by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Authority, and require the Hospital to carry out any agreements with or for the benefit of the Bondholders and to perform its duties under the Act or the Loan Agreement; or (b) by action or suit in equity require the Hospital to account as if it were the trustee of an express trust for the Authority; or (c) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Authority; or (d) upon the filing of a suit or other commencement of judicial proceeding to enforce the rights of the Trustee and the Bondholders, have appointed a receiver or receivers with respect to the Hospital and its Property, with such powers as the court making such appointment shall confer; or (e) upon notice to the Hospital, to accelerate the due dates of all sums due or to become due under the Loan Agreement.

Assignment

Pursuant to the Assignment, the Authority has assigned all its right, title, and interest in the Loan Agreement, including the loan payments and other payments payable or which may become payable thereunder, to the Trustee. The Trustee is authorized to collect and receive payment of all loan payments and other payments payable under the Loan Agreement. Notwithstanding the foregoing, prior to any Event of Default under the Indenture: (a) the Authority shall have the right and duty to give all approvals and consents permitted or required under the Loan Agreement subject to any restrictions of the Indenture; (b) the Authority shall have the right to execute supplements and /or amendments to the Loan Agreement to the extent and in the manner permitted by the Indenture; and (c) there shall be no responsibility on the part of the Trustee for duties or responsibilities of the Authority contained in the Loan Agreement and in any supplements and/ or amendments thereto.

Amendments

The Loan Agreement may be amended from time to time in accordance with the provisions described under “THE INDENTURE - Amendments to Loan Agreement” in this Appendix E.

THE COUNTY GUARANTY

The Guaranty will be delivered by the County to the Trustee for the benefit of the holders of the Series 2012 Bonds, pledging the full faith, credit and taxing power of the County. Pursuant to the Guaranty, the County unconditionally guarantees to the Trustee (a) the full and prompt payment of the principal or Redemption Price of any Series 2012 Bond when and as the same

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shall become due, whether or not at the stated maturity thereof, by acceleration or call for redemption or otherwise, and (b) the full and prompt payment of any interest on any Series 2012 Bond when as the same shall have become due.

The County has covenanted to the Trustee and the holders of the Series 2012 Bonds, that it (a) shall include the foregoing amounts payable in respect of the County Guaranty for each fiscal year in which such sums are payable in its budget for that year, (b) shall appropriate such amounts from its general revenues for the payment of its obligations under the County Guaranty, and (c) shall duly and punctually pay or cause to be paid. from the Sinking Fund (defined as the amount required to restore the balance in the Debt Reserve Fund when the Trustee is required to transfer an amount from the Debt Service Fund to meet debt service on the Series 2012 Bond or any other of its revenues or funds such amounts at the dates and places in the manner stated in the County Guaranty, according to the true intent and meaning thereof.

The County Guaranty is a guaranty of payment and not of collection, and is the primary obligation of the County, and the Trustee may, in its sole discretion enforce the County Guaranty against the County without any prior enforcement against the Authority or the Hospital.

APPENDIX FSPECIMEN MUNICIPAL BOND

INSURANCE POLICY

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MUNICIPAL BOND INSURANCE POLICY

ISSUER: BONDS: $ in aggregate principal amount of

Policy No: -N

Effective Date:

Premium: $ ASSURED GUARANTY MUNICIPAL CORP. ("AGM"), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee") or paying agent (the "Paying Agent") (as set forth in the documentation providing for the issuance of and securing the Bonds) for the Bonds, for the benefit of the Owners or, at the election of AGM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the Business Day next following the Business Day on which AGM shall have received Notice of Nonpayment, AGM will disburse to or for the benefit of each Owner of a Bond the face amount of principal of and interest on the Bond that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by AGM, in a form reasonably satisfactory to it, of (a) evidence of the Owner's right to receive payment of the principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner's rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in AGM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by AGM is incomplete, it shall be deemed not to have been received by AGM for purposes of the preceding sentence and AGM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, who may submit an amended Notice of Nonpayment. Upon disbursement in respect of a Bond, AGM shall become the owner of the Bond, any appurtenant coupon to the Bond or right to receipt of payment of principal of or interest on the Bond and shall be fully subrogated to the rights of the Owner, including the Owner's right to receive payments under the Bond, to the extent of any payment by AGM hereunder. Payment by AGM to the Trustee or Paying Agent for the benefit of the Owners shall, to the extent thereof, discharge the obligation of AGM under this Policy. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer's Fiscal Agent are authorized or required by law or executive order to remain closed. "Due for Payment" means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity unless AGM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. "Nonpayment" means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. "Nonpayment" shall also include, in respect of a Bond, any payment of principal or interest that is Due for Payment made to an Owner by or on behalf of the Issuer which has been recovered from such Owner pursuant to the

Page 2 of 2 Policy No. -N United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. "Notice" means telephonic or telecopied notice, subsequently confirmed in a signed writing, or written notice by registered or certified mail, from an Owner, the Trustee or the Paying Agent to AGM which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount and (d) the date such claimed amount became Due for Payment. "Owner" means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that "Owner" shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds. AGM may appoint a fiscal agent (the "Insurer's Fiscal Agent") for purposes of this Policy by giving written notice to the Trustee and the Paying Agent specifying the name and notice address of the Insurer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee and the Paying Agent, (a) copies of all notices required to be delivered to AGM pursuant to this Policy shall be simultaneously delivered to the Insurer's Fiscal Agent and to AGM and shall not be deemed received until received by both and (b) all payments required to be made by AGM under this Policy may be made directly by AGM or by the Insurer's Fiscal Agent on behalf of AGM. The Insurer's Fiscal Agent is the agent of AGM only and the Insurer's Fiscal Agent shall in no event be liable to any Owner for any act of the Insurer's Fiscal Agent or any failure of AGM to deposit or cause to be deposited sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, AGM agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses may be available to AGM to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy. This Policy sets forth in full the undertaking of AGM, and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, (a) any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity and (b) this Policy may not be canceled or revoked. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. In witness whereof, ASSURED GUARANTY MUNICIPAL CORP. has caused this Policy to be executed on its behalf by its Authorized Officer. ASSURED GUARANTY MUNICIPAL CORP.

By

Authorized Officer Form 500NY (5/90)

APPENDIX G

FORM OF OPINIONOF BOND COUNSEL

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835329.1

FILE NO: 12282/1

[Date of Closing]

Re: Carbon County Hospital Authority$6,000,000 Aggregate Principal Amount

County Guaranteed Hospital Revenue Bonds (Gnaden Huetten Memorial Hospital Refunding Project),

Series of 2012 Dated February 23, 2012

OPINION

We have acted as Bond Counsel in connection with the authorization, issuance and sale of the County Guaranteed Hospital Revenue Bonds (Gnaden Huetten Memorial Hospital Refunding Project), in the aggregate principal amount of $6,000,000 (the “Bonds”), dated the date of delivery thereof, of Carbon County Hospital Authority (the “Authority”), a municipality authority incorporated under the Municipality Authorities Act, 53 Pa.C.S. Ch-56, as amended (the “Act”), of the Commonwealth of Pennsylvania (the “Commonwealth”). The Authority was incorporated pursuant to appropriate action of the County of Carbon, Pennsylvania (the “County”). The Bonds are secured by a Trust Indenture, dated as of November 1, 1990, as amended and supplemented by a First Supplemental Trust Indenture, dated as of May 1, 1999, and as amended and supplemented by a Second Supplemental Indenture, dated as of February 23, 2012 (collectively, the “Indenture”), between the Authority and The Bank of New York Mellon Trust Company, N.A. (the “Bond Trustee”), Philadelphia, Pennsylvania, as successor trustee.

The County, as guarantor, the Authority and the Trustee have entered into a Guaranty Agreement, dated this date (the “Guaranty Agreement”), which sets forth provisions with respect to money that may be available for the payment of the principal of and interest on the Bonds upon certain terms and conditions.

The Authority and Gnaden Huetten Memorial Hospital (the “Hospital”), a corporation not-for-profit organized and existing under laws of the Commonwealth, have entered into a Loan and Security Agreement between the Authority and the Hospital dated as of November 1, 1990, as amended and supplemented by a First Supplemental Loan and Security Agreement dated as of May 1, 1999, and as amended and supplemented by a Second Supplemental Loan and Security Agreement, dated February 23, 2012 (collectively, the “Loan Agreement”).

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The Indenture and the Loan Agreement contain covenants of the Authority and the Hospital to comply with provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and applicable regulations promulgated thereunder to preserve the Federal income tax exemption of the interest on the Bonds.

As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify such facts by independent investigation. We have also relied upon: (i) an opinion of even date of Tallman Hudders & Sorrentino, P.C., of Allentown, Pennsylvania counsel to the Hospital, with respect to, inter alia, the corporate power of the Hospital to enter into and perform the covenants under the Loan Agreement and the authorization, execution and delivery of the documents constituting the Loan Agreement, and with respect to such instruments being binding and enforceable upon the Hospital; (ii) an opinion of even date of Stevens & Lee, P.C., of Reading, Pennsylvania, counsel to the Authority, with respect to, inter alia, the corporate power of the Authority to enter into and perform the covenants under the Loan Agreement and the Indenture and the authorization, execution and delivery of the documents constituting the Loan Agreement and the Indenture and with respect to such instruments being binding and enforceable upon the Authority; and (iii) an opinion of even date of Daniel A. Miscavige, Esquire, Solicitor to the County, with respect to the authorization, execution and delivery of the Guaranty Agreement by the County, and the enforceability thereof with respect to the County.

In the course of the performance of our duties as Bond Counsel, we have examined such documents, opinions, records, orders, notices, certificates, statutes, regulations, decisions and rulings as we have deemed necessary to enable us to furnish this opinion, including, among other things: a certified photostatic copy of the Articles of Incorporation and related documents and a Subsistence Certificate with respect to the Authority, as issued by the Secretary of the Commonwealth; a certified photostatic copy of the charter and related documents and a Subsistence Certificate with respect to the Hospital; the executed documents constituting the Indenture; certain documents required by the Indenture to be furnished to the Trustee as conditions precedent to authentication and delivery by the Trustee of the Bonds; the executed documents constituting the Loan Agreement; an executed copy of the Guaranty Agreement; certifications of no litigation; a non-arbitrage and rebate compliance certificate of the Authority; and usual closing certificates and documents. We have also examined a specimen of an executed Bond and assume that all of the Bonds have been similarly executed and that all Bonds will be issued in registered form and authenticated as required by the Indenture.

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

1. The Authority is existing validly under laws of the Commonwealth and has the power to issue the Bonds and to obligate itself for its obligations under the Indenture and the Loan Agreement, in the manner provided therein.

2. The Hospital is existing validly under laws of the Commonwealth and has the power to obligate itself for the payment of sums and for other obligations under the Loan Agreement, in the manner provided therein.

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3. The County has power to enter into the Guaranty Agreement and to obligate itself to the extent and in the manner therein provided. The execution of the Guaranty Agreement by the County has been authorized by an ordinance duly enacted under the Local Government Unit Debt Act (the “Debt Act”) of the Commonwealth. The execution of the Guaranty Agreement by the Authority has been duly authorized by a resolution duly adopted. The execution of the Guaranty Agreement by the County has been approved by the Department of Community and Economic Development of the Commonwealth under the Debt Act, and the Guaranty Agreement has been duly executed and delivered and is a valid and enforceable instrument of the County. The County has the power to guaranty the scheduled payment of the principal of and interest on the Bonds to the extent provided in the Guaranty Agreement and the County, under the Guaranty Agreement, has guaranteed the scheduled payment of the principal of and interest on the Bonds to the extent that the Bonds shall be “Outstanding”, as that term is defined in the Indenture, from time to time, under the Indenture, and for such payment the County has pledged its full faith, credit and taxing power.

4. Execution of the documents constituting the Loan Agreement by the Authority has been authorized by resolutions duly adopted; execution of the documents constituting the Loan Agreement by the Hospital has been authorized by resolutions duly adopted; and the documents constituting the Loan Agreement duly have been executed and delivered and are valid and enforceable instruments.

5. The documents constituting the Indenture duly have been authorized, executed and delivered by the Authority, are valid and enforceable instruments and validly assign and pledge to the Trustee the Loan Agreement and all sums payable thereunder, to the extent provided in the Indenture.

6. The Bonds do not pledge the credit or taxing power of the Commonwealth or any political subdivision thereof.

7. The Bonds are valid and binding obligations of the Authority and are enforceable against the Authority in accordance with terms thereof and of the Indenture.

8. Under the laws of the Commonwealth as presently enacted and construed, the Bonds are exempt from personal property taxes in the Commonwealth and the interest on the Bonds is exempt from the Commonwealth's Personal Income Tax and the Commonwealth's Corporate Net Income Tax.

9. Assuming investment and application of the proceeds of the Bonds as set forth in the Indenture and the aforementioned non-arbitrage and rebate compliance certificate, the Bonds are not presently “arbitrage bonds” as described in Section 103(b)(2) and Section 148 of the Code and applicable regulations promulgated thereunder.

10. Under existing statutes, regulations and judicial decisions interest on the Bonds (including any original issue discount properly allocated to the holders thereof) (i) is excluded from gross income for purposes of federal income taxation and (ii) is not an item of tax

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preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although in the case of corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings for purposes of such alternative minimum tax. The opinions expressed in this paragraph are subject to the further condition that the Authority and the Hospital comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, or continues to be, excluded from gross income for federal income tax purposes, as the Authority and the Hospital have covenanted to do in the Indenture and other aforementioned documents. Failure to comply with certain of such requirements may cause the inclusion of interest (and any properly allocable original issue discount) on the Bonds in gross income retroactive to the date of issuance of the Bonds.

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

It is to be understood that rights of holders of Bonds and the enforceability of the Bonds and of the Indenture and of the Loan Agreement and of the Guaranty Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and that their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity.

Very truly yours,