MATURITY DATE, PRINCIPAL AMOUNT AND PRICE (See succeeding page)

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1 NEW ISSUE: Book-Entry Only (Non-AMT) Ratings: See Ratings herein In the opinion of Bond Counsel, under existing law as presently interpreted (i) interest on the 2008B Bonds is excluded from gross income for federal income tax purposes, (ii) interest on the 2008B Bonds is not an item of tax preference for purposes of the alternative minimum tax on individuals and corporations, and (iii) the 2008B Bonds and the interest thereon are exempt from all state, city, county and other taxation provided by the laws of the State of Michigan, except estate, inheritance and gift taxes and taxes on transfers, in each case to the extent and subject to the conditions described under TAX MATTERS herein. $237,500,000 Kent Hospital Finance Authority Revenue Refunding Bonds (Spectrum Health System) Series 2008B Dated: Date of Issuance Maturity Date: January 15, 2047 Except to the extent payable from certain funds established under the Bond Indentures (defined herein) pursuant to which the Series 2008B Bonds will be issued and the other sources hereinafter described, the principal or redemption price of and interest on the Series 2008B Bonds shall be payable solely from payments to be made on the Series 2008B Master Indenture Obligations, which will be issued to the Kent Hospital Finance Authority (the Authority ) under the Master Indenture dated as of June 1, 1998, as supplemented as of April 1, 2008, between Spectrum Health System ( Spectrum Health ), as the Obligated Group Agent, on behalf of itself and the Members of the Obligated Group, and U.S. Bank National Association, as Master Trustee, provided, however, that until the 1989 Master Indenture Termination Date (defined herein), the principal or redemption price of and interest on the Series 2008B Bonds are also payable from payments to be made under the 1989 Master Indenture Notes issued under the 1989 Master Indenture (defined herein). The Series 2008B Bonds are issuable in three separate subseries, the Series 2008B-1 Bonds in the aggregate principal amount of $75,000,000, the Series 2008B-2 Bonds in the aggregate principal amount of $112,500,000, and the Series 2008B-3 Bonds, in the aggregate principal amount of $50,000,000. The Series 2008B Bonds are issuable only as fully registered bonds without coupons and, when issued, will be registered in the name of and held by Cede & Co., as nominee for The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the Series 2008B Bonds. Purchases of beneficial interests in the Series 2008B Bonds will be made in book-entry form. Except as herein described, such purchasers will not receive certificates representing their beneficial interests in the Series 2008B Bonds. See BOOK-ENTRY ONLY SYSTEM herein. Principal or redemption price of and interest on the Series 2008B Bonds will be paid by U.S. Bank National Association, as Bond Trustee. So long as DTC or its nominee, Cede & Co., is the registered owner of the Series 2008B Bonds, such payments will be made directly to DTC or such nominee. Disbursement of such payments to the DTC Participants is the responsibility of DTC and disbursement of such payments to the beneficial owners is the responsibility of the DTC Participants and the Indirect Participants, as more fully described herein. The Series 2008B Bonds are subject to redemption on the dates as described herein. The Series 2008B Bonds are subject to optional and mandatory tender for purchase on the dates and under the circumstances described in this Official Statement. The Series 2008B Bonds will initially bear interest at a Weekly Interest Rate. The initial Weekly Interest Rate for the Series 2008B Bonds for the period commencing on the date of delivery of the Series 2008B Bonds to and including April 22, 2008, will be determined by the Underwriter. Thereafter, the Weekly Interest Rate with respect to the Series 2008B Bonds will be determined by Citigroup Global Markets Inc., as Remarketing Agent for the Series 2008B Bonds, as described herein, or, at the election of Spectrum Health, the Series 2008B Bonds may be converted, in whole, to other Interest Rate Periods as described herein. U.S. Bank National Association will serve as Tender Agent for the Series 2008B Bonds. The Series 2008B Bonds will be issued in denominations of $100,000 or any integral multiple of $5,000 in excess thereof. Payment of (i) the principal of and interest on the Series 2008B-1 Bonds, when due, and (ii) the Tender Price of the Series 2008B-1 Bonds that are tendered for purchase and not remarketed may be made from amounts available under an irrevocable, transferable, direct-pay letter of credit (the 2008B-1 Credit Facility and the 2008B-1 Liquidity Facility ) relating to the Series 2008B-1 Bonds provided by RBS Citizens, National Association Payment of the Tender Price of the Series 2008B-2 Bonds that are tendered for purchase and not remarketed may be made from amounts available under a standby bond purchase agreement (the 2008B-2 Liquidity Facility ) provided by Payment of the Tender Price of the Series 2008B-3 Bonds that are tendered for purchase and not remarketed may be made from amounts under a standby bond purchase agreement (the 2008B-3 Liquidity Facility ) provided by The 2008B-1 Credit Facility, the 2008B-2 Liquidity Facility and the 2008B-3 Liquidity Facility will expire, unless extended or terminated earlier in accordance with their terms, on April 15, 2011, April 15, 2011, and April 15, 2013, respectively. In addition, each Liquidity Facility for the Series 2008B Bonds may, in certain events, be terminated or suspended without notice. MATURITY DATE, PRINCIPAL AMOUNT AND PRICE (See succeeding page) The Series 2008B Bonds are limited obligations of the Authority, payable solely from the sources herein described. The Authority has no taxing power. The Series 2008B Bonds are not general obligations or debt of the City of Grand Rapids, the City of Greenville, the County of Kent, the County of Montcalm, the State of Michigan or any political subdivision thereof within the meaning of any constitutional, charter or statutory provisions or limitations. The Series 2008B Bonds are offered when, as and if issued by the Authority and accepted by the Underwriter, subject to prior sale, to withdrawal or modification of the offer without notice, and to the approval of legality and tax exemption of the Series 2008B Bonds by Miller, Canfield, Paddock and Stone, P.L.C., Ann Arbor, Michigan, Bond Counsel. Certain legal matters will be passed upon for the Authority by its Counsel, Rhoades McKee,Grand Rapids, Michigan; for the Obligated Group by its Counsel Warner Norcross & Judd LLP, Grand Rapids, Michigan; for the Underwriter by its Counsel, Hall, Render, Killian, Heath & Lyman, P.C., Indianapolis, Indiana; for RBS Citizens, National Association, by its Counsel, Miller, Canfield, Paddock and Stone, P.L.C., Detroit, Michigan; for Landesbank Baden-Württemberg by its Counsel, Chapman and Cutler LLP, Chicago, Illinois; and for Wells Fargo Bank, National Association, by its Counsel, Miller, Canfield, Paddock and Stone, P.L.C., Detroit, Michigan. It is expected that the Series 2008B Bonds in definitive form will be available for delivery in New York, New York, on or about April 15, April 10, 2008 Citi

2 MATURITY DATE, PRINCIPAL AMOUNT AND PRICE $237,500,000 Kent Hospital Finance Authority Revenue Refunding Bonds (Spectrum Health System) Series 2008B Series Maturity Date Principal Amount Price 2008B-1 January 15, 2047 $ 75,000, % 2008B-2 January 15, ,500, % 2008B-3 January 15, ,000, % No dealer, broker, salesperson or other person has been authorized by the Authority, Spectrum Health, any other Member of the Credit Group or the Underwriter to give any information or to make any representations with respect to the Series 2008B Bonds, other than those in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, and there shall not be any sale of, the Series 2008B Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from Spectrum Health, the other Members of the Credit Group, DTC, the Banks and other sources that are believed to be reliable, but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Authority. Citigroup Global Markets Inc. (the "Underwriter") has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the matters described herein since the date hereof. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2008B BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE SERIES 2008B BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAVE THE BOND INDENTURES AND THE MASTER INDENTURES BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE SERIES 2008B BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF SECURITIES LAWS OF THE STATES IN WHICH THE SERIES 2008B BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES NOR THE SECURITIES AND EXCHANGE COMMISSION HAS PASSED UPON THE MERITS OF THE SERIES 2008B BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. ii

3 CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the United States Securities Act of 1933, as amended (the "Securities Act"). Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "budget" or other similar words. Such forward-looking statements include, among others, those appearing under the captions "HISTORY, BACKGROUND AND ORGANIZATION Capital Improvement Plan," "SPECTRUM HEALTH SERVICE AREA" and "PROFESSIONAL LIABILITY COVERAGE Medical Malpractice Litigation" in Appendix A to this Official Statement; and the statements under the captions "BONDHOLDERS' RISKS General, - Security and Enforceability, - Patient Service Revenues, - Regulatory Environment" and "- Tax Matters" in the forepart of this Official Statement. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. NEITHER SPECTRUM HEALTH NOR THE CREDIT GROUP MEMBERS PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN THEIR EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR. iii

4 TABLE OF CONTENTS INTRODUCTORY STATEMENT... 1 Purpose of this Official Statement... 1 The Authority... 1 Spectrum Health System... 1 The Financing Plan... 2 Security for the Series 2008B Bonds... 2 Credit Facility for the Series 2008B-1Bonds... 4 Liquidity Facilities... 4 Other Outstanding Obligations... 5 Additional Indebtedness... 5 Sale, Lease or Other Disposition of Property... 5 Bondholders' Risks... 5 Continuing Disclosure... 5 Underlying Documents... 6 THE AUTHORITY... 6 THE SERIES 2008B BONDS... 6 General Description of the Series 2008B Bonds 6 Determination of the Weekly Interest Rate... 7 Conversion of Interest Rates... 8 Tender and Purchase of Series 2008B Bonds... 8 Source of Funds for Purchase of Series 2008B Bonds Special Considerations Relating to the 2008B Bonds Redemption Notice of Redemption and Other Notices Discontinuation of Book-Entry Only System BOOK-ENTRY ONLY SYSTEM General DTC and Its Participants Limitations SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2008B BONDS The Bond Indentures The Loan Agreements, Note Nos. 32, 33 and 34 and the 2008B Master Indenture Obligations The Master Indentures; the Notes and Obligations The Credit Group The 1998 Master Indenture THE 2008B-1 CREDIT FACILITY The Series 2008B-1 Credit Facility The Reimbursement Agreement THE LIQUIDITY FACILITIES The Series 2008B-1 Liquidity Facility The Series 2008B-2 Liquidity Facility The Series 2008B-3 Liquidity Facility THE BANKS RBS Citizens, National Association Landesbank Baden-Württemberg Wells Fargo Bank, National Association THE FINANCING PLAN The Refinancing Estimated Sources and Uses of Funds ESTIMATED DEBT SERVICE REQUIREMENTS BONDHOLDERS' RISKS General Nonprofit Healthcare Environment Security and Enforceability Federal and State Legislation and Other Actions Patient Service Revenues Regulatory Environment Certain Business Transactions Tax Matters Other Risks LITIGATION LIMITED OBLIGATIONS APPROVAL OF LEGALITY TAX MATTERS FINANCIAL STATEMENTS INTERIM FINANCIAL INFORMATION RATINGS CONTINUING DISCLOSURE AGREEMENT UNDERWRITING OTHER MATTERS APPENDIX A Information Concerning Spectrum Health and Affiliates... A-1 APPENDIX B Audited Consolidated Financial Statements of Spectrum Health and Affiliates... B-1 APPENDIX C Definitions of Certain Terms and Summary of Certain Provisions of the Principal Documents... C-1 APPENDIX D Form of Bond Counsel Opinion... D-1 iv

5 OFFICIAL STATEMENT $237,500,000 Kent Hospital Finance Authority Revenue Refunding Bonds (Spectrum Health System) Series 2008B INTRODUCTORY STATEMENT Purpose of this Official Statement The purpose of this Official Statement is to provide certain information in connection with the offering by the Kent Hospital Finance Authority (the "Authority") of $237,500,000 aggregate principal amount of Revenue Refunding Bonds (Spectrum Health System) Series 2008B (the "Series 2008B Bonds" ) comprising three subseries, namely, (i) the Authority's $75,000,000 aggregate principal amount of Revenue Refunding Bonds (Spectrum Health System) Series 2008B-1 (the "Series 2008B-1 Bonds"), (ii) the Authority's $112,500,000 aggregate principal amount of Revenue Refunding Bonds (Spectrum Health System) Series 2008B-2 (the "Series 2008B-2 Bonds") and (iii) the Authority's $50,000,000 aggregate principal amount of Revenue Refunding Bonds (Spectrum Health System) Series 2008B-3 (the "Series 2008B-3 Bonds"). The Series 2008B Bonds will be issued pursuant to three separate Bond Indentures, each dated as of April 1, 2008 (individually, a "Bond Indenture" or a "Series 2008B Bond Indenture" and collectively, the "Bond Indentures" or the "Series 2008B Bond Indentures") between the Authority and U.S. Bank National Association, Lansing, Michigan, as trustee (the "Bond Trustee"). The Series 2008B Bonds will be issued pursuant to a financing plan which contemplates the simultaneous issuance of $227,320,000 aggregate principal amount of the Authority's Revenue Refunding Bonds (Spectrum Health System) Series 2008A (the "Series 2008A Bonds" and together with the Series 2008B Bonds, the "Series 2008 Bonds"). The proceeds of the Series 2008 Bonds will produce funds to be provided by the Authority to Spectrum Health for use by certain members of the Credit Group (as defined below). The Authority The Authority was created on December 22, 1977, pursuant to The Hospital Finance Authority Act, Act No. 38, Public Acts of Michigan, 1969, as amended (the "Act"). The Authority was created in order to assist nonprofit hospitals in the acquisition, construction, financing and refinancing of projects. The Authority has no taxing power. For further information concerning the Authority, see the information herein under the caption "THE AUTHORITY." Spectrum Health System Spectrum Health System ("Spectrum Health"), located in Grand Rapids, Michigan, is a Michigan nonprofit corporation that was created in September, 1997 in connection with the combination of Blodgett Memorial Medical Center and its affiliates and Butterworth Health Corporation and its affiliates. Spectrum Health is the sole corporate member of Spectrum Health Hospitals, which owns and operates two hospital facilities, namely, Spectrum Health Hospitals Blodgett Campus and Spectrum Health Hospitals Butterworth Campus. Spectrum Health, Spectrum Health Hospitals, and their affiliates are referred to collectively herein as the "Spectrum Health System." The Spectrum Health System consists of five acute care hospitals, three insurance organizations having combined membership of 475,000, skilled nursing facilities, primary and specialty physician services, rehabilitation services, outpatient centers, home health care services, visiting nurse services and other health care services throughout the western Michigan area. See APPENDIX A for a more detailed discussion of the Spectrum Health System, its organization and financial and operating performance. APPENDIX B includes the consolidated audited financial statements of Spectrum Health and Affiliates. This Official Statement includes information for the Members of the

6 Credit Group (defined below) as well as affiliates that are not members of the Credit Group or the Obligated Groups described below. The Financing Plan The proceeds of the Series 2008 Bonds will be loaned to Spectrum Health (the "Borrower") pursuant to six Loan Agreements (one Loan Agreement for each of the three subseries of Series 2008A Bonds and for each of the three subseries of Series 2008B Bonds) each dated as of April 1, 2008 (collectively, the "Loan Agreements") between the Authority and the Borrower, and will be used, together with other available moneys, for the purpose of providing funds necessary to refund all of (i) the Authority's $45,000,000 Revenue Bonds (Spectrum Health) Series 2001B currently outstanding in the principal of $39,000,000 (the "Series 2001B Bonds"); (ii) the Authority's $224,700,000 Revenue Refunding Bonds (Spectrum Health), Series 2007A currently outstanding in the principal amount of $224,700,000 (the "Series 2007A Bonds"); (iii) and the Authority's $201,120,000 Revenue and Refunding Bonds (Spectrum Health) Series 2007B currently outstanding in the principal amount of $201,120,000 (the "Series 2007B Bonds"). For further information concerning the Financing Plan, see the information herein under the caption "THE FINANCING PLAN." Security for the Series 2008B Bonds The 1998 Obligated Group. On their date of issuance, the Series 2008B Bonds will be secured by the 2008B Master Indenture Obligations (defined below) issued under the Master Trust Indenture dated as of June 1, 1998 (the "1998 Master Indenture"), as heretofore supplemented, and as further supplemented by the 2008B Supplemental Indentures (defined below), among Spectrum Health and U.S. Bank National Association, as master trustee (the "1998 Master Trustee"). Spectrum Health and Spectrum Health Hospitals are the only Members of the Obligated Group (the "1998 Obligated Group") and, together, comprise 86% of the hospital, continuing care and physician service revenues of Spectrum Health System as of June 30, Spectrum Health has been designated the Obligated Group Agent under the 1998 Master Indenture. See the information under the caption "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2008B BONDS" below. Spectrum Health, as the Obligated Group Agent under the 1998 Master Indenture, will issue its Obligation No. 24, Obligation No. 25 and Obligation No. 26, each dated as of April 1, 2008 (the "2008B Master Indenture Obligations") as security for the Series 2008B Bonds pursuant to three separate Supplemental Master Trust Indentures (the "2008B Supplemental Indentures") between Spectrum Health, as the Obligated Group Agent, and the 1998 Master Trustee. In addition, in connection with the issuance of the Series 2008B Bonds, Spectrum Health, as the Obligated Group Agent under the 1998 Master Indenture, will issue its Obligation No. 24A, Obligation No. 25A and Obligation No. 26A (the "Bank Obligations") to secure its obligations to RBS Citizens, National Association, Landesbank Baden-Württemberg and Wells Fargo Bank, National Association (each a "Bank" and collectively, the "Banks"), as providers of the Liquidity Facilities. The Credit Group. Certain of Spectrum Health's affiliates are Designated Affiliates (the "Designated Affiliates") under the 1998 Master Indenture. Certain of Spectrum Health's affiliates may become Limited Credit Group Participants (the "Limited Credit Group Participants" and, together with the 1998 Obligated Group Members and the Designated Affiliates, the "Credit Group"). To become a Designated Affiliate, a corporation or other entity must be designated as a Designated Affiliate by the Obligated Group Agent and any Member of the 1998 Obligated Group must control such Designated Affiliate in the manner described below. To become a Limited Credit Group Participant, a corporation or other entity must be designated as a Limited Credit Group participant by the Obligated Group Agent and any Member of the 1998 Obligated Group or a Designated Affiliate must have entered into a contract or other agreement under which such entity is obligated to make payments to the 1998 Obligated Group Member and to comply with the provisions of the 1998 Master Indenture applicable to such Limited Credit Group participant. Under the 1998 Master Indenture, "control" means the power to direct the management, policies and disposition of assets and actions of such Person, directly or indirectly, to the extent required to cause such Designated Affiliate to comply with the terms and conditions of the 1998 Master Indenture, whether through the ownership of voting securities, partnership interest, membership, reserved powers, the power to appoint members, trustees, or directors, through contractual arrangements, or otherwise. See the information under the caption "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2008B BONDS." 2

7 On June 30, 1998 the Authority issued its Revenue Refunding Bonds (Spectrum Health) Series 1998A, Series 1998B and Series 1998C in the aggregate principal amount of $128,140,000 (the "Series 1998 Bonds"). On October 11, 2001 the Authority issued its Revenue Bonds (Spectrum Health) Series 2001A (the "Series 2001A Bonds") and the Series 2001B Bonds in the aggregate principal amount of $145,000,000 (the "Series 2001 Bonds"). On June 2, 2005 the Authority issued its Revenue and Refunding Bonds (Spectrum Health) Series 2005A in the aggregate principal amount of $152,100,000 (the "Series 2005A Bonds") and its Revenue and Refunding Bonds (Spectrum Health) Series 2005B in the aggregate principal amount of $90,000,000 (the "Series 2005B Bonds" and together with the Series 2005A Bonds, the "Series 2005 Bonds"). On June 20, 2007 the Authority issued the Series 2007A Bonds and the Series 2007B Bonds, which together with the Series 2001B Bonds, will be refunded with the proceeds of the Series 2008 Bonds. The Series 1998 Bonds, the Series 2001A Bonds and the Series 2005 Bonds are referred to herein as the "Prior Bonds." As of the date of issuance of the Series 1998 Bonds, Spectrum Health designated all of the then Members of the 1989 Obligated Group (defined below) as Designated Affiliates and they will remain so designated when the Series 2008B Bonds are issued. As of the date of issuance of the Series 2008B Bonds there will be no Limited Credit Group Participants. REFERENCES HEREIN TO THE "OBLIGATED GROUP" SHALL MEAN AND REFER TO BOTH THE 1989 OBLIGATED GROUP AND THE 1998 OBLIGATED GROUP UNTIL THE 1989 MASTER INDENTURE TERMINATION DATE (DEFINED BELOW) AND THEREAFTER SHALL REFER ONLY TO THE 1998 OBLIGATED GROUP. The 2008B Master Indenture Obligations and all other Obligations issued under the 1998 Master Indenture are and will be general obligations of the Members of the 1998 Obligated Group which agree to be jointly and severally liable under the 1998 Master Indenture. Spectrum Health and Spectrum Health Hospitals are the only Members of the 1998 Obligated Group under the 1998 Master Indenture and, together, comprise 86% of the hospital, continuing care and physician service revenues of the Spectrum Health System as of June 30, The 2008B Master Indenture Obligations will be unsecured obligations of the 1998 Obligated Group. Other entities may become Members of the 1998 Obligated Group in accordance with the procedures set forth in the 1998 Master Indenture. The Designated Affiliates and the Limited Credit Group Participants are not Members of the 1998 Obligated Group and may cease being a Designated Affiliate or a Limited Credit Group Participant under the 1998 Master Indenture at any time at the discretion of Spectrum Health. See the information under the caption "BONDHOLDERS' RISKS-Risks Related to the Master Indentures" below. THE 1998 MASTER INDENTURE PROVIDES THAT AFTER AN ENTITY IS DESIGNATED AS A DESIGNATED AFFILIATE OR A LIMITED CREDIT GROUP PARTICIPANT, SPECTRUM HEALTH MAY AT ANY TIME DECLARE THAT SUCH ENTITY IS NO LONGER A DESIGNATED AFFILIATE OR LIMITED CREDIT GROUP PARTICIPANT, RESPECTIVELY. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE MEMBERS OF THE SPECTRUM HEALTH SYSTEM DESIGNATED AS DESIGNATED AFFILIATES ON THE DATE OF DELIVERY OF THE SERIES 2008B BONDS WILL CONTINUE TO BE SO DESIGNATED OR THAT OTHER ENTITIES WILL BECOME DESIGNATED AFFILIATES OR LIMITED CREDIT GROUP PARTICIPANTS. The 1989 Obligated Group. For the period commencing on the date of issuance of the Series 2008 Bonds and ending on the 1989 Master Indenture Termination Date (defined in the immediately following paragraph), the Series 2008 Bonds (and the Prior Bonds) will also be secured by the 1989 Master Indenture Notes (defined below) issued under the Master Trust Indenture dated as of June 15, 1989, as supplemented and amended (the "1989 Master Indenture") between the Members of the 1989 Obligated Group (hereinafter described) and U.S. Bank National Association, successor to Michigan National Bank, as master trustee (the "1989 Master Trustee"). On the date of issuance of the Series 2008 Bonds, the 1989 Obligated Group will consist of Spectrum Health, Spectrum Health Hospitals, Spectrum Health Worth Services, Spectrum Health Continuing Care, Spectrum Health Continuing Care Center, Inc., Visiting Nurse Services of Western Michigan and Spectrum Health United (collectively, the "1989 Obligated Group" and individually, each a "Member of the 1989 Obligated Group"). Spectrum Health, as the Obligated Group Agent under the 1989 Master Indenture, will issue its Note No. 32, its Note No. 33 and its Note No. 34, each dated as of April 1, 2008 ("Note No. 32", "Note No. 33" and "Note No. 34", respectively) and together with various other Notes heretofore issued and outstanding, with respect to the Prior Bonds, the Series 2008A Bonds and the Series 2008B Bonds, the "1989 Master Indenture Notes") as security for the Series 2008B Bonds pursuant to three separate Supplemental Master Indentures (the "1989 Supplemental Indentures"), between Spectrum Health, as 3

8 Obligated Group Agent for the 1989 Obligated Group, and the 1989 Master Trustee. The 1989 Master Indenture Notes and all other "Obligations" heretofore or hereafter issued under the 1989 Master Indenture will be general obligations of the Members of the 1989 Obligated Group, each of which agrees to be jointly and severally liable under the Master Indenture as herein described. On and after the 1989 Master Indenture Termination Date, the joint and several obligation of the Members of the 1989 Obligated Group will cease, and the Series 2008B Bonds will thereafter be secured solely by the 2008B Master Indenture Obligations. Therefore, the holders of Series 2008B Bonds or beneficial interests therein should look only to the 1998 Master Indenture as long-term security for the Series 2008B Bonds. The 1989 Master Indenture Termination Date is the date on which all Obligations (as defined in the 1989 Master Indenture), other than the 1989 Master Indenture Notes, are no longer Outstanding under the 1989 Master Indenture, or the date on which all holders of Obligations and, if required by the Related Bond Indenture (as defined in the 1989 Master Indenture), the required level of holders of the Related Bonds, consent to the termination and discharge of the 1989 Master Indenture. The 1989 Master Indenture Termination Date is anticipated to occur not later than January 15, 2019, the date on which the Series 1993A Bonds (as defined below) will reach final maturity. On such 1989 Master Indenture Termination Date, the 1989 Master Indenture shall terminate and will no longer be in force and effect. Each Purchaser of a Series 2008B Bond or a beneficial interest therein and the Bond Trustee (as the holder of the 1989 Master Indenture Notes) shall be deemed to have consented to the termination of the 1989 Master Indenture by their purchase of a Series 2008B Bond. A discussion of the 1989 Master Indenture is not included in this Official Statement, except in APPENDIX C hereto. The Series 2008B Bonds will be limited obligations of the Authority, secured by and payable solely from the sources described in the Bond Indentures. Pursuant to each Bond Indenture, the Authority will pledge to the Bond Trustee its interest in the respective Loan Agreement, under the terms of which the Members of the Obligated Group will jointly and severally agree to pay the principal, or redemption price of and interest on the related Series 2008B Bonds. The payment obligations of the Obligated Group under the Loan Agreements will be evidenced by Note No. 32, Note No. 33 and Note No. 34 and the 2008B Master Indenture Obligations which will be delivered to the Authority and assigned by the Authority to the Bond Trustee as security for the Series 2008B Bonds. Credit Facility for the Series 2008B-1 Bonds Payment of the principal of, and interest on, the Series 2008B-1 Bonds is provided for under the terms of an irrevocable, transferable, direct-pay letter of credit (the "2008B-1 Credit Facility") issued by RBS Citizens, National Association. The Bond Trustee for the Series 2008B-1 Bonds will be entitled to draw under the 2008B-1 Credit Facility an amount not exceeding $76,109, which consists of (1) up to $75,000,000 (the principal amount of the Series 2008B-1 Bonds) in order to pay principal on the Series 2008B-1 Bonds when due or upon certain tenders by Holders, plus (2) $1,109, for so long as the Series 2008B-1 Bonds bear interest at a Weekly Interest Rate, which amount equals 45 days' interest on the principal amount of the Series 2008B-1 Bonds, computed at a maximum rate of 12% per annum, in order to pay accrued interest on the Series 2008B-1 Bonds when due or to pay a portion of the Tender Price of the Series 2008B-1 Bonds. The 2008B-1 Credit Facility also constitutes a "Liquidity Facility" as discussed below. Liquidity Facilities The payment of the Tender Price of the Series 2008B Bonds bearing interest at a Weekly Interest Rate which are tendered for purchase and not remarketed (the "Eligible Bonds") may be made from amounts made available by RBS Citizens, National Association ("RBS"), Landesbank Baden-Württemberg ("LBBW") and Wells Fargo Bank, National Association ("Wells Fargo"), and of the Series 2008B-3 Bonds bearing interest at a Daily Interest Rate from amounts made available by Wells Fargo, pursuant to their respective Liquidity Facilities, for each respective subseries of the Series 2008B Bonds. Each Liquidity Facility contains substantially similar financial terms. A brief description of the 2008B-1 Liquidity Facility appears in the preceding paragraph. Under the 2008B- 2 Liquidity Facility, LBBW is obligated to make available to the Tender Agent an amount equal to the principal amount of the Series 2008B-2 Bonds which are tendered plus up to 35 days interest at an assumed interest rate of 12%. Under the 2008B-3 Liquidity Facility, Wells Fargo is obligated to make available to the Tender Agent an amount equal to the principal amount of the Series 2008B-3 Bonds which are tendered plus up to 40 days interest at an assumed rate of 12%. Each Liquidity Facility, other than the 2008B-1 Liquidity Facility, provides only for the 4

9 payment of the Tender Price of the Eligible Bonds tendered for purchase as described herein, and does not otherwise secure or provide for the payment of the principal of, premium, if any, or interest on the Series 2008B Bonds. Each Bank may terminate its Liquidity Facility without notice or final right to tender the related subseries of Series 2008B Bonds upon the occurrence of certain events of default as discussed herein under the captions, "THE 2008B-1 CREDIT FACILITY- The Reimbursement Agreement" and "THE LIQUIDITY FACILITIES-The Series 2008B-2 Liquidity Facility-Remedies" and "The Series 2008B-3 Liquidity Facility Remedies Upon Occurrence of an Event of Default." The Liquidity Facilities will expire, unless extended or terminated earlier in accordance with their respective terms, on April 15, 2011 (as to the 2008B-1 Liquidity Facility), April 15, 2011 (as to the 2008B-2 Liquidity Facility) or April 15, 2013 (as to the 2008B-3 Liquidity Facility). Each Liquidity Facility constitutes a Liquidity Facility as defined in the applicable Bond Indenture. For a more detailed description of each Liquidity Facility, see "THE 2008B-1 CREDIT FACILITY" and "THE LIQUIDITY FACILITIES" herein. Other Outstanding Obligations On the date of issuance of the Series 2008B Bonds, an Obligation issued under the 1989 Master Indenture in an aggregate outstanding principal amount of $14,875,000 securing certain outstanding revenue bonds of the Authority (the "Series 1993A Bonds") issued for the benefit of Spectrum Health Hospitals - Butterworth Campus will be outstanding (the "Existing Obligation"). The 1989 Master Indenture Notes and, until the 1989 Master Indenture Termination Date, the Series 2008 Bonds (together with the Prior Bonds), will be secured under the 1989 Master Indenture on an equal and ratable basis with the Existing Obligation and any additional Obligations that may hereafter be issued under the 1989 Master Indenture. Additional Indebtedness The 1998 Master Indenture does not contain any limitations on the amount of additional indebtedness that may be incurred by any Member of the Credit Group, nor does the 1998 Master Indenture require any Member of the Credit Group to demonstrate compliance with any earnings, capitalization or other tests as a condition to the incurrence of additional indebtedness. Until the 1989 Master Indenture Termination Date, any Member of the 1989 Obligated Group will be permitted to incur additional "Indebtedness" (as defined in APPENDIX C hereto), which may be secured or unsecured and may be incurred in the form of Obligations issued under the 1989 Master Indenture and the 1998 Master Indenture only upon satisfaction of the terms and conditions set forth in the 1989 Master Indenture. See the information under the caption "DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF PRINCIPAL DOCUMENTS-THE 1989 MASTER INDENTURE-Particular Covenants of Each Member of the 1989 Obligated Group-Limitations on Incurrence of Additional Indebtedness" in APPENDIX C hereto. Sale, Lease or Other Disposition of Property The 1998 Master Indenture does not contain any limitations on the sale, lease or other disposition of property by any Member of the Credit Group. Until the 1989 Master Indenture Termination Date, the Members of the 1989 Obligated Group may, however, sell, lease or otherwise dispose of Property (as defined in the 1989 Master Indenture) only upon satisfaction of the terms and conditions set forth in the 1989 Master Indenture. See the information under the caption "DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF PRINCIPAL DOCUMENTS-THE 1989 MASTER INDENTURE-Particular Covenants of Each Member of the 1989 Obligated Group-Sale, Lease or Other Disposition of Property" in APPENDIX C hereto. Bondholders' Risks There are certain risks involved in the purchase of any Series 2008B Bonds. See the information herein under the caption "BONDHOLDERS' RISKS." Continuing Disclosure Spectrum Health will enter into an undertaking for the benefit of the holders of the Series 2008B Bonds to provide certain information quarterly and/or annually and to provide notice of certain events to certain information 5

10 repositories. For further information, see the discussion herein under the caption "CONTINUING DISCLOSURE AGREEMENT." Underlying Documents The descriptions and summaries of various documents set forth in this Official Statement, including APPENDIX C, do not purport to be comprehensive or definitive and reference is made to each document for complete details of all terms and conditions. All statements herein are qualified in their entirety by the terms of each such document. Copies of the Bond Indentures, the Loan Agreements, the 1989 Master Indenture Notes, the 2008B Master Indenture Obligations, the 1989 Master Indenture, the 1998 Master Indenture, the 2008B Supplemental Indentures and the 1989 Supplemental Indentures will be available for inspection at the designated corporate trust office of the Bond Trustee. THE AUTHORITY The Authority was incorporated on December 22, 1977, by the Board of Commissioners of Kent County, Michigan and by the City Commission of the City of Grand Rapids, Michigan, pursuant to the Act. The purpose of the Authority is to construct, acquire, reconstruct, remodel, improve, add to, enlarge, repair, own, and lease hospital facilities for the use of any private, nonprofit hospital within or without the boundaries of Kent County, Michigan, together with the other purposes expressed in the Act. The Authority is governed by a Commission composed of eight members, four of whom are appointed by the Board of Commissioners of Kent County, Michigan, and four of whom are appointed by the City Commission of the City of Grand Rapids, Michigan. The names, titles and terms of the Commissioners of the Authority are shown below. The terms of the Commissioners of the Authority end on the first Monday in January of the respective years shown. Commissioner Title Year Term Ends James R. Saalfeld Chairman 2009 H. Edward Paul Vice-Chairman 2011 Richard F. Fabiano Secretary/Treasurer 2010 Harry M. Baxter Commissioner 2009 Scott Buhrer Commissioner 2010 C. David Mohan Commissioner 2009 Hattie P. Patterson Commissioner 2010 Robert J. White Commissioner 2011 General Description of the Series 2008B Bonds THE SERIES 2008B BONDS This Official Statement summarizes certain terms of the Series 2008B Bonds only while the Series 2008B Bonds bear interest at a Weekly Interest Rate. Should the Series 2008B Bonds be converted to a different Interest Rate Period, the Series 2008B Bonds will be subject to mandatory tender and purchase and, at that time, it is expected that a Reoffering Circular or a supplement to this Official Statement or other disclosure document will be prepared. The Series 2008B Bonds initially will bear interest at a Weekly Interest Rate as described below under Determination of the Weekly Interest Rate unless and until, at the direction of Spectrum Health on behalf of the Authority and upon compliance with the conditions set forth in the Bond Indentures and the Loan Agreements, the Series 2008B Bonds are converted to another Interest Rate Period. The Series 2008B Bonds mature on January 15, 2047, subject to prior redemption as described herein under Redemption, are dated the date of their issuance and bear interest from that date until paid. So long as the Series 2008B Bonds bear interest at a Weekly Interest Rate, interest will be computed on the basis of a 365- or 366-day year for the actual days elapsed for the Series 2008B Bonds. 6

11 The Series 2008B Bonds will be issued as fully registered Bonds in book-entry form only and when issued will be registered in the name of Cede & Co., as nominee of DTC. The Series 2008B Bonds may be purchased by the beneficial owners in Authorized Denominations of $100,000 and integral multiples of $5,000 in excess of $100,000. Interest on the Series 2008B Bonds during a Weekly Interest Rate Period will be payable monthly in arrears on the first Wednesday of each month, commencing May 7, 2008, or the next succeeding Business Day if any such Wednesday is not a Business Day. If a payment date is not a Business Day at the place of payment, the payment will be made at that place on the next succeeding Business Day, with the same force and effect as if made on the payment date, and, in the case of such payment, no interest will accrue for the intervening period. Interest on the Series 2008B Bonds will be payable on each Interest Payment Date for the period commencing on the first Wednesday of the preceding month and ending on the Tuesday immediately preceding the Interest Payment Date (or, if sooner, the last day of the Weekly Interest Rate Period). In any event, interest on the Series 2008B Bonds will be payable for the final Interest Rate Period to the date on which the Series 2008B Bonds have been paid in full. At no time will any Series 2008B Bond bear interest at a Weekly Interest Rate that is in excess of the lesser of 12% per annum and the maximum rate of interest on the relevant obligation permitted by applicable law. Principal of and premium, if any, and interest on the Series 2008B Bonds will be paid by the Bond Trustee. Principal is payable upon presentation of such Series 2008B Bonds by the holders thereof. Interest on the Series 2008B Bonds will be payable on each Interest Payment Date by the Bond Trustee by check mailed on the date on which interest is due to the holders of the Series 2008B Bonds at the close of business on the Record Date in respect of such Interest Payment Date at the registered addresses of Holders as they appear on the registration books maintained by the Bond Trustee. The Record Date with respect to any Interest Payment Date for the Series 2008B Bonds is the Business Day immediately preceding such Interest Payment Date. Notwithstanding the foregoing, so long as records of ownership of the Series 2008B Bonds are maintained through the book-entry only system described below, all payments to the Beneficial Owners of the Series 2008B Bonds will be made in accordance with the procedures described below under the caption BOOK-ENTRY ONLY SYSTEM. Concurrently with the issuance of the Series 2008B Bonds Spectrum Health will enter into a Remarketing Agreement with Citigroup Global Markets Inc., as the Remarketing Agent for the Series 2008B Bonds, under which the Remarketing Agent will agree to determine the Weekly Interest Rate on the Series 2008B Bonds and use its best efforts to remarket the Series 2008B Bonds subject to optional and mandatory tender for purchase. Determination of the Weekly Interest Rate During each Weekly Interest Rate Period, the Series 2008B Bonds will bear interest at the Weekly Interest Rate, which will be determined by the Remarketing Agent for the Series 2008B Bonds on Tuesday of each week during such Weekly Interest Rate Period, or if such day is not a Business Day, then on the next succeeding Business Day. The first Weekly Interest Rate determined for each Weekly Interest Rate Period will be determined on or prior to the effective date of such Weekly Interest Rate Period and will apply to the period commencing on the effective date of such Weekly Interest Rate Period and ending on the next succeeding Tuesday. Thereafter, each Weekly Interest Rate will apply to the period commencing on Wednesday and ending on the next succeeding Tuesday, unless such Weekly Interest Rate Period will end on a day other than Tuesday, in which event the last Weekly Interest Rate for such Weekly Interest Rate Period will apply to the period commencing on Wednesday preceding the last day of such Weekly Interest Rate Period and ending on the last day of such Weekly Interest Rate Period. The Weekly Interest Rate will be the rate of interest per annum determined by the Remarketing Agent for the Series 2008B Bonds (based on the examination of tax-exempt obligations comparable in the judgment of the Remarketing Agent to the Series 2008B Bonds and known by the Remarketing Agent to have been priced or traded under then prevailing market conditions) to be the minimum interest rate which, if borne by the Series 2008B Bonds, would enable the Remarketing Agent to sell the Series 2008B Bonds on such date of determination at a price (without regarding accrued interest) equal to the principal amount thereof. 7

12 In the event that the Remarketing Agent fails to establish a Weekly Interest Rate for any week, then the Weekly Interest Rate for such week will be the same as the Weekly Interest Rate for the immediately preceding week if the Weekly Interest Rate for such preceding week was determined by the Remarketing Agent. In the event that the Weekly Interest Rate for the immediately preceding week was not determined by the Remarketing Agent, or in the event that the Weekly Interest Rate determined by the Remarketing Agent is held to be invalid or unenforceable by a court of law, then the interest rate for such week will be equal to 110% of the SIFMA Index, which means on any date, a rate determined on the basis of the seven-day high grade market index of tax-exempt variable rate demand obligations, as produced by Municipal Market Data and published or made available by the Securities Industry and Financial Markets Association, or SIFMA, or any person acting in cooperation with or under the sponsorship of SIFMA and acceptable to the Remarketing Agent and effective from such date, made available for the week preceding the date of determination, or if such index is no longer made available, 85% of the interest rate on 30-day high grade unsecured commercial paper notes sold through dealers by major corporations as reported in The Wall Street Journal on the day the Weekly Interest Rate would otherwise be determined as provided in the Series 2008B Bond Indenture for such Weekly Interest Rate Period. Conversion of Interest Rates Conversion from Weekly Interest Rate. Spectrum Health on behalf of the Authority may direct that the interest rate on the Series 2008B Bonds bearing interest at a Weekly Interest Rate be converted to a Daily Interest Rate, a LIBOR-Based Interest Rate, a Serial Bond Interest Rate, Bond Interest Term Rates or Auction Rates upon satisfaction of certain conditions set forth in the Bond Indentures. The Series 2008B Bonds will be subject to mandatory tender for purchase on the effective date of the Conversion to another Interest Rate Period, at a Tender Price equal to the principal amount thereof, without premium, plus accrued interest (if any) to the effective date of the Conversion. The Bond Indentures provide that the Bond Trustee is required to give notice of any Conversion to another Interest Rate Period to the holders of the Series 2008B Bonds not less than 30 days prior to the proposed effective date of such Conversion. Certain Conditions to Conversion of Interest Rates on Series 2008B Bonds. In connection with any Conversion of the Interest Rate Period on the Series 2008B Bonds, Spectrum Health will cause to be provided to the Authority, the Bond Trustee, the Liquidity Facility Provider and the Remarketing Agent a Favorable Opinion of Bond Counsel on the effective date of such Conversion. In the event that Bond Counsel fails to deliver a Favorable Opinion of Bond Counsel on such date, then the Interest Rate Period on the Series 2008B Bonds will not be converted, and the Series 2008B Bonds will continue to bear interest at a Weekly Interest Rate as in effect immediately prior to such proposed Conversion of the Interest Rate Period and the Series 2008B Bonds will continue to be subject to mandatory purchase on the date which would have been the effective date of such Conversion as provided in the Bond Indentures. Spectrum Health may rescind its election to convert the Interest Rate Period for the Series 2008B Bonds from the Weekly Interest Rate Period by delivering a rescission notice to the Bond Trustee, the Remarketing Agent, the Tender Agent, the Liquidity Facility Provider and the Authority on or prior to 10:00 a.m. on the second Business Day preceding the proposed effective date of the Conversion. However, if a notice of the proposed Conversion has been given to the Holders of the Series 2008B Bonds, then the Series 2008B Bonds nevertheless will still be subject to mandatory tender for purchase on the date which would have been the effective date of the Conversion, regardless of the rescission. If, at any time, the interest rate determination method for the Series 2008B Bonds of a Series is to be changed from one interest rate determination method to another, all of the Series 2008B Bonds of such Series must be changed if any are changed. Tender and Purchase of Series 2008B Bonds Each Series 2008B Bond Indenture provides that so long as Cede & Co. is the sole registered owner of the Series 2008B Bonds, all tenders and deliveries of Series 2008B Bonds under the provisions of the Series 2008B Bond Indenture shall be made pursuant to DTC s procedures as in effect from time to time, and none of the 8

13 Authority, Spectrum Health, the Bond Trustee or the Remarketing Agent shall have any responsibility for or liability with respect to the implementation of such procedures. Tender for Purchase Upon Election of Holder During Weekly Interest Rate Period. During any Weekly Interest Rate Period, any Series 2008B Bond will be purchased in whole (or in part if both the amount to be purchased and the amount remaining unpurchased will consist of Authorized Denominations) from the Holder thereof at the option of such Holder on any Business Day at a Tender Price equal to the principal amount thereof tendered for purchase, without premium, plus accrued interest from the immediately preceding Interest Accrual Date to the tender date (if the tender date is not an Interest Payment Date), upon delivery to the Tender Agent at its Principal Office for delivery of the Series 2008B Bonds, to the Bond Trustee at its Principal Office and to the Remarketing Agent of an irrevocable written notice which states the principal amount of such Series 2008B Bond and the date on which the same will be purchased, which date must be a Business Day at least 7 days after the date of the delivery of such notice. Any notice delivered to the Tender Agent after 4:00 p.m., New York City time, will be deemed to have been received on the next succeeding Business Day. Mandatory Tender for Purchase Upon Conversion to a Different Interest Rate Period. The Series 2008B Bonds will be subject to mandatory tender for purchase on the effective date of a Conversion to a different Interest Rate Period for the Series 2008B Bonds, or on the day which would have been the effective date of such a Conversion to a new Interest Rate Period had certain events described above not occurred which resulted in the interest rate determination method on such Series 2008B Bonds not being converted, at a Tender Price, payable in immediately available funds, equal to the principal amount of the Series 2008B Bonds, without premium, plus accrued interest (if any) to the effective date of the Conversion. Mandatory Tender for Purchase upon Termination, Expiration or Replacement of a Liquidity Facility; Mandatory Standby Tender. If at any time the Bond Trustee gives notice that the Tender Price of the Series 2008B Bonds, will on the date specified in such notice, cease to be payable from a then-existing Liquidity Facility as a result of (i) the termination, replacement or expiration of the term of such Liquidity Facility, including a termination at the option of Spectrum Health in accordance with the terms of such Liquidity Facility or (ii) the occurrence of a Mandatory Standby Tender, then each Series 2008B Bond shall be purchased or deemed purchased at the principal amount thereof tendered for purchase, without premium, plus accrued interest. In the event that funds from the remarketing of the Series 2008B Bonds are not sufficient to pay the Tender Price of all Series 2008B Bonds subject to mandatory tender, funds for such purchase will be drawn under the then-existing Liquidity Facility, not the Alternate Liquidity Facility. Any purchase of a Series 2008B Bond under the circumstances described in the preceding paragraph will occur: (1) on the fifth Business Day preceding (A) any expiration or termination of a Liquidity Facility without replacement with an Alternate Liquidity Facility or (B) any termination thereof as a result of a Mandatory Standby Tender; and (2) on the date of the replacement of a Liquidity Facility, in any case where an Alternate Liquidity Facility is being delivered to the Tender Agent. No such mandatory tender will be effected upon the replacement of a Liquidity Facility in the event the Liquidity Facility Provider is failing to honor conforming draws. Mandatory Standby Tender means the mandatory tender of the Series 2008B Bonds upon receipt by the Bond Trustee of written notice from the Liquidity Facility Provider that an event with respect to its Liquidity Facility has occurred which requires or gives the Liquidity Facility Provider the option to terminate its Liquidity Facility upon notice. A Mandatory Standby Tender does not include circumstances in which the Liquidity Facility Provider may suspend or terminate its obligations to purchase securities without notice, in which case there will be no mandatory tender of the Series 2008B Bonds. Mandatory Tender for Purchase upon Termination, Expiration or Replacement of a Credit Facility; Mandatory Credit Facility Tender. If at any time the Bond Trustee gives notice that the Tender Price of the Series 2008B-1 Bonds, will on the date specified in such notice, cease to be payable from a then-existing Credit Facility as a result of (i) the termination, replacement or expiration of the term of such Credit Facility, including a termination at the option of Spectrum Health in accordance with the terms of such Credit Facility or (ii) the occurrence of a Mandatory Credit Facility Tender, then each Series 2008B-1 Bond shall be purchased or deemed purchased at the principal amount thereof tendered for purchase, without premium, plus accrued interest. In the event that funds from the remarketing of the Series 2008B-1 Bonds are not sufficient to pay the Tender Price of all Series 2008B-1 9

14 Bonds subject to mandatory tender, funds for such purchase will be drawn under the then-existing Credit Facility, not the Alternate Credit Facility. Any purchase of a Series 2008B-1 Bond under the circumstances described in the preceding paragraph will occur: (1) on the fifth Business Day preceding any expiration or termination of a Credit Facility without replacement with an Alternate Credit Facility; (2) on the fifth Business Day after receipt by the Bond Trustee of written notice from the Credit Facility Provider than an Event of Default exists under the Reimbursement Agreement resulting in a Mandatory Credit Facility Tender; and (3) on the date of the replacement of a Credit Facility, in any case where an Alternate Credit Facility is being delivered to the Tender Agent. No such mandatory tender will be effected upon the replacement of a Credit Facility in the event the Credit Facility Provider is failing to honor conforming draws. Mandatory Credit Facility Tender means the mandatory tender of the Series 2008B-1 Bonds upon receipt by the Bond Trustee of written notice from the Credit Facility Provider that an "event of default" exists under the Reimbursement Agreement. Notice of Mandatory Tender for Purchase. The Bond Trustee is required to give notice by mail to the holders of the Series 2008B Bonds secured by a Credit Facility or Liquidity Facility (i) on or before the 30th day preceding the replacement, termination or expiration of such Credit Facility or Liquidity Facility (except in the case of a termination resulting from an event resulting in the immediate termination or suspension of the obligation of the Liquidity Facility Provider or Credit Facility Provider, as applicable, to purchase the Series 2008B Bonds under the terms of any Liquidity Facility or Credit Facility) in accordance with its terms, or (ii) in the case of any Mandatory Standby Tender under such Liquidity Facility, as soon as reasonably possible, but no later than the Business Day following the receipt by the Bond Trustee of notice of the Mandatory Standby Tender, or (iii) in the case of a Mandatory Credit Facility Tender under such Credit Facility, as soon as reasonably possible, but no later than the Business Day following the receipt by the Bond Trustee of notice of the Mandatory Credit Facility Tender. The notice must be accompanied by directions for the purchase of the Series 2008B Bonds. Among other things, the notice must state the date of the termination or expiration of the affected Liquidity Facility and in the case of replacement the date of the proposed substitution of an Alternate Liquidity Facility or Alternate Credit Facility (if any) and state that the Series 2008B Bonds will be purchased as a result of such replacement, termination or expiration, including any termination as a result of a Mandatory Standby Tender or Mandatory Credit Facility Tender and the date on which such purchase will occur, and will also provide any other information required in the notice to the holders of the Series 2008B Bonds. Irrevocable Notice Deemed to be Tender of Series 2008B Bonds. The giving of notice by a Holder of a 2008B Bond of its election to have its Series 2008B Bond purchased during a Weekly Interest Rate Period will constitute the irrevocable tender for purchase of such Series 2008B Bond with respect to which such notice has been given, regardless of whether such Series 2008B Bond is delivered to the Tender Agent for purchase on the relevant purchase date. If any Holder of a Series 2008B Bond who has given notice of tender for purchase as described in the preceding sentence fails to deliver such Series 2008B Bond to the Tender Agent at the place and on the applicable date and at the time specified, or fails to deliver such Series 2008B Bond properly endorsed, such Series 2008B Bond will constitute an Undelivered Bond. Undelivered Series 2008B Bonds. If funds in the amount of the Tender Price of the Undelivered Bonds are available for payment to the Holder thereof on the date and at the time specified, from and after the date and time of that required delivery, (1) each Undelivered Bond will be deemed to be purchased and will no longer be deemed to be Outstanding under the applicable Bond Indenture; (2) interest will no longer accrue thereon; and (3) funds in the amount of the Tender Price of each such Undelivered Bond will be held by the Tender Agent for the benefit of the Holder thereof (provided that the Holder will have no right to any investment proceeds derived from such funds), to be paid on delivery (and proper endorsement) of such Undelivered Bond to the Tender Agent at its Principal Office for delivery of the Series 2008B Bonds. Any funds held by the Tender Agent as described in clause (3) of the preceding sentence will be held uninvested and not commingled. The Tender Agent may refuse to accept delivery of any Series 2008B Bonds for which a proper instrument of transfer has not been provided; such refusal, however, will not affect the validity of the purchase of such Series 2008B Bond as described in the applicable Bond Indenture. Payment of Tender Price. For payment of the Tender Price, such Series 2008B Bond must be delivered, at or prior to 10:00 a.m., New York City time (or 12:00 noon, New York City time, for mandatory purchase upon termination, expiration or replacement of a Liquidity Facility or Mandatory Standby Tender), on the date specified 10

15 in such notice, to the Tender Agent at its Principal Office for delivery of the Series 2008B Bonds, accompanied by an instrument of transfer thereof, in form satisfactory to the Tender Agent, executed in blank by the Holder thereof or his duly authorized attorney, with such signature guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange. Book-Entry Tender and Delivery Procedures. Notwithstanding anything to the contrary contained in the applicable Bond Indenture, for so long as DTC s nominee is the sole registered owner of the Series 2008B Bonds, all tenders for purchase and deliveries of Series 2008B Bonds tendered for purchase or subject to mandatory tender under the provisions of the applicable Bond Indenture will be made pursuant to the Securities Depository s procedures as in effect from time to time and neither the Authority, Spectrum Health, the Tender Agent, the Bond Trustee nor the Remarketing Agent will have any responsibility for or liability with respect to the implementation of such procedures. Source of Funds for Purchase of Series 2008B Bonds On the date on which Series 2008B Bonds are to be purchased pursuant to the applicable Bond Indenture, the Bond Trustee will purchase such Series 2008B Bonds from the Holders thereof at the Tender Price thereof. Funds for the payment of such Tender Price will be derived solely from the following sources in the order of priority indicated: (a) (b) (c) proceeds of the sale of the Series 2008B Bonds remarketed by the Remarketing Agent; moneys received from draws on the Liquidity Facilities; and moneys provided to the Bond Trustee by Spectrum Health for payment of the Series 2008B Bonds. Under certain circumstances described herein, purchases of Series 2008B Bonds which are tendered for purchase will not be made under the Liquidity Facilities, including one Letter of Credit and two Standby Bond Purchase Agreements, and therefore funds may not be available to purchase such tendered Series 2008B Bonds. Under certain circumstances, an event of default under a Liquidity Facility, including the Letter of Credit or either Standby Bond Purchase Agreement, may permit the respective Liquidity Facility Provider to terminate or suspend automatically its obligation to purchase tendered Series 2008B Bonds. In the event that any Liquidity Facility Provider does not provide funds for the purchase of tendered Series 2008B Bonds for any reason, Spectrum Health is obligated to provide funds for such payment. See the information under the caption, "THE LIQUIDITY FACILITIES." Special Considerations Relating to the 2008B Bonds The Remarketing Agent is Paid by Spectrum Health. The Remarketing Agent's responsibilities include determining the interest rate from time to time and remarketing Series 2008B Bonds that are optionally or mandatorily tendered by the owners thereof (subject, in each case, to the terms of the Remarketing Agreement), all as further described in this Official Statement. The Remarketing Agent is appointed by Spectrum Health and is paid by Spectrum Health for its services. As a result, the interests of the Remarketing Agent may differ from those of existing holders and potential purchasers of Series 2008B Bonds. The Remarketing Agent Routinely Purchases Series 2008B Bonds for its Own Account. The Remarketing Agent acts as remarketing agent for a variety of variable rate demand obligations and, in its sole discretion, routinely purchases such obligations for its own account. The Remarketing Agent is permitted, but not obligated, to purchase tendered Series 2008B Bonds for its own account and, in its sole discretion, routinely acquires such tendered Series 2008B Bonds in order to achieve a successful remarketing of the Series 2008B Bonds (i.e., because there otherwise are not enough buyers to purchase the Series 2008B Bonds) or for other reasons. However, the Remarketing Agent is not obligated to purchase Series 2008B Bonds, and may cease doing so at any time without notice. The Remarketing Agent may also make a market in the Series 2008B Bonds by routinely purchasing and selling Series 2008B Bonds other than in connection with an optional or mandatory tender and remarketing. Such purchases and sales may be at or below par. However, the Remarketing Agent is not required to make a 11

16 market in the Series 2008B Bonds. The Remarketing Agent may also sell any Series 2008B Bonds it has purchased to one or more affiliated investment vehicles for collective ownership or enter into derivative arrangements with affiliates or others in order to reduce its exposure to the Series 2008B Bonds. The purchase of Series 2008B Bonds by the Remarketing Agent may create the appearance that there is greater third party demand for the Series 2008B Bonds in the market than is actually the case. The practices described above also may result in fewer Bonds being tendered in a remarketing. Series 2008B Bonds May be Offered at Different Prices on Any Date Including an Interest Rate Determination Date. Pursuant to the Remarketing Agreement, the Remarketing Agent is required to determine the applicable rate of interest that, in its judgment, is the lowest rate that would permit the sale of the Series 2008B Bonds bearing interest at the applicable interest rate at par plus accrued interest, if any, on and as of the applicable Rate Determination Date. The interest rate will reflect, among other factors, the level of market demand for the Series 2008B Bonds (including whether the Remarketing Agent is willing to purchase Series 2008B Bonds for its own account). There may or may not be Series 2008B Bonds tendered and remarketed on a Rate Determination Date, the Remarketing Agent may or may not be able to remarket any Series 2008B Bonds tendered for purchase on such date at par and the Remarketing Agent may sell Series 2008B Bonds at varying prices to different investors on such date or any other date. The Remarketing Agent is not obligated to advise purchasers in a remarketing if it does not have third party buyers for all of the Series 2008B Bonds at the remarketing price. In the event a Remarketing Agent owns any Series 2008B Bonds for its own account, it may, in its sole discretion in a secondary market transaction outside the tender process, offer such Series 2008B Bonds on any date, including the Rate Determination Date, at a discount to par to some investors. The Ability to Sell the Series 2008B Bonds other than through Tender Process May Be Limited. The Remarketing Agent may buy and sell Series 2008B Bonds other than through the tender process. However, it is not obligated to do so and may cease doing so at any time without notice and may require holders that wish to tender their Series 2008B Bonds to do so through the Tender Agent with appropriate notice. Thus, investors who purchase the Series 2008B Bonds, whether in a remarketing or otherwise, should not assume that they will be able to sell their Series 2008B Bonds other than by tendering the Series 2008B Bonds in accordance with the tender process. Under Certain Circumstances, the Remarketing Agent May Be Removed, Resign or Cease Remarketing the Series 2008B Bonds, Without a Successor Being Named. Under certain circumstances the Remarketing Agent may be removed or have the ability to resign or cease its remarketing efforts, without a successor having been named, subject to the terms of the Remarketing Agreement. In the event there is no Remarketing Agent, the Bond Trustee may assume such duties as described in the Bond Indenture. Redemption Optional Redemption As long as there is no continuing Event of Default, the Series 2008B Bonds shall be subject to redemption prior to their stated maturity by the Authority, at the written direction of Spectrum Health, in whole or in part, at any time on a Business Day in Authorized Denominations of $100,000 or any integral multiple of $5,000 in excess of $100,000, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued but unpaid interest to the redemption date, without premium. Extraordinary Redemption The Series 2008B Bonds are subject to redemption at the option of the Authority (which option shall be exercised upon Request of the Credit Group Representative), in whole or in part, on any date, from certain moneys derived from hazard insurance or condemnation proceeds received with respect to the facilities of any of the Credit Group Members and deposited in the Special Redemption Account, at a Redemption Price equal to the principal amount of the Series 2008B Bonds to be redeemed plus accrued interest to the date fixed for redemption, without premium. 12

17 Mandatory Sinking Fund Redemption The following requirements of mandatory sinking fund redemption are subject to the provision that any partial redemption of the Series 2008B Bonds as described under the captions "Optional Redemption" or "Extraordinary Redemption" above shall reduce the mandatory scheduled redemption requirements as provided in the applicable Bond Indentures. Sinking Fund The Series 2008B-1 Bonds are subject to mandatory sinking fund redemption prior to maturity in the following amounts on the following dates, at the principal amount specified below plus accrued interest to the date fixed for redemption, without premium: Mandatory Sinking Fund Redemption Dates (January 15) Mandatory Sinking Fund Redemption Amount Mandatory Sinking Fund Redemption Dates (January 15) Mandatory Sinking Fund Redemption Amount 2009 $1,100, $3,510, ,200, ,505, ,200, ,695, ,300, ,310, ,300, ,395, ,300, ,355, ,400, ,495, ,400, ,515, ,500, ,550, ,500, ,635, ,600, ,665, ,700, ,725, ,700,000 1,800,000 1,800,000 2,365,000 2,935,000 3,010,000 3,220,000 3,345, (Maturity) 1,795,000 1,855,000 1,915,000 1,995,000 2,065,000 2,120,000 2,225,000 13

18 The Series 2008B-2 Bonds are subject to mandatory sinking fund redemption prior to maturity in the following amounts on the following dates, at the principal amount specified below plus accrued interest to the date fixed for redemption, without premium: Mandatory Sinking Fund Redemption Dates (January 15) Mandatory Sinking Fund Redemption Amount Mandatory Sinking Fund Redemption Dates (January 15) Mandatory Sinking Fund Redemption Amount 2024 $1,465, $4,740, ,920, ,850, ,155, ,105, ,505, ,210, ,575, ,390, ,775, ,605, ,765, ,805, ,040, ,980, ,090, ,235, ,360, ,450, ,235, ,620, ,665, (Maturity) 6,960,000 The Series 2008B-3 Bonds are subject to mandatory sinking fund redemption prior to maturity in the following amounts on the following dates, at the principal amount specified below plus accrued interest to the date fixed for redemption, without premium: Mandatory Sinking Fund Redemption Dates (January 15) Mandatory Sinking Fund Redemption Amount Mandatory Sinking Fund Redemption Dates (January 15) Mandatory Sinking Fund Redemption Amount 2024 $ 665, $2,105, ,300, ,160, ,405, ,270, ,555, ,315, ,590, ,395, ,675, ,490, ,670, ,580, ,795, ,655, ,820, ,770, ,935, ,865, ,880, ,940, ,070, (Maturity) 3,095,000 The Bond Trustee will determine the principal amount of Series 2008B Bonds that must be redeemed on such mandatory sinking fund redemption date after taking into account optional redemptions and extraordinary optional redemptions of Series 2008B Bonds. The mandatory sinking fund redemption requirement for any year as stated above for the Series 2008B Bonds shall also be reduced by the principal amounts of any Series 2008B Bonds of the same Series that are purchased and delivered or tendered to the Bond Trustee for cancellation by the 45th day next preceding the mandatory sinking fund redemption date. Selection of Series 2008B Bonds for Redemption Whenever provision is made in the related Series 2008B Bond Indenture for the redemption of less than all of any subseries of Series 2008B Bonds of any maturity or any given portion thereof, the Bond Trustee shall select 14

19 the Series 2008B Bonds to be redeemed from all Series 2008B Bonds of such subseries subject to redemption or such given portion thereof not previously called for redemption, by lot in any manner which the Bond Trustee in its sole discretion shall deem appropriate and fair. Notice of Redemption and Other Notices For so long as the Series 2008B Bonds are registered in the name of DTC or its nominee, Cede & Co., the Authority and the Bond Trustee will recognize only DTC or its nominee, Cede & Co., as the owner of the Series 2008B Bonds for all purposes, including notices and voting. Conveyance of notices and other communications by DTC to DTC Participants, by DTC Participants to Indirect Participants and by DTC Participants and Indirect Participants to Beneficial Owners of the Series 2008B Bonds will be governed by arrangements among DTC, DTC Participants, Indirect Participants and Beneficial Owners, subject to any statutory and regulatory requirements as may be in effect from time to time. The Bond Trustee shall give notice of redemption to the bondholder 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, 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, if less than all of the Series 2008B Bonds of any one maturity shall be called for redemption, the particular Series 2008B Bonds or portions of Series 2008B Bonds of such maturity to be redeemed shall be selected by lot by DTC, the DTC Participants and Indirect Participants in such manner as they may determine. If a Series 2008B Bond is of a denomination in excess of $5,000, portions of the principal amount in the amount of $5,000 or any multiple thereof may be redeemed. Discontinuation of Book-Entry Only System DTC may determine to discontinue providing its service with respect to the Series 2008B Bonds at any time by giving notice to the Authority and the Bond Trustee and discharging its responsibilities with respect thereto under applicable law. Upon the giving of such notice, the book-entry only system for the Series 2008B Bonds will be discontinued unless a successor securities depository is appointed by the Authority. In addition, the Authority may discontinue the book-entry only system for the Series 2008B Bonds at any time by giving reasonable notice to DTC. In the event that the book-entry only system for the Series 2008B Bonds is discontinued, the following provisions would apply, subject in each case to the further conditions set forth in the Bond Indenture: Delivery of Certificates; Registered Owners. Series 2008B Bond certificates in fully registered form will be delivered to, and registered in the names of, the DTC Participants or such other persons as such DTC Participants may specify (which may be the Indirect Participants or Beneficial Owners), in authorized denominations of $5,000 or integral multiples thereof. The ownership of the Series 2008B Bonds so delivered (and any Series 2008B Bonds thereafter delivered upon a transfer or exchange described below) shall be registered in registration books to be kept by the Bond Trustee at its designated corporate trust office, and the Authority and the Bond Trustee shall be entitled to treat the registered owners of such Series 2008B Bonds, as their names appear in such registration books as of the appropriate dates, as the owners thereof for all purposes described herein and in the Bond Indenture. Transfers and Exchanges. The Series 2008B Bonds may be transferred or exchanged for one or more Series 2008B Bonds in different authorized denominations upon surrender thereof (together with an assignment duly executed by the registered owner or such Owner's attorney or legal representative in form satisfactory to the Bond Trustee) at the designated corporate trust office of the Bond Trustee by the registered owners or their duly authorized attorneys. Upon surrender of any Series 2008B Bonds to be transferred or exchanged, the Bond Trustee shall record the transfer or exchange in its registration books and shall authenticate and deliver new Series 2008B Bonds appropriately registered and in appropriate authorized denominations. The registered owner requesting any such transfer or exchange may be charged a sum sufficient to cover any tax, fee or other governmental charge which may be imposed with respect thereto. Neither the Authority nor the Bond Trustee is required to make any such transfer or exchange of Series 2008B Bonds in the case of a proposed redemption, after such Series 2008B Bonds 15

20 (or portions of such Series 2008B Bonds) have been selected for redemption. No transfer or exchange made other than as described above and in the Bond Indenture shall be valid or effective for any purposes under Bond Indenture. Payments. The principal or redemption price of the Series 2008B Bonds shall be payable upon surrender thereof at the designated corporate trust office of the Bond Trustee. Interest shall be payable by check or draft mailed to the registered owners of the Series 2008B Bonds as shown on the registration books kept by the Bond Trustee as of the close of business on the applicable record dates described below. Interest payable to the registered owner of Series 2008B Bonds in the aggregate principal amount of $500,000 or more may, upon request by such registered owner to the Bond Trustee, be paid by wire transfer to a designated account. Record Dates. The record date for Series 2008B Bonds bearing interest in the Weekly Interest Rate is the Business Day immediately preceding an Interest Payment Date. General BOOK-ENTRY ONLY SYSTEM The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Series 2008B Bonds. The Series 2008B Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Series 2008B Bond certificate will be issued for each maturity of the Series 2008B Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC and Its Participants DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 2 million issues of U.S. and non-u.s. equity, corporate and municipal debt issues, and money market instrument from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for National Securities Clearing Corporation and Fixed IncomeClearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Series 2008B Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2008B Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2008B Bonds ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2008B Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial 16

21 Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2008B Bonds, except in the event that use of the book-entry system for the Series 2008B Bonds is discontinued. To facilitate subsequent transfers, all Series 2008B Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2008B Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2008B Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2008B 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 Series 2008B Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Series 2008B Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Series 2008B Bonds may wish to ascertain that the nominee holding the Series 2008B Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners, in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series 2008B Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Series 2008B Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series 2008B Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Series 2008B Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the Authority or the Bond Trustee on the payable date in accordance with their respective holdings on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with Series 2008B Bonds held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Bond Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Bond Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. A Beneficial Owner shall give notice to elect to have its Series 2008B Bonds purchased or tendered, through its Participant, to the Tender/Remarketing Agent, and shall effect delivery of such Series 2008B Bonds by causing the Direct Participant to transfer the Participant's interest in the Series 2008B Bonds, on DTC's records, to the Tender/Remarketing Agent. The requirement for physical delivery of Series 2008B Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Series 2008B Bonds are transferred by Direct Participants on Tender/Remarketing Agent's DTC account. DTC may discontinue providing its services as securities depository with respect to the Series 2008B Bonds at any time by giving reasonable notice to the Authority or the Bond Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2008B Bond certificates are required to be printed and delivered. 17

22 The Authority may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Authority believes to be reliable, but the Authority takes no responsibility for the accuracy thereof. Limitations The Authority, the Members of the 1989 Obligated Group, the Members of the Credit Group, the Master Trustee and the Bond Trustee cannot and do not give any assurances that DTC, the DTC Participants or the Indirect Participants will distribute to the Beneficial Owners of the Series 2008B Bonds (i) payments of principal of or interest and premium, if any, on the Series 2008B Bonds, (ii) certificates representing an ownership interest or other confirmation of beneficial ownership interests in Series 2008B Bonds, or (iii) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Series 2008B Bonds, or that they will do so on a timely basis or that DTC, DTC 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 DTC Participants are on file with DTC. Neither the Authority, any Member of the 1989 Obligated Group, any Member of the Credit Group, the Master Trustee nor the Bond Trustee will have any responsibility or obligation to any DTC Participant, Indirect Participant or any Beneficial Owner or any other person with respect to: (1) the Series 2008B Bonds; (2) the accuracy of any records maintained by DTC or any DTC Participant or Indirect Participant; (3) the payment by DTC or any DTC 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 Series 2008B Bonds; (4) the delivery by DTC or any DTC Participant or Indirect Participant of any notice to any Beneficial Owner which is required or permitted under the terms of the Bond Indentures to be given to bondholders; (5) the selection of the Beneficial Owners to receive payment in the event of any partial redemption of the Series 2008B Bonds; or (6) any consent given or not given or other action taken or not taken by DTC as bondholder. SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2008B BONDS The descriptions of the Bond Indentures, the Loan Agreements, Note Nos. 32, 33 and 34, the 1989 Master Indenture, the 2008B Master Indenture Obligations, the 1998 Master Indenture, the 2008 Supplemental Indentures and the 1989 Supplemental Indentures set forth below do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of all terms and conditions. Copies of each document will be available for inspection at the designated corporate trust office of the Bond Trustee. The Bond Indentures Each subseries of the Series 2008B Bonds is to be issued under and equally and ratably secured by a related Bond Indenture. The Bond Indentures provide that the Series 2008B Bonds shall be limited obligations of the Authority, payable solely from the sources therein described. As security for its obligations under the Bond Indentures, the Authority will pledge to the Bond Trustee the payments received or receivable by the Authority pursuant to the Loan Agreements, Note Nos. 32, 33 and 34 (until the 1989 Master Indenture Termination Date) and the 2008B Master Indenture Obligations (except for payments with respect to administrative expenses of the Authority, indemnification of the Authority by Spectrum Health and payments by Spectrum Health into the Rebate Funds), all funds held by the Bond Trustee under such Bond Indenture (except for the Rebate Fund established thereunder) and all income derived from the investment of such pledged funds. Reference should be made to "SUMMARY OF CERTAIN PROVISIONS OF THE SERIES 2008B BOND INDENTURES" in APPENDIX C hereto for further information regarding the Bond Indentures. 18

23 The Loan Agreements, Note Nos. 32, 33 and 34 and the 2008B Master Indenture Obligations Pursuant to the Loan Agreements, the Authority will lend the proceeds of the Series 2008B Bonds to Spectrum Health for the purposes herein described. Each Member of the 1989 Obligated Group (until the 1989 Master Indenture Termination Date) and each Member of the 1998 Obligated Group, jointly and severally, will agree, among other things, to pay the principal or redemption price of and interest on the Series 2008B Bonds, to make all required deposits into the Rebate Funds, to pay the administrative expenses of the Authority and the Bond Trustee with respect to the Series 2008B Bonds and to indemnify the Authority and the Bond Trustee for losses and liabilities relating to the Series 2008B Bonds. To evidence the payment obligations of the Obligated Group under the Loan Agreements, Spectrum Health is issuing Note Nos. 32, 33 and 34 pursuant to the 1989 Master Indenture, as supplemented by the 1989 Supplemental Indentures and Spectrum Health will issue the 2008B Master Indenture Obligations pursuant to the 1998 Master Indenture, as supplemented by the 2008B Supplemental Indentures. Subject to credit as provided in the Bond Indentures and Loan Agreements, payments under Note Nos. 32, 33 and 34 shall be due at the times and in the amounts set forth therein. On the 1989 Master Indenture Termination Date, Note Nos. 32, 33 and 34 will be canceled and will no longer secure the Series 2008B Bonds. Thereafter, the Series 2008B Bonds will be secured solely by the 2008B Master Indenture Obligations. Reference should be made to "SUMMARY OF CERTAIN PROVISIONS OF THE SUPPLEMENTAL MASTER INDENTURES AND NOTE NOS. 32, 33 AND 34" and "SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT" in APPENDIX C hereto for further information regarding the Loan Agreements, Note Nos. 32, 33 and 34 and the 2008B Master Indenture Obligations. Until the 1989 Master Indenture Termination Date, all Members of the 1989 Obligated Group will agree to be jointly and severally liable for the payment of all Obligations issued thereunder (including Note Nos. 32, 33 and 34) and the performance of all covenants and agreements of the 1989 Obligated Group set forth therein. Upon issuance of the Series 2008B Bonds, Spectrum Health, Spectrum Health Hospitals, Spectrum Health Worth Services, Spectrum Health Continuing Care, Spectrum Health Continuing Care Center, Inc., Visiting Nurse Services of Western Michigan and Spectrum Health United will be the Members of the 1989 Obligated Group. After the issuance of the Series 2008 Bonds, the Existing Obligation and the 1989 Master Indenture Notes will be the only Obligations issued and outstanding thereunder. Subject to specified conditions, however, the 1989 Master Indenture permits the addition and withdrawal of Members of the l989 Obligated Group and the issuance of additional Obligations or other Indebtedness. No assurance can be given as to the effect of any such actions upon the ability of the 1989 Obligated Group to perform its obligations under the 1989 Master Indenture. Reference should be made to "SUMMARY OF CERTAIN PROVISIONS OF THE 1989 MASTER INDENTURE" in APPENDIX C hereto for further information regarding the 1989 Master Indenture, including a discussion of the conditions under which Members may be added to or may withdraw from the 1989 Obligated Group, the provisions regarding the incurrence of and security for additional Obligations or other Indebtedness and the various financial and operating covenants and agreements to be performed by the 1989 Obligated Group. Such provisions shall apply only until the 1989 Master Indenture Termination Date. Thereafter, the provisions of the 1998 Master Indenture will govern the Members of the Credit Group described therein. The obligations of the Members of the 1989 Obligated Group on the Existing Obligation and the 1989 Master Indenture Notes and under the 1989 Master Indenture are not secured by a pledge of or security interest in any of the property of the Members of the 1989 Obligated Group. Until the 1989 Master Indenture Termination Date, the Members of the 1989 Obligated Group are permitted to grant security interests in and encumber their property to secure certain of their obligations, including Indebtedness, subject to limitations included in the 1989 Master Indenture. Reference should be made to "SUMMARY OF CERTAIN PROVISIONS OF THE 1989 MASTER INDENTURE" in APPENDIX C hereto for further information with respect to such security interests and encumbrances and limitations thereon. Pursuant to the 1998 Master Indenture, Spectrum Health, as 1998 Obligated Group Agent, will issue to the Authority the 2008B Master Indenture Obligations to secure the 1998 Obligated Group's obligation to make loan repayments under the Loan Agreements. The Authority will assign certain of its right, title and interest in the 2008B Master Indenture Obligations to the Bond Trustee under the Bond Indentures. The 2008B Master Indenture 19

24 Obligations and any other Obligations issued under the 1998 Master Indenture will be general, unsecured obligations of Spectrum Health, Spectrum Health Hospitals and any future Member of the 1998 Obligated Group and are not secured by any pledge of, mortgage on or security interest in assets of Spectrum Health, Spectrum Health Hospitals or any future Member of the Credit Group. No Designated Affiliate or Limited Credit Group Participant, as such, will be obligated to pay any of the 2008B Master Indenture Obligations but will be required, under separate agreements with Spectrum Health which are not pledged or assigned to the Series 2008B Bondholders, to provide Spectrum Health with sufficient funds to pay the 2008B Master Indenture Obligations. See the information under the caption "THE CREDIT GROUP." Prior to the 1989 Master Indenture Termination Date, Note Nos. 32, 33 and 34 and the 2008B Master Indenture Obligations represent a single indebtedness securing their related Series 2008B Bonds. Prior to the 1989 Master Indenture Termination Date, the Authority shall seek payment first on Note Nos. 32, 33 and 34 and then the 2008B Master Indenture Obligations for repayment of the loan of the proceeds of the Series 2008B Bonds. However, all payments on Note Nos. 32, 33 and 34 prior to the 1989 Master Indenture Termination Date are also credited against amounts due on the 2008B Master Indenture Obligations due during such period. On the 1989 Master Indenture Termination Date, Note Nos. 32, 33 and 34 will be terminated and canceled and the Series 2008B Bonds will no longer be secured by such Notes. On the 1989 Master Indenture Termination Date, the Series 2008B Bonds will be secured only by the 2008B Master Indenture Obligations. The Master Indentures; the Notes and Obligations On the date on which all Obligations (as defined in the 1989 Master Indenture), other than the 1989 Master Indenture Notes, are no longer Outstanding under the 1989 Master Indenture, or the date on which all holders of Obligations, and if required by any Related Bond Indenture (as defined in the 1989 Master Indenture), the required level of holders of Related Bonds consent, the 1989 Master Indenture shall terminate and discharge and will no longer be in force and effect. The 1989 Master Indenture Termination Date is anticipated to occur not later than January 15, 2019, the date on which the Series 1993A Bonds will reach final maturity. EACH PURCHASER OF A SERIES 2008B BOND OR A BENEFICIAL INTEREST THEREIN AND THE BOND TRUSTEE (AS HOLDER OF NOTE NOS. 32, 33 AND 34) SHALL BE DEEMED TO HAVE CONSENTED TO THE TERMINATION AND DISCHARGE OF THE 1989 MASTER INDENTURE. Therefore, a discussion of the 1989 Master Indenture is not included in this Official Statement, except in APPENDIX C hereto. As security for the Series 2008B Bonds, Spectrum Health will issue the 2008B Master Indenture Obligations under the 1998 Master Indenture in a principal amount equal to the principal amount of the Series 2008B Bonds and Note Nos. 32, 33 and 34 under the 1989 Master Indenture in an aggregate principal amount equal to the principal amount of the Series 2008B Bonds. The terms of each of Note Nos. 32, 33 and 34 and the Series 2008B Master Indenture Obligations will require payments by the Members of the 1998 Obligated Group or the 1989 Obligated Group, as the case may be, which, together with other moneys available therefor (and interest earned thereon), will be sufficient to provide for the payment of the principal of, premium, if any, and interest on the Series 2008B Bonds. The 1998 Obligated Group or the 1989 Obligated Group, as the case may be, shall receive a credit on Note Nos. 32, 33 and 34 or Obligations for payments made by the 1998 Obligated Group or the 1989 Obligated Group, as the case may be, under the Loan Agreements. Note Nos. 32, 33 and 34 and all other Notes issued under the 1989 Master Indenture will be general obligations of the Members of the 1989 Obligated Group, which agree to be jointly and severally liable under the 1989 Master Indenture. On the 1989 Master Indenture Termination Date, the 1989 Master Indenture Notes will be terminated and canceled. On the 1989 Master Indenture Termination Date, the Series 2008B Bonds will be secured only by the 2008B Master Indenture Obligations. Therefore, the Series 2008B Bondholders should look only to the 1998 Master Indenture as long-term security for the Series 2008B Bonds. The 2008B Master Indenture Obligations and all other Obligations issued under the 1998 Master Indenture will be general obligations of the Members of the 1998 Obligated Group, which agree to be jointly and severally liable under the 1998 Master Indenture. Spectrum Health and Spectrum Health Hospitals are at present the only Members of the 1998 Obligated Group under the 1998 Master Indenture and, together, comprise 86% of the hospital, continuing care and physician service revenues of the Spectrum Health System as of June 30, Subject to meeting the requirements of the 1998 Master Indenture, others may become Members of the

25 Obligated Group. There can be no assurance that such requirements will be met or that any additional party will become a Member of the 1998 Obligated Group. See the information under the caption "DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF PRINCIPAL DOCUMENTS-SUMMARY OF CERTAIN PROVISIONS OF THE 1998 MASTER INDENTURE-Entrance Into the 1998 Obligated Group" in APPENDIX C. The 2008B Master Indenture Obligations will be unsecured obligations of the 1998 Obligated Group. The Credit Group The Credit Group under the 1998 Master Indenture consists of the 1998 Obligated Group Members, the Designated Affiliates and the Limited Credit Group Participants. To become a Designated Affiliate, a corporation or other entity must be designated as a Designated Affiliate by the Obligated Group Agent and any Member of the 1998 Obligated Group must control such Designated Affiliate in the manner described below. To become a Limited Credit Group Participant, a corporation or other entity must be designated as a Limited Credit Group Participant by the Obligated Group Agent and any Member of the 1998 Obligated Group or a Designated Affiliate must have entered into a contract or other agreement under which such entity is obligated to make payments to the 1998 Obligated Group Member and to comply with the provisions of the 1998 Master Indenture applicable to such Limited Credit Group Participant. Under the 1998 Master Indenture, "control" means the power to direct the management, policies and disposition of assets and actions of such Person, directly or indirectly, to the extent required to cause such Designated Affiliate to comply with the terms and conditions of the 1998 Master Indenture, whether through the ownership of voting securities, partnership interest, membership, reserved powers, the power to appoint members, trustees or directors through contractual arrangements or otherwise. As of the date of issuance of the Series 2008B Bonds, Spectrum Health has designated all of the Members of the 1989 Obligated Group other than Spectrum Health Hospitals, which is a Member of the Obligated Group, as Designated Affiliates and there will not be any Limited Credit Group Participants. With certain exceptions, the ability to control Designated Affiliates or Limited Credit Group Participants, as described above, permits Spectrum Health to require compliance by the Credit Group Members with the covenants and restrictions contained in the 1998 Master Indenture, by replacement of the members of the governing body of such Designated Affiliate, if necessary. Notwithstanding the provisions of the 1998 Master Indenture, the ability of a Member of the 1998 Obligated Group to make any payment on behalf of another Member or to cause a Designated Affiliate or Limited Credit Group Participant to make any payment, loan or transfer may not be permitted by or may be subject to recovery for the benefit of other creditors of such Member of the 1998 Obligated Group, Designated Affiliate or Limited Credit Group Participant under applicable fraudulent transfer, fraudulent conveyance, bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors' rights. For a description of the effect of the Federal Bankruptcy Code and all other laws affecting creditors' rights on the ability of Spectrum Health to enforce the 1998 Master Indenture with respect to all Designated Affiliates and Limited Credit Group Participants, see the information under the caption "BONDHOLDERS' RISKS- Enforceability of Certain Covenants in the Master Indentures." The Designated Affiliates and the Limited Credit Group Participants are not Members of the 1998 Obligated Group and may cease being a Designated Affiliate or a Limited Credit Group Participant under the 1998 Master Indenture at any time at the discretion of Spectrum Health. Spectrum Health does not have sufficient assets or revenues of its own to pay debt service on the Series 2008B Bonds should Spectrum Health Hospitals withdraw from the Obligated Group and Spectrum Health declare all Designated Affiliates and Limited Credit Group Participants to no longer be Members of the Credit Group. However, the Members of the 1998 Obligated Group covenant under the 1998 Master Indenture to cause each of the Credit Group Members to pay all Indebtedness under the 1998 Master Indenture. See the information under the caption "BONDHOLDERS' RISKS-Enforceability of Certain Covenants in the Master Indentures." THE 1998 MASTER INDENTURE PROVIDES THAT AFTER AN ENTITY IS DESIGNATED AS A DESIGNATED AFFILIATE OR A LIMITED CREDIT GROUP PARTICIPANT, SPECTRUM HEALTH MAY AT ANY TIME DECLARE THAT SUCH ENTITY IS NO LONGER A DESIGNATED AFFILIATE OR LIMITED CREDIT GROUP PARTICIPANT, RESPECTIVELY. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE DESIGNATED AFFILIATES ON THE DATE OF DELIVERY OF THE SERIES 21

26 2008B BONDS WILL CONTINUE TO BE SO DESIGNATED OR THAT OTHER ENTITIES WILL BECOME DESIGNATED AFFILIATES OR LIMITED CREDIT GROUP PARTICIPANTS. Each Series of the Series 2008B Bonds is payable solely from certain funds and accounts created under its respective Bond Indenture (but excluding the Rebate Funds, moneys held to pay Series 2008B Bonds called for redemption and Authority operating funds), and from payments made on its respective Note No. 32, 33 or 34 or the 2008B Master Indenture Obligations. THE SERIES 2008B BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY NOT CONSTITUTING A GENERAL OBLIGATION AND DO NOT CONSTITUTE OR CREATE ANY DEBTS, LIABILITY OR LIABILITIES ON BEHALF OF THE CITY OF GRAND RAPIDS AND THE CITY OF GREENVILLE (THE "CITIES"), THE COUNTY OF KENT AND THE COUNTY OF MONTCALM (COLLECTIVELY, THE "COUNTIES"), THE STATE OF MICHIGAN (THE "STATE") OR ANY POLITICAL SUBDIVISION THEREOF, OR A LOAN OF THE CREDIT OF THE CITIES, COUNTIES OR STATE OR A PLEDGE OF THE FAITH AND CREDIT OF THE CITIES, COUNTIES OR STATE OR OF ANY POLITICAL SUBDIVISION THEREOF, BUT ARE PAYABLE SOLELY FROM THE FUNDS PROVIDED UNDER THE 2008B MASTER INDENTURE OBLIGATIONS, NOTE NOS. 32, 33 AND 34 (UNTIL THE 1989 MASTER INDENTURE TERMINATION DATE), THE LOAN AGREEMENTS, THE 1998 MASTER INDENTURE, THE 1989 SUPPLEMENTAL INDENTURES (UNTIL THE 1989 MASTER INDENTURE TERMINATION DATE), THE 1989 SUPPLEMENTAL INDENTURES, THE 2008B SUPPLEMENTAL INDENTURES AND THE BOND INDENTURES. THE ISSUANCE OF THE SERIES 2008B BONDS UNDER THE BOND INDENTURES WILL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE CITIES, COUNTIES OR STATE OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION WHATEVER THEREFORE, OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. The 1998 Master Indenture After the 1989 Master Indenture Termination Date, Note Nos. 32, 33 and 34 will be terminated and canceled and the Series 2008B Bonds will be secured only by the 2008B Master Indenture Obligations. Therefore, a detailed discussion of the 1989 Master Indenture is not included in this Official Statement, except in APPENDIX C hereto. Payments on the 2008B Master Indenture Obligations will be the joint and several obligations of Spectrum Health, Spectrum Health Hospitals and any future Members of the 1998 Obligated Group. Notwithstanding uncertainties as to the enforceability of the covenant of each Member of the 1998 Obligated Group in the 1998 Master Indenture to be jointly and severally liable for the 2008B Master Indenture Obligations and of the obligation of Spectrum Health to cause each Designated Affiliate and Limited Credit Group Participant to make transfers to Spectrum Health as required to enable Spectrum Health to make payments on the 2008B Master Indenture Obligations (as described herein under the caption "BONDHOLDERS' RISKS-Enforceability of Certain Covenants in the Master Indentures"), and the fact that no Designated Affiliate or Limited Credit Group Participant is obligated to make any such payments to Series 2008B Bondholders, the accounts of the Members of the 1998 Obligated Group and of the Designated Affiliates or Limited Credit Group Participants will be combined in determining whether various covenants and tests contained in the 1998 Master Indenture are met. The 1998 Master Indenture imposes certain restrictions on the actions of the Members of the 1998 Obligated Group and on the Designated Affiliates and Limited Credit Group Participants for the benefit of all holders of 2008B Master Indenture Obligations issued under the 1998 Master Indenture. Such terms include, among others, restrictions on Liens on the Property of a Member of the 1998 Obligated Group, Designated Affiliates or Limited Credit Group Participants which constitutes a material part of the primary operations of such Person and maintenance of certain rates and charges for services provided by the Designated Affiliates and Limited Credit Group Participants. See the information under the caption "DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL DOCUMENTS-SUMMARY OF CERTAIN PROVISIONS OF THE 1998 MASTER INDENTURE-Liens" and "-Rates and Charges" in APPENDIX C hereto. 22

27 While the 1998 Master Indenture requires the 1998 Obligated Group to demonstrate each fiscal year that the Credit Group's Historical Debt Service Coverage Ratio is not less than 1.10 to 1, the sole remedy for a failure to maintain such ratio in any particular fiscal year is the requirement that Spectrum Health retain a Consultant to make recommendations with respect to the operations of Spectrum Health in order to increase such ratio to at least 1.10 to 1 in the next succeeding fiscal year. See the information under the caption "DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL DOCUMENTS-SUMMARY OF CERTAIN PROVISIONS OF THE 1998 MASTER INDENTURE-Rates and Charges" in APPENDIX C hereto. The 1998 Master Indenture does not specifically restrict the ability of the Members of the Credit Group to transfer Property, including cash, marketable securities or receivables, to anyone, including related or affiliated persons or persons who control Spectrum Health directly or indirectly, or the ability of Spectrum Health to release control of Designated Affiliates or the Limited Credit Group Participants. See the information under the caption "DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL DOCUMENTS - SUMMARY OF CERTAIN PROVISIONS OF THE 1998 MASTER INDENTURE-Sale, Lease or Other Disposition of Property" in APPENDIX C hereto. The 1998 Master Indenture does not limit Funded Indebtedness including the issuance of additional Obligations. Additional Obligations may be secured by collateral which need not be pledged to secure any other Obligations (including the 2008B Master Indenture Obligations). The 1998 Master Indenture provides that no Member of the 1998 Obligated Group, Designated Affiliate or Limited Credit Group Participant shall create or incur or permit to be created or incurred any Lien on any Property of any Member, Designated Affiliate or Limited Credit Group Participant which constitutes a material part of the primary operations of such Person, except Permitted Encumbrances. In addition to other Liens permitted in the definition of Permitted Encumbrances, Liens are Permitted Encumbrances if the total aggregate Book Value of the Property subject to a Lien does not exceed 25% of the value of the total assets of the Credit Group Members. The Property subject to such Liens could consist in part or in whole of cash, marketable securities or accounts receivable. Furthermore, such Property could consist in part or in whole of Property of Designated Affiliates or Limited Credit Group Participants. See the information under the caption "DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL DOCUMENTS-SUMMARY OF CERTAIN PROVISIONS OF THE 1998 MASTER INDENTURE-Definitions-Permitted Encumbrances" in APPENDIX C hereto. Under the 1998 Master Indenture, the 2008B Master Indenture Obligations are the general, unsecured obligations of Spectrum Health and any future Member of the 1998 Obligated Group. No Designated Affiliate or Limited Credit Group Participant, as such, will be directly obligated to pay the 2008B Master Indenture Obligations or to advance any funds therefore. However, in the 1998 Master Indenture, Spectrum Health will covenant and agree that it will cause each Designated Affiliate, and will use reasonable efforts to cause each of the Limited Credit Group Participants (subject to contractual and organizational limitations) to pay, loan or otherwise transfer to Spectrum Health such amounts as are necessary to pay debt service on the outstanding 2008B Master Indenture Obligation or portions thereof and on any other Obligations issued under the 1998 Master Indenture. The 1998 Master Indenture applies directly only to Spectrum Health, Spectrum Health Hospitals and any future Member of the 1998 Obligated Group. However, the 1998 Master Indenture requires that Spectrum Health and Spectrum Health Hospitals will cause each Designated Affiliate and Limited Credit Group Participant to charge fees and rates for its services sufficient to enable Spectrum Health to be able to pay amounts due on outstanding Obligations and to comply with certain other covenants in the 1998 Master Indenture, which include requirements for maintenance of corporate existence of Designated Affiliates and Limited Credit Group Participants. Further, the 1998 Master Indenture imposes restrictions on Liens on Property of all Affiliates and Limited Credit Group Participants. THE 1998 MASTER INDENTURE DOES NOT CONTAIN ANY LIMITATIONS OR TESTS FOR THE INCURRENCE OF ADDITIONAL INDEBTEDNESS OR THE SALE, LEASE OR OTHER DISPOSITION OF ANY PROPERTY. For a more detailed description of the 1998 Master Indenture including the provisions thereof relating to the Designated Affiliates and Limited Credit Group Participants, see the information under the caption "DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL DOCUMENTS-SUMMARY OF CERTAIN PROVISIONS OF THE 1998 MASTER INDENTURE" in APPENDIX C hereto. 23

28 The Series 2008B-1 Credit Facility THE 2008B-1 CREDIT FACILITY The following is a summary of certain provisions of the Series 2008B-1 Credit Facility, to which document in its entirety reference is made for the detailed provisions thereof. The Series 2008B-1 Credit Facility is an irrevocable obligation of RBS Citizens, National Association ( RBS ) to pay to the Bond Trustee up to the total of the following amounts (the Stated Amount ) while the Series 2008B Bonds bear interest at the Weekly Interest Rate, upon the terms and conditions set forth in the Series 2008B- 1 Credit Facility: (a) the outstanding principal amount of the Series 2008B-1 Bonds (i) to enable the Bond Trustee to pay the principal amount of the Series 2008B-1 Bonds when due at maturity, upon redemption or acceleration and (ii) to enable the Bond Trustee to pay the portion of the purchase price, to the extent remarketing proceeds are not available for such purchase, of Series 2008B-1 Bonds tendered or deemed tendered to it equal to the principal amount of such tendered Series 2008B-1 Bonds, plus (b) an amount equal to interest to accrue at 12% per annum (the Maximum Interest Rate ) on the outstanding Series 2008B-1 Bonds for 45 days (i) to enable the Bond Trustee to pay the interest on the Series 2008B-1 Bonds when due and (ii) to enable the Bond Trustee to pay the portion, if any, of the purchase price, to the extent remarketing proceeds are not available for such purchase, of Series 2008B-1 Bonds tendered or deemed tendered to it equal to the accrued interest on such Series 2008B-1 Bonds (such accrued interest is payable only when Series 2008B-1 Bonds bear interest at the Weekly Interest Rate). THE SERIES 2008B-1 CREDIT FACILITY DOES NOT SECURE THE PAYMENT OF ANY PREMIUM ON THE SERIES 2008B-1 BONDS. Under the Bond Indenture, the Bond Trustee is required to draw funds under the Series 2008B-1 Credit Facility (1) to make timely payments of principal of and interest on the Series 2008B-1 Bonds, (2) to pay the redemption price (excluding any premium) of the Series 2008B-1 Bonds upon optional or mandatory redemption (including mandatory sinking fund redemption) or to pay the purchase price upon optional or mandatory tender but only to the extent of a shortfall in the remarketing proceeds, and (3) to pay the principal of and accrued interest on the Series 2008B-1 Bonds upon acceleration of the Series 2008B-1 Bonds upon the occurrence of an Event of Default under the Bond Indenture. The Series 2008B-1 Credit Facility will terminate upon the earliest to occur of the following (the Termination Date ): (i) (a) April 15, 2011 (as such date may be extended by RBS from time to time in accordance with the provisions of the Reimbursement Agreement.), (ii) the Bond Trustee s making of the final drawing available to be made thereunder, (iii) surrender of the Series 2008B-1 Credit Facility to RBS, accompanied by a certificate of the Bond Trustee stating that all of the outstanding Series 2008B-1 Bonds have been paid or deemed to have been paid in full in accordance with Article II of the Bond Indenture or that the Series 2008B-1 Credit Facility has been replaced by an Alternate Credit Facility or an Alternate Liquidity Facility or the Series 2008B-1 Bonds have been converted to an Interest Rate Period other than the Weekly Interest Rate Period, or (iv) ten (10) days following notice from RBS to the Bond Trustee of an Event of Default under the Reimbursement Agreement. The Stated Amount of the Series 2008B-1 Credit Facility and the amounts available to be drawn to pay principal of Series 2008B-1 Bonds or to pay the principal portion of the purchase price for any Series 2008B-1 Bonds will be reduced automatically by amounts drawn under the Series 2008B-1 Credit Facility for the payment of principal when due on Series 2008B-1 Bonds or to pay the principal portion of the purchase price of any Series 2008B-1 Bonds. The Stated Amount will be reinstated with respect to a drawing for the purchase price of Series 2008B-1 Bonds to the extent of RBS s receipt of money (other than draws under the Series 2008B-1 Credit Facility) then held by the Bond Trustee and designed to reimburse RBS for all or a portion of the amounts drawn pertaining to such remarketing drawing for the Series 2008B-1 Bonds. The Stated Amount and the amounts available to be drawn for the payment of interest will be reduced automatically by the amount of any draw on the Series 2008B-1 Credit Facility for the payment of interest, and will be automatically reinstated by the amount of such interest drawing on the third Business Day following of payment of such interest drawing. 24

29 The Reimbursement Agreement The following summarizes certain provisions of the Reimbursement Agreement between Spectrum Health, for itself and as Obligated Group Agent on behalf of the other Members of the Obligated Group under the 1989 Master Indenture and as Obligated Group Agent on behalf of the other Members of the Obligated Group under the 1998 Master Indenture (collectively, the Obligors ) and RBS pursuant to which the Series 2008B-1 Credit Facility is issued. Reference is hereby made to the Reimbursement Agreement for the detailed provisions thereof. Under the Reimbursement Agreement, RBS will agree to issue the Series 2008B-1 Credit Facility to the Bond Trustee concurrently with the issuance and delivery of the Series 2008B-1 Bonds to the Holders pursuant to the Bond Indenture. The issuance of the Series 2008B-1 Credit Facility is subject to the satisfaction of certain conditions set forth in the Reimbursement Agreement, including the receipt by RBS of various certifications or documents from the Borrower, the Authority and the Bond Trustee and the delivery of certain legal opinions. Under the Reimbursement Agreement, the Obligors will agree to pay to RBS, in accordance with the provisions of the Reimbursement Agreement, all amounts that are paid under the Series 2008B-1 Credit Facility, together with interest, if any, on such amounts at the rate or rates specified in the Reimbursement Agreement, together with certain other annual fees and draw fees due RBS. Each of the Obligors, subject to specific provisions in the Reimbursement Agreement, will covenant in the Reimbursement Agreement, among other things, to maintain its existence, to maintain its property in good working order and condition; to observe certain financial covenants; to maintain adequate levels of insurance; to keep proper books of record and account; and maintain a minimum debt rating. No assurance can be given as to the ability of the Obligors to comply with such covenants. Failure to so comply could, at the option of RBS, result in acceleration of the maturity of the Series 2008B-1 Bonds. The occurrence of any of certain events (a general summary of which follows) constitutes an Event of Default under the Reimbursement Agreement unless waived by RBS or amended by agreement of RBS and Spectrum Health. (a) Any representation or warranty made by any of the Obligors pursuant to Section 10 of the Reimbursement Agreement shall prove to have been incorrect in any material respect when made. (b) The Obligors shall fail to pay any amounts owing to RBS under the Reimbursement Agreement when due or shall fail for 30 days to perform any covenant for the payment of money (for taxes, insurance and the like) under any Related Document (as defined in the Reimbursement Agreement) when such payment is due. (c) The Obligors shall fail to perform or observe the provisions of Sections 11 and 12 of the Reimbursement Agreement or the corresponding provision of any Related Document. (d) The Obligors shall fail to perform or observe any other term, covenant or agreement herein in the Reimbursement Agreement or in any Related Document, or in any other agreement with RBS to which they may be a party. (e) Any material provision of the Reimbursement Agreement shall at any time for any reason cease to be valid and binding on the Obligors, or shall be declared to be null and void, or the validity or enforceability thereof against the Obligors shall be contested by the Obligors or any governmental agency or authority, or the Obligors shall deny that it has any or further liability or obligation under the Reimbursement Agreement. (f) The default by the Obligors in the due payment of any of its indebtedness for borrowed money, whether to RBS or otherwise, in an aggregate principal amount of $10,000,000 or more, or in the observance or performance of any term, covenant or condition in any agreement or instrument evidencing, 25

30 securing or relating to such indebtedness, and such default shall have continued for a period sufficient to permit acceleration of the indebtedness. (g) The entry against the Obligors or any of their Subsidiaries (as defined in the Reimbursement Agreement), of one or more judgments or decrees involving an aggregate liability of $10,000,000 or more, which has or have become nonappealable and shall remain undischarged, unsatisfied by insurance and unstayed for more than 60 days, whether or not consecutive; or the issuance and levy of a writ of attachment or garnishment against the property of the Obligors or any of their Subsidiaries, and which is not released or appealed and bonded in a manner satisfactory to RBS. (h) If any of the Obligors or any of their Subsidiaries shall voluntarily suspend transaction of its business; or if any of the Obligors shall make a general assignment for the benefit of creditors; or shall be the object of a petition under the Bankruptcy Code which is not dismissed within 60 days; or shall file a voluntary petition under the Bankruptcy Code or for a reorganization or to effect a plan or other arrangement with its creditors; or shall file an answer to a creditor s petition or other petition against it (admitting the material allegations thereof) for liquidation or adjustment of debts or for a reorganization; or shall apply for or permit the appointment of a receiver, trustee, or custodian for any substantial portion of its properties or assets; or if any order shall be entered by any court approving an involuntary petition seeking reorganization; or if a receiver, trustee, or custodian shall be appointed for it or for any substantial portion of its property or assets (and such appointment, if involuntary, shall not have been promptly dismissed); or if it becomes unable to meet its obligations as they mature. (i) If any of the Obligors shall fail to meet its minimum funding requirements under ERISA with respect to any employee benefit plan established or maintained by such Obligor (or any Subsidiary or affiliate) or if for any such plan a reportable event shall occur or such plan shall be the subject of termination proceedings which event or proceedings in the opinion of RBS will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of such Obligor. (j) An Event of Default under and as defined in the Loan Agreement, the Bond Indenture, the 1989 Master Indenture, the 1998 Master Indenture or any of the Related Documents, shall have occurred and be continuing without the same being cured or waived pursuant to the terms thereof. (k) If any of the Related Documents shall for any reason cease to create valid and enforceable obligations. If an Event of Default under the Reimbursement Agreement has occurred and is continuing, RBS may direct the Bond Trustee to accelerate the Series 2008B-1 Bonds under the Bond Indenture and take any other remedial action available to it. THE SERIES 2008B-1 BONDS ARE SUBJECT TO ACCELERATION OF MATURITY UPON THE OCCURRENCE OF AN EVENT OF DEFAULT BY THE OBLIGORS UNDER THE REIMBURSEMENT AGREEMENT. The Reimbursement Agreement may be amended by Spectrum Health and RBS without the consent of the Bond Trustee, the Authority or the Holders. 26

31 THE LIQUIDITY FACILITIES Each Liquidity Facility provides liquidity support only for the applicable subseries of the Series 2008B Bonds. Each Liquidity Facility contains substantially identical financial terms. The following summary of the Liquidity Facilities does not purport to be comprehensive or definitive and is subject to all the terms and provisions of each Liquidity Facility to which reference is hereby made. Investors are urged to obtain and review a copy of each Liquidity Facility in order to understand all of the terms of that document. Copies of each Liquidity Facility may be obtained from the Bond Trustee. See "THE BANKS" for certain information regarding each Bank. The Series 2008B-1 Liquidity Facility The Series 2008B-1 Liquidity Facility is summarized above under the caption "THE 2008B-1 CREDIT FACILITY." The Series 2008B-2 Liquidity Facility General The following description is a summary of certain provisions of the Series 2008B-2 Liquidity Facility. Such summary does not purport to be a complete description or restatement of the material provisions of the Series 2008B-2 Liquidity Facility. Investors should obtain and review a copy of the Series 2008B-2 Liquidity Facility in order to understand all of the terms of that document. The Series 2008B-2 Liquidity Facility provides that Landesbank Baden-Württemberg, acting through its New York Branch ("LBBW"), shall purchase those Series 2008B-2 Bonds tendered or deemed tendered from time to time pursuant to an optional or mandatory tender by owners thereof in accordance with the terms of the Series 2008B-2 Bond Indenture, in each case, to the extent such Series 2008B-2 Bonds are not remarketed by the Remarketing Agent. The Series 2008B-2 Liquidity Facility will expire on April 15, 2011, unless extended or terminated pursuant to its terms. Under certain circumstances described below, the obligation of LBBW to purchase Series 2008B-2 Bonds tendered or deemed tendered by the owners thereof pursuant to an optional or mandatory tender may be suspended or terminated without notice. In such event, sufficient funds may not be available to purchase Series 2008B-2 Bonds tendered or deemed tendered by the owners thereof pursuant to an optional or mandatory tender. In addition, the Series 2008B-2 Liquidity Facility does not provide security for the payment of principal of or interest or premium, if any, on the Series 2008B-2 Bonds. Purchase of Tendered Series 2008B-2 Bonds by LBBW LBBW will purchase from time to time during the period prior to the expiration or earlier termination of the Series 2008B-2 Liquidity Facility, Eligible Bonds (as defined in the Series 2008B-2 Liquidity Facility), tendered or deemed tendered from time to time during the period from and including April 15, 2008, to and including April 15, 2011, (unless earlier terminated pursuant to the terms of the Series 2008B-2 Liquidity Facility) pursuant to an optional or mandatory tender by owners thereof in accordance with the terms and provisions of the Series 2008B-2 Bond Indenture, in each case, to the extent such Series 2008B-2 Bonds are not remarketed in accordance with the terms and provisions of the Remarketing Agreement, up to the Available Commitment (as defined in the Series 2008B-2 Liquidity Facility). The price to be paid by LBBW for such Series 2008B-2 Bonds will be equal to the aggregate principal amount of such Series 2008B-2 Bonds, provided that the aggregate principal amount of all Series 2008B-2 Bonds so purchased shall not exceed the Available Principal Commitment (as defined in the Series 2008B-2 Liquidity Facility), plus the lesser of (i) the Available Interest Commitment (as defined in the Series 2008B-2 Liquidity Facility) and (ii) interest accrued thereon to but excluding the date of such purchase; provided, however, that in no event shall LBBW be obligated to extend credit for the payment of the Purchase Price of such Series 2008B-2 Bonds representing accrued interest on such Series 2008B-2 Bonds in excess of the Available Interest Commitment. 27

32 Events of Default The occurrence of any of the following events, among others, shall constitute an Event of Default under the Series 2008B-2 Liquidity Facility. Reference is made to the Series 2008B-2 Liquidity Facility for a complete listing of all Events of Default; (a) the Obligated Group Agent or any Member shall fail to pay when due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) any principal of, or interest on, any Series 2008B-2 Bond or any Bank Bond (as defined in the Series 2008B-2 Liquidity Facility) (other than as a result of acceleration of the payment of any Bank Bond pursuant to paragraph (e) under the subheading "Remedies" below); or (b) the Obligated Group Agent or any Member shall fail to pay any other amount owed by the Obligated Group Agent or any Member under the Series 2008B-2 Liquidity Facility (other than amounts described in (a) under this subheading "Events of Default" above); or (c) any representation or warranty made by or on behalf of the Obligated Group Agent or any Member in the Series 2008B-2 Liquidity Facility or in any Transaction Document (as defined in the Series 2008B-2 Liquidity Facility) or in any certificate or statement delivered thereunder shall be incorrect or untrue in any material respect when made or deemed to have been made; or (d) the Obligated Group Agent or any Member shall default in the due performance or observance of certain covenants set forth in the Series 2008B-2 Liquidity Facility; or (e) the Obligated Group Agent or any Member shall default in the due performance or observance of any other term, covenant or agreement contained in the Series 2008B-2 Liquidity Facility or any Transaction Document and such default shall remain unremedied for a period of thirty (30) days after LBBW shall have given written notice thereof to the Obligated Group Agent, on behalf of the Members; or (f) Any Note (as defined in the Series 2008B-2 Liquidity Facility) or any Debt (as defined in the Series 2008B-2 Liquidity Facility) secured by a Note or any interest or premium on such Note or such Debt secured by a Note, shall not be paid when due, subject to the expiration of any applicable grace or cure period (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) (it being understood by LBBW that default, for purposes of this paragraph, shall not mean a situation whereby the Obligated Group Agent or any Member contests in good faith its liability with respect to such Note or such Debt secured by a Note) (g) one or more final, unappealable judgments against the Obligated Group Agent or the Members for the payment of money and not covered by insurance, or attachments, the operation or result of which, individually or in the aggregate, equal or exceed $10,000,000 shall remain unpaid, unstayed, undischarged, unbonded or undismissed for a period of sixty (60) days; or (h) (i) The Obligated Group Agent or any Member shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its Debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Obligated Group Agent or any Member shall make a general assignment for the benefit of its creditors or the State of Michigan or any governmental authority having jurisdiction over the Obligated Group Agent or related Member imposes a debt moratorium debt restructuring, or comparable restrictions on repayment when due and payable of the principal of or interest on any indebtedness of the Obligated Group Agent or any Member senior to or on a parity with the Series 2008B-2 Bonds; or (ii) there shall be commenced against the Obligated Group Agent or any Member any case, 28

33 proceeding or other action of a nature referred to in clause (i) above which (x) results in an order for such relief or in the appointment of a receiver or similar official or (y) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (iii) there shall be commenced against the Obligated Group Agent or any Member, any case, proceeding or other action seeking issuance of a warrant of attachment, execution, restraint or similar process against all or any substantial part of its assets, which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (iv) the Obligated Group Agent or any Member shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above; or (v) the Obligated Group Agent or any Member shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its Debts; or (i) (i) any provision of Series 2008B-2 Liquidity Facility or any Transaction Document (A) related to payment of principal of or interest on the Series 2008B-2 Bonds (including Bank Bonds) or related to any indebtedness of the Obligated Group issued under the Master Indenture or (B) the validity or enforceability of the pledge of the Collateral shall at any time for any reason cease to be valid and binding on the Obligated Group Agent or any Member as a result of a finding or ruling by a court or Governmental Authority (as defined in the Series 2008B-2 Liquidity Facility) with competent jurisdiction over the Obligated Group Agent or any Member, or shall be declared, in a final nonappealable judgment by any court of competent jurisdiction over the Obligated Group Agent or any Member, to be null and void, invalid or unenforceable; or (ii) the validity or enforceability of any material provision of the Series 2008B- 2 Liquidity Facility or any Transaction Document (A) related to payment of principal of or interest on the Series 2008B-2 Bonds (including Bank Bonds) or related to any indebtedness of the Obligated Group issued under the Master Indenture or (B) the validity or enforceability of the pledge of the Collateral shall be publicly contested by the Obligated Group Agent or any Member; or (iii) any material provision of the Series 2008B-2 Liquidity Facility or any Transaction Document, other than a provision described in clause (i) of this subsection (i), shall at any time for any reason cease to be valid and binding on the Obligated Group Agent or any Member as a result of a ruling or finding by a court or a Governmental Authority with competent jurisdiction over the Obligated Group Agent or any Member or shall be declared in a final non-appealable judgment by any court with competent jurisdiction over the Obligated Group Agent or any Member to be null and void, invalid, or unenforceable, or the validity or enforceability thereof shall be publicly contested by the Obligated Group Agent or any Member; or (j) the Obligated Group shall (i) fail to pay when due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) any indebtedness issued under the Master Indenture, or any interest or premium thereon, and such failure shall continue beyond any applicable period of grace specified in any underlying resolution, resolution, contract or instrument providing for the creation of or concerning such indebtedness of the Obligated Group, or pursuant to the provisions of any such resolution, indenture, contract or instrument, the maturity of any such indebtedness of the Obligated Group, as a result of a payment default of any nature, shall have been or may be accelerated or may be required to be prepaid prior to the stated maturity thereof, or (ii) fail to pay when due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) any Debt, other than that referred to in clause (i) of this subsection (j), and such failure shall continue beyond any applicable period of grace specified in any underlying resolution, indenture, contract or instrument providing for the creation or concerning such Debt, or any other default under any resolution, indenture, contract or instrument providing for the creation of or concerning such Debt, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such resolution, indenture, contract or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt; or pursuant to the provisions of any such resolution, indenture, contract or instrument the maturity of any Debt, other than that referred to in clause (i) of this subsection (j) shall have been or may be accelerated or shall have been or may be required to be prepaid prior to the stated maturity thereof; or (k) (i) The long-term unsecured rating assigned to any indebtedness of the Obligated Group senior to or on parity with the Series 2008B-2 Bonds is reduced below Investment Grade (as defined in the Series 2008B-2 Liquidity Facility) by each of Moody s, Fitch and S&P or is suspended or withdrawn by 29

34 Remedies each of Moody s, Fitch and S&P for credit related reasons; or (ii) the long-term unenhanced rating by Fitch, S&P or Moody s assigned to any other indebtedness of the Obligated Group senior to or on parity with the Series 2008B-2 Bonds is reduced below "A+" (or its equivalent) by Fitch, "A+" (or its equivalent) by S&P or "A1" (or its equivalent) by Moody s; or (l) Any "event of default" under the Series 2008B-2 Bond Indenture or any "event of default" under any other Transaction Document which is not cured within any applicable cure period shall occur which if not cured would give rise to remedies available thereunder. Following the occurrence of the above described Events of Default, LBBW may take any one or more of the following actions, among others. Reference is made to the Series 2008B-2 Liquidity Facility for a complete listing of all consequences of Events of Default. (a) Upon the occurrence of an Event of Default as specified in paragraph (a), (g), (h), (i)(i), (j)(i) or (k)(i) under the subheading "Events of Default" above (each a "Special Event of Default"), all obligations of LBBW under the Series 2008B-2 Liquidity Facility to purchase Series 2008B-2 Bonds shall be immediately and automatically terminated, without notice, and thereafter LBBW shall have no further obligation to purchase any Series 2008B-2 Bonds. Promptly upon obtaining knowledge of any such Event of Default (whether from the Obligated Group Agent, the Tender Agent or otherwise), and without affecting the termination of the obligations of the Banks to purchase Series 2008B-2 Bonds or incurring liability or responsibility to any Person by reason of its failure to do so, LBBW shall give the Obligated Group Agent, the Tender Agent, and the Remarketing Agent written notice of such Event of Default. The Obligated Group Agent shall promptly direct the Tender Agent to notify all Bondholders of any termination of the obligations of LBBW to purchase Series 2008B-2 Bonds as a result of the occurrence of such Event of Default. (b) Upon the occurrence and during the continuance of a Default described in paragraph (h) under the subheading "Events of Default" above, the obligations of LBBW to purchase Series 2008B-2 Bonds under the Series 2008B-2 Liquidity Facility shall be immediately and automatically suspended, without notice, and LBBW shall be under no further obligation under the Series 2008B-2 Liquidity Facility to purchase Series 2008B-2 Bonds, until the bankruptcy, insolvency or similar proceeding referred to therein is terminated prior to the court entering an order granting the relief sought in such proceeding. In the event such proceeding is terminated, then the obligations of LBBW under the Series 2008B-2 Liquidity Facility shall be automatically reinstated and the terms of the Series 20080B-2 Liquidity Facility shall continue in full force and effect (unless the obligations of LBBW to purchase Series 2008B-2 Bonds under the Series 2008B-2 Liquidity Facility shall otherwise have terminated or there has occurred an Event of Default described in clause (a) under this subheading "Remedies") as if there had been no such suspension. (c) Upon the occurrence of an Event of Default under paragraph (i)(ii) under the subheading "Events of Default" above, the obligations of LBBW to purchase Series 2008B-2 Bonds under the Series 2008B-2 Liquidity Facility shall be suspended from the time of the occurrence of such Event of Default, and in the event any provision of the Series 2008B-2 Liquidity Facility or any Transaction Document relating to the payment of principal or interest on the Series 2008B-2 Bonds (including Bank Bonds) or any other indebtedness of the Obligated Group Agent senior to or on a parity with the Series 2008B-2 Bonds and secured by a Note issued pursuant to the Master Indenture or the validity or enforceability of the pledge of the Collateral (as defined in the Series 2008B-2 Liquidity Facility), in either case, by a court or other Governmental Authority (as defined in the Series 2008B-2 Liquidity Facility) with competent jurisdiction, then the obligations of LBBW under the Series 2008B-2 Liquidity Facility will terminate in accordance with clause (a) under this subheading "Remedies"; provided, however, that if such provisions are upheld in their entirety, then LBBW's obligations under the Series 2008B-2 Liquidity Facility shall be automatically reinstated and the terms of the Series 2008B-2 Liquidity Facility will continue in full force and effect (unless the Series 2008B-2 Liquidity Facility shall have otherwise expired or been terminated in accordance with its terms) as if there had been no such suspension. If the Event of Default which gave rise to the suspension of the obligations of LBBW under the Series 2008B-2 Liquidity Facility has not been cured or does not cease to exist prior to the three year anniversary of such occurrence, the obligations of LBBW under the Series 2008B-2 Liquidity 30

35 Facility shall be terminated upon written notice from LBBW, to the Obligated Group Agent, and thereafter LBBW shall have no further obligations under the Series 2008B-2 Liquidity Facility (d) in the case of any Event of Default, LBBW may give written notice of such Event of Default and termination of the Series 2008B-2 Liquidity Facility (a "Notice of Termination Date") to the Series 2008B-2 Bond Trustee, the Obligated Group Agent, on behalf of the Members, the Authority and the Remarketing Agent requesting a Default Tender (as defined in the Series 2008B-2 Liquidity Facility). The obligation of LBBW to purchase Series 2008B-2 Bonds shall terminate on the thirtieth (30th) day (or if such day is not a Business Day, the next following Business Day) after such Notice of Termination Date is received by the Authority, the Series 2008B-2 Bond Trustee and the Obligated Group Agent and on such date the Available Commitment shall terminate and LBBW shall be under no obligation under the Series 2008B-2 Liquidity Facility to purchase Series 2008B-2 Bonds. (e) In addition to the rights and remedies set forth in clauses (a), (b), (c) and (d) under this subheading Remedies, in the case of any Event of Default, LBBW (i) may declare all Bank Obligations (as defined in the Series 2008B-2 Liquidity Facility) of the Obligated Group Agent to LBBW under the Series 2008B-2 Liquidity Facility and under the Bank Bonds to be immediately due and payable, and the same shall thereupon become due and payable without demand, presentment, protest, notice of intent to accelerate, notice of acceleration or further notice of any kind, all of which are expressly waived; provided, however, that notwithstanding anything set forth in this clause (e), LBBW may only accelerate the Bank Bonds due and owing under the Series 2008B-2 Liquidity Facility to the extent that such acceleration is permitted pursuant to the terms of the Series 2008B-2 Bond Indenture; or (ii) may take any other action or remedy permitted by law to enforce the rights of LBBW under the Series 2008B- 2 Liquidity Facility and under the Series 2008B-2 Bonds (if LBBW is a Bank Bondholder) and any Transaction Document; provided, however, that LBBW agrees to purchase Series 2008B-2 Bonds subject to and in accordance with the terms and provisions of the Series 2008B-2 Liquidity Facility notwithstanding the occurrence of an Event of Default which does not terminate or suspend its obligation to purchase Series 2008B-2 Bonds under Section (a), (b), (c), (d) under this subheading "Remedies." The Series 2008B-3 Liquidity Facility General. On the date of issuance of the Series 2008B-3 Bonds, Spectrum Health will enter into a Standby Bond Purchase Agreement with Wells Fargo Bank, National Association ( Wells Fargo ) and U.S. Bank National Association, as Bond Trustee and Tender Agent with respect to the Series 2008B-3 Bonds. Upon compliance with the provisions of the Standby Bond Purchase Agreement, Wells Fargo is obligated, under certain conditions and assuming timely and proper notice is given to Wells Fargo, to provide funds for the purchase of any Series 2008B-3 Bonds bearing interest at the Daily Interest Rate or the Weekly Interest Rate (the "Covered Rate") other than Bonds owned by, or for the account of, or on behalf of, Spectrum Health or the Obligated Group ("Eligible Bonds") that are tendered or deemed tendered for purchase, whether at the option of the holder or upon mandatory tender for purchase, and that are not remarketed, referred to in this Official Statement as Tendered Bonds. Under the Standby Bond Purchase Agreement, Wells Fargo is obligated to make available to the Tender Agent an amount equal to the principal amount of the Eligible Bonds plus up to 40 days interest thereon at an assumed interest rate of 12% (collectively, the "Available Commitment"), subject to certain reductions and reinstatements. The Standby Bond Purchase Agreement provides for only the payment of the Tender Price of the Eligible Bonds tendered for purchase as described above, and does not otherwise secure or provide for payment of the principal of, premium, if any, or interest on the Series 2008B-3 Bonds. Under certain circumstances described below, the obligation of Wells Fargo to purchase Eligible Bonds tendered by the holders thereof or subject to mandatory purchase may be terminated or suspended. In such event, sufficient funds may not be available to purchase Series 2008B-3 Bonds tendered by the holders thereof or subject to mandatory purchase. The Stated Expiration Date of the Standby Bond Purchase Agreement is April 15, The Stated Expiration Date may be extended as described below under "Extension of Standby Bond Purchase Agreement." Wells Fargo s obligation to make payments under the corresponding Standby Bond Purchase Agreement may be 31

36 terminated as set forth below under "Events of Default" and "Remedies Upon Occurrence of an Event of Default." Various words or terms used in the following summary are defined in this Official Statement, the Standby Bond Purchase Agreements or the Series 2008B Bond Indentures, and reference thereto is made for full understanding of their import. Commitment to Purchase Series 2008B-3 Bonds. Wells Fargo agrees, on the terms and conditions contained in the Standby Bond Purchase Agreement, to purchase, at the Purchase Price, with immediately available funds solely of Wells Fargo (and no funds of the Authority, any Member of the Obligated Group or any Affiliate of any Member of the Obligated Group) Tendered Bonds, for Wells Fargo s own account, from time to time during Wells Fargo Purchase Period. Covenants. Spectrum Health and the Obligated Group makes certain representations, warranties and covenants under the Standby Bond Purchase Agreement relating to various matters, including, without limitation, existence, authorization and validity, compliance with laws and contracts, litigation, disclosure, regulatory approvals, tax-exempt status, financial statements, ERISA, environmental laws, maintenance of insurance, inspection rights, maintenance of property, accreditation, use of proceeds, financial covenants and liens. The covenants and agreements contained in the Standby Bond Purchase Agreement run only in favor of Wells Fargo and may be waived at any time in the sole discretion of Wells Fargo or amended at any time upon the agreement of Spectrum Health and Wells Fargo and, in certain circumstances, the Bond Trustee. Holders are not entitled to and should not rely upon any of the covenants and agreements in the Standby Bond Purchase Agreement. Events of Default. Each of the following events shall constitute an "Event of Default" under the Standby Bond Purchase Agreement: (a) Any representation or warranty made by Spectrum Health or any other Member under or in connection with (or incorporated by reference in) the Standby Bond Purchase Agreement or any Related Document (as defined in the Standby Bond Purchase Agreement) shall be false in any material respect as of the date on which made. (b) Non-payment of principal of or interest on (i) any Bond to the holder thereof when due pursuant to the Bond Indenture; or (ii) any Bank Bond (as defined in the Standby Bond Purchase Agreement) to Wells Fargo when due pursuant to the Standby Bond Purchase Agreement other than as a result of acceleration of the payment of any Bank Bond pursuant to clause (i) under the caption "Remedies Upon Occurrence of an Event of Default" below. (c) Non-payment, in whole or in part, of any fees due to Wells Fargo pursuant to the Standby Bond Purchase Agreement, if such failure to pay when due shall continue for 3 Business Days after notice thereof by Wells Fargo to Spectrum Health. Such notice shall be given by immediate telephonic notice with subsequent written confirmation. (d) Non-payment when due under the Standby Bond Purchase Agreement of certain other amounts owed to Wells Fargo, if such failure to pay when due shall continue for 3 Business Days after notice thereof by Wells Fargo to Spectrum Health. (e) The breach by Spectrum Health or the Obligated Group of any of the terms or provisions of certain covenants contained in the Standby Bond Purchase Agreement relating to (i) certain financial covenants, and (ii) amending or waiving the terms of certain documents without the prior written consent of Wells Fargo. (f) The breach by Spectrum Health or the Obligated Group (other than a breach which constitutes a Default under paragraphs (a), (b), (c), (d), or (e) above) of any of the terms or provisions of the Standby Bond Purchase Agreement or of any Related Document to which it is a party which is not remedied within 15 days after written notice from Wells Fargo. 32

37 (g) The Bond Indenture shall terminate or cease to be in full force and effect (or the lien created by the Bond Indenture shall cease to be a valid and perfected lien), other than as a result of any redemption or prepayment in full of the Bonds. (h) The occurrence and continuance of any Event of Default as defined in the Bond Indenture, the 1989 Master Indenture or the 1998 Master Indenture. (i) (i) Moody s and S&P shall downgrade the long term Bond Ratings to below Baa1 by Moody s or BBB+ by S&P, or (ii) Moody s and S&P shall suspend or withdraw such rating for credit related reasons. (j) (i) Any material provision of the Standby Bond Purchase Agreement, Bond Indenture, or 1998 Master Indenture relating to principal or interest payment obligations terminates or ceases to be valid and binding on Spectrum Health or Spectrum Health Hospitals in accordance with the terms contained therein; (ii) an Authorized Officer (as defined in the Standby Bond Purchase Agreement) of Spectrum Health or Spectrum Health Hospitals shall (A) claim, in writing, that any provision of the Standby Bond Purchase Agreement, Bond Indenture or 1998 Master Trust Indenture relating to principal or interest payment obligations is not valid and binding on Spectrum Health or Spectrum Health Hospitals, (B) repudiate, in writing, its principal or interest payment obligations under the Standby Bond Purchase Agreement, the Bond Indenture or 1998 Master Trust Indenture, or (C) initiate legal proceedings seeking an adjudication that the principal or interest payment obligations under the Standby Bond Purchase Agreement, Bond Indenture or 1998 Master Trust Indenture are not valid and binding on Spectrum Health or Spectrum Health Hospitals; or (iii) an order of a court having jurisdiction in the premises shall be entered declaring any provision of the Standby Bond Purchase Agreement, Bond Indenture or 1998 Master Trust Indenture relating to the principal or interest payment obligations of Spectrum Health or Spectrum Health Hospitals at any time, for any reason, invalid and not binding on Spectrum Health or Spectrum Health Hospitals or declaring any such provision of the Standby Bond Purchase Agreement, Bond Indenture or 1998 Master Trust Indenture null and void. (k) A default shall occur and be continuing by Spectrum Health or any Member under any agreement between Spectrum Health or any Member and Wells Fargo or under any obligation owed by Spectrum Health or any Member to Wells Fargo. (l) The occurrence of any event which with the passage of time or the giving of notice, or both, could be an Event of Default as defined in the 1989 Master Indenture or the 1998 Master Indenture, as applicable; any amendment, supplement, modification, change, waiver or termination of any of the covenants, agreements, definitions and exhibits of the 1989 Master Indenture and the 1998 Master Indenture, as applicable, shall not have any force and effect under the Standby Bond Purchase Agreement unless Wells Fargo shall have consented in writing to such amendment, supplement, modification, change, waiver or termination. (m) A final non-appealable judgment or order for the payment of money in an amount in excess of $10,000,000 shall have been rendered against Spectrum Health or Spectrum Health Hospitals and such judgment or order shall not have been satisfied (whether by insurance or otherwise), stayed, discharged, bonded or dismissed within a period of sixty (60) days from the date on which such judgment or order was first so rendered. (n) A notice of intent to terminate a Plan or Plans (as defined in the Standby Bond Purchase Agreement) having aggregate unfunded liabilities in excess of $5,000,000 (collectively, Restricted Plans ) shall be filed under Title IV of ERISA by or on behalf of a member of the Controlled Group or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) or to cause a trustee to be appointed to administer any Restricted Plan; or a proceeding shall be instituted by a fiduciary of any Restricted Plan against any member of the Controlled Group to enforce Section 515 of ERISA; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Restricted Plan must be terminated or any member of the Controlled Group shall fail to pay when due withdrawal liability in excess of $5,000,000 33

38 which it shall have become liable to pay to a "multiemployer" plan as such term is defined in Section 3(37) of ERISA; and, in the case of any event described in this clause (p), the aggregate amount of liability of the members of the Controlled Group to the PBGC under Section 4062, 4063 or 4064 of ERISA or to a multiemployer plan, as the case may be, shall exceed $5,000,000. (o) Spectrum Health or any Member shall be in default in the payment of any principal of or interest on any Debt in excess of $5,000,000 or on any obligation guaranteed by Spectrum Health or any Member or in respect of which it is otherwise contingently liable in excess of $5,000,000 beyond any period of grace stated with respect thereto in any such obligation or in any agreement under which any such obligation is created, or Spectrum Health or any Member shall default in the performance of any agreement under which any such obligation is created if the effect of such default is to cause such obligation to become, or to permit any holder or beneficiary thereof, or a trustee on behalf thereof, with notice if required, to declare such obligation to be due prior to its normal maturity. (p) (i) Spectrum Health or Spectrum Health Hospitals commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or Spectrum Health or Spectrum Health Hospitals shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against Spectrum Health or Spectrum Health Hospitals any case, proceeding or other action of a nature referred to in clause (i) above which (x) results in an order for such relief or in the appointment of a receiver or similar official or (y) remains undismissed, undischarged or unbonded for a period of ninety (90) days; or (iii) there shall be commenced against Spectrum Health or Spectrum Health Hospitals any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets, which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within ninety (90) days from the entry thereof; or (iv) Spectrum Health or Spectrum Health Hospitals shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in any of clauses (i), (ii) or (iii) above; or (v) Spectrum Health or Spectrum Health Hospitals shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts. (q) Any material provision of the Standby Bond Purchase Agreement, Bond Indenture, or 1998 Master Trust Indenture pertaining to principal or interest payment obligations shall at any time for any reason cease to be valid and binding on Spectrum Health or Spectrum Health Hospitals or shall be declared in a final non-appealable judgment by a court of competent jurisdiction to be null and void, or the validity or enforceability thereof shall be contested in writing by an Authorized Officer of Spectrum Health or Spectrum Health Hospitals or by any Governmental Authority (as defined in the Standby Bond Purchase Agreement) having jurisdiction, or Spectrum Health or Spectrum Health Hospitals or such other party shall deny that it has any or further liability or obligation under any such document. (r) If the Obligated Group shall (i) be in default in the payment of any principal of or interest on any obligation arising under the 1989 Master Indenture or 1998 Master Indenture, or (ii) be in default in the performance of any agreement arising under the 1989 Master Indenture or 1998 Master Indenture under which any such obligation is created if the effect of such default is to cause the principal component of such obligation to be declared, in accordance with the documents governing such indebtedness, to be due and payable prior to its normal maturity. (s) There is a determination by the Internal Revenue Service, a court of competent jurisdiction, or any relevant taxing authority that the Bonds are taxable. 34

39 Remedies Upon Occurrence of an Event of Default. If any Event of Default shall have occurred and be continuing, the following remedies shall be available to Wells Fargo under the Standby Bond Purchase Agreement: (i) Except as expressly set forth in clauses (ii) and (iii) under this heading, if any Event of Default specified under the caption Events of Default above occurs and is continuing, then Wells Fargo may: (a) declare all Obligations (as defined in the Standby Bond Purchase Agreement) to be forthwith due and payable (including Obligations with respect to the Bank Bonds), whereupon the same shall become immediately due and payable without further presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and/or (b) exercise any of the rights and remedies available to it under the Standby Bond Purchase Agreement, the Related Documents or otherwise pursuant to law or equity, including charging the Default Rate (as defined in the Standby Bond Purchase Agreement) on all Obligations. (ii) If any Event of Default specified in paragraphs (b), (i), (j), (m), (p), (q), or (r)(i) above under the caption Events of Default occurs (each a Special Event of Default ), then in addition to the rights available to it pursuant to the immediately foregoing subparagraph (a) hereof, Wells Fargo s obligation to purchase Bonds pursuant to the Standby Bond Purchase Agreement shall immediately terminate without notice or demand, and thereafter Wells Fargo shall be under no obligation to purchase Bonds (an Automatic Termination Event ). Promptly after Wells Fargo receives written notice of such Special Event of Default, Wells Fargo shall give written notice of the same to the Bond Trustee, the Remarketing Agent and Spectrum Health; provided that Wells Fargo shall not incur any liability or responsibility whatsoever by reason of Wells Fargo s failure to give such notice and such failure shall in no way affect the termination of the Wells Fargo s Available Commitment and of any obligation of Wells Fargo to purchase Bonds pursuant to the Standby Bond Purchase Agreement. Spectrum Health shall promptly in writing direct the Bond Trustee to notify all Bondholders of any termination of the obligation of Wells Fargo to purchase Bonds as a result of the occurrence of a Special Event of Default. (iii) If an Event of Default specified under the caption Events of Default above, other than a Special Event of Default, occurs and is continuing, then Wells Fargo s obligation to purchase Bonds pursuant to the Standby Bond Purchase Agreement shall, at Wells Fargo s option, terminate at 5:00 p.m. on the 30th calendar day following the date that the Bond Trustee, the Tender Agent and the Remarketing Agent shall have received written notice from Wells Fargo (a Notice of Termination ) that it is terminating such obligation (the Noticed Termination Date ), during which 30-day period Wells Fargo shall continue to be obligated to purchase Bonds under the Standby Bond Purchase Agreement (unless there shall have occurred during that time any Special Event of Default in which event termination shall be as otherwise provided herein). Extension of Standby Bond Purchase Agreement Not more than 120 days nor less than 90 days prior to the third anniversary of the Closing Date (as defined in the Standby Bond Purchase Agreement), the Obligated Group, by written request to Wells Fargo (each, an Extension Request ), may request that the then effective Stated Expiration Date (as defined in the Standby Bond Purchase Ageement) be extended for a period of three (3) years beyond the Stated Expiration Date in effect at the time the Extension Request is received by Wells Fargo. If Wells Fargo receives a timely Extension Request, it will notify the Obligated Group of its decision with respect thereto within 60 days after its receipt of such Extension Request; provided, however, that any failure of Wells Fargo to notify the Obligated Group within such 60 day period shall not constitute a default by Wells Fargo under the Standby Bond Purchase Agreement but shall be deemed to be a rejection by Wells Fargo of such Extension Request. The Obligated Group acknowledges and agrees that Wells Fargo may grant or deny any request for an extension of the Stated Expiration Date as Wells Fargo, in its sole discretion, deems appropriate. If Wells Fargo elects to extend the Stated Expiration Date then in effect, the Obligated Group shall satisfy all of Wells Fargo s customary requirements (including payment of Wells Fargo s processing fee) with respect to such extension. Each extension will be effective on the next anniversary of the Closing Date or as soon thereafter as is feasible. 35

40 THE BANKS RBS Citizens, National Association The following information has been provided by RBS Citizens, National Association (at times referred to hereinafter as "RBS Citizens") for use in this Official Statement. Such information is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, the Authority, Spectrum Health, or the Remarketing Agent. This information has not been independently verified by the Authority, Spectrum Health, or the Remarketing Agent. No representation is made by the Authority, Spectrum Health, or the Remarketing Agent as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. INFORMATION CONCERNING RBS CITIZENS NATIONAL ASSOCIATION As of December 31, 2007 The following information concerning RBS Citizens, National Association (Bank) has been provided by representatives of the Bank and has not been independently certified or verified by the Issuer, the Borrower or the Placement Agent. The Bank is a national banking association with its main office in Providence, Rhode Island. Except for directors qualifying shares, the Bank is a wholly-owned subsidiary of Citizens Financial Group, Inc. (Citizens). Citizens is also the parent holding company for Citizens Bank of Pennsylvania and numerous other non-bank entities, and is owned by The Royal Bank of Scotland Group plc (RBS). RBS acquired Citizens in The Bank was chartered in May 2005 under the name Citizens Bank, National Association. The Bank s name changed from Citizens Bank, National Association to RBS Citizens, National Association in connection with the mergers of each of the following Citizens subsidiaries Charter One Bank, National Association, RBS National Bank, Citizens Bank of Massachusetts, Citizens Bank of Connecticut, Citizens Bank New Hampshire, Citizens Bank of Rhode Island, and Citizens Bank (Delaware) with and into Citizens Bank, National Association. Citizens Bank, National Association survived these mergers under its charter and with the new title of RBS Citizens, National Association. These mergers (as well as the name change) were effective as of September 1, The Bank offers a wide range of retail and commercial banking services. Its loan portfolio is divided between commercial loans, including leases and commercial real estate loans, and consumer loans, including residential real estate mortgage loans. The Bank does business through its divisions, including Citizens Bank, Charter One, CCO Mortgage and RBS Card Services. The Bank is subject to supervision and examination by the Office of the Comptroller of the Currency. It is also subject to requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the Bank s operations. The Letter of Credit is an obligation of the Bank, and is not an obligation of Citizens, RBS or any of their other subsidiaries or affiliates. Citizens is a Providence-based commercial bank holding company. As of December 31, 2007, Citizens had $160.3 billion in assets, total equity capital of $22.4 billion, total deposits of $102.4 billion, total loans and leases before allowance for loan losses of $111.8 billion ($110.8 billion net of allowance) and 22,671 full time equivalent employees. 36

41 Based on the annual Summary of Deposits report for June 30, 2007, the Bank had 1,262 branches. As of December 31, 2007 the Bank had total assets of $128.9 billion, total deposits of $77.5 billion, total loans and leases before allowance for loan losses of $92.3 billion ($91.5 billion net of allowance), and total equity capital of $17.9 billion. The foregoing summary information is provided for convenience purposes only. Important additional information with respect to Citizens and the Bank is contained in the publicly available portions of the Bank's Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices - FFIEC 031, as submitted to the Federal Deposit Insurance Corporation. Except as set forth under this section, neither the Bank nor its affiliates make any representations as to the contents of this Official Statement, the suitability of the security instruments for any investor, the feasibility or performance of any project or compliance with any securities or tax laws and regulations. Landesbank Baden-Württemberg The following information has been provided by Landesbank Baden-Württemberg (at times referred to hereinafter as "LBBW") for use in this Official Statement. Such information is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, the Authority, Spectrum Health, or the Remarketing Agent. This information has not been independently verified by the Authority, Spectrum Health, or the Remarketing Agent. No representation is made by the Authority, Spectrum Health, or the Remarketing Agent as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. Landesbank Baden-Württemberg LANDESBANK BADEN-WÜRTTEMBERG LBBW is a public law institution (rechtsfähige Anstalt des öffentlichen Rechts) owned and controlled jointly by the State of Baden-Württemberg, the Savings Bank Association of Baden-Württemberg (the Association of Baden-Württemberg), the City of Stuttgart, the Savings Bank and Giro Association of Rheinland-Pfalz (SGV- RP), and Landeskreditbank Baden-Württemberg (L-Bank). Baden-Württemberg holds % of LBBW's nominal capital, the Association of Baden-Württemberg holds %, Stuttgart holds %, the SGV RP holds 4.923% and L-Bank holds 4.923%. With a balance sheet total of approximately billion at December 31, 2006, the LBBW Group is among the ten largest German banks and among the 50 largest credit institutions in the world. The LBBW Act (Gesetz über die Landesbank Baden-Württemberg; the "LBBW Act") authorizes LBBW to engage in all types of banking and financial service activities as well as in all other activities that are useful to LBBW, including issuing mortgage Pfandbriefe (Hypothekenpfandbriefe), public sector Pfandbriefe (Öffentliche Pfandbriefe or Kommunalobligationen), and other debt obligations. In addition, LBBW is the central bank for the savings banks (Sparkassen) in the State of Baden-Württemberg. LBBW also performs the activities of a savings bank through its brand BW-Bank in the territory of Stuttgart. Furthermore, LBBW together with its 100 per cent subsidiary Landesbank Rheinland-Pfalz is the central banking institution for the savings banks in Rheinland-Pfalz. As of April 1, 2008, Sachsen LB was integrated as a dependent institution without legal standing ( unselbstständige Anstalt des öffentlichen Rechts ) of LBBW into Landesbank Baden-Württemberg (LBBW). All claims and liabilities of Sachsen LB have thus been assumed by LBBW. Under the new brand name Sachsen Bank, LBBW will pool Sachsen LB s SME business and BW-Bank s business with corporate and high-net-worth private clients in Eastern Germany. Sachsen Bank will also be responsible for shaping the LBBW Group s future market positioning in Poland and the Czech Republic. As a German "universal bank," LBBW provides a comprehensive range of commercial banking and investment banking services to businesses, other banking institutions, governmental entities, counties, municipalities, other organizations and individuals. LBBW makes loans, extends guaranties, underwrites securities, deals and trades in debt and equity securities and makes equity investments. LBBW underwrites, trades in, and acts as paying agent and fiscal agent with respect to debt securities issued by the State of Baden-Württemberg. 37

42 Landesbank Baden-Württemberg, New York Branch The New York Branch of LBBW was licensed by the Banking Department of New York State in December 1998, and amended its license in April 1999 to reflect the merger that created LBBW. The Branch is not required to be and is not a member of the Federal Deposit Insurance Corporation (the "FDIC"). The Branch is engaged in numerous business activities such as extending credit and providing banking services to the middle market clientele of Baden-Württemberg and their North American subsidiaries, as well as to international corporations. The Branch is also involved in the financing of commercial real estate in select U.S. cities and in public finance with U.S. municipal entities. The Branch also engages in capital markets and asset management activities, which include the management of an investment portfolio consisting entirely of investment-grade notes, including floating- and fixedrate asset-backed securities, collateralized obligations, and senior debt medium-term notes issued by higher quality banks, finance companies, and other corporate issuers. The Branch funds itself with corporate, bank and government entity deposits, and the issuance of certificates of deposit, medium-term notes and other obligations. The Branch is active in both the inter-bank and corporate markets. LBBW became a financial holding company on August 7, So long as it maintains that designation, it is able to engage in a broad range of financial activities, including underwriting and dealing in securities, in the United States. In addition, LBBW recently organized LBBW Securities, LLC and registered it as a broker-dealer in the United States. Phase-out of Guaranty Obligation and Maintenance Obligation In 2001 and 2002, the European Commission, the Federal Republic of Germany and the German federal states (including Baden-Württemberg) reached agreements to make the Guaranty Obligation (Gewährträgerhaftung) and Maintenance Obligation (Anstaltslast) of the owners of German Landesbanken compatible with the state aid provisions of the Treaty Establishing the European Community, as amended by the Treaty on European Union. Under these agreements, Germany and its federal states began to phase out the Guaranty and Maintenance Obligations. On July 18, 2005, this phase-out was completed. Obligations of LBBW after that date are no longer backed by the Maintenance Obligation of its owners. Obligations of LBBW incurred after that date are no longer backed by the Guaranty Obligation of its owners. Obligations incurred by LBBW on or before July 18, 2001 are covered by the Guaranty Obligation until they mature. Obligations incurred by LBBW after July 18, 2001 and on or before July 18, 2005 that mature on or before December 31, 2015 are covered the Guaranty Obligation until maturity. Furthermore, LBBW became capable of being subject to insolvency proceedings after 18 July Wells Fargo Bank, National Association The following information has been provided by Wells Fargo Bank, National Association (at times referred to hereinafter as "Wells Fargo") for use in this Official Statement. Such information is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, the Authority, Spectrum Health, or the Remarketing Agent. This information has not been independently verified by the Authority, Spectrum Health, or the Remarketing Agent. No representation is made by the Authority, Spectrum Health, or the Remarketing Agent as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. INFORMATION CONCERNING WELLS FARGO BANK, NATIONAL ASSOCIATION Wells Fargo Bank, National Association, ( the Bank ) is a national banking association organized under the laws of the United States of America with its main office at 101 North Phillips Avenue, Sioux Falls, South Dakota 57104, and engages in retail, commercial and corporate banking, real estate lending and trust and investment services. The Bank is an indirect, wholly owned subsidiary of Wells Fargo & Company, a diversified financial services company, a financial holding company and a bank holding company registered under the Bank Holding Company Act of 1956, as amended, with its principal executive offices located in San Francisco, California ("Wells Fargo & Company"). 38

43 As of December 31, 2007, the Bank had total consolidated assets of approximately $467.8 billion, total domestic and foreign deposits of approximately $343.6 billion and total equity capital of approximately $41.7 billion. Each quarter, the Bank files with the FDIC financial reports entitled Consolidated Reports of Condition and Income for Insured Commercial Banks with Domestic and Foreign Offices, commonly referred to as the Call Reports. The Bank s Call Reports are prepared in accordance with regulatory accounting principles, which may differ from generally accepted accounting principles. The publicly available portions of the Call Reports for the period ending December 31, 2007, and for Call Reports filed by the Bank with the FDIC after the date of this Offering Memorandum may be obtained from the FDIC, Disclosure Group, Room F518, th Street, N.W., Washington, D.C at prescribed rates, or from the FDIC on its Internet site at or by writing to Corporate Secretary s Office, Wells Fargo Center, Sixth and Marquette, MAC N , Minneapolis, MN The obligations of the Bank under its Standby Bond Purchase Agreement will be solely those of the Bank and will not be an obligation of, or otherwise guaranteed by, Wells Fargo & Company, and no assets of Wells Fargo & Company or any affiliate of the Bank or Wells Fargo & Company will be pledged to the payment thereof. Amounts payable by Bank under its Standby Bond Purchase Agreement will not be insured by the FDIC. The information contained in this section, including financial information, relates to and has been obtained from the Bank, and is furnished solely to provide limited introductory information regarding the Bank and does not purport to be comprehensive. Any financial information provided in this section is qualified in its entirety by the detailed information appearing in the Call Reports referenced above. The delivery hereof shall not create any implication that there has been no change in the affairs of the Bank since the date hereof. 39

44 THE FINANCING PLAN The Refinancing All proceeds of the Series 2008A Bonds and the Series 2008B Bonds will be used to refund all of the outstanding Series 2001B Bonds and Series 2007 Bonds, (collectively, the "Bonds To Be Refunded") and to pay costs of issuance of the Series 2008 Bonds. These refundings will be effected as economic, rather than legal, defeasances. Thus, the Bonds To Be Refunded will continue to be "outstanding" until their respective dates of redemption. All of the Bonds To Be Refunded will be redeemed not later than May 2, Estimated Sources and Uses of Funds Set forth below are the estimated costs included in the financing plan and the sources of funds therefor: Sources of Funds Series 2008A Bonds $227,320,000 Series 2008B Bonds 237,500,000 Net Premium 6,391,001 Total Sources $471,211,001 Uses of Funds Refundings $468,682,181 Costs of Issuance (1) 2,528,820 Total Uses $471,211,001 (1) Includes costs for Underwriter's fees, legal, accounting, trustee, printing and other expenses relating to the issuance of the Series 2008 Bonds. 40

45 ESTIMATED DEBT SERVICE REQUIREMENTS The estimated debt service requirements of the Obligated Group on the outstanding portion of the Series 1993A Bonds, the Series 1998 Bonds, Series 2005 Bonds (collectively, the "Prior Outstanding Bonds") and on the Series 2008 Bonds for each year are shown below. The table assumes the Series 1998B Bonds bear interest at 4.055%, the fixed rate of interest Spectrum Health pays under the related swap agreement; and the Series 2007B Bonds bear a fixed interest rate of 3.50% through a purchase date of January 15, 2011 and a rate of 3.857% paid by Spectrum Health under a related swap agreement thereafter. This table also includes credit facility, liquidity facility and remarketing fees associated with variable rate debt. Twelve Months Ending June 30, Combined Debt Service and Fees on the Prior Outstanding Bonds Principal Debt Service on Series 2008 Bonds Interest and Fees Total Debt Service Combined Debt Service and Fees on the Prior Outstanding Bonds and the Series 2008 Bonds 2008 $ 479,417 $ - $ 1,338,926 $ 1,338,926 $ 1,818, ,667,063 1,100,000 17,841,821 18,941,821 35,608, ,670,924 1,200,000 20,708,425 21,908,425 38,579, ,705,518 1,200,000 20,660,247 21,860,247 38,565, ,366,435 1,300,000 20,756,603 22,056,603 37,423, ,635,588 1,300,000 20,543,004 21,843,004 38,478, ,979,033 1,300,000 20,505,135 21,805,135 35,784, ,961,429 1,400,000 20,451,284 21,851,284 35,812, ,953,923 1,400,000 20,391,258 21,791,258 35,745, ,879,026 1,500,000 20,469,217 21,969,217 35,848, ,880,016 1,500,000 20,276,042 21,776,042 35,656, ,953,346 1,600,000 20,214,106 21,814,106 35,767, ,920,995 1,700,000 20,144,517 21,844,517 37,765, ,881,467 1,700,000 20,066,331 21,766,331 37,647, ,761,324 1,800,000 20,010,184 21,810,184 37,571, ,745,912 1,800,000 20,077,195 21,877,195 35,623, ,135,886 7,090,000 19,819,507 26,909,507 35,045, ,042,023 7,180,000 19,451,824 26,631,824 34,673, ,148,655 7,570,000 19,179,719 26,749,719 34,898, ,386,052 9,330,000 18,875,645 28,205,645 34,591, ,344,107 9,860,000 18,611,103 28,471,103 34,815, ,342,945 10,385,000 18,076,826 28,461,826 34,804, ,321,052 10,515,000 17,668,298 28,183,298 34,504, ,283,376 11,180,000 17,232,681 28,412,681 34,696, ,257,493 11,345,000 16,813,727 28,158,727 34,416, ,415,000 16,315,058 34,730,058 34,730, ,720,000 15,570,628 34,290,628 34,290, ,780,000 14,611,378 34,391,378 34,391, ,510,000 13,704,250 34,214,250 34,214, ,085,000 12,758,376 33,843,376 33,843, ,985,000 11,793,228 33,778,228 33,778, ,690,000 10,785,370 33,475,370 33,475, ,610,000 9,789,734 33,399,734 33,399, ,440,000 8,643,441 33,083,441 33,083, ,465,000 7,523,437 32,988,437 32,988, ,300,000 6,351,582 32,651,582 32,651, ,350,000 5,138,494 32,488,494 32,488, ,330,000 3,894,578 32,224,578 32,224, ,380,000 2,570,483 31,950,483 31,950, ,505,000 1,212,864 31,717,864 31,717,864 41

46 BONDHOLDERS' RISKS General The Series 2008B Bonds are limited obligations of the Authority payable solely from payments made pursuant to the Loan Agreements, Note No. 32, Note No. 33 and Note No. 34 (until the 1989 Master Indenture Termination Date), the 2008B Master Indenture Obligations and from certain funds held by the Bond Trustee pursuant to the Bond Indenture. No representation or assurance can be given that Spectrum Health and the other Members of the Credit Group will generate sufficient revenues to meet their respective payment obligations under the Loan Agreements, the 2008B Master Indenture Obligation and Note No. 32, Note No. 33 and Note No. 34. The ability of Spectrum Health and the other Members of the Credit Group to generate such revenues could be adversely affected by future legislation, regulatory actions, economic conditions, increased competition, changes in the demand for services, or other factors. The Underwriter and the Authority have made no independent investigation of the extent to which any such factors may have an adverse impact on the revenues of the Credit Group. The practical realization of any rights upon any default under the Loan Agreements and the Master Indenture will depend upon the exercise of various remedies specified in these instruments, as restricted by federal and state laws. The federal bankruptcy laws may have an adverse effect on the ability of the Bond Trustee and the Holders of the Series 2008 Bonds to enforce their claim to liens granted by the Bond Indentures. The operations of the health care industry and the ownership and organization of individual participants therein, including Spectrum Health and the Credit Group Members, have been subject to increasing scrutiny by federal, state and local governmental agencies. In response to perceived abuses and actual violations of the terms of existing federal, state and local health care payment programs, these agencies have increased their audit and enforcement activities, and federal and state legislation has been considered or enacted providing for or expanding existing civil and criminal penalties against certain activities. In addition, federal, state and local agencies have increased their scrutiny of transactions involving not-for-profit, tax-exempt organizations and are focusing in particular upon limitations on the use of charitable assets and revenues. The Master Indenture contains few limitations or conditions upon transactions involving Credit Group Members. A governmental agency may determine that a transaction may have violated applicable laws and may proceed to enjoin the transaction or impose civil or criminal penalties, notwithstanding the fact that the transaction may have been permitted by the Master Indenture. Violations of these laws may have a material adverse effect on the operations and financial condition of the Credit Group. Certain of the factors that could affect the Series 2008 Bonds and the future financial condition of the Credit Group are described below. This discussion of risk factors is not, and is not intended to be, exhaustive. Nonprofit Healthcare Environment All of the Credit Group Members are nonprofit corporations, exempt from federal income taxation as organizations described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. As nonprofit taxexempt organizations, the Credit Group Members are subject to federal, state and local laws, regulations, rulings and court decisions relating to their organization and operation, including their operation for religious and charitable purposes. At the same time, the Credit Group Members conduct large-scale complex business transactions and are often the major employers in their geographic areas. There can often be a tension between the rules designed to regulate a wide range of charitable organizations and the day-to-day operations of a complex, multi-state healthcare organization. Recently, an increasing number of the operations or practices of healthcare providers have been challenged or questioned to determine if they are consistent with the regulatory requirements for nonprofit tax-exempt organizations. These challenges are broader than concerns about compliance with federal and state statutes and regulations, such as Medicare and Medicaid compliance, and instead in many cases are examinations of core business practices of the healthcare organizations. Areas which have come under examination have included pricing practices, billing and collection practices, charitable care, executive compensation, exemption of property from real 42

47 property taxation, and others. These challenges and questions have come from a variety of sources, including state attorneys general, the Internal Revenue Service, labor unions, Congress, state legislatures, and patients, and in a variety of forums, including hearings, audits and litigation. These challenges are indicative of a greater scrutiny of the billing, collection and other business practices of these organizations, and may indicate an increasingly more difficult operating environment for healthcare organizations, including the Credit Group. The challenges and examinations and any resulting legislation, regulations, judgments, or penalties, could have a material adverse effect on the Credit Group. Security and Enforceability Enforceability of Covenants Under the 1998 Master Indenture In determining whether various covenants and tests contained in the 1998 Master Indenture are met, the accounts of the Credit Group Members will be combined, notwithstanding that Designated Affiliates are not obligated on the 2008 Master Indenture Obligations and that uncertainties exist as to the enforceability of certain obligations of the Credit Group Members contained in the 1998 Master Indenture which bear on the availability of the revenues of the Credit Group Members for payment of amounts due on the 2008 Master Indenture Obligations issued as security for the Series 2008 Bonds. The joint and several obligation described herein of each Obligated Group Member to make payments of debt service on a Master Indenture Obligation, the proceeds of which Master Indenture Obligation were not loaned or otherwise made available to that Obligated Group Member, or the obligation of a Designated Affiliate to transfer funds to the Credit Group Representative for purposes of making payments on Master Indenture Obligations, may not be enforceable to the extent that the payments (i) will be made on a Master Indenture Obligation issued for a purpose that is not consistent with the charitable purposes of the entity from which the payment or transfer is requested or is subject to the application of charitable trust principles or state laws, regulations, policies or procedures which may vary from jurisdiction to jurisdiction; (ii) will be made from any property that is donor restricted or that is subject to a direct or express trust that does not permit the use of the property for payments; (iii) would result in the cessation or discontinuation of any material portion of the health care or related services previously provided by the entity from which payment or transfer is requested; or (iv) will be made pursuant to any loan violating applicable usury laws. Due to the absence of clear legal precedent in this area, the extent to which the property of any Obligated Group Member or Designated Affiliate may be applied or transferred as described above cannot be determined and could be substantial. A Credit Group Member, including an Obligated Group Member, may not be required to make payments on a Master Indenture Obligation or transfers for the purpose of making payment on a Master Indenture Obligation to the extent issued by or for the benefit of another Credit Group Member to the extent that any payment or transfer would render the paying or transferring Credit Group Member insolvent or would conflict with, not be permitted by or would be subject to recovery for the benefit of other creditors of the Credit Group Member under applicable fraudulent conveyance, bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors rights. There is no clear precedent in the law as to whether payments by any Obligated Group Member on a Obligation or transfers by Designated Affiliates of funds for the purpose of making payments on a Obligation issued by or for the benefit of another Credit Group Member or other person may be avoided by a trustee in bankruptcy in the event of a bankruptcy of the Obligated Group Member or Designated Affiliate or by third party creditors in an action brought pursuant to fraudulent conveyances statutes of the states in which the Obligated Group Member or Designated Affiliate is incorporated or doing business. Under the United States Bankruptcy Code, a trustee in bankruptcy and, under fraudulent conveyances statutes of the states in which the Credit Group Members are incorporated or doing business, a creditor of a guarantor may avoid any obligation incurred by a guarantor, if, among other bases therefor, (i) the guarantor has not received fair consideration or reasonably equivalent value in exchange for the guaranty, and (ii) the guaranty renders the guarantor insolvent, as defined in the United States Bankruptcy Code or fraudulent conveyances statutes of the applicable states, or the guarantor is undercapitalized. Application by courts of the tests of insolvency, reasonably equivalent value and fair consideration has resulted in a conflicting body of case law. It is possible that, in an action to force any Obligated Group Member to pay debt service on a Master Indenture Obligation issued by or for the benefit of another entity, a court might not enforce the obligation in the event it is determined that the paying entity is analogous to a guarantor and that fair 43

48 consideration or reasonably equivalent value for the guaranty was not received and that the incurrence of the obligation has rendered and will render the paying entity insolvent or the paying entity is or will thereby become undercapitalized. There exists, in addition to the foregoing, common law authority and authority under various state statutes pursuant to which courts may terminate the existence of a not-for-profit corporation or undertake supervision of its affairs on various grounds, including a finding that the corporation has insufficient assets to carry out its stated charitable purposes or has taken some action which renders it unable to carry out its purposes. Such court action may arise on the court s own motion or pursuant to a petition of the Attorney General of a particular state or other persons who have interests different from those of the general public, pursuant to the common law and statutory power to enforce charitable trusts and to see to the application of their funds to their intended charitable uses. Unsecured Creditors; Facilities Neither Spectrum Health nor any other Credit Group Members have pledged their facilities or revenues as security for the Series 2008 Bonds or the Series 2008B Master Indenture Obligations. Therefore, in the event of a default and acceleration of the Series 2008 Bonds, the Bond Trustee or Master Trustee, as applicable, would be an unsecured creditor with no rights to any revenues or facilities of Spectrum Health or other Credit Group Members. In addition, a substantial portion of these facilities do not comprise general purpose buildings and generally would not be suitable for industrial or commercial use. Consequently, it could be difficult to find a buyer or lessee for these facilities, and, upon a default, the Bond Trustee or the Master Trustee may not obtain an amount equal to the aggregate liabilities of the Credit Group (including liabilities in respect of the defaulted Series 2008 Bonds then outstanding) from the sale or lease of these facilities, whether pursuant to a judgment against any Obligated Group Member or otherwise. Amendments to Master Indenture, Bond Indentures and Loan Agreements Certain amendments to the Master Indenture may be made with the consent of the holders of not less than a majority of the principal amount of outstanding Master Indenture Obligations. These amendments may adversely affect the security of the Holders of the Series 2008B Bonds, and a majority may be composed wholly or partially of the holders of Master Indenture Obligations other than the 2008B Master Indenture Obligations. Certain amendments to the Bond Indentures and the Loan Agreements may be made with the consent of the Holders of not less than a majority of the outstanding principal amount of the Series 2008B Bonds outstanding under the Bond Indentures. Such amendments may adversely affect the security of the Holders of the Series of the Series 2008 Bonds. Availability of Remedies The remedies available to the Bond Trustee, the Master Trustee, the Authority and the Holders of the Series 2008B Bonds upon an event of default under the Bond Indentures, the Master Indenture, the Loan Agreements and the 2008B Master Indenture Obligations are in many respects dependent upon judicial actions which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including, specifically, the United States Bankruptcy Code, the remedies provided in the Bond Indentures, the Master Indenture, the Loan Agreements and the 2008 Master Indenture Obligations may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Series 2008 Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by general principles of equity and by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and laws relating to fraudulent conveyances. Bankruptcy In the event of bankruptcy of an Obligated Group Member, the rights and remedies of the Holders of the Series 2008 Bonds are subject to various provisions of the United States Bankruptcy Code. If an Obligated Group Member were to commence a proceeding in bankruptcy, payments made by that Obligated Group Member during the 90-day (or, in some circumstances, one-year) period immediately preceding the commencement may be avoided 44

49 as preferential transfers to the extent payments allow the recipients thereof to receive more than they would have received in the event of the Obligated Group Member s liquidation and the other requirements set forth in Section 547(b) of the United States Bankruptcy Code have been met. Security interests and other liens granted to or perfected by a Bond Trustee or the Master Trustee during the preference period may also be avoided as preferential transfers to the extent the security interest or other lien secures obligations that arose prior to the date of the grant or perfection. Such a bankruptcy filing would result in the imposition of an automatic stay of the commencement or continuation of any judicial or other proceeding against the Obligated Group Member and its property, and as an automatic stay of any act or proceeding to enforce a lien upon or to otherwise exercise control over its property as well as various other actions to enforce, maintain or enhance the rights of the Bond Trustee and the Master Trustee. If the bankruptcy court so ordered, the property of the Obligated Group Member could be used for the reorganization of the Obligated Group Member despite any security interest of the Bond Trustee therein. The rights of the Bond Trustee and the Master Trustee to enforce their respective interests and other liens could be delayed or altered during the pendency of the reorganization. Such Obligated Group Member could file a plan for the adjustment of its debts in any bankruptcy proceeding which could include provisions modifying or altering the rights of creditors generally, or any class of them, secured or unsecured. The plan, when confirmed by a court, would bind all creditors who had notice or knowledge of the plan and, with certain exceptions, discharges all claims against the debtor to the extent provided for in the plan. No plan may be confirmed unless certain conditions are met, among which are conditions that the plan be feasible and that it shall either have been accepted by each class of claims impaired thereunder or, if the plan is not so accepted, the court shall have determined that the plan is fair and equitable with respect to each class of nonaccepting creditors impaired thereunder and does not discriminate unfairly. A class of claims has accepted the plan if at least two-thirds in dollar amount and more than one-half in number of the class cast votes in its favor. In addition, the bankruptcy of a health plan or physician group that is a party to a significant managed care arrangement with one or more of the Credit Group Members could have material adverse effects on the Credit Group Member or Credit Group Members. In the event of bankruptcy or insolvency of an Obligated Group Member, there is no assurance that certain covenants, including tax covenants, contained in the Bond Indentures, the Loan Agreements or Master Indenture and certain other documents would survive. Accordingly, a debtor or bankruptcy trustee could take action that would adversely affect the exclusion of interest on the Series 2008 Bonds from gross income of the Bondholders for federal income tax purposes. The bankruptcy of a Designated Affiliate would not trigger an event of default under the Master Indenture, the Bond Indenture or the Loan Agreement, but the bankruptcy of a Designated Affiliate could have a material adverse effect on the Credit Group. If a Designated Affiliate were to file for bankruptcy and had no contractual obligation to make payments to the Credit Group Representative, neither Spectrum Health, the Controlling Member of the Designated Affiliate nor the Master Trustee would be able to file a claim in a bankruptcy proceeding involving the Designated Affiliate for the payment of any amounts due on the Master Indenture Obligations. In addition, in the event a Designated Affiliate s Controlling Member were to become a debtor in a bankruptcy case, Spectrum Health or the other Controlling Member, as debtor-in-possession, or a trustee in bankruptcy, may not be able to cause the Designated Affiliate to transfer funds to the Credit Group Representative or the trustee in bankruptcy. Federal and State Legislation and Other Actions Spectrum Health and the Credit Group Members are each subject to federal and state regulatory actions, legislative and policy changes by those governmental and private agencies that administer Medicare and Medicaid programs and by other third-party payors, and actions by, among others, the National Labor Relations Board, the Joint Commission on Accreditation of Healthcare Organizations, the Federal Trade Commission, the Internal Revenue Service and the Office of the Inspector General ("OIG") of the Department of Health and Human Services ("HHS"), the office of the U.S. Attorney, the Department of Justice, and other federal, state, and local government agencies. 45

50 During the past several years, substantial changes have occurred in the national health care delivery, reimbursement and insurance systems. In addition, wide variations of bills and regulations proposing to regulate, control, or alter the method of financing health care costs are often proposed and introduced in state legislatures and by regulatory agencies. Because of the many possible financial effects that could result from enactment of any bills or regulatory actions proposing to regulate the health care industry, it is not possible at this time to predict with assurance the effect, if any, on the businesses and financial results of Spectrum Health or the Credit Group Members of such bills or regulatory actions; however, the factors discussed below could have a negative impact and such effect could be material. The President signed the Deficit Reduction Act of 2007 (the "Deficit Reduction Act") on February 8, The Deficit Reduction Act contained numerous reductions in reimbursement to healthcare providers, such as the Credit Group Members, through the Medicare and Medicaid programs. While some of those reductions have already occurred, others may still occur. Accordingly, the impact of the Deficit Reduction Act on the revenues of the Hospital is not yet known, but could be significant. The President's proposed budget includes further reductions in reimbursement to healthcare providers through the Medicare and Medicaid programs; however, the likelihood of their implementation is uncertain. Patient Service Revenues Net patient revenues realized by the Credit Group are derived from a variety of sources and will vary among the individual facilities owned and operated by the Credit Group Members and also among the various market areas and regions in which the facilities are located. Certain facilities and regions may realize substantially more revenues from private payment programs, such as managed care organizations, than do others. A substantial portion of the net patient service revenues of the Credit Group is derived from third-party payors which pay for the services provided to patients covered by third parties for services. These third-party payors include the federal Medicare program, state Medicaid programs and private health plans and insurers, including health maintenance organizations and preferred provider organizations. Many of those programs make payments to Members of the Credit Group in amounts that may not reflect the direct and indirect costs of the Members of providing services to patients. The financial performance of the Credit Group has been and could be in the future adversely affected by the financial position or the insolvency or bankruptcy of or other delay in receipt of payments from third-party payors that provide coverage for services to their patients. Medicare and Medicaid Programs Approximately 32% and 18% of the gross patient service revenue of Spectrum Health Hospitals for the six month period ended December 31, 2007 were derived from the Medicare program and Medicaid programs, respectively. See the information in APPENDIX A under the caption, FINANCIAL INFORMATION Sources of Revenue. Medicare and Medicaid are the commonly used names for reimbursement or payment programs governed by certain provisions of the federal Social Security Act. Medicare is an exclusively federal program, and Medicaid is a combined federal and state program. Medicare provides certain health care benefits to beneficiaries who are 65 years of age or older, blind, disabled or qualify for the End Stage Renal Disease Program. Medicare Part A covers inpatient hospital services, skilled nursing care and some home health care, and Medicare Part B covers physician services and some supplies. Medicaid is designed to pay providers for care given to the medically indigent and others who receive federal aid. Medicaid is funded by federal and state appropriations and administered by the various states. Medicare Medicare is a federal governmental health insurance system under which physicians, hospitals and other health care providers are reimbursed or paid directly for services provided to eligible elderly and disabled persons. Medicare is administered by the Centers for Medicare and Medicaid Services, or CMS, of the federal Department of Health and Human Services. In order to achieve and maintain Medicare certification, a health care provider must 46

51 meet CMS s Conditions of Participation on an ongoing basis, as determined by the state in which the provider is located and/or the Joint Commission for Accreditation of Healthcare Organizations, or JCAHO. The Credit Group depends significantly on Medicare as a source of revenue. Because of this dependence, changes in the Medicare program may have a material effect on the Credit Group. For example, Medicare program changes resulting from the Balanced Budget Act of 1997, as subsequently amended and modified, have limited increases in Medicare payments that were otherwise provided by law, and/or reduced Medicare payment or reimbursement for certain health care services provided to Medicare beneficiaries. The Balanced Budget Act of 1997 has had and will continue to have a significant negative effect on acute care hospitals and other Medicare providers. Future reductions in Medicare reimbursement, or increases in Medicare reimbursement in amounts less than increases in the costs of providing care, may have a material adverse financial effect on the Credit Group. A substantial portion of the Medicare revenues of the Credit Group is derived from payments made for services rendered to Medicare beneficiaries under a prospective payment system, or PPS. Under a prospective payment system, the amount paid to the provider for an episode of care is established by federal regulation and is not related to the provider s charges or costs of providing that care. Presently, inpatient and outpatient services, skilled nursing care, and home health care are paid on the basis of a prospective payment system. Under inpatient PPS, fixed payment amounts per inpatient discharge are established based on the patient s assigned diagnosis related group, or DRG. DRGs classify treatments for illnesses according to the estimated intensity of hospital resources necessary to furnish care for each principal diagnosis. All services paid under the PPS for hospital outpatient services are classified into groups called ambulatory payment classifications, or APCs. Services in each APC are similar clinically and in terms of the resources they require. A payment rate is established for each APC. The capital component of care is paid on a fully prospective basis. PPS-exempt hospitals and units (inpatient psychiatric, rehabilitation and long-term hospital services) are currently reimbursed under prospective payment systems ("PPS") separate from the PPS/DRG system used for general acute care hospitals and units. However, these exempt hospital/unit PPS payment methodologies are similar in that they utilize nationally determined payment rates (per discharge for rehabilitation and long-term care, per diem for psychiatric). These national rates are then generally subject to patient and/or facility specific adjustments for such factors as: case mix, regional wage or cost differences, medical education, disproportionate share, and outliers. The types of adjustments vary for each of the exempt PPS programs. From time to time, the factors used in calculating the prospective payments for units of service are modified by CMS, which may reduce revenues for particular services. Additionally, as part of the federal budgetary process, Congress has regularly amended the Medicare law to reduce increases in payments that are otherwise scheduled to occur, or to provide for reductions in payments for particular services. These actions have adversely affected the revenues of the Credit Group. Additional payments may be made to individual providers. Hospitals that treat a disproportionately large number of low-income patients (Medicaid and Medicare patients eligible to receive supplemental Social Security income) currently receive additional payments in the form of disproportionate share payments. Additional payments are made to hospitals that treat patients who are costlier to treat than the average patient; these additional payments are referred to as outlier payments. Hospitals are paid for a portion of their direct and indirect medical education costs. These additional payments are also subject to reductions and modifications in otherwise scheduled increases as a result of amendments to relevant statutory provisions. The costs of providing a unit of care may exceed the revenues realized from Medicare for providing that service. Additionally, the aggregate costs to a provider of providing care to Medicare beneficiaries may exceed aggregate Medicare revenues received during the relevant fiscal period. Medicaid Medicaid is a health insurance program for certain low-income and needy individuals that is jointly funded by the federal government and the states. Pursuant to broad federal guidelines, each state establishes its own eligibility standards; determines the type, amount, duration, and scope of services; sets the payment rates for services; and administers its own programs. 47

52 Under the Medicaid program, the federal government supplements funds provided by the various states for medical assistance to the medically indigent. Payment for medical and health services is made to providers in amounts determined in accordance with procedures and standards established by state law under federal guidelines. Fiscal considerations of both federal and state governments in establishing their budgets will directly affect the funds available to the providers for payment of services rendered to Medicaid beneficiaries. Private Health Plans and Managed Care Managed care plans have historically used discounts and other economic incentives to reduce or limit the cost and utilization of health care services. Defined broadly, for the six month period ended December 31, 2007, private health insurance and managed care payments constituted approximately 46% of the gross patient service revenues of Spectrum Health Hospitals. There is no assurance that the members of the Credit Group will maintain managed care contracts or obtain other similar contracts in the future. Failure to maintain contracts could have the effect of reducing the market share of a member of the Credit Group and the Credit Group s net patient services revenues. Conversely, participation may maintain or increase the patient base but could result in lower net income or operating losses to the Credit Group if the members are unable to adequately contain their costs. Many preferred provider organizations, or PPOs, and health maintenance organizations, or HMOs, currently pay providers on a negotiated fee-for-service basis or on a fixed rate per day of care, which, in each case, usually is discounted from the typical charges for the care provided. The discounts offered to HMOs and PPOs may result in payment to a provider that is less than its actual cost. Additionally, the volume of patients directed to a hospital may vary significantly from projections, and/or changes in the utilization of certain services offered by the provider may be dramatic and unexpected, thus further jeopardizing the provider s ability to contain costs. Some HMOs employ a capitation payment method under which hospitals are paid a predetermined periodic rate for each enrollee in the HMO who is assigned or otherwise directed to receive care at a particular hospital. In a capitation payment system, the hospital assumes a financial risk for the cost and scope of care given to the HMO s enrollees. In some cases, the capitated payment covers total hospital patient care provided. However, if payment under an HMO or PPO contract is insufficient to meet the hospital s costs of care or if utilization by enrollees materially exceeds projections, the financial condition of the hospital could erode rapidly and significantly. As a consequence of the above factors, the effect of managed care on the Credit Group s financial condition is difficult to predict and may be different in the future than the financial statements for the current periods reflect. Regulatory Environment Licensing, Surveys, Investigations and Audits Health facilities, including those of the Credit Group, are subject to numerous legal, regulatory, professional and private licensing, certification and accreditation requirements. These include, but are not limited to, requirements relating to Medicare Conditions of Participation, requirements for participation in Medicaid, state licensing agencies, private payors and the accreditation standards of JCAHO. Renewal and continuation of certain of these licenses, certifications and accreditations are based on inspections, surveys, audits, investigations or other reviews, some of which may require affirmative actions by a member of the Credit Group. Spectrum Health management currently anticipates no difficulty renewing or continuing currently held licenses, certifications or accreditations, nor does management anticipate a reduction in third-party payments from events that would materially adversely affect the operations or financial condition of the Credit Group. Nevertheless, actions in any of these areas could result in the loss of utilization or revenues, or the ability of a member of the Credit Group to operate all or a portion of its health care facilities, and consequently, could have a material and adverse effect on the Credit Group. 48

53 Civil and Criminal Fraud and Abuse Laws and Enforcement Federal and state health care fraud and abuse laws regulate both the provision of services to government program beneficiaries and the methods and requirements for submitting claims for services rendered to beneficiaries. Under these laws, individuals and organizations can be penalized for submitting claims for services that are not provided, billed in a manner other than as actually provided, not medically necessary, provided by an improper person, accompanied by an illegal inducement to utilize or refrain from utilizing a service or product, or billed in a manner that does not otherwise comply with applicable government requirements. Federal and state governments have a range of criminal, civil and administrative sanctions available to penalize and remediate healthcare fraud and abuse, including exclusion of the provider from participation in the Medicare/Medicaid programs, fines, civil monetary penalties, and suspension of payments and, in the case of individuals, imprisonment. Fraud and abuse may be prosecuted by one or more government entities and/or private individuals, and more than one of the available penalties may be imposed for each violation. Laws governing fraud and abuse apply to all individuals and healthcare enterprises with which a hospital does business, including other hospitals, home health agencies, long term care entities, infusion providers, pharmaceutical providers, insurers, health maintenance organizations, preferred provider organizations, third party administrators, physicians, physician groups, and physician practice management companies. Fraud and abuse prosecutions can have a catastrophic effect on a provider and potentially a material adverse impact on the financial condition of other entities in the healthcare delivery system of which that entity is a part. Based upon the prohibited activity in which the provider has engaged, governmental agencies and officials may bring actions against providers under civil or criminal False Claims Acts, statutes prohibiting referrals for compensation or fee-splitting, or the Stark law, which prohibits certain referrals by a physician to certain organizations with which the physician has a financial relationship. The civil and criminal monetary assessments and penalties may be substantial. Additionally, the provider may be denied participation in the Medicare and/or Medicaid programs. If and to the extent any member of the Credit Group engaged in a prohibited activity and judicial or administrative proceedings concluded adversely to the member, the outcome could materially affect the Credit Group. The members of the Credit Group have internal policies and procedures and have developed and implemented a compliance program that management believes will effectively reduce exposure for violations of these laws. However, because the government s enforcement efforts presently are widespread within the industry and may vary from region to region, there can be no assurance that the compliance program will significantly reduce or eliminate the exposure of the Credit Group to civil or criminal sanctions or adverse administrative determinations. Review of Outlier Payments CMS has recently announced that it intends to review health care providers that are receiving large proportions of their Medicare revenues from outlier payments. Health care providers found to have obtained inappropriately high outlier payments will be subject to further investigation by the CMS Program Integrity Unit and potentially the Office of Inspector General. Management of Spectrum Health does not believe that any potential review of the Credit Group Members would materially adversely affect the Credit Group s results of operations. Patient Records and Patient Confidentiality The Health Insurance Portability and Accountability Act of 1996 ( HIPAA ) addresses the confidentiality of individuals health information. The use and disclosure of certain broadly defined protected health information is prohibited unless expressly permitted under the provisions of the HIPAA statute and regulations or authorized by the patient. HIPAA s confidentiality provisions extend not only to patient medical records, but also to a wide variety of health care clinical and financial settings where patient privacy restrictions often impose new communication, operational, accounting and billing restrictions. These add costs and create potentially unanticipated sources of legal liability. 49

54 HIPAA imposes civil monetary penalties for violations and criminal penalties for knowingly obtaining or using individually identifiable health information. The civil monetary penalties are $100 per violation, up to $25,000 per HIPAA standard violated. The criminal penalties range from $50,000 to $250,000 in fines and/or imprisonment if the information was obtained or used with the intent to sell, transfer or use the information for commercial advantage, personal gain or malicious harm. Patient Transfers The Emergency Medical Treatment and Active Labor Act ("EMTALA") is a federal anti-dumping statute imposes certain requirements that must be met before transferring a patient to another facility. Failure to comply with EMTALA can result in exclusion from the Medicare and/or Medicaid programs as well as civil and criminal penalties. Failure of any Member of the Credit Group to meet its responsibilities under EMTALA could adversely affect the financial conditions of that Member. Environmental Laws and Regulations The Credit Group s health care operations generate medical waste that must be disposed of in compliance with federal, state and local environmental laws, rules and regulations. The Credit Group s operations, as well as the Credit Group s purchases and sales of facilities, also are subject to compliance with various other environmental laws, rules and regulations. The Credit Group anticipates that compliance will not materially affect the Credit Group s business, financial condition or results of operations. Management is not aware of any pending or threatened claim, investigation or enforcement action regarding environmental issues or any instance of contamination that, if determined adversely to a member of the Credit Group, would have material adverse consequences to the Credit Group. Certain Business Transactions Physician Relations The primary relationship between a hospital and physicians who practice in it is through the hospital s organized medical staff. Medical staff bylaws, rules and policies establish the criteria and procedures by which a physician may have his or her privileges or membership curtailed, denied or revoked. Physicians who are denied medical staff membership or certain clinical privileges, or who have membership or privileges curtailed, denied or revoked often file legal actions against hospitals. Such action may include a wide variety of claims, some of which could result in substantial uninsured damages to a hospital. In addition, failure of the hospital governing body to adequately oversee the conduct of the medical staff may result in hospital liability to third parties. All hospitals, including those owned and operated by the members of the Credit Group, are subject to such risk. Physician Contracting The members of the Credit Group may contract with physician organizations (such as independent physician associations and physician-hospital organizations) to arrange for the provision of physician and ancillary services. Because physician organizations are separate legal entities with their own goals, obligations to shareholders, financial status, and personnel, there are risks involved in contracting with the physician organizations. The success of the Credit Group will be partially dependent upon its ability to attract physicians to join the physician organizations and to participate in their networks, and upon the ability of the physicians, including the employed physicians, to perform their obligations and deliver high quality patient care in a cost-effective manner. There can be no assurance that the members of the Credit Group will be able to attract and retain the requisite number of physicians, or that physicians will deliver high quality health care services. Without paneling a sufficient number and type of providers, the Credit Group could fail to be competitive, could fail to keep or attract payor contracts, or could be prohibited from operating until its panel provided adequate access to patients. Such occurrences could have a material adverse effect on the business or operations of the Credit Group. 50

55 Affiliations, Merger, Acquisition and Divestiture The members of the Credit Group evaluate and pursue potential acquisition, merger and affiliation candidates as part of the overall strategic planning and development process. As part of its ongoing planning and property management functions, the Credit Group reviews the use, compatibility and business viability of many of the operations of the members, and from time to time the members may pursue changes in the use of, or disposition of, their facilities. Likewise, members of the Credit Group occasionally receive offers from, or conduct discussions with, third parties about the potential acquisition of operations and properties which may become subsidiaries or Affiliates of members of the Credit Group in the future, or about the potential sale of some of the operations or property which are currently conducted or owned by the members. Discussion with respect to affiliation, merger, acquisition, disposition or change of use of facilities, including those which may affect the members, are held from time to time with other parties. These may be conducted with acute care hospital facilities and may be related to potential affiliation with a member of the Credit Group. As a result, it is possible that the current organization and assets of the members may change from time to time. In addition to relationships with other hospitals and physicians, the members of the Credit Group may consider investments, ventures, affiliations, development and acquisition of other health care-related entities. These may include home health care, long-term care entities or operations, infusion providers, pharmaceutical providers, and other health care enterprises that support the overall operations of the members of the Credit Group. In addition, the members of the Credit Group may pursue transactions with health insurers, HMOs, preferred provider organizations, third-party administrators and other health insurance-related businesses. Because of the integration occurring throughout the health care field, management will consider these arrangements if there is a perceived strategic or operational benefit for the Credit Group. Any initiative may involve significant capital commitments and/or capital or operating risk (including, potentially, insurance risk) in a business in which the members of the Credit Group may have less expertise than in hospital operations. There can be no assurance that these projects, if pursued, will not lead to material adverse consequences to the Credit Group. Antitrust Enforcement of antitrust laws against health care providers is becoming more common, and antitrust liability may arise in a wide variety of circumstances, including medical staff privilege disputes, third party contracting, physician relations, and joint venture, merger, affiliation and acquisition activities. While the application of federal and state antitrust laws to health care is still evolving, enforcement activities by federal and state agencies appear to be increasing. Violators of antitrust laws could be subject to criminal and civil liability by both federal and state agencies, as well as by private litigants. Tax Matters Tax Exemption for Not-For-Profit Corporations Loss of tax-exempt status by a Credit Group Member could result in loss of tax exemption of the Series 2008B Bonds and of other tax-exempt debt issued for the benefit of Spectrum Health or the Credit Group Members, and defaults in covenants regarding the Series 2008B Bonds and other related tax-exempt debt would likely be triggered. Such an event would have material adverse consequences on the financial condition of the Credit Group. Management of Spectrum Health is not aware of any transactions or activities currently ongoing that are likely to result in the revocation of the tax-exempt status of any Credit Group Member. The maintenance by each Credit Group Member of its status as an organization described in Section 501(c)(3) of the Code is contingent upon compliance with general rules promulgated in the Code and related regulations regarding the organization and operation of tax-exempt entities, including their operation for charitable and educational purposes and their avoidance of transactions that may cause their assets to inure to the benefit of private individuals. The Internal Revenue Service has announced that it intends to closely scrutinize transactions between not-for-profit corporations and for-profit entities, and in particular has issued audit guidelines for taxexempt hospitals. Although specific activities of hospitals, such as medical office building leases and compensation arrangements and other contracts with physicians, have been the subject of interpretations by the Internal Revenue Service in the form of Private Letter Rulings, many activities have not been addressed in any official opinion, 51

56 interpretation or policy of the Internal Revenue Service. Because the Credit Group Members conduct large-scale and diverse operations involving private parties, there can be no assurances that certain of their transactions would not be challenged by the Internal Revenue Service. The Internal Revenue Service has taken the position that hospitals which are in violation of the Anti- Kickback Law may also be subject to revocation of their tax-exempt status. See the information herein under the caption, BONDHOLDERS RISKS Regulatory Environment Civil and Criminal Fraud and Abuse Laws and Enforcement. As a result, tax-exempt hospitals, such as those of the Credit Group Members, which have, and will continue to have, extensive transactions with physicians are subject to an increased degree of scrutiny and perhaps enforcement by the Internal Revenue Service. The Taxpayers Bill of Rights 2, referred to for purposes of this Official Statement as the Intermediate Sanctions Law, allows the Internal Revenue Service to impose intermediate sanctions against certain individuals in circumstances involving the violation by tax-exempt organizations of the prohibition against private inurement. Prior to the enactment of the Intermediate Sanctions Law, the only sanction available to the Internal Revenue Service was revocation of an organization s tax-exempt status. Intermediate sanctions may be imposed in situations in which a disqualified person (such as an insider ) (i) engages in a transaction with a tax-exempt organization on other than a fair market value basis, (ii) receives unreasonable compensation from a tax-exempt organization or (iii) receives payment in an arrangement that violates the prohibition against private inurement. These transactions are referred to as excess benefit transactions. A disqualified person who benefits from an excess benefit transaction will be subject to an excise tax equal to 25% of the amount of the excess benefit. Organizational managers who participate in the excess benefit transaction knowing it to be improper are subject to an excise tax equal to 10% of the amount of the excess benefit, subject to a maximum penalty of $10,000. A second penalty, in the amount of 200% of the excess benefit, may be imposed on the disqualified person (but not upon the organizational manager) if the excess benefit is not corrected within a specified period of time. In certain cases, the IRS has imposed substantial monetary penalties and future charity care or public benefit obligations on tax-exempt hospitals in lieu of revoking their tax-exempt status, as well as requiring that certain transactions be altered, terminated or avoided in the future and/or requiring governance or management changes. These penalties and obligations are typically imposed on the tax-exempt hospital pursuant to a closing agreement with respect to the hospital s alleged violation of Section 501(c)(3) exemption requirements. Given the size of the Credit Group, the wide range of complex transactions entered into by the Credit Group Members and Spectrum Health, and uncertainty regarding how tax-exemption requirements may be applied by the IRS, Members are, and will be, at risk for incurring monetary and other liabilities imposed by the IRS through this closing agreement or similar process. Like certain of the other business and legal risks described herein which apply to large multi-hospital systems, these liabilities are probable from time to time and could be substantial, in some cases involving millions of dollars, and in extreme cases could be materially adverse. Bills have been introduced in Congress that would require a tax-exempt hospital to provide a certain amount of charity care and care to Medicare and Medicaid patients in order to maintain its tax-exempt status and avoid the imposition of an excise tax. Other legislation would have conditioned a hospital s tax-exempt status on the delivery of adequate levels of charity care. Congress has not enacted such bills. However, there can be no assurance that similar legislative proposals or judicial actions will not be adopted in the future. In recent years, the IRS and state, county and local taxing authorities have been undertaking audits and reviews of the operations of tax-exempt hospitals with respect to their exempt activities and the generation of unrelated business taxable income. Spectrum Health and the Credit Group Members participate in activities that may generate unrelated business taxable income. Management of Spectrum Health believes it and the Credit Group Members have properly accounted for and reported unrelated business taxable income; nevertheless, an investigation or audit could lead to a challenge which could result in taxes, interest and penalties with respect to unreported unrelated business taxable income and in some cases could ultimately affect the tax-exempt status of a Credit Group Member as well as the exclusion from gross income for federal income tax purposes of the interest payable on the Series 2008B Bonds and other tax-exempt debt of Spectrum Health and the Credit Group Members. In addition, legislation, if any, which may be adopted at the federal, state and local levels with respect to unrelated business income cannot be predicted. Any legislation could have the effect of subjecting a portion of the income of Spectrum Health or the Credit Group Members to federal or state income taxes. 52

57 In 1990, the Employee Plans and Exempt Organizations Division of the IRS expanded the Coordinated Examination Program ( CEP ) of the IRS to tax-exempt health care organizations. CEP audits are conducted by teams of revenue agents. The CEP audit teams consider a wide range of possible issues, including the community benefit standard, private inurement and private benefit, partnerships and joint ventures, retirement plans and employee benefits, employment taxes, tax-exempt bond financing, political contributions and unrelated business income. Credit Group Members most likely will be audited from time to time by the IRS. Management believes that it has properly complied with the tax laws. Nevertheless, because of the complexity of the tax laws and the presence of issues about which reasonable persons can differ, a CEP audit could result in additional taxes, interest and penalties. A CEP audit could ultimately affect the tax-exempt status of a Credit Group Member as well as the exclusion from gross income for federal income tax purposes of the interest payable with respect to the Series 2008B Bonds and other tax-exempt debt of the Credit Group Members. In addition to the foregoing proposals with respect to income by not-for-profit corporations, various state and local governmental bodies have challenged the tax-exempt status of not-for-profit institutions and have sought to remove the exemption of property from real estate taxes of part or all of the property of various not-for-profit institutions on the grounds that a portion of its property was not being used to further the charitable purposes of the institutions or that the institutions did not provide sufficient care to indigent persons so as to warrant exemption from taxation as a charitable institution. Several of these disputes have been determined in favor of the taxing authorities or have resulted in settlements. It is not possible to predict the scope or effect of future legislative or regulatory actions with respect to taxation of not-for-profit corporations. There can be no assurance that future changes in the laws and regulations of federal, state or local governments will not materially adversely affect the operations and financial condition of Spectrum Health or the Credit Group Members by requiring any of them to pay income or local property taxes. Bond Audits Internal Revenue Service officials have recently indicated that more resources will be invested in audits of tax-exempt bonds in the charitable organization sector. The Series 2008B Bonds may be, from time to time, subject to audits by the IRS. Spectrum Health believes that the Series 2008B Bonds properly comply with the tax laws. In addition, Bond Counsel will render an opinion with respect to the tax-exempt status of the Series 2008B Bonds, as described under the caption, TAX MATTERS. No ruling with respect to the tax-exempt status of the Series 2008B Bonds has been or will be sought from the IRS, however, and opinions of counsel are not binding on the IRS or the courts. There can be no assurance that an audit of the Series 2008B Bonds will not adversely affect the Series 2008B Bonds. Other Risks Indigent Care Tax-exempt hospitals often treat large numbers of indigent patients who, for various reasons, are unable to pay for their medical care. Typically, urban, inner-city hospitals, including hospitals owned by certain Credit Group Members, may treat significant numbers of indigents. These hospitals may be susceptible to economic and political changes which could increase the number of indigent persons or the responsibility for caring for this population. General economic conditions which affect the number of employed individuals who have health insurance coverage will similarly affect the ability of patients to pay for their care. Similarly, changes in governmental policy, which may result in coverage exclusions under local, state and federal healthcare programs (including Medicare and Medicaid) may increase the frequency and severity of indigent treatment in such hospitals. It is also possible that future legislation could require that tax-exempt hospitals maintain minimum levels of indigent care as a condition to federal income tax exemption or local property tax exemption. In sum, indigent care commitments of the Credit Group Members could constitute a material and adverse financial risk in the future. 53

58 Bond Ratings There is no assurance that the ratings assigned to the Series 2008B Bonds will not be lowered or withdrawn at any time, the effect of which could adversely affect the market price for and marketability of the Series 2008B Bonds. See the information herein under the caption, RATINGS. Other Risk Factors Generally Affecting Health Care Facilities In the future, the following factors, among others, may adversely affect the operations of health care providers, including the Credit Group Members or the market value of the Series 2007 Bonds, to an extent that cannot be determined at this time: 1. Hospitals are major employers, combining a complex mix of professional, quasi-professional, technical, clerical, housekeeping, maintenance, dietary and other types of workers in a single operation. As with all large employers, Spectrum Health and the Credit Group Members bear a wide variety of risks in connection with their employees. These risks include strikes and other related work actions, contract disputes, discrimination claims, personal tort actions, work-related injuries, exposure to hazardous materials, interpersonal torts (such as between employees, between physicians or management and employees, or between employees and patients), and other risks that may flow from the relationships between employer and employee or between physicians, patients and employees. Many of these risks are not covered by insurance, and certain of them cannot be anticipated or prevented in advance. Spectrum Health and the Credit Group Members are subject to all of the risks listed above, and such risks, alone or in combination, could have material adverse consequences to the financial condition or operations of Spectrum Health and the Credit Group. 2. Competition from other hospitals and other competitive facilities now or hereafter located in the respective service areas of the facilities operated by Spectrum Health and the Credit Group Members may adversely affect revenues of Spectrum Health and the Credit Group. Development of health maintenance and other alternative health delivery programs could result in decreased usage of inpatient hospital facilities and other facilities operated by Spectrum Health and the Credit Group Members. 3. Cost and availability of any insurance, including self-insurance, such as malpractice, fire, automobile, and general comprehensive liability, that hospitals and other health care facilities of similar size and type as Spectrum Health and the Credit Group Members generally carry may adversely affect revenues. The costs of such insurance have increased significantly in the past few years, and such increases are likely to continue in the near future. 4. The occurrences of natural disasters may damage some or all of the facilities, interrupt utility service to some or all of the facilities or otherwise impair the operation of some or all of the facilities operated by Spectrum Health and the Credit Group Members or the generation of revenues from some or all of the facilities. 5. Scientific and technological advances, new procedures, drugs and appliances, preventive medicine, occupational health and safety and outpatient health care delivery may reduce utilization and revenues of the facilities. Technological advances in recent years have accelerated the trend toward the use by hospitals of sophisticated and costly equipment and services for diagnosis and treatment. The acquisition and operation of certain equipment or services may continue to be a significant factor in hospital utilization, but the ability of Spectrum Health and the Credit Group Members to offer the equipment or services may be subject to the availability of equipment or specialists, governmental approval or the ability to finance these acquisitions or operations. 6. Reduced demand for the services of Spectrum Health and the Credit Group Members that might result from decreases in population in their respective service areas. 54

59 7. Increased unemployment or other adverse economic conditions in the service areas of Spectrum Health and the Credit Group Members which would increase the proportion of patients who are unable to pay fully for the cost of their care. 8. Any increase in the quantity of indigent care provided which is mandated by law or required due to increase needs of the community in order to maintain the charitable status of Spectrum Health or the Credit Group Members. 9. Regulatory actions which might limit the ability of Spectrum Health or the Credit Group Members to undertake capital improvements to their respective facilities or to develop new institutional health services. 10. The occurrence of a large scale terrorist attack that increases the proportion of patients who are unable to pay fully for the cost of their care and that disrupts the operation of certain health care facilities by resulting in an abnormally high demand for health care services. LITIGATION As of the date hereof, there is no litigation of any nature pending or threatened against any Member of the Credit Group or the Authority to restrain or enjoin the issuance, sale, execution or delivery of the Series 2008B Bonds or the application of the proceeds thereof as contemplated hereby, or in any way contesting or affecting the validity of the Series 2008B Bonds or any proceedings of the Authority taken with respect to the issuance or sale thereof, or the pledge or application of any monies or security for the Series 2008B Bonds or the existence or powers of the Authority. At any given time, the Members of the Credit Group have a number of lawsuits pending against such Member or Members based upon alleged medical malpractice. The Members retain special counsel to defend their interests in these suits. Given the Credit Group's medical malpractice insurance coverage and its self-funded program, it is the opinion of management of each Member of the Credit Group, based upon consultation with special counsel, that resolution of such pending suits will not materially adversely affect the financial condition of the Credit Group. See the information under the caption "PROFESSIONAL LIABILITY INSURANCE" in APPENDIX A hereto. LIMITED OBLIGATIONS The Series 2008B Bonds are limited obligations of the Authority, payable solely from payments made pursuant to the Loan Agreements, Note Nos. 32, 33 and 34 (until the 1989 Master Indenture Termination Date), the 2008B Master Indenture Obligations and from certain funds established under the Bond Indentures. The Authority has no taxing power. Neither the credit nor the taxing power of the City of Grand Rapids, the County of Kent, the State of Michigan or any political subdivision thereof is pledged for the payment of the Series 2008B Bonds, nor shall the Series 2008B Bonds be or be deemed a general obligation or debt of the City of Grand Rapids, the County of Kent, the State of Michigan or any political subdivision, agency or instrumentality thereof within the meaning of any constitutional, charter or statutory provisions or limitations. Except as stated above, the Authority shall not be liable on its obligations in respect to the Series 2008B Bonds; nor are the members, commissioners, officers or employees of the Authority personally liable on such obligations. APPROVAL OF LEGALITY Certain legal matters incident to the authorization, issuance and sale of the Series 2008B Bonds will be passed upon by Miller, Canfield, Paddock and Stone, P.L.C., Ann Arbor, Michigan, Bond Counsel, whose approving opinion will accompany the Series 2008B Bonds. Certain legal matters will be passed upon for the Authority by its Counsel, Rhoades McKee, Grand Rapids, Michigan; for the Credit Group by its Counsel, Warner Norcross & Judd LLP, Grand Rapids, Michigan; for the Underwriter by its Counsel, Hall, Render, Killian, Heath & Lyman, P.C., Indianapolis, Indiana; for RBS Citizens by its counsel, Miller, Canfield, Paddock and Stone, P.L.C., Detroit, Michigan; for LBBW by its Counsel, Chapman and Cutler LLP, Chicago, Illinois, and for Wells Fargo by 55

60 its counsel, Miller, Canfield, Paddock and Stone, P.L.C., Detroit, Michigan. Miller, Canfield, Paddock and Stone, P.L.C., also serves as Counsel to the Underwriter on certain matters unrelated to the issuance of the Series 2008B Bonds. Rhoades McKee, Counsel to the Authority with respect to the Series 2008B Bonds, also serves as Counsel to Spectrum Health and certain members of the Spectrum Health System on certain matters unrelated to the issuance of the Series 2008B Bonds. Hall, Render, Killian, Heath & Lyman, P.C., Counsel to the Underwriter, also serves as Counsel to Spectrum Health and certain members of the Spectrum Health System on certain matters unrelated to the issuance of the Series 2008B Bonds. TAX MATTERS In the opinion of Bond Counsel, based on its examination of the documents described in its opinion, under existing law, the interest on the Series 2008B Bonds (a) is excluded from gross income for federal income tax purposes and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings. The opinions set forth herein are subject to the condition that the Authority and the Borrowers comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code") that must be satisfied subsequent to the issuance of the Series 2008B Bonds in order that interest on the Series 2008B Bonds be (or continue to be) excluded from gross income for federal income tax purposes, including but not limited to rebating certain earnings to the federal government pursuant to Section 148(f) of the Code. Failure to comply with certain of such requirements could cause the interest on the Series 2008B Bonds to be included in gross income retroactive to the date of issuance of the Series 2008B Bonds. The Authority has covenanted in the Bond Indentures and Spectrum Health has covenanted in the Loan Agreements, to comply with all such requirements. Bond Counsel will express no opinion regarding other federal tax consequences arising with respect to the Series 2008B Bonds and the interest thereon, including the effect of a change in the interest rate mode of the Series 2008B Bonds, which changes in interest rate mode, pursuant to the terms of the Bond Indentures, may be done only on the receipt of a favorable opinion of counsel that such change in interest rate mode will not impair the tax-exempt status of the interest on the Series 2008B Bonds. Bond Counsel is, however, further of the opinion that, under existing law, as presently interpreted, the Series 2008B Bonds and the interest thereon are free and exempt from all state, city, county or other taxation provided by the laws of the State of Michigan except for estate, inheritance and gift taxes and taxes on transfers. On November 5, 2007, the United States Supreme Court heard oral arguments in its review the decision of a Kentucky appellate court in the case of Davis v Department of Revenue of Kentucky. The Kentucky court held that under the Constitution of the United States, the State of Kentucky may not exempt interest on bonds issued by that state or political subdivisions thereof from state and local taxes unless that state also provides such exemption to interest on bonds issued by other states and political subdivisions. Michigan law is similar to the Kentucky law in question, in that it generally exempts from state and local taxes interest on bonds issued by the State of Michigan and Michigan political subdivisions, but not interest on bonds issued by other states or political subdivisions. The outcome of such review, and its impact, if any, on the exemption of the Series 2008B Bonds and interest thereon from state and local taxes in Michigan, or on the market value of the Series 2008B Bonds, cannot be predicted. There are additional federal tax consequences relative to the Series 2008B Bonds and the interest thereon. The following is a general description of some of these consequences, but is not intended to be complete or exhaustive, and investors should consult their tax advisors with respect to these matters. Moreover, for federal income tax purposes: (a) tax-exempt interest, including interest on the Series 2008B Bonds, is included in the calculation of modified adjusted gross income required to determine the taxability of social security or railroad retirement benefits; (b) the receipt of tax-exempt interest, including interest on the Series 2008B Bonds, by life insurance companies may affect the federal income tax liabilities of such companies; (c) the amount of certain loss deductions otherwise allowable to property and casualty insurance companies will be reduced (in certain instances below zero) by 15% of, among other things, tax-exempt interest, including interest on the Series 2008B Bonds; (d) interest incurred or continued to purchase or carry the Series 2008B Bonds may not be deducted in determining federal income tax; (e) commercial banks, thrift institutions and other financial institutions may not deduct their costs of carrying certain obligations such as the Series 1998 Bonds; (f) interest on the Series 2008B Bonds will be included in effectively connected earnings and profits for purposes of computing the branch profits tax on certain foreign corporations doing business in the United States; (g) passive investment income, including interest on the 56

61 Series 2008B Bonds, may be subject to federal income taxation for S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such S corporations is passive investment income; and (h) the receipt of accrual or interest on the Series 2008B Bonds may cause disallowance of the earned income credit under Section 32 of the Code. No assurance can be given that any future legislation, or clarifications or amendments to the Code, if enacted into law, will not contain provisions which could cause the interest on the Series 2008B Bonds to be subject directly or indirectly to federal or State of Michigan income taxation, adversely affect the market price or marketability of the Series 2008B Bonds or otherwise prevent the holders from realizing the fall current benefit of the status of the interest thereon. Further, no assurance can be given that any such future legislation, or any actions of the Internal Revenue Service, including, but not limited to, selection of the Series 2008B Bonds for audit examination, or the course of any examination of the Series 2008B Bonds, or other bonds which present similar tax issues, will not affect the market price of the Series 2008B Bonds. FINANCIAL STATEMENTS The consolidated financial statements of Spectrum Health and Affiliates, as of and for the years ended June 30, 2007 and 2006 included in APPENDIX B to this Official Statement, have been audited by Ernst & Young LLP, independent auditors, as stated in their reports appearing therein. See the information under the caption "COMBINED SCHEDULE OF REVENUE AND EXPENSES" in APPENDIX A hereto for a combined schedule of revenue and expenses for the 1998 Obligated Group for the years ended June 30, 2005, 2006 and 2007 and the six (6) month periods ended December 31, 2006 and 2007 (unaudited). INTERIM FINANCIAL INFORMATION Spectrum Health and Affiliates unaudited interim consolidated financial statements and related notes as of December 31, 2007 and 2006 for the six months then ended are included in APPENDIX A to this Official Statement. The unaudited interim financial information was prepared by management of Spectrum Health in accordance with generally accepted accounting principles. The unaudited interim financial information should be read in conjunction with the audited consolidated financial statements and related notes included in APPENDIX B to this Official Statement. RATINGS Series 2008B-1 Bonds It is anticipated that Standard & Poor's Ratings Service ("S&P") and Moody's Investors Service, Inc. ("Moody's") will assign their long-term ratings of "AAA" and "Aaa," respectively, and their short-term ratings of "A-1+" and "VMIG 1", respectively, to the Series 2008B-1 Bonds, on the condition that, upon delivery of the Series 2008B Bonds, RBS Citizens will provide the 2008B-1 Credit Facility. Series 2008B-2 Bonds It is expected that S&P and Moody's will assign their long-term ratings of "AA" and "Aa3", respectively, and their short-term ratings of "A-1" and "VMIG 1", respectively, to the Series 2008B-2 Bonds, on the condition that, upon delivery of the Series 2008B-2 Bonds, LBBW will provide the 2008B-2 Liquidity Facility. Series 2008B-3 Bonds It is expected that S&P and Moody's will assign their long-term ratings of "AA" and "Aa3", respectively, and their short-term ratings of "A-1+" and "VMIG 1", respectively, to the Series 2008B-3 Bonds, on the condition that, upon delivery of the Series 2008B-3 Bonds, Wells Fargo will provide the 2008B-3 Liquidity Facility. 57

62 These ratings reflect only the views of such rating agencies. No application was made to any other rating agency for the purpose of obtaining an additional rating on the Series 2008B Bonds. Any explanation of the significance of such ratings may only be obtained from the rating agency furnishing the same, at the following addresses: Standard & Poor's Ratings Service, 25 Broadway, New York, New York 10004; and Moody's Investors Service, Inc., 99 Church Street, New York, New York The Credit Group and the Authority have furnished to such rating agencies certain information and materials concerning the Series 2008B Bonds and themselves. Generally, rating agencies base their ratings on such information and materials and on investigations, studies and assumptions by the rating agencies. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by such rating agencies, if in the judgment of such rating agencies circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Series 2008B Bonds. CONTINUING DISCLOSURE AGREEMENT Under an agreement (the "Disclosure Agreement") by Spectrum Health, as Obligated Group Agent, it will agree to provide to each nationally recognized municipal securities information repository ("NRMSIR") designated by the SEC and to the state information depository ("SID"), if any, operated or designated by the State and recognized as such by the SEC, certain financial information and operating data for the 1989 Obligated Group's fiscal year (only prior to the 1989 Master Indenture Termination Date) and the 1998 Obligated Group's fiscal years, commencing with the fiscal year ending June 30, 2008, in accordance with the requirements of Rule 15c2-12 of the Securities and Exchange Commission (the "SEC") under the Securities and Exchange Act of 1934, as amended. Such financial information and operating data will be provided with respect to those Persons (as defined in the Master Indenture) who were Members of the Obligated Group during the fiscal years to which such information and data relate as required by the Disclosure Agreement and will consist of the following: Audited Financial Statements. Prior to the 1989 Master Indenture Termination Date, Spectrum Health will deliver the financial statements for the 1989 Obligated Group for the prior fiscal year prepared in accordance with generally accepted accounting principles, together with an opinion from an independent auditor relating to these financial statements. Spectrum Health will also deliver the financial information required to be delivered to the 1998 Master Trustee under the 1998 Master Indenture, including the audited financial statements of, or including the operations of, the Members of the 1998 Obligated Group and the unaudited combined balance sheet of the 1998 Obligated Group and unaudited combined statements of operations and changes in net assets and statement of cash flows for each of the first three fiscal quarters in each fiscal year. Financial Information. The financial information will consist of (i) a summary of revenue and expenses for the two immediately preceding fiscal years for the 1998 Obligated Group; and (ii) historical coverage of debt service requirements for the 1998 Obligated Group. Operating Data. The aggregate operating data for the 1998 Obligated Group, to the extent such data is relevant to the 1998 Obligated Group's operations, will consist of utilization statistics which, in Spectrum Health's judgment, are material to the operations and financial condition of the 1998 Obligated Group. Spectrum Health has agreed to provide financial and operating information of the type provided in APPENDIX A hereto that include utilization statistics for each 1998 Obligated Group Member of the type included in APPENDIX A hereto (including sources of revenue, if appropriate for the operations of the 1998 Obligated Group Member, the unaudited summary combined statement of revenue and expenses of the 1998 Obligated Group similar to the information provided under the caption "FINANCIAL INFORMATION Combined Schedule of Revenue and Expenses" in APPENDIX A hereto. The Disclosure Agreement will require the Obligated Group Agent to provide such financial information and operating data to the Bond Trustee, the Authority, each NRMSIR and each SID, if any, not later than 180 days after the end of Spectrum Health's fiscal years, commencing with the fiscal year ending June 30, Pursuant to the Disclosure Agreement, Spectrum Health is required to give notice to each NRMSIR and each SID, if any, if Spectrum Health fails to provide such financial information and operating data within the time period specified in the preceding paragraph. 58

63 The Disclosure Agreement will also require Spectrum Health to provide to the Bond Trustee, the Authority, each NRMSIR and each SID, if any, notice of the occurrence of any of the following events with respect to the Series 2008B Bonds, if such event is material: 1. principal and interest payment delinquencies; 2. non-payment related defaults; 3. modifications to rights of Bondholders; 4. optional, contingent or unscheduled bond calls; 5. defeasances; 6. rating changes; 7. adverse tax opinions or events affecting the tax-exempt status of the Series 2008B Bonds; 8. unscheduled draws on debt service reserves reflecting financial difficulties; 9. unscheduled draws on credit enhancements reflecting financial difficulties; 10. substitution of credit or liquidity providers, or their failure to perform; and 11. release, substitution or sale of property securing repayment of the Series 2008B Bonds. The Disclosure Agreement will remain in effect as long as any Series 2008B Bonds remain Outstanding and shall require Spectrum Health to provide the above-described financial information and operating data for a Person as long as such Person was a Member of the Credit Group during the fiscal years to which such information and data relate. The Disclosure Agreement will be entered into for the benefit of the Holders or Beneficial Owners (each as defined in the Disclosure Agreement) of the Series 2008B Bonds. The Disclosure Agreement may be specifically enforced by the Bond Trustee or any Holder or Beneficial Owner of the Series 2008B Bonds and shall be specifically enforced by the Bond Trustee at the direction of the Holders or Beneficial Owners of at least 25% in aggregate principal amount of the Series 2008B Bonds or by the Bond Trustee representing such Holders or Beneficial Owners. Failure by Spectrum Health to comply with the Disclosure Agreement will not constitute an event of default under the Master Indenture, the Bond Indentures or any Loan Agreements and holders of the Series 2008B Bonds are limited to the remedies described in the Disclosure Agreement. Failure by Spectrum Health to comply with the Disclosure Agreement must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Series 2008B Bonds in the secondary market. Consequently, any such failure may adversely affect the transferability and liquidity of the Series 2008B Bonds and their market price. UNDERWRITING The Series 2008B Bonds are being purchased by Citigroup Global Markets Inc., as Underwriter. The Underwriter has agreed to purchase the Series 2008B Bonds at an aggregate purchase price of $237,500,000 (representing the original par amount of the Series 2008B Bonds). The Underwriter will be paid an underwriting fee by Spectrum Health in the amount of $356,250. The initial public offering prices for the Series 2008B Bonds may be changed by the Underwriter and the Underwriter may offer to sell the Series 2008B Bonds to certain dealers and others at prices lower than such offering prices. The purchase contract for the Series 2008B Bonds provides that the Underwriter will purchase all the Series 2008B Bonds, if any are purchased. The 1998 Obligated Group will indemnify the Underwriter and the Authority against certain losses, claims, damages and liabilities arising out of any incorrect statement or information contained in or information omitted from this Official Statement. OTHER MATTERS Any statements herein involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. The Authority has furnished only the information included herein under the caption "THE AUTHORITY" and information concerning the Authority herein under the captions, "INTRODUCTORY STATEMENT" and "LITIGATION." 59

64 Information relating to the Credit Group has been furnished by the Credit Group and information relating to DTC and the book-entry system described herein under the caption "BOOK-ENTRY ONLY SYSTEM" has been furnished by DTC. Information relative to the Banks described herein under the caption "THE BANKS" has been furnished by the respective Banks. Such information is believed to be reliable, but the Authority and the Underwriter make no representations or warranties whatsoever with respect to such information. The foregoing and the following summaries or descriptions of provisions of the Series 2008B Bonds, the Bond Indentures, the Loan Agreements, the 2008B Master Indenture Obligations, the 1998 Master Indenture, Note Nos. 32, 33 and 34, the 1989 Master Indenture, the 2008B Supplemental Indentures and the 1989 Supplemental Indentures 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. For a complete statement of the provisions of the foregoing documents, reference is made to such documents in their entireties, copies of which will be on file at the corporate trust office of the Bond Trustee. The Authority, the Members of the 1989 Obligated Group and the Members of the 1998 Obligated Group have authorized the execution and distribution of this Official Statement. KENT HOSPITAL FINANCE AUTHORITY Approved: SPECTRUM HEALTH SYSTEM, on its behalf and as Obligated Group Agent on behalf of the 1998 Obligated Group and the 1989 Obligated Group By: /S/ RICHARD F. FABIANO Secretary By: /S/ MICHAEL P. FREED Chief Financial Officer 60

65 APPENDIX A INFORMATION CONCERNING SPECTRUM HEALTH SYSTEM AND AFFILIATES

66 SPECTRUM HEALTH SYSTEM* Spectrum Health Hospitals* Priority Health (94% Ownership) Priority Health Managed Benefits, Inc. Spectrum Health Foundation Reed City Hospital Corporation Blodgett Assurance Company, LTD Spectrum Health Continuing Care* Spectrum Health United* Spectrum Health Primary Care Partners Priority Health Government Programs Reed City Area Services Corporation Spectrum Health Continuing Care Center* Spectrum Health Kelsey Helen DeVos Womens & Children s Health Pavilion Association Priority Health Insurance Company Spectrum Health Kent Community Campus Ambulatory United Children s Heart Center Trinity Heath Plans Spectrum Health Worth Services* United Lifestyles West Michigan Regional Laboratory PHMB Properties, LLC Visiting Nurse Services of Western Michigan* Montcalm Primary Care Physicians Partners for Children's Health Hope/Spectrum Health CC (50% Ownership) Spectrum Health United Memorial Foundation Spectrum Health Saint Mary s Shared Technology Services, Inc. (75% Ownership) The Fred and Lena Meijer Heart Center Condominium Association Key: * Member of 1989 Obligated Group Member of 1998 Obligated Group Designated Affilite/1998 Credit Group Michigan Association of Children s Hospitals

67 HISTORY, BACKGROUND AND ORGANIZATION Current Operations The Spectrum Health System headquartered in Grand Rapids, Michigan, was created in September 1997 through the consolidation of Blodgett Memorial Medical Center and its affiliates and Butterworth Health Corporation and its affiliates. The initial combination was effected by creating a new corporate parent, Spectrum Health, now named Spectrum Health System, a Michigan nonprofit corporation ("Spectrum Health"). Spectrum Health Hospitals, a Michigan nonprofit corporation, serves primarily as the hospital operating company for the Spectrum Health Blodgett and Butterworth Campuses. Spectrum Health also has ownership interests in a number of other entities. Spectrum Health, Spectrum Health Hospitals, and their affiliates are referred to collectively herein as the "Spectrum Health System." Spectrum Health, Spectrum Health Hospitals, Spectrum Health United ("SHU"), Spectrum Health Continuing Care ("SHCC"), Spectrum Health Continuing Care Center, Inc. ("SHCCC"), Spectrum Health Worth Services ("WS") and Visiting Nurse Services of Western Michigan ("VNS") are the Members of the Obligated Group under the 1989 Master Indenture. Spectrum Health and Spectrum Health Hospitals are the only members of the Obligated Group under the 1998 Master Indenture and, together comprise 86% of the hospital, continuing care and physician service revenues of the Spectrum Health System as of June 30, SHU, SHCC, SHCCC, WS and VNS are Designated Affiliates (the "Designated Affiliates") under the 1998 Master Indenture. Spectrum Health is directly the parent of certain other entities including Spectrum Health Foundation (the "Foundation"), Blodgett Assurance Company Ltd. ("BAC"), Priority Health with a 94% ownership, Priority Health Managed Benefits ( PHMB ) and Reed City Hospital Corporation ( Reed City ). Spectrum Health is also indirectly the parent of a number of other entities that offer healthcare and insurance. The Foundation, BAC, Priority Health, PHMB, Reed City and the remaining entities are not members of the Obligated Group and are not Designated Affiliates. The audited consolidated financial statements of Spectrum Health and Affiliates for the fiscal years ended June 30, 2006 and 2007, included in Appendix B, include all entities controlled by Spectrum Health including financial information relating to the following non-obligated group members: Foundation, Reed City, BAC, Priority Health and PHMB. For a summary of the 1998 Obligated Group s financial information for the same periods, together with the six-month periods ended December 31, 2006 and 2007, see the pro forma unaudited combined schedule of revenues and expenses on page A-28 herein, and the accompanying information under the caption "Management s Discussion of Results of Operations." Spectrum Health is operating under the terms of a Consent Decree (the "Consent Decree") which was filed with the United States District Court for the Western District of Michigan. The Consent Decree was the result of a multi-year challenge of the combination of Blodgett Memorial Medical Center and Butterworth Health Corporation by the Federal Trade Commission and described the actions planned in the event of a combination. For information concerning the Consent Decree, see "GOVERNANCE AND MANAGEMENT-Consent Decree" herein. AS DESCRIBED IN THE FOREPART OF THIS OFFICIAL STATEMENT, SPECTRUM HEALTH AND SPECTRUM HEALTH HOSPITALS ARE THE ONLY MEMBERS OF THE 1998 OBLIGATED GROUP. AFTER THE 1989 MASTER INDENTURE TERMINATION DATE, THOSE ENTITIES THAT ARE MEMBERS OF THE 1989 OBLIGATED GROUP (OTHER THAN SPECTRUM HEALTH AND SPECTRUM HEALTH HOSPITALS) WILL NO LONGER BE DIRECTLY OBLIGATED TO PAY AMOUNTS DUE WITH RESPECT TO THE SERIES 2008 BONDS. Capital Improvement Plan The organization through use of bonds, together with certain other funds of Spectrum Health, will finance, or reimburse, the costs incurred to (i) build the Helen DeVos Children s Hospital, (ii) build the Lemmen-Holton Cancer Pavilion, (iii) expand parking at the Butterworth Campus, (iv) make renovations at the Blodgett Campus, (v) renovate the Butterworth main entrance, (vi) acquire a new helicopter, (vii) refinance certain indebtedness of Spectrum Health Hospitals, and (viii) undertake the improvement of physical facilities and the acquisition and A-1

68 installation of various items of medical care equipment and computer equipment and other related capital improvements. Construction is underway for the Lemmen-Holton Cancer Pavilion. This state-of-the art, 284,000 squarefoot facility will consolidate Spectrum Health s Grand Rapids outpatient cancer services in one convenient location on the Butterworth Campus and is projected for completion in The Helen DeVos Children s Hospital involves constructing a fourteen-story addition with 440,000 square feet and is projected for completion in fiscal Reserved Powers of Spectrum Health GOVERNANCE AND MANAGEMENT Spectrum Health has direct or indirect control of each member of the Credit Group. As a result of this control, Spectrum Health has, in addition to other reserved powers, the direct or indirect power to elect and remove officers and directors of the governing board of each other member of the Credit Group, to adopt amendments to their respective articles of incorporation and bylaws, to adopt strategic visions and plans and master facility plans, and to approve material amendments to their respective operating and capital budgets. In addition, through participation agreements between Spectrum Health and each other member of the Credit Group and through the provisions of the bylaws of each other member of the Credit Group, Spectrum Health has the power to require such member of the Credit Group to transfer assets to Spectrum Health to enable Spectrum Health to pay the principal, premium, if any, and interest on the Series 2008 Bonds. Spectrum Health System Board of Directors and Officers Responsibility for the management and control of the affairs of Spectrum Health is vested with Spectrum Health Board of Directors, which may include a minimum of 9 and a maximum of 15 members, including the Spectrum Health President and Chief Executive Officer, who serves as an ex officio member with vote. Business is also conducted through the committees listed below. Executive Committee Finance Committee Audit Committee (a subcommittee of Finance Committee) The Board of Directors of Spectrum Health consists of the following persons: Officers Chair Danny R. Gaydou Publisher The Grand Rapids Press Secretary (non-voting) David M. Leonard General Counsel Spectrum Health Vice Chair Earl Holton Retired - Executive Meijer Inc. Treasurer Timothy J. O Donovan Chairman of the Board Wolverine World Wide, Inc Officer Richard C. Breon President/CEO Spectrum Health Directors Richard M. DeVos, Sr. Founder Amway Corporation Kenneth Fawcett, M.D. Physician Primary Care Partners A-2

69 Brian Harris President/CEO H&H Metal Source Robert L. Hooker Vice Chairman C & H Holdings, LLC Birgit Klohs CEO - Economic Development The Right Place Program Stephen E. Rechner, M.D. Physician Vice President West Michigan OB/GYN, P.C. Juan R. Olivarez President Grand Rapids Community College Robert Van Tuinen, M.D. Physician Grand Rapids Associated Internists PC Spectrum Health Hospitals Board of Trustees and Officers Spectrum Health Hospitals owns and operates the Butterworth Campus, the Blodgett Campus, Helen DeVos Children s Hospital, several outpatient surgery centers and imaging centers and numerous offsite facilities throughout the greater Grand Rapids area, as described more fully herein. The sole corporate member of Spectrum Health Hospitals is Spectrum Health. The Spectrum Health Hospitals Board of Trustees governs the day to day affairs of Spectrum Health Hospitals, subject to certain reserved powers held by Spectrum Health. Powers reserved to Spectrum Health include but are not limited to the direct power to elect and remove officers and directors, to adopt amendments to the articles of incorporation and bylaws, to adopt strategic plans, to approve amendments to the operating and capital budgets, to approve any borrowing, and to approve capital expenditures in excess of $10 million. The Board of Trustees, the Chair of the Board of Trustees and the President of Spectrum Health Hospitals are each appointed by and serve at the pleasure of the Spectrum Health Board of Directors. The Spectrum Health Hospitals Board of Trustees consists of members, with the following persons serving as ex officio voting members: President and CEO of Spectrum Health, President of Spectrum Health Hospitals and President of the Medical Staff of Spectrum Health Hospitals. Business is also conducted through the committees listed below. Finance Committee Quality and Safety Committee Credentialing Committee Helen DeVos Children s Hospital Committee Board Development Committee The Board of Trustees of Spectrum Health Hospitals consists of the following persons: Officers Chair Harry Knopke, Ph.D. Retired Aquinas College Secretary (non-voting) David Leonard General Counsel Spectrum Health Vice Chair Michelle VanDyke President/CEO Fifth Third Bank Western Michigan Treasurer Patrick Miles Partner Dickinson Wright, PLLC Officer Matthew VanVranken President A-3

70 Spectrum Health Hospitals Trustees William Boer President Gray Dunes Holding, LLC Richard Breon President/CEO Spectrum Health Dan DeVos President/CEO DP Fox James Fuson, M.D. Physician Michigan Medical, PC Hon. Patricia D. Gardner Judge Kent County Circuit Court Charles Lippert Owner/President Mobile Office Vehicle, Inc Khan J. Nedd, M.D. Physician Hospitalists of West Michigan Sandra Cottingham, M.D. Physician Michigan Pathology Associates, P.C. David L. Dull, M.D. Physician President, Medical Staff Thomas Malvitz, M.D. Physician Orthopaedic Associates of Grand Rapids Executive Management below. The background of the principal members of the administrative staff of Spectrum Health is described Richard C. Breon, age 56, became President and Chief Executive Officer (CEO) of Spectrum Health in September Before taking this position in Grand Rapids, Mr. Breon was President and CEO, of Mission Health, Evansville Indiana, a multi-hospital, ambulatory and extended care health system, which is part of Ascension Health. Mr. Breon had been with Mission Health and its affiliates since Before that, Mr. Breon was President and CEO of Mercy Hospital in Iowa City. Mr. Breon graduated from Iowa State University in Mr. Breon obtained his Masters degree in Hospital and Health Administration from the University of Iowa in Mr. Breon is a Fellow of the American College of Health Care Executives. Michael P. Freed, age 50, is Executive Vice President/Corporate Resources and Chief Financial Officer (CFO) of Spectrum Health, having served since 1995 as Vice President of Finance and CFO of Butterworth Health Corporation. From 1993 to 1995, Mr. Freed was Treasurer and CFO of Central New England Health Alliance, Inc. (CNEHA). Prior to joining CNEHA, Mr. Freed was Treasurer and CFO of CentMass Systems Corporation (which merged with Leominister Health System in 1993 to create CNEHA) and served in that capacity from 1990 to Mr. Freed was the Vice President and CFO of HealthAmerica Pennsylvania, Inc., a 150,000 member mixed model HMO in Pittsburgh, from 1988 to From 1986 to 1988, Mr. Freed held the position of Director of Finance and CFO of Saratoga Hospital in Saratoga, New York, and served as that hospital s Controller from 1983 to Mr. Freed received a Bachelor s degree in Business (Accounting) from State University of New York at Plattsburgh in 1979 and became a Certified Public Accountant in New York in Mr. Freed is a member of the American Institute of Certified Public Accountants, Financial Executives International and the Healthcare Financial Management Association. John B. Mosley, age 61, is the Senior Vice President of Strategy and Business Development for Spectrum Health. As Spectrum Health s Senior Vice President of Strategy and Business Development, Mr. Mosley is charged with strategic planning, business development, marketing and leading community health initiatives. Prior to joining Spectrum Health, Mr. Mosley served as the Executive Director of Bayley Corporation and Medical Management, Inc. and Vice President of Business Development for St. Mary s Medical Center in Evansville, Indiana. He was President and Chief Executive Officer for United Physicians Health Network, Inc. and Acordia Business Benefits in Evansville. He also worked for Eli Lilly and Company, American Monitor Corporation, and with Blue Cross Blue A-4

71 Shield of Indiana in various capacities. Mr. Mosley received an MBA in Finance and Accounting from the University of Rochester in Rochester, New York, and a BA in Economics from Earlham College in Richmond, Indiana. Mr. Mosley is a Certified Public Accountant and is a licensed insurance agent in Indiana and Illinois. Mathew VanVranken, age 48, is the Executive Vice President, Spectrum Health/President, Spectrum Health Hospitals Grand Rapids, a position Mr. VanVranken assumed in May In his role as President, Spectrum Health Hospitals, Mr. Van Vranken is responsible for operations at the Blodgett, Butterworth and SHCC and the Helen DeVos Children s Hospital. In his role of Executive Vice President, Spectrum Health, he has operational accountability for Spectrum Health United campuses in Greenville and Lakeview as well as the Spectrum Health Reed City Campus. Before coming to Spectrum, Mr. VanVranken served for six years as Executive Vice President and Chief Operating Officer (COO) for the Brigham and Women s Hospital in Boston, a medical center affiliated with Harvard University. Prior to that, Mr. Van Vranken served as Executive Vice President and COO for the Hospital of Saint Raphael, a 550-bed, Yale-affiliated teaching hospital in New Haven, Conn. Mr. Van Vranken s experience also includes three years as Vice President and COO of Advanced Medical Testing Systems, Inc. in St. Louis. Mr. Van Vranken earned a Bachelor s degree in health services administration from Ithaca College in Ithaca N.Y. and a Master s of Health Services Administration from George Washington University in Washington D.C. Dr. Lowell Bursch, M.D., age 60, assumed the role of Executive Vice President for Medical Affairs at Spectrum Health in February His current responsibilities include system-related medical staff affairs along with medical education, research, quality and the Grand Rapids Clinical Oncology Program. In this role he serves on multiple hospital, task force and executive committees. He also serves as a management representative on the Spectrum Health Board and the Spectrum Health Hospitals Board of Trustees. He is a member of the Spectrum Health Reed City Board of Trustees and Spectrum Health United Board of Trustees and is the chairman of the Grand Rapids Medical Education and Research Center Board of Directors. Previously, Dr. Bursch was in private practice for 22 years as a general surgeon, and was also involved in surgical intensive care and trauma. He received his MD degree from the University of Michigan. He was President-Elect, Medical Staff of Spectrum Health Hospitals from 1999 to Consent Decree As previously described, Spectrum Health is subject to a Consent Decree imposed by the U.S. District Court, Western District of Michigan, as a result of a challenge of the consolidation of Butterworth Health Corporation and Blodgett Memorial Medical Center by the Federal Trade Commission. The Consent Decree contains a series of formal assurances to the West Michigan community with respect to the operation of the merged entity, Spectrum Health. The following requirements will continue in perpetuity: 1. Spectrum Health will target a five-year rolling average total margin for the merged system that does not exceed the average of Moody s and Standard & Poor s upper quartile total margins for other health systems nationally. 2. Spectrum Health has committed to establish a fund to provide healthcare programs for the underserved in the community, including services such as community-based clinics, immunization and preventative care, and health education programs. The Community Commitment fund will include a budgeted item in the amount of $6 million per year. 3. The Community Commitment also opens the budget and pricing process of Spectrum Health Hospitals to the public for both input in advance of the adoption of the budget and scrutiny of past performance. A permanent Finance Advisory Committee counsels the Finance Committee of the Spectrum Health Board of Directors during the budgeting process, and prior to any budgetary recommendation to the entity s Board. 4. The Board of Directors of Spectrum Health will be representative of the community it serves. Management believes that Spectrum Health has been in full compliance with the Consent Decree since its effective date in A-5

72 SPECTRUM HEALTH* INFORMATION CONCERNING THE MEMBERS OF THE CREDIT GROUP Spectrum Health Hospitals Spectrum Health Hospitals operates the Blodgett and Butterworth Campuses and Helen DeVos Children s Hospital located in Grand Rapids, Michigan. Spectrum Health Hospitals provides on-site inpatient and outpatient care facilities with 1,061 licensed beds. Spectrum Health Hospitals offers services at more than 140 ambulatory sites throughout its service area. Spectrum Health Hospitals offers a full range of inpatient services. The hospitals serve as a tertiary referral center for a 13-county area of western Michigan (see "SERVICE AREA" herein below) in cardiology, cardiovascular surgery, high-risk obstetrics, microsurgery, neonatology, oncology, burns, and trauma. Tertiary level services include adult and pediatric cardiology, adult and pediatric thoracic and vascular surgery, diagnostic and therapeutic radiology, oncology, neonatology, infectious diseases, pulmonary medicine, gastroenterology, microsurgery, neurology, neurosurgery and urology. Spectrum Health Hospitals offers the most comprehensive cardiovascular services in the region, with quality of care that ranks among the best in the nation. Services include the first accredited chest pain center in Michigan and the only heart center in Western Michigan. Spectrum Health Hospitals has one of the largest open heart programs in the state, with annual volumes of more than 900 cases. Spectrum Health has a growing clinical research program with more than 6,200 patients enrolled in cardiovascular data registries or clinical studies through the Spectrum Health Cook Research Department. Spectrum Health Hospitals oncology service is the largest in Western Michigan. Spectrum Health Oncology Services include comprehensive inpatient and outpatient services including adult and pediatric infusion therapy, radiation therapy, genetics testing and counseling, cancer research and community screening and educational programs. Oncology Services have facilities that include a pediatric bone marrow transplant center, and it offers genetics testing and counseling. Spectrum Health Hospitals also offers multi-specialty clinics focusing on breast, lung mass, prostate and genitourinary cancers. These multi-specialty clinics offer cancer patients the opportunity to meet and be evaluated by a team of specialists including surgeons, medical oncologists, radiation oncologists, pathologists, radiologists, research coordinators and primary care physicians. An active research component carries out a significant number of clinical trials through the Spectrum Health Cook Research Department, often in conjunction with the Van Andel Research Institute. The Neonatal Center is a 67-bed, Level III NICU regional referral center serving hospitals in a 37-county service area. The Neonatal Center also provides 24-hour emergency transport service for critically ill babies and offers developmental follow-up care through the Gerber Center. The Neonatal Center complements Spectrum Health Hospitals Labor and Delivery Department, which in fiscal year 2007 recorded 8,122 births. The Butterworth Campus also is designated as a Regional Level III Perinatal Center and offers an Obstetric High Risk Program. On September 1, 1993, Helen DeVos Children's Hospital opened its doors as the first children's hospital in Western Michigan. For the past 14 years, Helen DeVos Children s Hospital has rapidly grown and now offers care in over 40 pediatric medical and surgical specialty programs. Among the many specialties and programs at Helen DeVos Children s Hospital are the Neonatal Center, which is one of the nation s largest and the most advanced Level III comprehensive care facilities for newborns, the largest pediatric diabetes program in Michigan, one of the A-6

73 largest hematology/oncology programs in the Midwest, and the only pediatric bone marrow transplant program on the western side of Michigan. In 2003, DeVos Children s Hospital opened a comprehensive pediatric nephrology program. In fiscal year 2007, 161,431 patients were seen in the Spectrum Health Hospitals Emergency Rooms, resulting in 24,230 admissions to the Hospitals, which accounted for 42% of the admissions. Outpatient Services. Spectrum Health Hospitals perform a range of outpatient surgeries such as laparoscopy, hand surgery, arthroscopy, hardware removals, biopsies, vein ligations, dilation and curettage, and hernia repairs. Further, Spectrum Health Hospitals offers a range of outpatient services through specialty clinics such as Laser Colposcopy, Open Heart Pre-Admission Testing, Blood Transfusion, Chemotherapy, RhoGam Administration, Pediatrics, Pediatric Pulmonary, Pediatric Neurology, Allergy, Pain Management and Genetics. A-7

74 Utilization Statistics for Spectrum Health Hospitals Butterworth Campus and Blodgett Campus Fiscal Year Ended June 30, Six-Month Period Ended December 31, INPATIENT Admissions 54,045 55,398 58,155 28,924 28,842 Observation Patients 12,372 12,079 12,630 6,470 6,359 Patient Days 242, , , , ,855 Occupancy 69.79% 65.70% 70.20% 68.58% 71.65% Average Length of Stay Births 7,825 7,833 8,122 4,049 4,125 Inpatient Surgery 19,131 20,204 21,116 10,418 10,718 OUTPATIENT Emergency Room Visits Outpatient 119, , ,201 69,106 69,906 Inpatient Admits 24,407 24,100 24,230 11,966 11,755 Outpatient Surgery 15,995 15,192 15,418 7,521 7,770 Offsite Surgery 15,021 15,000 14,358 7,011 6,741 Licensed Beds 1,061 1,061 1,061 1,061 1,061 Beds in Service 990 1, Full Time Equivalent Employees 7,013 7, ,555 8,029 Gross Patient Revenue: Medicare 33.9% 34.9% 33.4% 34.6% 32.4% Medicaid & Medicaid HMO 14.7% 14.6% 16.3% 15.4% 17.6% Blue Cross 15.1% 14.9% 15.0% 15.0% 15.3% Priority Health 17.0% 16.8% 15.7% 15.8% 14.5% Self Pay and Other 19.3% 18.8% 19.6% 19.2% 20.2% 100.0% 100.0% 100.0% 100.0% 100.0% Medicare Case Mix Index Graduate Medical Education and Residency Programs Spectrum Health Hospitals is one of four partners in the Grand Rapids Medical Education & Research Center for Health Professions (GRMERC). GRMERC is a consortium involved in undergraduate education, graduate medical education, continuing medical education, health professions education and research. GRMERC is the accredited sponsoring institution of residencies and/or fellowships in Colorectal Surgery, Diagnostic Radiology, Emergency Medicine, Family Medicine, General Surgery (Categorical and Preliminary), Internal Medicine, Internal Medicine/Pediatrics, Obstetrics/Gynecology, Orthopaedic Surgery, Pediatrics, Pediatric Hematology/Oncology, Plastic Surgery, Surgical Critical Care, Transitional Year (one year of general training prior to residencies in Anesthesiology, Ophthalmology, Psychiatry, etc.) and Vascular Surgery. GRMERC employs approximately 280 residents within these programs that rotate through the Spectrum Health campuses. Approximately 60 members of each class of the Michigan State University College of Human Medicine receive their last two years of clinical training at Spectrum Health Hospitals. Medical students from the University of Michigan, Wayne State University and other medical schools may complete a portion of their clinical training at Spectrum Health Hospitals. A-8

75 The Spectrum Health Hospitals medical staff is supportive of the challenging atmosphere fostered by medical education. Most Spectrum Health Hospitals physicians are members of the clinical faculty at the Michigan State University College of Human Medicine and provide clinical instruction to medical students, resident physicians and other health professionals. GRMERC, an organization accredited by the MSMS Committee on CME Accreditation, offers over 1,500 hours of continuing medical education credit annually through a variety of weekly and monthly conferences, lecture series and regional seminars. Education Affiliations Spectrum Health Hospitals actively supports clinical education and training for nurses, allied health care professionals and paraprofessionals. Spectrum Health Hospitals has current affiliation agreements with the following schools: 323rd Unit Combat Support Hospital - Medical Training Alma College Cardiac Rehab American Medical Response - EMS Training Andrews University - Nurse Practitioner, Dietetics, Physical Therapy Arcadia College - Physician Assistant Baker College of Muskegon Echo Tech, Physical Therapy, Occupational Therapy, Radiation Therapy, Rehabilitation & Sports Medicine, Radiation Oncology, Social Work, Surgical Tech Ball State University - Nursing Belmont University Occupational Therapy Blue Heron Academy of Healing Arts & Science - Massage California College for Health Sciences - Affiliation Agmt Respiratory Calvin College - Social Work, Nursing, Undergrad Psychology Calvin Theological Seminary - Pastoral Care Central Michigan University - Physical Therapy, Speech Pathology Cardiac Rehab/Exercise Science Clarke College Physical Therapy Concordia University Occupational Therapy Cornerstone University - Social Work, Cardiac Rehab Davenport University Medical Assistant, Health Professions Des Moines University Physical Therapy Drexel University - Nursing Eastern Michigan University - Exercise Science/Cardiac Rehab, Dietetics, Occupational Therapy Ferris State University - Nursing, Social Work, Respiratory Therapy, HIMS, Health Management, Nuclear Tech, Environmental Health & Safety Management, Pharmacy, Medical Radiography, Architectural Technology and Facility Management Finlandia University Physical Therapy Assistant Gerber Memorial Hospital - Education Experience Grand Rapids Community College - Nursing, Occupational Therapy, Radiologic Tech Grand Rapids Medical Education & Research Center Residents, Medical Students, Physician Assistants Grand Rapids Theological Seminary Pastoral Care Grand Valley State University - Physical Therapy, Nursing, Physician Assistant, Clinical Nurse Leader, Clinical Lab Science, Cardiac Rehab, Peds Neurology, Athletic Training, Radiation Oncology, Radiation Therapy, Diagnostic Sonography, Medical Imaging/Radiation Sciences, Social Work/Community & Public Service Hope College - Social Work, Nursing Husson College Physical Therapy Ithaca College Occupational Therapy Kalamazoo Valley Community College - Respiratory Care Kent Intermediate School District Schools to Careers Kuyper College (formerly Reformed Bible College) - Pastoral Care, Social Work Lansing Community College - Diagnostic Sonography, Surgical Tech A-9

76 Life EMS - EMT Madisonville Community College Surgical Assistant Miami University Speech & Language Pathology Michigan State University - Social Work, Cardiac Rehab, Curriculum Development, Medical Students, Nursing, Speech & Language Pathology Midwestern University - Cardiovascular Sciences Montcalm Community College Nursing Muskegon Community College Respiratory Care Nazareth College - Physical Therapy Northwestern University Physical Therapy Oakland University Exercise Science Ohio State University HIMS, Physical Therapy Ohio University Physical Therapy Olympia Career Training Institute Pharmacy Technician, Medical Assistant, Nursing Pine Rest Christian Mental Health Services - Pastoral Care Rush University Nursing Saginaw Valley State University Occupational Therapy State University of New York/Stony Brook Nursing University of Detroit Mercy - Physician Assistant Studies, Nursing University of Findlay Occupational Therapy, Physical Therapy, Recreation Therapy University of Illinois at Chicago Applied Science University of Michigan Nursing University of Michigan-Flint - Physical Therapy, Nursing University of Missouri - Nursing University of North Carolina at Chapel Hill - Allied Sciences University of Phoenix Nursing University of Southern Indiana Nursing Wayne State University - Nursing Western Michigan University Cardiac Rehab, Food & Nutrition, Occupational Therapy, Nursing, Social Work, Speech Pathology, Dietetics West Michigan Center for Arts and Technology (WMCAT) Coding Accreditations, licenses, Approvals and Memberships Spectrum Health Hospitals has the following accreditations, licenses, designations, verifications and memberships: Accreditations/Designation/Certification/Verifications: American Academy of Pediatrics - Level III Neonatal Intensive Care Unit American Academy of Sleep Medicine American Association of Cardiovascular and Pulmonary Rehab American Burn Association American College of American Pathologists American College of Radiology American College of Radiation Oncology American College of Surgeons-Burn Center American College of Surgeons Commission on Cancer American College of Surgeons-Level I Trauma Center Center for Medicare and Medicaid Services Clinical Laboratory Improvement Amendments Laboratory Certificate of Accreditation Federal Drug Administration Federal Nuclear Regulatory Agency Joint Commission on Accreditation of Healthcare Organizations Joint Commission on Accreditation of Healthcare Organizations-Stroke Certification Michigan Department of Community Health A-10

77 Michigan State Police Certification (PA-330) National Association for the Education of Young Children Accreditation Professional Service Board Accreditation Society of Chest Pain Centers-Chest Pain Certification Undersea and Hyperbaric Medical Society (UHMS) Licenses: Nuclear Regulatory Commission State of Michigan Department of Labor & Economic Growth - Spectrum Health Child Development Center State of Michigan Department of Labor & Economic Growth - Hospice State of Michigan Department of Labor & Economic Growth - Diagnostic Radiology, Nuclear Medicine, Radiation Oncology State of Michigan Department of Community Health-Foodservice/Agriculture Division Memberships: Alliance for Health American Association of Blood Banks American Dietetic Association American Hospital Association American Proficiency Institute American Society for Healthcare and Central Services Personnel American Speech-Language-Hearing Association American Society of Healthcare Human Resource Administration (ASHHRA) American Society of Human Genetics Association of Air Medical Service Association of American Medical Colleges Council of Teaching Hospitals Association of Community Cancer Centers Association of Women s Health and Neonatal Nurses (AWHONN) Children s Miracle Network Children s Oncology Group (COG) Clinical Laboratory Improvement Amendments-Dept of Health & Human Services Grand Rapids Chamber of Commerce Grand Rapids Clinical Oncology Program Health Care Advisory Board Institute for Healthcare Improvement-IMPACT Network Lead Agency for two SAFE KIDS Coalitions Michigan Association of Blood Banks Michigan Chamber Foundation Michigan Council for Maternal/Child Health Michigan Home Health Association Michigan Hospice and Palliative Care Michigan Health and Hospital Association Michigan Library Consortium Michigan Trauma Coalition Inc. National Association for Home Care National Association of Children s Hospitals & Related Institutions National Association of Employee Recognition National Association of Orthopaedic Nurses National Cancer Institute Community Clinical Oncology Program National Committee for Clinical Laboratory Standards National Cooperative of Health Networks (NCHN) National Hospice and Palliative Care Organization National Institute for Healthcare Learning National Osteoporosis Foundation National Quality Forum Regional Poison Center A-11

78 Medical Staff Sg2 Solucient Vermont Oxford Network Voluntary Hospitals of America, Inc. (Charter Shareholder) Spectrum Health Hospitals Medical staff has been relatively stable in the recent past as shown in the following table. Members of Medical Staff Classification July 1, 2005 July 1, 2006 July 1, 2007 Active 1,021 1,036 1,077 Courtesy Affiliate/Administrative Community Based Honorary TOTAL 1,376 1,417 1,458 The following table shows the number of board-certified physicians by classification and their average ages as of July 1, Board Certification and Ages of Medical Staff Classification # Board Certified % Board Certified Average Age Active % 48 Courtesy % 49 Affiliate/Administrative 34 79% 58 Community Based 29 53% 43 TOTAL 1,188 90% 49 Spectrum Health Continuing Care Spectrum Health Continuing Care (SHCC) is a Michigan nonprofit corporation and a Tax-Exempt Organization whose sole corporate member is Spectrum Health. SHCC is the sole corporate member of Spectrum Health Continuing Care Center, Spectrum Health Kent Community Campus, Spectrum Health Worth Services, and Spectrum Health Visiting Nurse Association. The mission of SHCC is to enhance quality of life for individuals with in-patient and home and community based long-term care needs in Western Michigan. Spectrum Health Continuing Care Center The Continuing Care Center, whose sole corporate member is SHCC, was established in The Care Center is a Tax-Exempt Organization that owns and operates 165 Medicare and Medicaid certified beds in a facility located eight miles southeast of the Butterworth Campus. The Continuing Care Center serves individuals of all ages who are disabled and/or deconditioned by injury, disease or the aging process and who have the potential to be discharged to a less restrictive living environment. The Continuing Care Center is accredited by the Commission for Accreditation of Rehabilitation Facilities (CARF). A-12

79 Revenue Statistics for Spectrum Health Continuing Care Center Fiscal Year Ended June 30, Six-Month Period Ended December 31, Occupancy 90.2% 91.5% 92.1% 92.2% 90.6% Percent of Gross Patient Revenue: Private 35.0% 33.5% 31.0% 30.0% 31.0% Medicaid 30.3% 35.2% 35.0% 31.0% 28.0% Medicare 34.7% 31.3% 34.0% 39.0% 41.0% Spectrum Health Worth Services Spectrum Health Worth Services operates three divisions. Their primary customer is served in the home, an assisted living facility or on an outpatient basis. A summary of each division s services is described in the following paragraphs. Worth Residential Services (WRES) began operations in WRES operates six foster care homes located on the campus of the Continuing Care Center and provides care and rehabilitation services to brain-injured adults who are able to live in a supported living environment in the community when provided with a high level of supervision, care and support services on a 24/7 basis. WRES serves individuals with severe neurological impairments and is an alternative to placement in nursing homes. Under a philosophy of movement to the least restrictive living environment, the program is designed to offer life long residential and transitional living services. Like the Continuing Care Center, WRES is also CARF accredited. Services are currently provided in six locations with a total of 36 beds. Utilization Statistics for Spectrum Health Worth Services Fiscal Year Ended June 30, Six-Month Period Ended December 31, Number of Beds Occupancy 95% 94% 94% 92% 90% Percent of Gross Patient Revenue: Private/Other 100% 100% 100% 100% 100% Worth Home Care (WHC) provides comprehensive medical and nursing services to neurologically injured and chronically ill adults, adolescents and children in the home. WHC conducts operations from offices in Lansing and Grand Rapids. Worth Rehab (WREH) provides in-home and outpatient rehabilitation services for neurologically injured children, adolescents and adults. The goal of the service is to maximize the client s independence and quality of life. Services include physical, occupational and recreational therapy as well as speech pathology, case management and social services. A-13

80 Spectrum Health Visiting Nurse Association In 2003, Spectrum Health Continuing Care became the sole corporate member of Visiting Nurse Services of Western Michigan (VNS) (now called, Spectrum Health Visiting Nurse Association), a Michigan nonprofit corporation and Tax-Exempt Organization established in The primary mission of Spectrum Health Visiting Nurse Association is to improve the health status, promote independence and enhance the quality of life for individuals and families in the Western Michigan area by providing high quality health care, rehabilitative and support services in the home. Services are provided by a multi-disciplinary team of nurses, therapists, paraprofessionals, volunteers and social workers. VNS is certified by Medicare, Medicaid and Blue Cross/Blue Shield as a home health agency and is accredited by Community Health Accreditation Program (CHAP). Utilization Statistics for VNS Fiscal Year Ended June 30, Six-Month Period Ended December 31, Percent of Gross Patient Revenue: Medicare 86% 85% 81% 67% 72% Medicaid 3% 3% 7% 6% 5% Self Pay 0% 0% 0% 0% 0% Blue Cross 3% 4% 3% 3% 4% Managed Care 3% 4% 4% 5% 5% Other 5% 4% 5% 19% 14% 100% 100% 100% 100% 100% Patients Served 4,184 4,069 3,627 1,586 1,932 Spectrum Health United Effective September 2003, Spectrum Health became the sole corporate member of United Memorial Healthcare Association, since renamed Spectrum Health United ( SHU ). SHU United Campus in Greenville is a general acute care hospital with 65 acute care beds and 40 skilled nursing facility beds. The United campus finished a three-story addition in 2006 which included a surgery center on the first floor, twenty-four new private inpatient rooms on the second floor and shelled space for expansion on the third floor. The primary service area covers Montcalm County and portions of Ionia, Kent and Mecosta Counties. The population of the total service area is approximately 105,000 persons. A-14

81 Utilization Statistics for Spectrum Health United Fiscal Year Ended June 30, Six-Month Period Ended December 31, INPATIENT Admissions-IP 2,368 2,417 2,462 1,224 1,270 Admissions-LTCU Observation Patients Patient Days-IP 7,029 7,051 7,658 3,848 3,873 Patient Days-LTCU 14,090 14,021 13,665 6,902 6,749 Average Length of Stay-Acute Average Length of Stay-LTCU Inpatient Surgery OUTPATIENT Emergency Room Visits 13,842 18,010 21,492 10,577 12,471 Outpatient Surgery 2,683 2,641 2,786 1,384 1,520 Licensed Beds Beds in Service Full Time Equivalent Employees Percent of Gross Patient Revenue: Medicare 39.1% 39.9% 41.5% 43.1% 40.8% Medicaid 14.9% 14.7% 15.0% 14.6% 14.8% Blue Cross 13.9% 14.2% 13.7% 13.6% 14.9% HMO 25.8% 17.8% 15.7% 15.8% 13.8% Self Pay and Other 6.3% 13.4% 14.1% 12.9% 15.7% 100.0% 100.0% 100.0% 100.0% 100.0% Medicare Case Mix A-15

82 DESCRIPTION OF AFFILIATES OF SPECTRUM HEALTH THAT ARE NOT MEMBERS OF THE CREDIT GROUP INDEBTEDNESS INCURRED UNDER THE PROVISIONS OF EACH MASTER INDENTURE IS SOLELY THE OBLIGATION OF THE RELATED OBLIGATED GROUP, AND SUCH OBLIGATIONS ARE NOT GUARANTEED BY THE FOUNDATION, REED CITY, BAC, PRIORITY HEALTH, PHMB OR OTHER CORPORATIONS RELATED DIRECTLY OR INDIRECTLY TO SPECTRUM HEALTH THAT ARE NOT MEMBERS OF THE OBLIGATED GROUP. Priority Health Priority Health is a Michigan nonprofit managed care organization and a Tax Exempt Organization, 94% owned by Spectrum Health System. The remaining 6% ownership is held by Munson Healthcare (in Traverse City) and Northern Michigan Regional Health System (in Petoskey). Priority Health Managed Benefits, Inc. is a Michigan Corporation operating as a Management Company and Third Party Administrator within the Priority Health corporate structure. Priority Health Managed Benefits is 100% owned by Spectrum Health System. The wholly owned subsidiaries of Priority Health include: (1) Priority Health Government Programs, Inc., a Michigan nonprofit managed care organization serving the Medicaid and MiChild populations; (2) Priority Health Insurance Company, a licensed Michigan insurance company; (3) PHMB Properties, LLC, a Michigan Limited Liability Company that owns real estate which serves as Priority Health's corporate headquarters; and (4) Trinity Health Plans, a Michigan nonprofit corporation providing management services for Preferred Choices PPO, a leased network. Priority Health, including its wholly owned subsidiaries and Priority Health Managed Benefits, shares the mission of improving health by providing all people access to excellent and affordable healthcare. This mission is accomplished through access to a high quality network which currently includes approximately 10,500 physicians and health care providers and 93 hospitals. During calendar 2007, Priority Health expanded its network into Southeast Michigan. This mission is further accomplished through an extensive portfolio of products and services Priority Health offers to employers, individuals and government programs, such as: PriorityHMO SM A Health Maintenance Organization where members choose a primary care physician in Priority Health s network to coordinate all their care. PriorityEPO SM A health insurance plan resembling an HMO, for employers who fund their own health benefits but want to use Priority Health s network of health care providers. PriorityPOS SM A Point-Of-Service health insurance plan where members coordinate their care through a primary care physician and by choosing preferred and alternate benefit levels. PriorityPPO SM A Preferred Provider Organization (PPO health insurance plan) where members can choose innetwork or out-of-network care. PriorityHSA SM A high-deductible health insurance plan and Health Savings Account (HSA) combined. PriorityHRA SM A high-deductible health insurance plan and Health Reimbursement Arrangement (HRA). PriorityMedicare SM and PriorityMedicarePlus SM Medicare-approved health plans with Part D prescription drug coverage available to individuals and employers (for their retirees) in selected counties in Michigan. PriorityMedicareRx SM A Medicare Part D prescription drug plan available to individuals throughout Michigan. PriorityMedicaid SM Medicaid coverage administration in select counties in Michigan. PriorityMIChild SM MIChild coverage administration in select counties in Michigan. Administrative Services Only (ASO) Services for self-funded employer health plans. HealthbyChoice SM Rewards A wellness incentive program. PriorityFSA SM Flexible spending accounts. PriorityHealthManagement SM Targets and manages chronic illness. A-16

83 Statistical Information Fiscal Year Ended June 30, Six-Month Period Ended December 31, Priority Health Commercial Members 404, , , , ,941 Government Programs 42,734 67,786 72,575 71,384 73,740 TOTAL MEMBERSHIP 447, , , , ,681 Spectrum Health Members* 17,470 18,083 18,991 18,527 19,511 Member Months 5,290,074 5,495,277 5,171,913 2,515,654 2,855,160 Participating Physicians 2,865 3,403 4,641 4,850 10,480 Network Hospitals *Members who are Spectrum Health employees and their families. Spectrum Health Kent Community Campus Spectrum Health Kent Community Campus (KCC), whose sole corporate member is Spectrum Health Continuing Care, provides comprehensive adult health care encompassing both inpatient and outpatient services. KCC houses the only licensed Long Term Acute Care Hospital (LTACH) in Kent County. The LTACH is a 76-bed inpatient long-term acute care unit, which provides medically complex care for adult patients requiring extended recuperation periods. KCC also provides long-term skilled nursing care (SNF) and a limited array of outpatient services. KCC has 383 total licensed beds, employs more than 400 staff, and is located within two miles of both the Blodgett Campus and the Butterworth Campus. Revenue Statistics for Spectrum Health Kent Community Campus Fiscal Year Ended June 30, Six-Month Period Ended December 31, Percent of Gross Patient Revenue: Medicare 53% 45% 46% 35% 45% Medicaid 31% 37% 36% 42% 36% Self Pay 3% 4% 4% 5% 3% Blue Cross 1% 0% 0% 0% 0% Managed Care 5% 6% 6% 7% 4% Other 7% 8% 8% 11% 12% 100% 100% 100% 100% 100% Patient Days 95,902 88,928 95,120 47,319 51,167 A-17

84 Spectrum Health - Reed City Campus Reed City Campus, a Tax-Exempt Organization whose sole corporate member is Spectrum Health System, is a general acute care hospital with 25 acute care beds and 54 skilled nursing facility beds as of December 31, The primary service area covers Lake and Osceola counties. The population of the primary service area is approximately 26,000 persons. The Emergency Department receives approximately 12,000 visits per year. Utilization Statistics for Reed City Campus Fiscal Year Ended June 30, Six-Month Period Ended December 31, INPATIENT Admissions 1,098 1,038 1, Observation Patients Patient Days 3,523 3,117 3,340 1,555 1,468 Occupancy 39% 34% 37% 34% 32% Average Length of Stay Inpatient Surgery OUTPATIENT Emergency Room Visits 11,137 10,865 11,912 5,925 6,519 Clinic Visits 7,938 7,129 6,582 3,289 3,254 Outpatient Surgery Licensed Beds Beds in Service Full Time Equivalent Employees Percent of Gross Patient Revenue: Medicare 37% 39% 42% 43% 43% Medicaid 20% 17% 16% 16% 18% Blue Cross 16% 15% 16% 15% 15% HMO 6% 6% 6% 6% 6% Self Pay and Other 21% 23% 20% 20% 18% 100% 100% 100% 100% 100% Spectrum Health Kelsey Spectrum Health Kelsey is operated by SHU and is a critical access hospital with 25 acute care beds and 31 skilled nursing facility beds. A-18

85 Utilization Statistics for Kelsey Fiscal Year Ended June 30, Six-Month Period Ended December 31, INPATIENT Admissions-IP Admissions-LTCU Observation Patients Patient Days-IP 1,395 1,474 1, Patient Days-LTCU 14,399 14,436 12,718 6,855 5,381 Average Length of Stay-Acute Average Length of Stay-LTCU OUTPATIENT Emergency Room Visits 4,135 4,581 4,775 2,336 3,244 Clinic Visits 6,093 5,364 5,477 2, Outpatient Surgery Licensed Beds Beds in Service Full Time Equivalent Employees Percent of Gross Patient Revenue: Medicare 39.4% 41.0% 41.7% 42.7% 40.4% Medicaid 23.5% 22.1% 21.5% 21.5% 23.2% Blue Cross 13.1% 13.2% 13.3% 13.0% 14.1% HMO 16.6% 8.7% 8.3% 7.6% 7.7% Self Pay and Other 7.4% 15.0% 15.2% 15.2% 14.6% 100.0% 100.0% 100.0% 100.0% 100.0% Spectrum Health Foundation The Foundation, a Michigan nonprofit corporation and a Tax-Exempt Organization, is a charitable affiliate organized to perform fundraising and stewardship activities for Spectrum Health. Its mission is to advance the health of the Western Michigan community by utilizing philanthropy to support excellence in health care, research and educational programs within the nonprofit entities of Spectrum Health. Contributions to the Foundation are used to enhance patient care by supporting healthcare programs and services, basic and clinical research, education, purchase equipment and construct and renovate facilities. Blodgett Assurance Company, Ltd. BAC is a captive insurance subsidiary domiciled in the Cayman Islands. BAC was established to moderate premium fluctuations due to insurance industry cycles. For the 2008 policy year (April 1 March 31) all professional and general liability of the Spectrum Health Hospitals is covered by an Assurance policy with limits of $4,000,000 per occurrence/$18,500,000 shared aggregate for professional liability and $4,000,000 per occurrence/$18,500,000 shared aggregate for general liability. A-19

86 JOINT VENTURES Center for Molecular Medicine Center for Molecular Medicine, 50% owned by Spectrum Health Hospitals and 50% owned by Van Andel Institute, was formed to engage in certain diagnostic testing and patient evaluation designed to improve treatments for diseases, patient care and long term diagnoses. In addition, Molecular Diagnostics Laboratories performs research on diagnostic equipment and patient evaluation methodologies with the goal of improving public health and advancing scientific knowledge and educates the medical profession, the scientific community and the general public regarding the availability and benefit of such patient evaluation, diagnostic testing and research. Spectrum Health Hospitals Saint Mary s Shared Technology Services, Inc. Shared Technology Services (STS), 75% owned by Spectrum Health Hospitals and 25% owned by Saint Mary s Health Care, is a not-for-profit joint venture which operates a Positron Emission Tomography (PET) scanner in a freestanding building. STS began seeing patients in HOPE/SHCC In 1996 SHCC and Hope Network formed a 50% joint venture and acquired an existing Brain Injury business in the Lansing, Michigan area. The joint venture combined the experience, expertise and reputations of the two organizations to further the mission of providing services to the Brain Injured population. The organization includes rehabilitation and transitional living facility, two adult foster care homes and ten community based apartments. The business receives a majority of its revenues from the Michigan Auto No Fault insurance program, but does contract with the State of Michigan Medicaid program on a case by case basis. Lakeshore Area Radiation Oncology Center ("LAROC") LAROC is located in Holland, Michigan. Spectrum Health Hospitals owns 35% of this joint venture with Holland Community Hospital, North Ottawa Community Hospital and Zeeland Community Hospital. LAROC provides radiation therapy treatments to cancer patients. Opened in 1993, LAROC is located on a site in Holland, which is central to all four hospitals and is available to patients of the communities served by the four hospitals. Spectrum Health Hospitals has entered into an agreement with the joint venture to provide management, technical consultation and staffing for LAROC. Spectrum Health Michigan State University Alliance Corporation Spectrum Health Hospitals and Michigan State University formed a 50 percent joint venture to make the best use of their complementary facilities and programs and to facilitate the retention of specialty physicians and researchers whose translational biomedical research will benefit the Western Michigan community. The Alliance Corporation is expected to begin operations in A-20

87 SPECTRUM HEALTH HOSPITALS SERVICE AREA Spectrum Health Hospitals has identified a primary service area of one-and-a-half counties (Kent and eastern Ottawa) and an overall service area totaling thirteen counties. These counties had a total population of over 1.5 million in 2007, an increase of 6% since Grand Rapids is the second largest city in Michigan. Priority Health, with its expansion into the Southeast Michigan market, serves 61 counties. Maps depicting the Spectrum Health Hospitals service areas and the Priority Health service area appear on the following pages. A-21

88 Spectrum Health Service Areas Primary Service Area Secondary Service Area Additional HDVCH Service Area Emmet Cheboygan Manistee Leelanau Benzie Grand Traverse Wexford Presque Isle Charlevoix Spectrum Health Montmorency Alpena Grand Rapids Area Facilities Antrim Otsego Spectrum Health Medical Center Butterworth Hospital Helen DeVos Children's Hospital Lemmen-Holton Cancer Pavilion Kalkaska Crawford Meijer Heart Oscoda Alcona Center Spectrum Health Blodgett Hospital Spectrum Health - Kent Community Campus SH Surgical Center - South Pavilion SH Surgical Center - East Paris Missaukee Roscommon SH Surgery Center - Lake Drive Ogemaw Iosco Mason Lake Osceola Clare Gladwin Arenac Spectrum Health Reed City Hospital Huron Bay Oceana Newaygo Mecosta Isabella Midland Muskegon Spectrum Health Kelsey Hospital Montcalm Gratiot Saginaw Tuscola Sanilac Kent Spectrum Health United Hospital Lapeer Ottawa Ionia Clinton Shiawassee Genesee St. Clair Allegan Barry Eaton Ingham Livingston Oakland Macomb Van Buren Kalamazoo Calhoun Jackson Washtenaw Wayne Berrien Cass St. Joseph Branch Hillsdale Lenawee Monroe 0 25 miles 50 County Boundaries A-22

89 Priority Health Service Area A-23