$152,300,000. Fixed Rate Revenue Bonds, Series 2008B (Children s Hospital of Wisconsin, Inc.)

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1 REMARKETING NOT A NEW ISSUE BOOK-ENTRY ONLY Ratings: Moody s: Aa3 Standard & Poor s: AA- See RATINGS herein In the opinion of Quarles & Brady LLP, Bond Counsel, under existing law, the conversion of the Series 2008B Bonds to the Fixed Rate Mode will not, in and of itself, result in the inclusion of interest on the Series 2008B Bonds in gross income of the owners of the Series 2008B Bonds for federal income tax purposes. On the original date of issuance of the Series 2008B Bonds, Bond Counsel rendered its opinion that, assuming continuous compliance with the certain covenants, under law in existence on such date of issuance, interest on the Series 2008B Bonds is excludable from the gross income of the owners of the Series 2008B Bonds for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on corporations and individuals, but is, however, included in adjusted current earnings for the purpose of computing the alternative minimum tax imposed on corporations. See the information under the heading TAX EXEMPTION, ORIGINAL ISSUE DISCOUNT and BOND PREMIUM in this Reoffering Circular for a more detailed discussion of some of the federal income tax consequences of owning the Series 2008B Bonds. The interest on the Series 2008B Bonds is not exempt from present Wisconsin income taxes. $152,300,000 Wisconsin Health and Educational Facilities Authority Fixed Rate Revenue Bonds, Series 2008B (Children s Hospital of Wisconsin, Inc.) Wisconsin Health and Educational Facilities Authority PRICE OR YIELD... As shown below FIXED RATE CONVERSION DATE... September 1, 2009 INTEREST PAYMENT DATES... February 15, 2010 and semi-annually thereafter on every February 15 and August 15 INTEREST RATE... MATURITY... As shown below August 15, as shown below Maturity Principal Interest Rate Yield Price CUSIP 2017 $5,600, % 4.050% % 97710BKY ,900, BKZ ,100, BLA8 $24,200, % Term Bond due August 15, 2024, Yield: 4.950%, Price: %* CUSIP 97710BLB6 $27,000, % Term Bond due August 15, 2029, Yield: 5.250%, Price: %* CUSIP 97710BLC4 $83,500, % Term Bond due August 15, 2037, Yield: 5.500%, Price: % CUSIP 97710BLD2 * Priced to Call Date. REOFFERING... DENOMINATIONS... REDEMPTION... LIMITED OBLIGATION... The Wisconsin Health and Educational Facilities Authority (the Authority ) issued the Series 2008B Bonds through a bookentry system of The Depository Trust Company, New York, New York ( DTC ) under a Bond Trust Indenture dated as of July 1, 2008 (the Original Bond Indenture ) between the Authority and Wells Fargo Bank, National Association, as bond trustee (the Bond Trustee ). The Series 2008B Bonds were originally issued on July 29, 2008 (the Original Issuance Date ) in the X-Tenders Mode, but will be converted (the Fixed Rate Conversion ) on September 1, 2009 (the Fixed Rate Conversion Date ) to bear interest in the Fixed Rate Mode under and pursuant to the First Supplemental Bond Trust Indenture dated the Fixed Rate Conversion Date (the Supplemental Bond Indenture and, together with the Original Bond Indenture, the Bond Indenture ) between the Authority and the Bond Trustee. No physical delivery of the Series 2008B Bonds will be made to beneficial owners, except as described in this Reoffering Circular. Payments with respect to the Series 2008B Bonds shall be made by the Bond Trustee to Cede & Co., as nominee of DTC, which will, in turn, remit such payments to DTC Participants for disbursement to the beneficial owners of the Series 2008B Bonds. See the information under the heading BOOK-ENTRY SYSTEM in this Reoffering Circular. The Series 2008B Bonds will be reoffered in authorized denominations of $5,000 or any multiple thereof. The Series 2008B Bonds are subject to optional redemption, mandatory sinking fund redemption and extraordinary optional redemption under certain circumstances. See the information under the heading THE SERIES 2008B BONDS-Redemption Provisions in this Reoffering Circular. THE SERIES 2008B BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY AND ARE NOT A DEBT OR LIABILITY OF THE STATE OF WISCONSIN OR OF ANY POLITICAL SUBDIVISION OR AGENCY THEREOF OTHER THAN THE AUTHORITY. THE SERIES 2008B BONDS DO NOT, DIRECTLY OR INDIRECTLY, OR CONTINGENTLY OBLIGATE THE STATE OF WISCONSIN OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY ANY FORM OF TAXATION OR TO MAKE ANY APPROPRIATION FOR THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE SERIES 2008B BONDS. THE SOURCE OF PAYMENT AND SECURITY FOR THE SERIES 2008B BONDS IS MORE FULLY DESCRIBED HEREIN. The Series 2008B Bonds are reoffered when, as and if issued and received by the Remarketing Agents, subject to prior sale, to withdrawal or modification of the offer without any notice, and to delivery of the legal opinion required by the Bond Indenture by Quarles & Brady LLP, Bond Counsel. Certain legal matters will be passed upon for the Authority by Quarles & Brady LLP, as its general counsel. Certain legal matters will passed upon for the Obligated Group by its counsel, Foley & Lardner LLP, and for the Remarketing Agents by their counsel, Jones Day, Chicago, Illinois. It is expected that the Series 2008B Bonds in definitive form will be available for delivery to DTC in New York, New York, on or about September 1, Goldman, Sachs & Co. August 19, 2009 Robert W. Baird & Co. Copyright 2008, American Bankers Association. CUSIP data herein is provided by Standard & Poor s, CUSIP Services Bureau, a division of the McGraw-Hill Companies, Inc., and is set forth herein for convenience for reference only. X-Tenders is a registered service mark of Goldman, Sachs & Co.

2 Regarding Use of this Reoffering Circular CERTAIN PERSONS PARTICIPATING IN THIS REOFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES 2008B BONDS. SUCH ACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. No dealer, broker, salesperson or other person has been authorized by Wisconsin Health and Educational Facilities Authority (the Authority ), Children s Hospital of Wisconsin, Inc. (the Corporation ), Children s Hospital and Health System Foundation, Inc. (the Foundation ), Goldman, Sachs & Co. or Robert W. Baird & Co. (together, the Remarketing Agents ) to give any information or to make any representations other than those contained in this Reoffering Circular and, if given or made, such information or representations must not be relied upon as having been authorized by any of the foregoing. This Reoffering Circular shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be a sale of 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 contained in this Reoffering Circular under the headings THE AUTHORITY and LITIGATION Authority has been furnished by the Authority. The information contained in this Reoffering Circular under the heading BOOK-ENTRY SYSTEM has been obtained from The Depository Trust Company. All other information contained in this Reoffering Circular has been obtained from the Corporation and the Foundation and other sources (other than the Authority) that are believed to be reliable. Such other information is not guaranteed as to accuracy or completeness by, and is not to be construed as a promise or representation by, the Authority. The information and expressions of opinion in this Reoffering Circular are subject to change without notice and neither the delivery of this Reoffering Circular nor any sale made under this Reoffering Circular shall under any circumstances create any implication that there has been no change in the affairs of the Authority, the Corporation or the Foundation since the date of this Reoffering Circular. This Reoffering Circular contains a general description of the Series 2008B Bonds, the Authority, the Corporation, the Foundation and the plan of finance and sets forth summaries of certain provisions of the Act, the Bond Indenture, the Loan Agreement and the Master Indenture described in this Reoffering Circular. The descriptions and summaries in this Reoffering Circular do not purport to be complete and are not to be construed to be a representation of the Authority. Persons interested in purchasing the Series 2008B Bonds should carefully review this Reoffering Circular (including the Appendices attached to this Reoffering Circular) as well as copies of such documents in their entireties, which are held by the Bond Trustee at its principal corporate trust office. The order and placement of materials in this Reoffering Circular, including the Appendices, are not to be deemed to be a determination of relevance, materiality or importance, and this Reoffering Circular, including the Appendices, must be considered in its entirety. The Remarketing Agents have provided the following sentence for inclusion in this Reoffering Circular: The Remarketing Agents have reviewed the information in this Reoffering Circular in accordance with, and as part of, their responsibilities to investors under federal securities laws as applied to the facts and circumstances of this transaction, but the Remarketing Agents do not guarantee the accuracy of or the completeness of such information. The Series 2008B Bonds and the Series 2008B Obligation (described below) have not been registered under the Securities Act of 1933 nor has the Bond Indenture or the Master Indenture been qualified under the Trust Indenture Act of 1939, 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, if any, and the exemption from registration or qualification in other states cannot be regarded as recommendations thereof. Neither these states nor any of their agencies have passed upon the merits of the Series 2008B Bonds or the accuracy or completeness of this Reoffering Circular. Any representation to the contrary may be a criminal offense. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS REOFFERING CIRCULAR Certain statements included or incorporated by reference in this Reoffering Circular constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United Sates Securities Exchange Act of 1934, as amended and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget or similar words. Such forward-looking statements include, among others, statements under the headings THE BUSINESS OF THE OBLIGATED GROUP CHW Facilities, and FINANCIAL PERFORMANCE Management Discussion and Analysis in Appendix A to this Reoffering Circular and BONDHOLDERS RISKS in the forepart of this Reoffering Circular. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The Corporation and the Foundation do not plan to issue any updates or revisions to those forward-looking statements if or when their expectations change, or events, conditions or circumstances on which such statements are based occur or fail to occur.

3 TABLE OF CONTENTS Page INTRODUCTION... 1 PLAN OF FINANCE... 3 THE AUTHORITY... 4 BOOK-ENTRY SYSTEM... 8 THE SERIES 2008B BONDS SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2008B BONDS ESTIMATED ANNUAL DEBT SERVICE REQUIREMENTS BONDHOLDERS RISKS RATINGS INDEPENDENT AUDITORS LITIGATION LEGAL MATTERS TAX EXEMPTION ORIGINAL ISSUE DISCOUNT BOND PREMIUM CONTINUING DISCLOSURE AGREEMENT FINANCIAL ADVISOR REOFFERING MISCELLANEOUS Appendix A Children s Hospital of Wisconsin, Inc. and Children s Hospital and Health System Foundation, Inc. Appendix B Combined Financial Statements of Children s Hospital of Wisconsin, Inc. and Children s Hospital and Health System Foundation, Inc. Appendix C Summary of Certain Provisions of the Master Indenture Appendix D Summary of Bond Indenture and Loan Agreement Appendix E Original Opinion of Bond Counsel Appendix F Form of Conversion Opinion Appendix G Form of Continuing Disclosure Agreement -i-

4 [THIS PAGE INTENTIONALLY LEFT BLANK]

5 Purpose of this Reoffering Circular REOFFERING CIRCULAR $152,300,000 Wisconsin Health and Educational Facilities Authority Fixed Rate Revenue Bonds, Series 2008B (Children s Hospital of Wisconsin, Inc.) INTRODUCTION This Reoffering Circular, including the cover page and Appendices, is furnished in connection with the remarketing of $152,300,000 in aggregate principal amount of Fixed Rate Revenue Bonds, Series 2008B (Children s Hospital of Wisconsin, Inc.) (the Series 2008B Bonds or the Bonds ) of the Wisconsin Health and Educational Facilities Authority (the Authority ), a public body politic and corporate organized under the laws of the State of Wisconsin (the State ). The Series 2008B Bonds were issued pursuant to and secured by a Bond Trust Indenture dated as of July 1, 2008 (the Original Bond Indenture ) between the Authority and Wells Fargo Bank, National Association, as bond trustee (the Bond Trustee ), and were issued in accordance with the provisions of Chapter 231 of the Wisconsin Statutes, as from time to time amended (the Act ). Certain capitalized terms used in this Reoffering Circular and not otherwise defined are defined in Appendix C and Appendix D to this Reoffering Circular. Fixed Rate Conversion The Series 2008B Bonds were originally issued on July 29, 2008 (the Original Issuance Date ) in the X- Tenders Mode under and pursuant to the Original Bond Indenture. The Series 2008B Bonds will be reoffered and converted to bear interest in the Fixed Rate Mode as set forth on the cover of this Reoffering Circular (the Fixed Rate Conversion ) on September 1, 2009 (the Fixed Rate Conversion Date ) under and pursuant to the First Supplemental Bond Trust Indenture dated the Fixed Rate Conversion Date (the Supplemental Bond Indenture and, together with the Original Bond Indenture, the Bond Indenture ) between the Authority and the Bond Trustee. See THE SERIES 2008B BONDS herein. The Obligated Group The proceeds received by the Authority from the sale of the Series 2008B Bonds were loaned to Children s Hospital of Wisconsin, Inc., a Wisconsin nonstock nonprofit corporation (the Corporation ), pursuant to a Loan Agreement dated as of July 1, 2008 (the Loan Agreement ) by and between the Authority and the Corporation. The Corporation primarily owns and operates a pediatric acute care hospital with 296 approved and staffed beds located in Wauwatosa, Wisconsin (the Hospital ). The Hospital is the only hospital in Wisconsin devoted solely to the comprehensive care and treatment of sick and injured children. The Corporation is a major teaching affiliate of The Medical College of Wisconsin On the Fixed Rate Conversion Date, the Corporation and Children s Hospital and Health System Foundation, Inc., a Wisconsin nonstock nonprofit corporation (the Foundation ), will be the Members of the Obligated Group created under the Master Indenture described below. The Foundation is responsible for the fundraising of the Corporation, Children s Hospital and Health System, Inc. (the Parent ) and other affiliated tax-exempt entities. See Appendix A to this Reoffering Circular for a more detailed description of the Corporation and the Foundation and their history, organization, facilities and financial performance. Purpose of the Series 2008B Bonds The proceeds of the sale of the Series 2008B Bonds were used to (1) currently refund the Authority s Variable Rate Revenue Bonds, Series 2004B (Children s Hospital of Wisconsin, Inc.) (the Series 2004B Bonds ), (2) currently refund the Authority s $49,225,000 Variable Rate Revenue Bonds, Series (Children s Hospital of Wisconsin, Inc.) (the Series 2007 Bonds ), (3) pay or reimburse the Corporation for the cost of constructing, renovating and equipping certain of its health care facilities and (4) pay certain costs incurred in connection with the

6 issuance of the Series 2008B Bonds and the current refunding of the Series 2004B Bonds and the Series 2007 Bonds, all as permitted by the Act. Security To evidence the loan under the Loan Agreement, the Corporation issued its Direct Note Obligation, Series 2008B (Wisconsin Health and Educational Facilities Authority) (the Series 2008B Obligation ) payable to the Authority providing for payments sufficient to pay principal of and premium, if any, and interest on the Series 2008B Bonds. The Series 2008B Obligation was issued pursuant to the Master Indenture described below. The Series 2008B Obligation is a general obligation of each Member of the Obligated Group. The Authority pledged and assigned the Series 2008B Obligation and certain of its rights under the Loan Agreement to the Bond Trustee as security for the Series 2008B Bonds. The Series 2008B Obligation was issued under and pursuant to an Amended and Restated Master Trust Indenture dated as of May 1, 2004 among the Corporation, the Foundation and The Bank of New York Mellon Trust Company, National Association, as successor master trustee (the Master Trustee ), as previously supplemented and amended (the Original Master Indenture ), and as further supplemented and amended by the Eleventh Supplemental Master Trust Indenture dated as of July 1, 2008 (the Eleventh Supplemental Master Indenture and, together with the Original Master Indenture, the Master Indenture ) providing for the issuance of the Series 2008B Obligation described under SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2008B BONDS The Master Indenture and the Series 2008B Obligation below. As of the Fixed Rate Conversion Date, the Corporation and the Foundation will be the only Members of the Obligated Group (as such terms are defined in Appendix C hereto). Neither the Parent nor any of its affiliates (other than the Corporation and the Foundation) is a Member of the Obligated Group and therefore neither the Parent nor any of its affiliates (other than the Corporation and the Foundation) has any obligation with respect to the Series 2008B Obligation. The Master Indenture permits other entities to become Members of the Obligated Group and the withdrawal of Members from the Obligated Group under certain circumstances. However, the Corporation has covenanted not to exit the Obligated Group so long as the Series 2008B Obligation is outstanding. See the information under the heading MODIFICATION OF MASTER INDENTURE PROVISIONS FOR THE BENEFIT OF THE HOLDERS OF THE 2008B BONDS Flagship Provision in Appendix C to this Reoffering Circular. Notwithstanding uncertainties as to enforceability of the covenant of each Member of the Obligated Group in the Master Indenture to be jointly and severally liable for each Obligation (as described under BONDHOLDERS RISKS Risks Related to Obligated Group Financing ), the accounts of the Corporation, the Foundation and any future Members of the Obligated Group will be combined for financial reporting purposes and will be used in determining whether various covenants and tests contained in the Master Indenture are met. As long as the Series 2008B Bonds remain outstanding, the Obligations of the Members of the Obligated Group under the Master Indenture are secured only by a security interest in Unrestricted Receivables of such Members. See the information under the headings SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2008B BONDS The Master Indenture and the Series 2008B Obligation and BONDHOLDERS RISKS Certain Other Matters Relating to Security for the Series 2008B Bonds. Outstanding and Additional Indebtedness In addition to the Series 2008B Obligation, the Obligated Group will have four other Obligations outstanding under the Master Indenture on the Fixed Rate Conversion Date: Direct Note Obligation, Series 1998 (Wisconsin Health and Educational Facilities Authority) of which $22,890,000 will be outstanding (the Series 1998 Obligation ) securing the portion of the Authority s Revenue Bonds, Series 1998 (Children s Hospital Wisconsin, Inc.) (the Series 1998 Bonds ); Direct Note Obligation, Series 2004A (Wisconsin Health and Educational Facilities Authority) of which $4,045,000 will be outstanding (the Series 2004A Obligation ) securing the outstanding 2

7 portion of the Authority s Fixed Rate Revenue Bonds, Series 2004A (Children s Hospital of Wisconsin, Inc.) (the Series 2004A Bonds ); Direct Note Obligation, Series 2004B-3 securing the Corporation s Obligations with respect to interest rate swap agreements relating to the Series 2008B Bonds (the Swap Obligation ); and Direct Note Obligation, Series 2008A (Wisconsin Health and Educational Facilities Authority) of which $103,640,000 will be outstanding (the Series 2008A Obligation ) securing the outstanding portion of the Authority s Fixed Rate Revenue Refunding Bonds, Series 2008A (Children s Hospital of Wisconsin, Inc.) (the Series 2008A Bonds ). In certain circumstances, the Corporation, the Foundation or any future Member of the Obligated Group may issue Additional Obligations under the Master Indenture to the Authority or to persons other than the Authority, that will not be pledged under the Bond Indenture but will be equally and ratably secured with the Series 2008B Obligation by the Master Indenture and may be secured by security in addition to that provided to the Series 2008B Obligation. See the information under the heading SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2008B BONDS. Continuing Disclosure Concurrently with the reoffering of the Series 2008B Bonds, the Corporation, on behalf of the Obligated Group, will enter into a Disclosure Dissemination Agent Agreement with Digital Assurance Certification, L.L.C. ( DAC ) (the Continuing Disclosure Agreement ) under which the Corporation will designate DAC to act as disclosure dissemination agent for the benefit of the holders of Series 2008B Bonds to provide certain financial information and to provide notice of certain events to the Municipal Securities Rulemaking Board pursuant to the requirements of Section (b)(5) of Rule 15c2-12 ( Rule 15c2-12 ) adopted by the Securities and Exchange Commission under the Securities Exchange Act of The information to be provided on a quarterly basis, an annual basis, the events that will be noticed on an occurrence basis and the other terms of the Continuing Disclosure Agreement, including termination, amendment and remedies, are set forth in Appendix G to this Reoffering Circular. See the information under the heading CONTINUING DISCLOSURE AGREEMENT below. Bondholders Risks There are risks associated with the purchase of the Series 2008B Bonds. See the information under the heading BONDHOLDERS RISKS in this Reoffering Circular for a discussion of certain of these risks. General The following descriptions and summaries of the Series 2008B Bonds, the Bond Indenture, the Loan Agreement, the Series 2008B Obligation and the Master Indenture in this Reoffering Circular are qualified by reference to the complete text of the documents being described or summarized. Copies of such documents are available for inspection at the principal corporate trust office of the Bond Trustee. Amendment of the Master Indenture As a condition to the original purchase of the Series 2008B Bonds, the purchasers consented to certain amendments of the Master Indenture. For a description of such amendments see SUMMARY OF MASTER INDENTURE AMENDMENT OF THE MASTER INDENTURE in Appendix C. Purpose of the Series 2008B Bonds PLAN OF FINANCE The proceeds of the sale of the Series 2008B Bonds were used to (1) currently refund the Series 2004B Bonds, (2) currently refund the Series 2007 Bonds, (3) pay or reimburse the Corporation for the cost of constructing, 3

8 renovating and equipping certain of its health care facilities and (4) pay certain costs incurred in connection with the issuance of the Series 2008B Bonds and the current refunding of the Series 2004B Bonds and the Series 2007 Bonds, all as permitted by the Act. Interest Rate Agreements The Corporation and the Foundation currently have an outstanding swap transaction (the Swap Agreement ) with Goldman Sachs Mitsui Marine Derivative Products, L.P. (the Swap Counterparty ) with an aggregate notional amount approximately equal to the aggregate principal amount of the Series 2008B Bonds. The obligations of the Swap Counterparty are guaranteed by The Goldman Sachs Group, Inc. See Footnote 2 and Footnote 7 in Appendix B hereto for a description of the fair value of the Swap Agreement as of December 31, In connection with the conversion of the Series 2008B Bonds, the Corporation is evaluating the Swap Agreement. Depending upon market conditions, the Corporation may elect to modify, amend or terminate all or a portion of the Swap Agreement. The terms of the Swap Agreement are based on standard ISDA ( International Swap Dealers Association ) Master Agreements, as amended through negotiations (the ISDA Agreements ), and do not directly alter or affect any of the obligations of the Obligated Group with respect to the payment of principal of or interest on the Series 2008B Bonds or any other series of bonds issued for the Obligated Group s benefit. No persons other than the Corporation and the Swap Counterparty have any rights under the Swap Agreement. Payments due under the Swap Agreement are not pledged to the payment of principal of or interest on any of the Series 2008B Bonds or any other series of bonds issued for the Obligated Group s benefit. The obligations of the Corporation under the Swap Agreement are secured by the Swap Obligation which has been previously issued under the Master Indenture on a parity with all other Obligations outstanding under the Master Indenture. Depending on the rating of any bonds issued on behalf of the Corporation secured by an Obligation and the risk rating or financial program rating, as applicable, with respect to the Swap Counterparty, each party s obligations are required to be secured by collateral, the amount of which could be substantial. The ability of the Corporation to place a lien on its collateral is limited by the Master Indenture. See the information under the heading SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Liens on Property and MODIFICATION OF MASTER INDENTURE PROVISIONS FOR THE BENEFIT OF THE BOND INSURER Liens on Property in Appendix C to this Reoffering Circular. If the Corporation is unable to secure its obligations under the Swap Agreements with sufficient collateral, the Swap Counterparty will have the right to terminate the Swap Agreements. In addition, the Swap Agreements are subject to early termination upon the occurrence of certain other specified events, including standard termination events and events of default. If an early termination occurs, the Corporation could be required to make a termination payment to the Swap Counterparty, the amount of which could be substantial and materially adverse to the financial condition of the Obligated Group. See the information under the heading BONDHOLDERS RISKS Interest Rate Swap Risk and in Appendix A under the heading FINANCIAL PERFORMANCE Management Discussion and Analysis Review of the Six Months Ended June 30, 2008 and Powers THE AUTHORITY The Authority has, among other powers, the statutory power to make loans to certain health care or educational institutions in Wisconsin, to finance the cost of projects and refinance or refund outstanding indebtedness and to assign loan agreements, notes, mortgages and other securities of health care and educational institutions to which the Authority has made loans, and the revenues therefrom, for the benefit of the holders of bonds issued to finance or refinance such projects. 4

9 Members of the Authority The Authority consists of seven members, all of whom must be Wisconsin residents, appointed by the Governor of the State of Wisconsin by and with the consent of the Wisconsin State Senate. Members of the Authority serve staggered seven year terms and continue to serve until their successors are appointed. The members of the Authority receive no compensation for the performance of their duties but are paid their necessary expenses while engaged in the performance of such duties. No member, officer, agent or employee of the Authority may, directly or indirectly, have any financial interest in any bond issue or in any loan or any property to be included in, or any contract for property or materials to be furnished or used in connection with, any project of the Authority, under penalty of law. Members of the Authority, however, may serve as directors or officers of institutions for which the Authority is providing financing, but they may not vote or take part in the Authority s deliberations concerning such financing. [Remainder of Page Intentionally Blank] 5

10 The present members of the Authority are: Term Expires (June 30) John A. Noreika, Chairperson Executive Director Oakwood Village Madison, Wisconsin Tim Size, Vice Chairperson Executive Director Rural Wisconsin Health Cooperative Sauk City, Wisconsin Richard Canter Senior Vice President Strategy and Corporate Affairs Wheaton Franciscan Healthcare, Inc. Milwaukee, Wisconsin Bruce Colburn Coordinator Property Services (Central Region) Service Employees International Union Milwaukee, Wisconsin Kevin Flaherty VP/Relationship Manager Associated Commercial Finance, Inc. Milwaukee, Wisconsin Beth L. Gillis, M.D. Physician ThedaCare Physicians-Shawano Family Medicine Shawano, Wisconsin Ken Thompson Managing Partner Quinn David & Associates Milwaukee, Wisconsin 2009* * Mr. Noreika shall continue to serve until a successor is appointed by the Wisconsin governor. Authority Counsel Quarles & Brady, LLP, serves as general counsel to the Authority. 6

11 Financing Program of the Authority The following summary outlines the principal amount of revenue bonds and notes issued during each of the Authority s fiscal years. These previous issues are secured by instruments separate and apart from the Master Indenture and the Bond Indenture. Fiscal Year Ended June 30 Number of Issues Public Issues Private Placements Total Amount Number of Issues Amount Number of Issues Amount $ 0 1 $ 1,300,000 1 $ 1,300, ,480, ,365, ,845, ,100, ,575, ,675, ,000, , ,600, ,375, ,225, ,600, ,505, ,200, ,705, ,260, ,478, ,738, ,610, ,410, ,020, ,890, ,589, ,479, ,979, ,394, ,373, ,605, ,737, ,342, ,590, ,500, ,090, ,160, ,500, ,660, ,235, ,775, ,010, ,495, ,615, ,110, ,770, ,847, ,617, ,905, ,800, ,705, ,960, , ,724, ,050, ,700, ,750, ,960, ,000, ,960, ,710, ,736, ,446, ,580, ,589, ,169, ,100, ,000, ,100, ,895, ,935, ,830, ,245, ,980, ,225, ,038, ,067, ,105, ,235, ,570, ,805, ,238,330, ,090, ,267,420, ,006,255, ,500, ,042,755, ,470,875, ,859, ,508,734,824 TOTAL 475 $13,824,192,730* 130 $698,701,274** 603 $14,522,894,004 * Includes $4,139,036,987 which was refinanced by subsequent Authority bond issues. ** Includes $90,948,136 which was refinanced by subsequent Authority bond issues. 7

12 In its fiscal year beginning July 1, 2009, the Authority has authorized the issuance of additional issues of bonds. The Authority plans to offer other obligations from time to time to finance other health and educational facilities. Such other obligations will be issued pursuant to and secured by instruments separate and apart from the Bond Indenture and the security for the Series 2008B Bonds. Bonds of the Authority The Authority may from time to time issue bonds for any corporate purpose and, pursuant to the Act, these bonds are negotiable for all purposes notwithstanding their payment from a limited source. The bonds are payable solely out of revenues of the Authority specified in the resolution under which they are issued or in a related trust indenture or mortgage. The Authority must pledge the revenues to be received on account of each financing as security for the bonds issued in that financing. Interest Not Exempt from Wisconsin Income Taxes Interest on bonds issued by the Authority is not exempt from present Wisconsin income taxes. State of Wisconsin Not Liable on the Series 2008B Bonds The Series 2008B Bonds and the interest payable thereon do not constitute a debt or liability of the State of Wisconsin or of any political subdivision thereof other than the Authority, but will be payable solely from the funds pledged for the Series 2008B Bonds in accordance with the Bond Indenture. The Series 2008B Bonds do not, directly, indirectly or contingently, obligate the State of Wisconsin or any political subdivision thereof to levy any form of taxation for the payment for the Series 2008B Bonds or to make any appropriation for their payment. The State of Wisconsin will not in any event be liable for the payment of the principal of or interest on the Series 2008B Bonds or for the performance of any pledge, obligation or agreement of any kind whatsoever which may be undertaken by the Authority. No breach by the Authority of any such pledge, obligation or agreement may impose any pecuniary liability upon the State of Wisconsin or any charge upon its general credit or against its taxing power. The Authority has no taxing power. The Act provides that the State of Wisconsin pledges to, and agrees with, holders of any obligations issued under the Act that it will not limit or alter the rights vested in the Authority by the Act until such obligations, together with the interest thereon, are fully met and discharged, provided nothing in the Act precludes such limitation or alteration if and when adequate provision will be made by law for the protection of the holders of such obligations. BOOK-ENTRY SYSTEM Information concerning The Depository Trust Company ( DTC ), New York, New York, and the Book- Entry System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, the Authority, the Remarketing Agents, the Bond Trustee or the Corporation. Bonds In Book-Entry Form Beneficial ownership in the Series 2008B Bonds is available to Beneficial Owners (as described below) only by or through DTC Participants via a book-entry system (the Book-Entry System ) maintained by DTC. If the Series 2008B Bonds are taken out of the Book-Entry System and delivered to owners in physical form, as contemplated under the subheading Discontinuance of DTC Services below the following discussion will not apply. DTC and Its Participants DTC acts as securities depository for the Series 2008B Bonds. The Series 2008B Bonds are issued as fullyregistered 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. 8

13 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 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s participants (the Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized bookentry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (the Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of the 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 Bond (the Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial 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 Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 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 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 the Series 2008B Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2008B Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Series 2008B Bonds may wish to take certain steps to augment the 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 bond documents. For example, Beneficial Owners of the 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 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 any 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 MMI Procedures. Under its usual 9

14 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, principal and interest 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 Bond Trustee or the Authority, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC nor its nominee, the Bond Trustee, the Corporation or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, principal and interest 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. Discontinuance of DTC Services Series 2008B Bond certificates also will be issued directly to owners of the Series 2008B Bonds other than DTC, or its nominee, upon the occurrence of the following events (subject, however, to operation of the two sentences following clause (c) below): (a) DTC determines not to continue to act as securities depository for the Series 2008B Bonds; or (b) the Corporation with the consent of the Bond Trustee has advised DTC of its determination that DTC is incapable of discharging its duties; or (c) the Corporation with the consent of the Bond Trustee has determined that it is in the best interest of the Bondholders not to continue the book-entry system of transfer or that interests of the Beneficial Owners of the Series 2008B Bonds might be adversely affected if the book-entry system of transfer is continued. Upon occurrence of the event described in clause (a) or (b) above, the Corporation shall attempt to locate another qualified securities depository. If the Corporation fails to locate another qualified securities depository to replace DTC, the Bond Trustee shall authenticate and deliver Series 2008B Bonds in certificated form. Subject to DTC s withdrawal process and utilization of the same by a Participant, in the event the Corporation makes the determination noted in (b) or (c) above (as to which the Corporation undertakes no obligation to make any investigation to determine the occurrence of any events that would permit the Corporation to make any such determination), and has made provisions to notify the Beneficial Owners of the Series 2008B Bonds of the availability of Series 2008B Bond certificates by mailing an appropriate notice to DTC, the Authority shall execute and the Bond Trustee shall authenticate and deliver Series 2008B Bonds in certificated form in appropriate amounts to such Participants. Use of Certain Terms in Other Sections of the Reoffering Circular In reviewing this Reoffering Circular it should be understood that while the Series 2008B Bonds are in the Book-Entry System, reference in other sections of this Reoffering Circular to owners of such Series 2008B Bonds should be read to include any person for whom a Participant acquires an interest in Series 2008B Bonds, but (i) all rights of ownership, as described herein, must be exercised through DTC and the Book-Entry System and (ii) notices that are to be given to registered owners by the Bond Trustee will be given only to DTC. DTC is required to forward (or cause to be forwarded) the notices to the Participants by its usual procedures so that such Participants may forward (or cause to be forwarded) such notices to the Beneficial Owners. Disclaimer None of the Authority, the Corporation, the Remarketing Agents or the Bond Trustee has any responsibility or obligation to any DTC Participant or any Beneficial Owner with respect to: (1) the accuracy of any records maintained by DTC or any Participant; (2) the payment by DTC or any Participant of any amount due to any Beneficial Owner in respect of the principal or interest on the Series 2008B Bonds; (3) the delivery by DTC or any Participant to any Beneficial Owner of any notice (including a notice of redemption) or other communication which is required or permitted to be given to Bondholders under the Bond Indenture; (4) the selection of the Beneficial Owners to receive payment in the event of a partial redemption 10

15 of a subseries of the Series 2008B Bonds; or (5) any consent given or other action taken by DTC as Bondholder. 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. General THE SERIES 2008B BONDS As of the Fixed Rate Conversion Date, the Series 2008B Bonds will bear interest at the rates and will mature (subject to the redemption provisions described below) in the amounts and on the dates set forth on the cover of this Reoffering Circular. Interest on the Series 2008B Bonds in the Fixed Rate Mode will be paid on each February 15 and August 15 (or, if such date is not a Business Day, the succeeding Business Day) commencing February 15, 2010 (each such date an Interest Payment Date ). During the Fixed Rate Mode, interest on the Series 2008B Bonds will be calculated on the basis of a 360-day year comprised of twelve 30-day months. The Series 2008B Bonds will mature as set forth on the front cover of this Reoffering Circular. The Series 2008B Bonds are issued as fully registered bonds without coupons. The Series 2008B Bonds will be reoffered in Authorized Denominations of $5,000 or any integral multiple thereof. The Series 2008B Bonds will be subject to mandatory, optional and extraordinary optional redemption and optional purchase prior to maturity as described under THE SERIES 2008B BONDS-Redemption Provisions below. The Bond Trustee will act as Paying Agent for the Series 2008B Bonds in the Fixed Rate Mode. Goldman, Sachs & Co. and Robert W. Baird & Co. will serve as the Remarketing Agents for the Series 2008B Bonds on the Fixed Rate Conversion Date. The Series 2008B Bonds will be issued under a book-entry only system, and will be registered in the name of Cede & Co., as nominee for The Depository Trust Company ( DTC ), New York, New York. DTC which will act as bond depository the Series 2008B Bonds. Principal or redemption price of and interest on the Series 2008B Bonds are payable by the Bond Trustee to Cede & Co., so long as Cede & Co. is the registered owner of the Series 2008B Bonds, as nominee for DTC, which will, in turn, remit such principal and interest to the DTC Participants for subsequent the Beneficial Owners. See BOOK-ENTRY SYSTEM above. If the book entry system is discontinued the following paragraph would apply. Interest payments on a Series 2008B Bond shall be made to the registered owner thereof appearing on the Bond Register as of the close of business of the Registrar on the 15 th day (whether or not a Business Day) of the calendar month next preceeding each Interest Payment Date (the Record Date ). Interest on the Series 2008B Bonds during a Fixed Rate Period shall be paid by check or draft of the Bond Trustee mailed on the Interest Payment Date to such registered owner at the address of such owner as it appears on the Bond Register or at such other address furnished in writing by such registered owner to the Bond Trustee or to any owner of $1,000,000 or more in aggregate principal amount of Series 2008B Bonds as of the close of business of the Bond Trustee on the Record Date for a particular Interest Payment Date, by wire transfer sent on the Interest Payment Date, to such owner. Redemption Provisions Mandatory Redemption The Series 2008B Bonds maturing August 15, 2024 are subject to partial mandatory redemption by lot on August 15, 2020 and on each August 15 thereafter until August 15, 2023 and are payable at maturity on August 15, 2024 under the bond sinking fund provisions of the Bond Indenture at 100% of the principal amount so redeemed or paid, plus accrued interest, as set forth below: 11

16 AUGUST 15 OF THE YEAR PRINCIPAL AMOUNT OF REDEMPTION 2020 $6,300, ,600, ,600, ,800, ,900,000 Maturity The Bond Trustee may, if requested to do so by the Corporation not less than 60 days in advance of a redemption date referred to above, reduce the amount designated as the Principal Amount of Redemption by the principal amount of outstanding Series 2008B Bonds of the same maturity acquired by the Corporation and delivered to the Bond Trustee for cancellation, or acquired by the Bond Trustee and canceled, which have not previously been used for such a reduction. Each Bond delivered to the Bond Trustee as described in this paragraph and maturing on August 15, 2024 will reduce the Principal Amount of Redemption and the amount due at maturity in the years and in the amounts directed by the Corporation or, if the Corporation has not provided adequate direction within 45 days of the redemption date, pro rata for each of the years 2020 to and including 2024 in which payments of principal on the Series 2008B Bonds under the immediately preceding paragraph have not then been made based on the amount of the sinking fund redemptions to be made in those years, subject to the adjustments to be made by the Bond Trustee so that after a redemption no Series 2008B Bonds are outstanding in other than Authorized Denominations. The Series 2008B Bonds maturing August 15, 2029 are subject to partial mandatory redemption by lot on August 15, 2025 and on each August 15 thereafter until August 15, 2028 and are payable at maturity on August 15, 2029 under the bond sinking fund provisions of the Bond Indenture at 100% of the principal amount so redeemed or paid, plus accrued interest, as set forth below: AUGUST 15 OF THE YEAR PRINCIPAL AMOUNT OF REDEMPTION 2025 $ 4,000, ,100, ,300, ,400, ,200,000 Maturity The Bond Trustee may, if requested to do so by the Corporation not less than 60 days in advance of a redemption date referred to above, reduce the amount designated as the Principal Amount of Redemption by the principal amount of outstanding Series 2008B Bonds of the same maturity acquired by the Corporation and delivered to the Bond Trustee for cancellation, or acquired by the Bond Trustee and canceled, which have not previously been used for such a reduction. Each Bond delivered to the Bond Trustee as described in this paragraph and maturing on August 15, 2029 will reduce the Principal Amount of Redemption and the amount due at maturity in the years and in the amounts directed by the Corporation or, if the Corporation has not provided adequate direction within 45 days of the redemption date, pro rata for each of the years 2025 to and including 2029 in which payments of principal on the Series 2008B Bonds under the immediately preceding paragraph have not then been made based on the amount of the sinking fund redemptions to be made in those years, subject to the adjustments to be made by the Bond Trustee so that after a redemption no Series 2008B Bonds are outstanding in other than Authorized Denominations. The Series 2008B Bonds maturing August 15, 2037 are subject to partial mandatory redemption by lot on August 15, 2030 and on each August 15 thereafter until August 15, 2036 and are payable at maturity on August 15, 12

17 2037 under the bond sinking fund provisions of the Bond Indenture at 100% of the principal amount so redeemed or paid, plus accrued interest, as set forth below: AUGUST 15 OF THE YEAR PRINCIPAL AMOUNT OF REDEMPTION 2030 $10,600, ,000, ,400, ,900, ,300, ,300, ,600, ,400,000 Maturity The Bond Trustee may, if requested to do so by the Corporation not less than 60 days in advance of a redemption date referred to above, reduce the amount designated as the Principal Amount of Redemption by the principal amount of outstanding Series 2008B Bonds of the same maturity acquired by the Corporation and delivered to the Bond Trustee for cancellation, or acquired by the Bond Trustee and canceled, which have not previously been used for such a reduction. Each Bond delivered to the Bond Trustee as described in this paragraph and maturing on August 15, 2037 will reduce the Principal Amount of Redemption and the amount due at maturity in the years and in the amounts directed by the Corporation or, if the Corporation has not provided adequate direction within 45 days of the redemption date, pro rata for each of the years 2030 to and including 2037 in which payments of principal on the Series 2008B Bonds under the immediately preceding paragraph have not then been made based on the amount of the sinking fund redemptions to be made in those years, subject to the adjustments to be made by the Bond Trustee so that after a redemption no Series 2008B Bonds are outstanding in other than Authorized Denominations. Optional Redemption The Series 2008B Bonds are callable for optional redemption prior to maturity in the event the Corporation shall exercise its option to prepay amounts under the Loan Agreement or on the Series 2008B Obligation in an amount sufficient to redeem all or a portion or the Bonds then outstanding. Series 2008B Bonds in the Fixed Rate Mode are subject to redemption in whole on any date or in part on any Interest Payment Date (and if in part, in such order of maturity as the Corporation shall specify and within a maturity by lot or by such other method as the Paying Agent determines to be fair and reasonable and in Authorized Denominations) commencing on the Interest Payment Date next following the tenth anniversary of the change to the Fixed Rate Mode (February 15, 2020) at a redemption price of 100% of the principal amount of the Series 2008B Bonds being redeemed, together with accrued interest, if any, to the redemption date. If the length of the Fixed Rate Period is less than 10 years, then the Series 2008B Bonds shall not be subject to redemption during such Fixed Rate Period. If called for redemption in this event, such Series 2008B Bonds will be subject to redemption, in whole or in part, and if in part by maturities or portions thereof designated by the Corporation or, if not so designated, in inverse order of maturity (less than all of a maturity to be selected by lot using such method as may be designated by the Bond Trustee). Extraordinary Redemption The Series 2008B Bonds are also redeemable prior to maturity in the event of damage to or destruction of the Property (as defined in Appendix C to this Reoffering Circular) of any Member of the Obligated Group or any part thereof or condemnation of the Property of any Member of the Obligated Group or any part thereof or sale 13

18 consummated under threat of condemnation of the Property of any Member of the Obligated Group or any part thereof, if the Net Proceeds (as defined in Appendix C to this Reoffering Circular) of insurance, condemnation or sale received in connection therewith exceeds (1) $2,000,000 or (2) the sum of $2,000,000 plus an amount equal to $2,000,000 multiplied by a percentage equal to the aggregate percentage change in the Construction Index (as defined in Appendix C to this Reoffering Circular) from its level of March 1, 1988, but only to the extent of the Net Proceeds received. See the information under the headings SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Damage or Destruction and Condemnation in Appendix C to this Reoffering Circular. If called for redemption in such events, the Series 2008B Bonds will be subject to redemption by the Authority at the direction of the Corporation at any time, in whole or in part and if in part, by maturities or portions thereof designated by the Corporation or, if not so designated, in inverse order of maturity (and if less than all of a maturity is being redeemed by lot within a maturity in such manner as may be designated by the Bond Trustee), at the principal amount thereof plus accrued interest to the Redemption Date and without premium. Purchase in Lieu of Redemption Purchase and Cancellation. In lieu of redeeming the Series 2008B Bonds as described above, the Bond Trustee may, at the request of the Corporation, use such funds otherwise available under the Bond Indenture for redemption of Series 2008B Bonds to purchase Series 2008B Bonds identified by the Corporation in the open market at a price specified by the Corporation not exceeding the Redemption Price then applicable under the Bond Indenture, such Series 2008B Bonds to be delivered to the Bond Trustee for the purpose of cancellation. In the case of any such redemption or purchase of Series 2008B Bonds, the Authority will receive credit against its required Bond Sinking Fund deposits in the same manner as would be applicable if such Series 2008B Bonds were optionally redeemed. Purchase Without Cancellation. The Authority and, by their acceptance of the Series 2008B Bonds, the owners of the Series 2008B Bonds, irrevocably grant to the Corporation the option to purchase, at any time when the Series 2008B Bonds are optionally redeemable pursuant to the provisions of the Bond Indenture described above, any Series 2008B Bonds at a purchase price equal to the Redemption Price applicable thereto. To exercise such option with respect to the Series 2008B Bonds, the Corporation must give the Bond Trustee a Written Request as though such Written Request were a written request of the Authority for redemption, and the Bond Trustee is thereupon required to give the owners of such Series 2008B Bonds notice of such purchase in the manner specified under the subheading Notice of Redemption; Effect of Redemption below, as though such purchase were a redemption. The purchase of such Series 2008B Bonds will be mandatory and enforceable against the owners of the Series 2008B Bonds. On the date fixed for purchase pursuant to any exercise of such option, the Corporation must pay the purchase price of the Series 2008B Bonds then being purchased to the Bond Trustee in immediately available funds, and the Bond Trustee will pay the same to the owners of such Series 2008B Bonds against delivery thereof. Following such purchase, the Bond Trustee will cause such Series 2008B Bonds to be registered in the name of the Corporation or its nominee and will deliver them to the Corporation or its nominee. In the case of the purchase of less than all of the Series 2008B Bonds, the particular Series 2008B Bonds to be purchased will be selected in accordance with the provisions of the Bond Indenture. Notwithstanding the foregoing, no purchase shall be made pursuant to the provisions described in this paragraph unless the Corporation shall have delivered to the Bond Trustee and the Authority concurrently therewith a Favorable Opinion of Bond Counsel with respect to such purchase. General No redemption of less than all of the Series 2008B Bonds at the time outstanding will be made unless the aggregate principal amount of the Series 2008B Bonds to be redeemed is at least $100,000 and the aggregate principal amount of the Series 2008B Bonds not to be redeemed are each in an Authorized Denomination for such Series 2008B Bonds. In the event of any partial optional or extraordinary optional redemption of the Series 2008B Bonds as described above, the mandatory Bond Sinking Fund redemption payments will be reduced in such order as the Corporation will elect prior to such redemption or, if no such election is made, in the inverse order thereof. 14

19 Notice of Redemption; Effect of Redemption A copy of the notice of the call for any redemption or purchase in lieu thereof identifying the Series 2008B Bonds to be redeemed will be given by first class mail, postage prepaid, to the registered owners of Series 2008B Bonds to be redeemed at their addresses as shown on the Bond Register, the Authority and the rating agencies then rating the Series 2008B Bonds, no less than 30 days prior to the Redemption Date with respect to such Series 2008B Bonds. Except for mandatory Bond Sinking Fund redemptions with respect to the Series 2008B Bonds, prior to the date that the redemption or purchase notice is first mailed as aforesaid, funds will be placed with the Bond Trustee for such Series 2008B Bonds to be redeemed or purchased to pay such Series 2008B Bonds and any premium thereon and accrued interest thereon to the redemption or purchase date, or such notice will state that any redemption or purchase is conditional on such funds being deposited with the Bond Trustee on the redemption or purchase date and that a failure to make such deposit shall not constitute an event of default under the Bond Indenture. Failure to give notice in the manner prescribed above with respect to any such Series 2008B Bonds, or any defect in such notice, will not affect the validity of the proceedings for redemption or purchase in lieu thereof for any other Series 2008B Bonds with respect to which notice was properly given. While the Series 2008B Bonds are subject to the Book-Entry System, redemption notices will be sent to Cede & Co. Upon the happening of the above conditions and if sufficient moneys are on deposit with the Bond Trustee on the applicable Redemption Date to redeem the Series 2008B Bonds to be redeemed and to pay interest due thereon and premium, if any, the Series 2008B Bonds thus called will not after the applicable Redemption Date bear interest, be protected by the Bond Indenture or be deemed to be outstanding under the provisions of such Bond Indenture. Retained Call Rights All or a portion of the Series 2008B Bonds may, in the future, be refunded or defeased to any redemption date or maturity for the Series 2008B Bonds. In connection with the original issuance of the Series 2008B Bonds, the Authority, the Bond Trustee and the Corporation reserved all of the call rights pertaining thereto. Therefore, subject to certain requirements in the Bond Indenture, subsequent to the date that cash and/or United States Government Obligations are deposited with the Bond Trustee to provide for the payment of all or any portion of the Series 2008B Bonds at the Maturity Date or any redemption date therefor, the Authority may, if directed by the Corporation, elect to call such Series 2008B Bonds (or any portions thereof) on any earlier redemption date applicable to such Series 2008B Bonds. Subsequent to the date that cash and/or United State Government Obligations are deposited with the Bond Trustee to provide for the payment of all or any portion of the Series 2008B Bonds at any redemption date or dates applicable to such Series 2008B Bonds (but prior to the giving of any notice of redemption with respect to such Series 2008B Bonds pursuant to the Bond Indenture), the Authority may, if directed by the Corporation, elect to pay such Series 2008B Bonds (or any portion thereof) at the respective maturity dates therefor. See the information under the headings THE SERIES 2008B BONDS Redemption Provisions Optional Redemption and SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE Defeasance in Appendix D to this Reoffering Circular. References to Bondholders While the Series 2008B Bonds are in the Book-Entry System, reference in this Reoffering Circular to owners of the Series 2008B Bonds should be read to include any person for whom a participant acquires an interest in the Series 2008B Bonds, but (1) all rights of ownership, as described herein, must be exercised through DTC and the Book-Entry System and (2) notices that are to be given to registered owners by the Bond Trustee will be given only to DTC. See the information under the heading BOOK-ENTRY SYSTEM above. 15

20 SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2008B BONDS General The Series 2008B Bonds are limited obligations of the Authority and are payable solely from (1) payments or prepayments to be made on the Series 2008B Obligation, (2) payments under the Loan Agreement (other than the Authority s fees and expenses and the Authority s right to indemnification in certain circumstances), (3) certain money and investments and the income from the temporary investment thereof held by the Bond Trustee under the Bond Indenture and (4) under certain circumstances, proceeds from certain insurance and condemnation awards and sale proceeds. Certain moneys deposited with the Bond Trustee will be held in a rebate fund established pursuant to a Tax Exemption Certificate and Agreement among the Authority, the Bond Trustee and the Corporation. Amounts held in the rebate fund are not pledged to secure the Series 2008B Bonds and consequently will not be available to make payments on the Series 2008B Bonds. The Loan Agreement The rights of the Authority in and to the Series 2008B Obligation, the amounts payable thereon and the amounts payable to the Authority under the Loan Agreement (other than the Authority s fees and expenses and the Authority s right to indemnification in certain circumstances) have been assigned to the Bond Trustee to provide for and to secure the payment of principal of, premium, if any, and interest on the Series 2008B Bonds. The Corporation agrees under the Loan Agreement to make its payments on the Series 2008B Obligation directly to the Bond Trustee. The Loan Agreement imposes certain restrictions on the Corporation s actions for the benefit of the Authority and the holders of the Series 2008B Bonds. See the information under the heading SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT in Appendix D to this Reoffering Circular. The Master Indenture and the Series 2008B Obligation As of the Fixed Rate Conversion Date, the Corporation and the Foundation will be the only Members of the Obligated Group created under the Master Indenture. Neither the Parent nor any affiliated corporation (other than the Corporation and the Foundation) will have any obligation to make payments with respect to the Series 2008B Obligation or any other Obligation issued under the Master Indenture. Payments on the Series 2008B Obligation are the joint and several obligation of each Member of the Obligated Group. Notwithstanding uncertainties as to enforceability of the covenant of each Member of the Obligated Group in the Master Indenture to be jointly and severally liable for each Obligation (as described under BONDHOLDERS RISKS Risks Related to Obligated Group Financings ), the accounts of the Corporation, the Foundation and any future Members of the Obligated Group will be combined for financial reporting purposes and will be used in determining compliance with various covenants and tests contained in the Master Indenture. The Series 2008B Obligation is a general obligation of each Member of the Obligated Group. Pursuant to the Master Indenture, the Obligations of the Members of the Obligated Group are secured only by a security interest in the Unrestricted Receivables (subject to Permitted Encumbrances) of such Members. Under the terms of the Eleventh Supplemental Master Indenture, the Members of the Obligated Group agree to maintain the security interest in the Unrestricted Receivables of the Obligated Group as long as the Series 2008B Obligation remains outstanding; however, the Master Indenture allows the Members of the Obligated Group to incur Indebtedness and other obligations and to secure those obligations with a security interest in accounts receivable (which constitute Unrestricted Receivables) which security interest is prior to the security interest therein which was granted under the Master Indenture. The Master Indenture permits the Obligated Group to sell, or grant a security interest prior to the security interest in Unrestricted Receivables in, its accounts receivable without limitation See SUMMARY OF MASTER INDENTURE DEFINITION OF CERTAIN TERMS - Permitted Encumbrances and SUMMARY OF MASTER INDENTURE MODIFICATION OF MASTER INDENTURE PROVISIONS FOR THE BENEFIT OF THE HOLDERS OF THE SERIES 2008 BONDS Permitted Indebtedness in Appendix C to this Reoffering Circular. See the information under the heading BONDHOLDERS RISKS Certain Other Matters Relating to Security for the Series 2008B Bonds. 16

21 Under certain conditions specified in the Master Indenture, Members of the Obligated Group may issue Additional Obligations to parties other than the Authority, which Additional Obligations will not be pledged under the Bond Indenture, but will be equally and ratably secured by the Master Indenture with the Series 2008B Obligation. In addition to the Series 2008B Obligation, upon the Fixed Rate Conversion Date, the Series 1998 Obligation, the Series 2004A Obligation, the Series 2008A Obligation and the Swap Obligation will remain outstanding. The Master Indenture also permits such Additional Obligations to be secured by security in addition to that provided for the Series 2008B Obligation, including Liens on the Property (including health care Facilities) of Members of the Obligated Group, or letters or lines of credit or insurance or security interests in depreciation reserve, debt service or interest reserve or debt service or similar funds. In addition, the Master Indenture permits each Member of the Obligated Group to incur Additional Indebtedness and to enter into Guaranties, all upon the terms and conditions specified therein. See Appendix C to this Reoffering Circular for a description of certain terms of the Master Indenture, including those which impose restrictions on actions of the Obligated Group for the benefit of all holders of Obligations issued under the Master Indenture. The Master Indenture provides that Supplemental Master Indentures pursuant to which one or more series of Obligations entitled to additional security is issued may provide for such amendments to the provisions of the Master Indenture, including the provisions thereof relating to the exercise of remedies upon the occurrence of an event of default, as are necessary to provide for such security and to permit realization upon such security solely for the benefit of the Obligations entitled thereto. The Master Indenture contains certain business covenants and security provisions summarized under the heading SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE in Appendix C to this Reoffering Circular. The Master Indenture, as originally executed, does not contain financial tests for the incurrence of Indebtedness or for the entry and exit of Members from the Obligated Group. However, the Eleventh Supplemental Master Indenture includes certain covenants (the Series 2008B Covenants ) which will be effective as long as the Series 2008B Obligation remains outstanding. The Series 2008B Covenants include: (1) an agreement to maintain the pledge of Unrestricted Receivables described above, (2) certain financial tests for the incurrence of Indebtedness by any Member of the Obligated Group, (3) a covenant that the Corporation will remain a member of the Obligated Group and (4) a debt service coverage test for the entry and exit of entities into and out of the Obligated Group. See MODIFICATION OF MASTER INDENTURE PROVISIONS FOR THE BENEFIT OF THE HOLDERS OF THE SERIES 2008B BONDS in Appendix C to this Reoffering Circular. Identical covenants were granted to the holders of the Series 2008A Bonds pursuant to the Master Indenture (the Series 2008A Covenants ). The Series 2008A Covenants and the Series 2008B Covenants may be modified, amended or waived with the prior written consent of the holders of a majority in principal amount of the outstanding Series 2008A Bonds or Series 2008B Bonds, respectively. Failure to comply with such covenants could result in the acceleration of all Obligations issued under the Master Indenture and the Series 2008B Bonds. The Sixth Supplemental Master Indenture, contains certain other covenants (the Bond Insurer Covenants ) that are for the sole benefit of Ambac as the insurer for the Series 1998 Bonds. The Bond Insurer Covenants are more restrictive than the provisions of the Master Indenture as summarized under the heading SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE in Appendix C. The Bond Insurer may modify, amend or waive the Bond Insurer Covenants at its sole discretion at any time without the consent of or any notice to the holders of the Series 2008B Bonds. Failure to comply with such covenants could result in the acceleration of all Obligations issued under the Master Indenture and the Series 2008B Bonds. For a description of the Bond Insurer Covenants, see MODIFICATION OF MASTER INDENTURE PROVISIONS FOR THE BENEFIT OF THE BOND INSURER in Appendix C to this Reoffering Circular. 17

22 ESTIMATED ANNUAL DEBT SERVICE REQUIREMENTS The following table sets forth, for each year ending December 31, the amount required to be deposited by the Obligated Group for the payment of principal of the Series 2008B Bonds and the other long-term indebtedness of the Obligated Group at maturity or by mandatory sinking fund redemption and the payment of interest thereon. See the information under the heading FINANCIAL PERFORMANCE Historical and Pro Forma Debt Service Coverage in Appendix A to this Reoffering Circular for certain calculations of coverage of debt service of the Obligated Group. Year Ending Series 2008B Bonds December 31 Principal Interest Other Debt Service 1 Aggregate Debt Service $7,654,979 $10,697,450 $18,352, ,011,025 9,685,575 17,696, ,011,025 9,691,528 17,702, ,011,025 9,684,450 17,695, ,011,025 9,685,841 17,696, ,011,025 9,684,856 17,695, ,011,025 9,685,794 17,696, $ 5,600,000 8,011,025 7,217,888 20,828, ,900,000 7,787,025 7,146,763 20,833, ,100,000 7,539,225 7,189,738 20,828, ,300,000 7,273,875 7,238,913 20,812, ,600,000 6,935,250 7,193,238 20,728, ,600,000 6,580,500 10,423,488 20,603, ,800,000 6,387,000 10,366,875 20,553, ,900,000 6,182,750 10,422,400 20,505, ,000,000 5,973,125 10,478,500 20,451, ,100,000 5,753,125 10,541,000 20,394, ,300,000 5,527,625 10,508,500 20,336, ,400,000 5,291,125 10,584,750 20,275, ,200,000 5,049,125 5,038,500 20,287, ,600,000 4,488,125 5,049,750 20,137, ,000,000 3,918,375 5,083,500 20,001, ,400,000 3,327,125 5,133,250 19,860, ,900,000 2,714,375 5,097,750 19,712, ,300,000 2,074,750 5,180,750 19,555, ,300,000 1,413,625 11,596,000 19,309, ,600,000 1,075,000 11,551,250 19,226, ,400, ,250 5,208,000 19,328,250 Totals 2 $152,300,000 $159,743,529 $237,066,294 $549,109,823 1 Includes debt service on the outstanding Series 1998 Bonds, the Series 2004A Bonds and the Series 2008A Bonds, but excludes capitalized leases and other long-term debt. 2 Totals may not compute due to de minimis rounding. BONDHOLDERS RISKS The following is a discussion of certain risks that could affect payments to be made with respect to the Series 2008B Bonds. Such discussion is not exhaustive, should be read in conjunction with all other parts of this Reoffering Circular and should not be considered as a complete description of all risks that could affect such payments. Prospective purchasers of the Series 2008B Bonds should analyze carefully the information contained in this Reoffering Circular, including the Appendices to this Reoffering Circular, and additional information in the form of the complete documents summarized in this Reoffering Circular, copies of which are available as described in this Reoffering Circular. 18

23 General The Series 2008B Bonds are payable by the Authority from amounts payable under the Loan Agreement, the Series 2008B Obligation issued to the Bond Trustee and certain other limited sources. See the information under the heading SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2008B BONDS above. The ability of the Obligated Group to realize revenues in amounts sufficient to pay debt service on the Series 2008B Bonds when due is affected by and subject to conditions which may change in the future to an extent and with effects that cannot be determined at this time. No representation or assurance is given or can be made that revenues will be realized by the Obligated Group in amounts sufficient to pay debt service when due on the Series 2008B Obligation and the other obligations of the Obligated Group. None of the provisions of the Loan Agreement or the Master Indenture provide any assurance that the obligations of the Obligated Group will be paid as and when due if the Obligated Group becomes unable to pay their debts as they come due or otherwise becomes insolvent. The receipt of future revenues by the Obligated Group is subject to, among other factors, federal and state laws, regulations and policies affecting the health care industry and the policies and practices of major managed care providers, private insurers and other third party payors and private purchasers of health care services. The effect on the Obligated Group of recently enacted laws and regulations and recently adopted policies, and of future changes in federal and state laws, regulations and policies, and private policies, cannot be determined at this time. Loss of established managed care contracts by the Members of the Obligated Group could also adversely affect the future revenues of the Obligated Group. Revenues and expenses may be adversely affected by future economic conditions, which may include an inability to control expenses in periods of inflation, and other conditions, including demand for health care services, the availability and affordability of insurance, including without limitation, malpractice and casualty insurance, availability of nursing and other professional personnel, the capability the Corporation s management, the receipt of grants and contributions, referring physicians and self referred patients confidence in the Corporation, economic and demographic developments in the United States, the State and the Corporation s service areas, and competition from other health care institutions in the service areas, together with changes in rates, costs, third party payments and governmental laws, regulations and policies, may adversely affect revenues and expenses and, consequently, the ability of the Obligated Group to make payments under the Series 2008B Obligation. This discussion of risk factors is not, and is not intended to be, exhaustive, and should be read in conjunction with all other parts of this Reoffering Circular. Significant Risk Areas Summarized Certain of the primary risks associated with the operations of the Obligated Group are briefly summarized in general terms below, and are explained in greater detail in subsequent sections and in Appendix A to this Reoffering Circular. The occurrence of one or more of these risks could have a material adverse effect on the financial condition and result of operations of the Obligated Group, and in turn, the ability of the Corporation to make payments under the Loan Agreement and of the Members of the Obligated Group to make payments on the Series 2008B Obligation. Current Economic Conditions. The impact of the current economic disruptions, including without limitation, impact on the availability of credit, personal, corporate and governmental revenues, may adversely affect revenues and expenses and, consequently, the ability of the Obligated Group to make payments under the Loan Agreement and of the Obligated Group to make payments under the Series 2008B Obligation. Indigent Care. Tax-exempt hospitals often treat large numbers of indigent patients who are unable to pay in full for their medical care. These hospitals may be susceptible to economic and political changes that could increase the number of indigents or the financial responsibility for caring for this population. General economic conditions that affect the number of employed individuals who have health coverage affects 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 health care programs (including Medicare and Medicaid) may increase the frequency and severity of indigent treatment by such hospitals and other providers. It also is possible that future legislation could require 19

24 that tax-exempt hospitals and other providers maintain minimum levels of indigent care as a condition to federal income tax exemption or exemption from certain state or local taxes. State Medicaid Programs. Wisconsin State Medicaid and other state health care programs constitute an important payor source to the Corporation. State Medicaid and other state health care programs often pay hospitals at levels that may be below the actual cost of the care provided. As Medicaid is partially funded by states, significant deterioration in the financial condition of the state in which a hospital is located could result in lower funding levels and/or payment delays. Rate Pressure from Insurers and Major Purchasers. Certain hospital markets, including many communities in Wisconsin, are strongly impacted by large health insurers and, in some cases, by major purchasers of health services. In those areas, health insurers may have significant influence over hospital rates, utilization and competition. Rate pressure imposed by health insurers or other major purchasers may have a material adverse impact on hospitals, particularly if major purchasers put increasing pressure on payors to restrict rate increases. Business failures by health insurers also could have a material adverse impact on contracted hospitals in the form of non-payment or shortfalls or delays in payment, and/or continuing obligations to care for managed care patients without receiving payment. Capital Needs vs. Capital Capacity. Hospital operations are capital intensive. Regulation, technology and physician/patient expectations require constant and often significant capital investment. Total capital needs may be greater than the availability of funds to provide capital investment. Government Enforcement. To ensure the integrity of the Federal health care programs, CMS, the U.S. Department of Health and Human Services ( HHS ), the Office of the Inspector General ( OIG ) and the Department of Justice ( DOJ ) have paid close attention to the business practices and conduct of health care providers. The federal and state governments, including the State of Wisconsin, impose a wide variety of extraordinarily complex and technical requirements intended to prevent over-utilization based on economic inducements, misallocation of expenses, overcharging and other forms of fraud in the Medicare and Medicaid programs, as well as other state and federally funded health care programs. This body of laws and regulations impact a broad spectrum of hospital commercial activity, including billing, accounting, recordkeeping, medical staff oversight, physician contracting and recruiting, cost allocation, clinical trials, and discounts, among other activities. Enforcement actions may pertain to not only deliberate violations, but also frequently relate to violations resulting from actions of which management is unaware, from mistakes or from circumstances where the individual participants do not know that their conduct is in violation of law. Enforcement actions may extend to conduct that occurred in the past. The government periodically conducts widespread investigations covering categories of services, or certain accounting or billing practices. Violations and alleged violations carry significant sanctions, which may be aggressively pursued by the government. The government may seek a wide array of civil, administrative, criminal and monetary penalties, including withholding essential hospital payments under the Medicare or Medicaid programs, or exclusion from those programs. Negative publicity and large settlements and/or adverse results of litigation could result in payment of substantial fines and prospective restrictions that may have a materially adverse impact on hospital operations, financial condition, results of operations and reputation, and generally are not covered by insurance. Technical and Clinical Developments. New clinical techniques and technology, as well as new pharmaceutical and genetic developments and products, may alter the course of medical diagnosis and treatment in ways that are currently unanticipated, and that may dramatically change medical and hospital care. These could result in higher hospital costs, reductions in patient populations and/or new sources of competition for hospitals. Costs and Restrictions from Governmental Regulation. Nearly every aspect of hospital operations is regulated, in some cases by multiple agencies of government. The level and complexity of regulation appears to be increasing, bringing with it operational limitations, enforcement and liability risks, and significant and sometimes unanticipated cost impacts. 20

25 Competition Among Healthcare Providers. Hospitals increasingly face competition from specialty providers of care. This may cause hospitals to lose essential inpatient or outpatient market share. Such competition is often focused on services or payor classifications where hospitals realize their highest margins, thus negatively affecting programs that are economically important to hospitals. Specialty hospitals may attract physician specialists as investors and may seek to treat only profitable classifications of patients, leaving full-service hospitals with higher acuity and/or lower paying patient populations. These new sources of competition may have a material adverse impact on hospitals, particularly where a group of a hospital s principal physician admitters may curtail their use of a hospital service in favor of competing facilities. Labor Costs and Disruption. Hospitals are labor intensive. Labor costs, including salary, benefits and other liabilities associated with the workforce, have a significant impact on hospital operations and financial condition. Hospital employees are increasingly organized in collective bargaining units, and may be involved in work actions of various kinds, including work stoppages and strikes. Overall costs of the hospital workforce are high, and turnover is often also high. Pressure to recruit, train and retain qualified employees is expected to accelerate. These factors may materially increase hospital costs of operation. Workforce disruption may negatively impact hospital revenues and reputation. Pension and Benefit Funds. As large employers, hospitals may incur significant expenses to fund pension and benefit plans for employees and former employees, and to fund required workers compensation benefits. Funding obligations in some cases may be erratic or unanticipated and may require significant commitments of available cash needed for other purposes. Medical Liability Litigation and Insurance. Medical liability litigation is subject to public policy determinations and legal and procedural rules that may be altered from time to time, with the result that the frequency and cost of such litigation, and resultant liabilities, may increase in the future. A hospital may also be adversely affected by negative financial and liability impacts on its physicians. Costs of insurance, including selfinsurance, may increase dramatically, or the availability of commercial insurance may be jeopardized. Facility Damage. Hospitals are highly dependent on the condition and functionality of their physical facilities. Damage from natural causes, fire, deliberate acts of destruction, or various facilities system failures may have a material adverse impact on hospital operations, financial conditions and results of operations. Impact of Disruptions in the Credit Markets and General Economic Factors The current domestic and international financial disruptions have had, and is expected to continue to have, negative repercussions upon the national and global economies, including a scarcity of credit, lack of confidence in the financial sector, extreme volatility in the financial markets, increase in interest rates, reduced business activity, increased consumer bankruptcies and increased business failures and bankruptcies. In response, Congress passed, and former President George W. Bush signed on October 3, 2008, the Emergency Economic Stabilization Act of 2008, which authorizes the U.S. Treasury to purchase up to $700 billion of mortgage debt and other securities from financial institutions and take other actions for the purpose of stabilizing the financial markets. President Barack Obama, on February 17, 2009, signed the American Recovery and Reinvestment Act of 2009 (the Recovery Act ), which provides approximately $787 billion in federal spending and tax initiatives. Congress, the Federal Reserve Board and other agencies of the federal government and foreign governments have taken various actions that are designed to enhance liquidity, improve the performance and efficiency of credit markets and generally stabilize securities markets and stimulate spending. There can be no assurance these actions will be effective. While the effect of the Recovery Act cannot be predicted at this time, the provisions of the Recovery Act could have a material adverse effect on the financial condition of the Obligated Group. The financial disruptions have had a particularly acute impact upon the financial sector in recent months, and has caused many banks and other financial institutions to seek additional capital, to merge, and in some cases, to fail. Additionally, substantial amounts have been withdrawn from tax-exempt money market funds, one of the largest purchasers of variable rate tax-exempt bonds. 21

26 The Obligated Group Members have significant holdings in a broad range of investments. Market fluctuations have affected and will continue to affect materially the value of those investments and those fluctuations may be, and historically have been, material. The market disruption has exacerbated the market fluctuations and has negatively affected the investment performance of securities in the Obligated Group Members portfolios. Investment income (including both realized and unrealized gains on investments) has contributed significantly to the Obligated Group s financial results over recent years. Current market conditions have significantly reduced the Obligated Group Members investment income and had a material adverse effect on the Obligated Group s financial results. The current conditions in credit markets will likely cause the Obligated Group s ability to borrow to fund capital expenditures to be more limited and more expensive. The reader is advised to refer to Appendix A of this Reoffering Circular for specific information about the effects of these factors on the Obligated Group s recent financial performance, financial condition and debt portfolio. In particular, reference is made to information in Appendix A hereto under the heading FINANCIAL PERFORMANCE. Interest Rate Swap Risk The Corporation has, and the Members of the Obligated Group may periodically, in the future, enter into interest rate swap agreements to hedge interest rate risk. Typically, swap agreements are subject to early termination upon the occurrence of certain specified events. If either Member of the Obligated Group or the counterparty terminates such an agreement when the agreement has a negative value to the Member of the Obligated Group, the Member of the Obligated Group could be obligated to make a termination payment to the counterparty in the amount of such negative value, and such payment could be substantial and potentially materially adverse to the financial condition of the Obligated Group. In the event of an early termination, there can be no assurance that (1) where the swap agreement has a positive value to the Obligated Group Members, the Obligated Group Members will receive any termination payment payable to it by the respective swap counterparty, (2) where the swap agreement has a negative value to the Obligated Group Members, the Obligated Group Members will have sufficient amounts to pay a termination payment payable by them to the respective swap counterparty, and (3) in any event, the Obligated Group Members will be able to obtain a replacement swap agreement with comparable terms. The Swap Agreement requires the Corporation to secure its obligations in certain circumstances. The ability of the Corporation to place a lien on its collateral is limited by the Master Indenture. See the information under the heading SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Liens on Property and MODIFICATION OF MASTER INDENTURE PROVISIONS FOR THE BENEFIT OF THE BOND INSURER Liens on Property in Appendix C to this Reoffering Circular. If the Corporation is unable to secure its obligations under the Swap Agreement with sufficient collateral, the Swap Counterparty will have the right to terminate the Swap Agreement. In addition, the Swap Agreement is subject to early termination upon the occurrence of certain other specified events, including standard termination events and events of default. If an early termination occurs, the Corporation would be required to make a termination payment to the Swap Counterparty, the amount of which could be substantial and potentially materially adverse to the financial condition of the Obligated Group. Such termination payments are secured by the Swap Obligation on a parity basis with all other Obligations outstanding under the Master Indenture, including the Series 2008B Obligation. For a description of the Swap Agreement executed in connection with the issuance of the Series 2008B Bonds, see the information under the heading PLAN OF FINANCE Interest Rate Agreements in this Reoffering Circular. See Footnote 2 and Footnote 7 to the audited financial statements in Appendix B to this Reoffering Circular for additional information on interest rate swaps executed by the Corporation. See also, the information in Appendix A under the heading FINANCIAL PERFORMANCE Management Discussion and Analysis Review of the Six Months Ended June 30, 2008 and Bond Ratings There can be 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 22

27 2008B Bonds. A reduction in such rating will likely result in an adverse change in the market price for and marketability of the Series 2008B Bonds. See the information under the heading RATINGS. Ground Lease The Corporation s hospital facilities are located on land leased from Milwaukee County pursuant to two ground leases. The Corporation s use of the land is governed by the provisions of these leases which are summarized below. The main campus of the Corporation is located on a 10-acre parcel leased from Milwaukee County under a lease expiring in 2085 (the 1985 Ground Lease ). The base rental payable by the Corporation under the 1985 Ground Lease is $1 per year through The 1985 Ground Lease provides that upon occurrence of certain events of default under the lease by the Corporation and the continuance of such events of default for 60 days after written notice thereof shall have been received by the Corporation (or such default is not of a type that reasonably can be corrected in 60 days, and, if the Corporation has not proceeded to the correction thereof within a period reasonably required for curing the same) the County may elect to terminate the lease and to repossess the premises. The following events of default may give rise to a termination of the lease by the County: (1) the Corporation fails to operate the facility in accordance with the purposes specified in the lease or abandons the premises after commencing to operate the facility, or (2) the Corporation fails to comply with the provisions under the lease concerning nondiscrimination on account of sex, race, creed, color or national origin elsewhere. In 2001, the Corporation leased from the County an additional 42-acre parcel under a lease expiring in 2101 (the 2001 Ground Lease ). The purpose was to provide adequate space, utilities and parking to meet the long-range needs of the Corporation. The base rental payable by the Corporation under the 2001 Ground Lease is $156,000 per year through October 31, 2011 and increases annually thereafter. The 2001 Ground Lease provides that upon occurrence of certain events of default under the lease by the Corporation, the County may elect to terminate the lease and to repossess the leased premises. The following events of default may give rise to a termination of the 2001 Ground lease by the County: (1) the Corporation fails to pay rent within 21 days after notice of default is given to the Corporation or (2) the Corporation defaults in the performance or observance of a material and substantial covenant or condition in the lease and such default shall continue for 60 days after written notice thereof shall have been received by the Corporation (or if such default is not of a type that reasonably can be corrected in 60 days, for a period of time reasonably required for curing the same and the Corporation has not proceeded to and diligently pursued the curing thereof within a period reasonably required for curing the same). For additional information regarding the Corporation s facilities, see the information under the heading CORPORATE ORGANIZATION CHW Facilities Main Campus in Appendix A to this Reoffering Circular. Nonprofit Health Care Environment General. As nonprofit tax-exempt organizations, the Members of the Obligated Group are subject to federal, state and local laws, regulations, rulings and court decisions relating to their organization and operation, including their operation for charitable purposes. At the same time, the Corporation conducts large-scale complex business transactions and is a major employer in its geographic area. There can often be a tension between the rules designed to regulate a wide range of charitable organizations and the day-to-day operations of a complex health care organization. Recently, an increasing number of the operations or practices of health care providers have been challenged or questioned to determine if they are in compliance with the regulatory requirements for nonprofit tax-exempt organizations. These challenges, in some cases, are broader than concerns about compliance with federal and state statutes and regulations, such as Medicare and Medicaid compliance, and instead in many cases are examinations of 23

28 core business practices of the health care organizations. Areas that have come under examination have included pricing practices, billing and collection practices, charitable care, executive compensation, exemption of property from real property taxation and others. These challenges and questions have come from a variety of sources, including state attorneys general, the Internal Revenue Service (the IRS ), labor unions, Congress, state legislatures and patients, and in a variety of forums, including hearings, audits and litigation. These challenges or examinations include the following, among others: Health Care Reform Initiatives. President Obama s federal fiscal year 2010 budget (the 2010 Budget ) establishes a reserve fund of more than $630 billion over ten years to finance fundamental reform of America s healthcare system in an effort to reduce costs and expand healthcare coverage. President Obama is currently working with congressional leaders to craft a national health insurance and healthcare reform proposal. On July 8, 2009, the White House announced that it had reached agreement with leading hospital groups, including the American Hospital Association, to cut federal payments under Medicare and Medicaid by $155 billion over ten years as part of a plan to offset a portion of the cost of a national health insurance and health reform proposal. Much of these savings are reported to be derived from across-the-board cuts in Medicare hospital payments, with at least $50 billion in the cuts linked directly to increases in the number of uninsured who would be provided coverage under the proposed national health insurance proposal. On July 17, 2009, the House Committee on Education and Labor and the House Ways and Means Committee each reported out of committee similar legislation to reform the healthcare system. Congressional leaders have also recently voiced concerns about the costs of these proposals and their potential impact on the cost of delivering healthcare. As a part of the general healthcare reform initiatives described above, the payment structure from payors, including Medicare, Medicaid and other government programs, as well as from private payors, may be altered from current methodologies. A proposed reorganization of care delivery currently being discussed includes accountable care organizations in which providers would share in any reduction in healthcare expenditures for a given population. It is uncertain whether these or any proposals for national health insurance and health reform, and for the financing of the same, will be introduced or become law. If national reform legislation is introduced and enacted, the impact on the healthcare delivery system could be significant. Management of Obligated Group cannot estimate the effect of any health care reform legislation on the Obligated Group at this time. However, the impact could be material. Also see the information under the heading Congressional Hearings/Legislation, below. The effect of any type of healthcare payment reform is uncertain and may result in reduction of net revenue of the Obligated Group. Congressional Hearings/Legislation. The House Committee on Energy and Commerce has launched a nationwide investigation of hospital billing and collection practices and prices charged to uninsured patients. Twenty large hospital and health care systems were requested to provide detailed historical charge and billing practice information. In April 2005, the Committee requested additional information from ten large hospital systems and indicated the Committee was extending its inquiry into the forms of hospital bills and the impact of hospital charge masters on patients. In 2004, the Senate Finance Committee also conducted hearings on reforms to the nonprofit sector. At the hearing, the Finance Committee released a staff discussion draft on proposals for reform in the area of tax-exempt organizations, including a proposal for a five-year review of tax-exempt status by the IRS. Complementary to the Senate Committee hearings, the House Committee on Ways and Means held a hearing in April 2005 to examine the tax-exempt sector. In May 2005, the Committee conducted a hearing that focused more specifically on hospital taxexemption to review the value of uncompensated and under-compensated care provided by these non-profit hospitals, and the tax benefits and other support they receive. In March 2006, the Senate Finance Committee held a hearing focusing on health care tax policies. In September 2006, the Senate Finance Committee held another hearing concerning nonprofit hospitals and whether such hospitals deserve their tax-exempt status. 24

29 In December 2006, the Chairman of the United States House Ways and Means Committee introduced charity care legislation requiring that non-profit hospitals provide statutorily mandated amounts of charity care. The bill, H.R (Tax Exempt Hospitals Responsibility Act of 2006), provided for the payment of penalties and excise taxes if a non-profit hospital failed to meet the requirements. Although this bill never became law, legislation similar to this could be passed into law in the future, with a material effect on the Obligated Group s operations, financial condition and results of operations. In July of 2007, the minority staff of the Senate Finance Committee released a discussion draft (not proposed legislation) (the Discussion Draft ) of various possible non-profit hospital reforms. Among these possible reforms described in the Discussion Draft was a 5 percent minimum mandated charity care requirement for maintaining tax exemption of non-profit hospitals. At an October 30, 2007 roundtable conducted by the minority staff of the Senate Finance Committee regarding the Discussion Draft, tax exempt hospital representatives generally argued against the proposed 5 percent minimum charity care requirement for maintaining tax exemption, while patient advocates stressed the need for minimum standards to force hospitals to help the poor and ensure fair billing practices. In September 2008, Senator Grassley launched a detailed inquiry into two nonprofit hospitals activities following media reports that called into question their tax-exempt purposes. This inquiry could be expanded to other hospitals or could result in legislation. The effect of any such legislation, if proposed and ultimately enacted, cannot be determined at this time. Senate Finance Committee Chairman Max Baucus (D-Mont) released a white paper on November 12, 2008 entitled the Call to Action Health Reform 2009 which outlines his vision for healthcare reform. The plan is not a legislative proposal, but addresses, among other things, healthcare coverage, quality, financing and cost. Subsequently, on May 18, 2009, Senator Baucus and Senator Grassley jointly released policy options for financing reform of America s healthcare system. The options released on that date represented the third and final round of policy options for discussion before the Finance Committee began marking up legislation in June. The options for financing health reform follow the release of policy options for reducing costs in the healthcare delivery system and for expanding quality, affordable healthcare coverage to all Americans. Three areas of potential funding sources explored in the financing options are: savings achieved from within the healthcare system from reductions in current levels of spending; reevaluating current health tax subsidies; and changing non-health tax provisions. Among the items included in the proposal was a proposal to modify the requirements for tax-exempt hospitals, which would require nonprofit hospitals to maintain minimal levels of charitable activity, limit aggressive collections, and restrict charges to the uninsured and indigent. The proposed penalties for noncompliance include the loss of the tax benefits associated with nonprofit status. IRS Form 990. The Internal Revenue Service Form 990 is used by 501(c)(3) not-for-profit organizations to submit information required by the federal government for tax-exemption. On December 20, 2007, the IRS released a revised Form 990 that requires detailed public disclosure of compensation practices, corporate governance, loans to management and others, joint ventures and other types of transactions, political campaign activities, and other areas the IRS deems to be compliance risk areas. The redesigned Form 990 also requires the reporting of detailed community benefit information on Schedule H to the Form, and establishes uniform standards for the reporting of charity care. The redesigned Form 990 also contains a separate schedule requiring detailed reporting of information relating to tax exempt bonds, including compliance with the arbitrage rules and rules limiting private use of bondfinanced facilities, including compliance with the safe harbor guidance in connection with management contracts and research contracts. The redesigned Form 990 will result in enhanced transparency as to the operations of exempt organizations. It is also likely to result in enhanced enforcement, as the redesigned Form 990 will make available a wealth of detailed information on compliance risk areas to the IRS and other stakeholders, including state attorneys general, unions, plaintiff s class action attorneys, public watchdog groups, and others. For the 2008 tax year, only section V of Schedule H, which requires the listing of an organization s facilities, will be required to be completed. All other parts of the revised Form will be optional for the 2008 tax year. The entire Form 990 must be completed for tax years beginning in IRS Examination of Compensation Practices. Since August 2004, the IRS has been conducting a Tax Exempt Compensation Enforcement Project consisting of two parts. Part I focused on the level of compliance with compensation reporting and involved compliance check letters sent to 1,223 organizations. Part II focused on compliance with intermediate sanctions rules and involved check letters to 782 organizations. This examination project is ongoing. In November 2006, the IRS released its 2007 Exempt Organizations Implementing Guidelines. Among the identified critical initiatives for 2007 and 2008 are executive compensation and tax-exempt hospitals. 25

30 On March 1, 2007, the IRS released its preliminary report on Exempt Organizations Executive Compensation Compliance Project. According to the Report, significant reporting errors and omissions in specific compliance areas, particularly excess benefit transactions and transactions with disqualified persons as well as potential compliance issues related to loans made to officers were uncovered. As a result, the IRS has initiated Part III of the Enforcement Project in which the IRS will perform an additional 200 compliance checks and 50 singleissue examinations focusing on loans to executives. Litigation Relating to Billing and Collection Practices. Lawsuits have been filed in both federal and state courts alleging, among other things, that hospitals have failed to fulfill their obligations to provide charity care to uninsured patients and have overcharged uninsured patients. The cases are proceeding in various courts around the country with inconsistent results. While it is not possible to make general predictions, some hospitals and health systems have incurred substantial costs in defending such lawsuits, and in some cases have entered into substantial settlements. Challenges to Real Property Tax Exemptions. Recently, the real property tax exemptions afforded to certain nonprofit health care providers by state and local taxing authorities have been challenged on the grounds that the health care providers were not engaged in sufficient charitable activities. These challenges have been based on a variety of grounds, including allegations of aggressive billing and collection practices and excessive financial margins. In recent years, state, county, and local taxing authorities have been undertaking audits and reviews of the operations of tax-exempt health care providers with respect to their property tax exemption for both real and personal property. In some cases, particularly where such authorities are dissatisfied with the amount of services provided to indigents, the property tax-exempt status of the health care providers has been questioned. The majority of the real and personal property owned or leased by the Obligated Group is exempt from property taxes. The majority of the real property owned or leased by the Obligated Group and used for the provision of acute care and ancillary services is exempt from property tax. Any investigations or audits by the State or other governmental entities could lead to challenges with regard to property tax exemption with respect to facilities of the Obligated Group which, if successful, could adversely and materially affect the property tax exemption with respect to certain of the facilities. Action by Purchasers of Hospital Services and Consumers. Major purchasers of hospital services could take action to restrict hospital charges or charge increases. As a result of increased public scrutiny, it is also possible that the pricing strategies of hospitals may be perceived negatively by consumers, and hospitals may be forced to reduce fees for their services. Decreased utilization could result, and hospitals revenues may be negatively impacted. Patient Service Revenues American Recovery and Reinvestment Act of The Recovery Act was signed into law in February, The Recovery Act includes certain provisions which are intended to provide financial relief to health care providers. The Recovery Act will increase amounts paid by the federal government to the states to fund Medicaid through December 31, Title XIII of the Recovery Act, otherwise known as the Health Information Technology for Economic and Clinical Health Act (the HITECH Act ), provides for an investment of almost $20 billion in public monies for the development of a nationwide health information technology ( HIT ) infrastructure. The HIT infrastructure is intended to improve health care quality, reduce health care costs and facilitate access to necessary information. Among other things, the HITECH Act provides financial incentives, through the Medicaid and Medicare programs, loans and grants to encourage practitioners and providers to adopt and use qualified electronic health records. Eventually, Medicare payments are reduced for providers and practitioners who do not use electronic health records. The effect of the Recovery Act on the Obligated Group cannot be determined at this time. 26

31 Medicare and Medicaid Programs. Medicare and Medicaid are the commonly used names for provider reimbursement or payment programs governed by certain provisions of the federal Social Security Act. Medicare is an exclusively federal program and Medicaid is jointly funded by federal and state government and governed by both federal and state laws. Health care providers have been and will continue to be significantly impacted by changes in the last several years in federal health care laws and regulations, particularly those pertaining to Medicare and Medicaid. The purpose of much of the recent statutory and regulatory activity has been to reduce the rate of increase in health care costs, particularly costs paid under the Medicare and Medicaid programs. Medicare is the federal health insurance system under which hospitals are paid for services provided to eligible elderly and disabled persons or those that qualify for the End Stage Renal Disease Program. Although the Corporation is certified as a provider for Medicare services, for the fiscal year ended December 31, 2008, 0.8% of the Obligated Group s gross patient service revenues was derived from Medicare. While there are risks related to the Medicare program, they are only briefly summarized herein due to the limited amount of revenues derived from Medicare. See the information under the heading FINANCIAL PERFORMANCE Sources of Patient Service Revenue in Appendix A to this Reoffering Circular. Medicaid is a program that provides medical assistance for certain low-income individuals and their dependants, funded jointly by the federal government and the states and administered by the states. Under Medicaid, the federal government provides grants to states for expenditures made under medical assistance programs that meet federal standards. Attempts to balance or reduce federal and state budgets will likely negatively impact Medicaid spending. Payments made to health care providers under the Medicaid program are subject to change as a result of federal or state legislative and administrative actions, including changes in the methods for calculating payments, the amount of payments that will be made for covered services and the types of services that will be covered under the program. Such changes have occurred in the past and may be expected to occur in the future, particularly in response to federal and state budgetary constraints. Any reduction in the level of Medicaid spending by the federal government is likely to have an adverse impact on the revenues of the Obligated Group derived from the Medicaid program. For the fiscal year ended December 31, 2008, the Corporation received approximately 23.3% of gross patient service revenues from state Medicaid programs. See the information under the heading FINANCIAL PERFORMANCE Sources of Patient Service Revenue in Appendix A to this Reoffering Circular. Wisconsin Medicaid Program. The Wisconsin Department of Health Services (the Department ) administers the state s Medicaid or Medical Assistance Program, which reimburses hospitals for medical services provided to low-income persons. The program is jointly funded by the state of Wisconsin and the federal government. The program operates according to Wisconsin s state plan, which have been approved by the federal government and is operated in compliance with Title XIX of the Federal Social Security Act and with Wisconsin law, including ss to 49.47, Wisconsin Statutes. The state plan establishes methods and standards for paying for hospital inpatient and outpatient services. Under federal law, certain Medicaid payment rates are restricted to Medicare reimbursement rates. Hospitals that service a disproportionate number of low-income patients receive increased reimbursements. For each rate year, July 1 through June 30, the Department updates standard factors used in determining the amount of payment hospitals receive for inpatient hospital services covered by the Diagnosis Related Group ( DRG ) based payment method. Numerical weights are assigned to each specific DRG and are updated annually to reflect the current, relative resource consumption of each inpatient stay. Weights are determined by an analysis of past services provided by hospitals, claim charges for those services and the relative cost of those services. A DRG rate is calculated for each specific hospital. The appropriate standard DRG group base rate for each hospital is adjusted by the applicable wage area index for that hospital and includes an amount, based on the Corporation s historical costs, for capital costs and for the direct costs of medical education programs. The Corporation receives additional adjustments for costs related to graduate medical education, capital expenditures, and for serving a disproportionate share of low-income patients. The Corporation s specific DRG rate and the weight for the DRG into which a inpatient stay is classified, are multiplied together to calculate the payment to the Corporation for the stay. 27

32 An additional outlier payment is made to the Corporation to provide economic relief from the financial impact of extremely high cost cases. An outlier payment is an amount paid on an individual high cost stay in addition to the calculated DRG payment. Each inpatient hospital claim is tested to determine whether the claim qualifies for cost outlier payment. Payments are made for the variable costs in excess of the DRG payment and a state-defined cost trimpoint. Outpatient reimbursement complies with applicable federal and state laws and regulations and reflects all adjustments allowed under such said laws and regulations. The Corporation is reimbursed for outpatient services at an interim rate per visit with a subsequent retrospective final settlement, which takes into account costs incurred by the Corporation during its fiscal year. Reimbursed costs under the settlement are limited to a prospectively established ceiling amount. Ceiling rates are recalculated annually for the upcoming State fiscal year effective July 1 based on audited cost reports. Administrative adjustments are available to recognize certain changes in costs that are not reflected in historical cost report periods. Payments for outpatient hospital laboratory tests are limited to the Wisconsin Medicaid Program fee schedule for laboratory tests. BadgerCare is the State of Wisconsin s program funded by a child health block grant under Title XXI, which expanded Medicaid eligibility for low-income families with children. Reimbursement through BadgerCare is at the same level as the Wisconsin Medicaid program. Patient care reimbursement under the Wisconsin Medicaid program may be affected by federal and state legislation concerning the Medicaid program or by comprehensive national health care reform. For example, the Wisconsin Inpatient Hospital State Plan effective July 1, 2004 included supplemental payments, subject to payment limitations, to acute care hospitals located in the State that provide a significant amount of services to persons under the age of 18. To qualify, inpatient days in the pediatric units and intensive care pediatric units must have totaled more than 12,000 annual days. Days for stays in neonatal intensive care units were not included in this determination. In fiscal year 2008, the Corporation received approximately $1.7 million of the available funding. Wisconsin Medicaid also provides reimbursement for extended outpatient nursing services. Hospital outpatient extended nursing services are nursing services and respiratory care provided by nurses, for part of a day in a group setting, on the site of an approved acute care general hospital, or in a building physically connected to an acute care general hospital. The Corporation receives reimbursement for outpatient extended nursing services which reimbursement covers all such nursing services, accommodations and daily board provided by the Corporation. The services are reimbursed on an hourly rate. State Budgets. Many states face severe financial challenges, including erosion of general fund tax revenues. These factors have resulted in a shortfall between revenue and spending demands. The financial challenges facing states may negatively affect hospitals in a number of ways, including, but not limited to, a greater number of indigent patients who are unable to pay for their care and a greater number of individuals who qualify for Medicaid and/or reductions in Medicaid reimbursement rates. Technological Changes. Medical research and resulting discoveries have grown exponentially in the last decade. These new discoveries may add greatly to the hospitals costs of providing services with no or little offsetting increase in federal reimbursement and may also render obsolete certain of the health services provided by hospitals. New drugs and devices may increase hospitals expense because, for the most part, the costs of new drugs and devices are not typically accounted for in the DRG payment received by hospitals for inpatient care and are often not covered for outpatient services. Recent Legislation. Diverse and complex mechanisms to limit the amount of money paid to health care providers under both the Medicare and Medicaid programs have been enacted, and in particular, have caused severe reductions in reimbursement from the Medicare program. In February 2009 the Wisconsin legislature enacted Senate Bill 62, which assessed a fee or tax on the gross patient revenues of all Wisconsin hospitals retroactive to July 1, 2008 (the Hospital Tax ). The revenues from this assessment will be used to increase payments made to hospitals for services provided to Medicaid and other medically indigent patients. It is intended that these increased payments to hospitals will also result in increased revenues for the State from the federal government s cost share for Medicaid services. The bill specifies the total 28

33 assessment amount for the state fiscal year and each hospital s assessment amount is calculated based on a percentage of the hospital s gross patient revenue, modified to exclude certain services, such as physician services. Medicaid payments are intended to increase as a result of the assessment, with the state fiscal year 2009 fee-forservice payment rates calculated so that they equal 88% of a hospital s costs for inpatient services and 99% for outpatient services. A portion of the assessment will be used to provide statewide health coverage for low-income, uninsured childless adults under the state s BadgerCare Plus Core Plan for Childless Adults. Most recently, in June 2009, the Governor signed into law the new state budget plan, which provides for an increase in the Hospital Tax by an additional $242.3 million over the next two years and imposes a tax on the gross patient revenues of ambulatory surgical centers located in Wisconsin, similar to the hospital tax. Although it is anticipated that most hospitals and ambulatory surgical centers in Wisconsin will ultimately benefit from the tax increase by earning more in reimbursements than they will pay out in new taxes, there can be no assurance that the increased revenues realized by the Obligated Group from increased Medicaid payments will be sufficient to compensate the Obligated Group for expense of the assessment. The assessments look appealing because of revenue potential, but it may be hard to keep the reimbursement rates in later years as federal rules change and the revenue derived from the assessments are diverted to other programs. At this point, it is not possible to predict the effect of the recent legislation on the revenues of the Obligated Group. Additional Debt The Master Indenture permits the issuance of additional Obligations on a parity with the Series 2008B Obligation and the other outstanding Obligations and also permits incurrence of Additional Indebtedness directly by the Members of the Obligated Group. The Master Indenture, as modified by the Sixth Supplement and the Tenth Supplement, imposes financial tests on the Obligated Group for the issuance of Additional Indebtedness. The Series 2008B Obligation was issued on a parity with all Obligations outstanding under the Master Indenture, including the Series 1998 Obligation, the Series 2004A Obligation, the Swap Obligation and the Series 2008A Obligation. Regulatory Matters General. Complex health care laws have been enacted at the federal and state levels to broadly regulate the provision of services to government program beneficiaries and the methods and requirements for submitting claims and receiving reimbursement for such services. A substantial portion of these laws target fraud and abuse, and address a broad range of unlawful conduct, including, but not limited to, submitting claims for services that are not in fact provided, billing in a manner that does not comply with government requirements or including inaccurate billing information, billing for medically unnecessary services, or billings accompanied by an illegal inducement to utilize or recommend utilization of a service or product. Laws governing fraud and abuse have broad application to hospitals and their financial relationships. Violation of federal and state fraud and abuse laws may result in a broad range of criminal, civil and administrative sanctions, including the exclusion of a hospital from participation in the Medicare/Medicaid programs, civil monetary penalties, and suspension of Medicare/Medicaid payments, among others. Fraud and abuse cases may be prosecuted by one or more government entities (in many cases as a result of private whistleblower actions), and more than one of the available sanctions may be, and often are, imposed for each violation. Fraud and abuse laws are numerous, highly technical in nature, and frequently changing. Hospitals devote substantial resources to ensure effective compliance with these laws and regulations. Fraud investigations, prosecutions, adjudications, settlements and related publicity resulting from these legal proceedings could have a material adverse effect on the future operations or financial condition of the Obligated Group. Conditions of Participation. As noted above, the Corporation must comply with standards called Conditions of Participation in order to be eligible for Medicare and Medicaid reimbursement. The Centers for Medicare and Medicaid Services ( CMS ) is responsible for ensuring that hospitals meet these regulatory Conditions of Participation. Under the Medicare rules, hospitals accredited by The Joint Commission are deemed to 29

34 meet the Conditions of Participation. However, CMS may request that the state agency responsible for approving hospitals on behalf of CMS, conduct a sample validation survey of a hospital to determine whether it complies with the Conditions of Participation. Failure to maintain The Joint Commission accreditation or to otherwise comply with the Conditions of Participation could have a material adverse effect on the continued participation in the Medicare and Medicaid programs, and ultimately, the financial condition and results of operations of the Corporation. Enforcement Activity. Enforcement activity against health care providers has increased, and enforcement authorities may aggressively pursue perceived violations of health care laws. In the current regulatory climate, it is anticipated that many hospitals and physician groups may be subject to an audit, investigation, or other enforcement action regarding the health care fraud laws mentioned above. The cost of defending such an action, the time and management attention consumed, and the facts of a case may dictate settlement. Therefore, regardless of the merits of a particular case, a hospital could experience materially adverse settlement costs, as well as materially adverse costs associated with implementation of any settlement agreement. Prolonged and publicized investigations could also be damaging to the reputation and business of a hospital, regardless of outcome. Certain acts or transactions may result in violation or alleged violation of a number of the federal health care fraud laws described above, and therefore penalties or settlement amounts often are compounded. Generally these risks are not covered by insurance. Federal Privacy Laws. The Health Insurance Portability and Accountability Act of 1996 ( HIPAA ) added administrative provisions intended to facilitate the processing of health care payments by encouraging the electronic exchange of information and the use of standardized formats for health care information. Congress recognized, however, that standardization of information formats and greater use of electronic technology presents additional privacy and security risks due to the increased likelihood that databases of personally identifiable health care information will be created and the ease with which vast amounts of such data can be transmitted. Therefore, HIPAA requires the establishment of distinct privacy and security protections for individually identifiable health information. HHS promulgated privacy regulations under HIPAA that protect patient medical records and other personal health information maintained by health care providers, hospitals, health plans, health insurers, and health care clearinghouses (the Privacy Regulations ). Compliance with the Privacy Regulations was required as of April 14, Management of the Obligated Group believes that its operations and information systems comply with the Privacy Regulations as of the effective date. Security regulations have also been promulgated under HIPAA. These security regulations were issued in final form on February 20, 2003, with a compliance date of April 21, 2005 (the Security Regulations ). Additionally, HHS promulgated regulations to standardize the electronic transfer of information pursuant to certain enumerated transactions (the Code Set Transactions ), with a compliance deadline of October 16, Management of the Obligated Group believes that all of their health care facilities are in substantial compliance with the Security Regulations and the Code Set Transactions. Violations of HIPAA could result in civil monetary penalties of up to $25,000 per type of violation in each calendar year and criminal penalties of up to $250,000 per violation. The HITECH Act also expands the scope and application of the administrative simplification provisions of the HIPAA, and its implementing regulations. Among other things, the HITECH Act imposes a written notice obligation upon covered entities for security breaches involving unsecured protected health information, expands the scope of an electronic health record provider s disclosure tracking obligations, and substantially limits the ability of health care providers to sell protected health information without patient authorization. The HITECH Act also increases penalties for violations of HIPAA, and provides for enforcement of HIPAA violations by State attorneys general. Any violation of the HITECH Act is subject to HIPAA civil and criminal penalties. In addition, there is no guarantee that the financial incentives for adopting qualified electronic health records system will be sufficient to offset the Obligated Group s costs for development and implementation of such a system. 30

35 Anti-Fraud and Abuse Laws. The federal Anti-Kickback Statute makes it a felony to knowingly and willfully offer, pay, solicit or receive remuneration, directly or indirectly, in order to induce business that is reimbursable under any federal health care program. The statute has been interpreted to cover any arrangement where one purpose of the remuneration was to obtain or pay money for the referral of services or to induce further referrals. Violation of the Anti-Kickback Statute may result in imprisonment for up to five years and/or fines of up to $25,000 for each act. In addition, the OIG has the authority to impose civil assessments and fines and to exclude hospitals engaged in prohibited activities from the Medicare, Medicaid, TRICARE (a health care program providing benefits to dependents of members of the uniformed services), and other federal health care programs for not less than five years. There are certain statutory exceptions to the Anti-Kickback Statute, and in addition, the OIG has promulgated a number of regulatory safe harbors that guarantee that certain payment and business practices which meet each of the requirements of the safe harbor will not be found liable under the Anti-Kickback Statute. A party may seek an advisory opinion to determine whether an actual or proposed arrangement meets a particular safe harbor; however the failure of a party to seek an advisory opinion may not be introduced into evidence to prove that the party intended to violate the provisions of the statute. Failure to comply with a statutory exception or regulatory safe harbor does not mean that an arrangement is unlawful but may increase the likelihood of a regulatory challenge. HIPAA created a new program operated jointly by HHS and the United States Attorney General to coordinate federal, state and local law enforcement with respect to fraud and abuse including the Anti-Kickback Statute. HIPAA also provides for minimum periods of exclusion from a federal health care program for fraud related to federal health care programs, provides for intermediate sanctions and expands the scope of civil monetary penalties. The BBA expanded the authority of the OIG to exclude persons from federal health care programs, increased certain civil and monetary penalties for violations of the Anti-Kickback Statute and added a new monetary penalty for persons who contract with a provider that the person knows or should know is excluded from the federal health care programs. Finally, actions which violate the Anti-Kickback Statute or similar laws may also involve liability under the federal False Claims Act which prohibits the knowing presentation of a false, fictitious or fraudulent claim for payment to the United States government. Actions under the federal False Claims Act may be brought by the United States Attorney General or as a qui tam action brought by a private individual in the name of the government. Pursuant to the mandates of HIPAA, increased emphasis is being placed on federal investigations and prosecutions of Medicare and Medicaid fraud and abuse cases, and increases in personnel investigations and prosecutions of such cases have been reported, which will most likely result in a higher level of scrutiny of hospitals and health care providers, including the Corporation. In addition to the federal Anti-Kickback Statute, the State has its own criminal statute prohibiting the knowing offering, solicitation or receipt of any remuneration for the furnishing of any health care service payable by Medicare or Medicaid. Violations are punishable as misdemeanors or felonies. The law exempts any conduct protected by the statutory and regulatory exceptions to the federal Anti-Kickback Statute. Management of the Corporation believes that the Corporation has used its best efforts to comply with the Anti-Kickback Statute and the Wisconsin fraud and abuse law. However, because of the breadth of those laws and the narrowness of the safe harbor regulations, there can be no assurance that regulatory authorities will not take a contrary position or that the Corporation will not be found to have violated the Anti-Kickback Statute or Wisconsin fraud and abuse law. Stark Law. Another federal law (known as the Stark Law ) prohibits, subject to limited exceptions, a physician who has a financial relationship, or whose immediate family has a financial relationship, with entities (including hospitals) providing designated health services from referring Medicare patients to such entities for the furnishing of such designated health services. Stark Law designated health services include physical therapy services, occupational therapy services, radiology or other diagnostic services (including MRIs, CT scans and ultrasound procedures), durable medical equipment, radiation therapy services, parenteral and enteral nutrients, equipment and supplies, prosthetics, orthotics and prosthetic devices, home health services, outpatient prescription drugs, inpatient and outpatient hospital services and clinical laboratory services. Beginning in January 2007, nuclear medicine services and supplies were included in the definition of designated health services. The Stark Law also prohibits the entity receiving the referral from filing a claim or billing for the services arising out of the prohibited referral. The prohibition applies regardless of the reasons for the financial relationship and the referral; that is, 31

36 unlike the federal Anti-Kickback Statute, no finding of intent to violate the Stark Law is required. Sanctions for violation of the Stark Law include denial of payment for the services provided in violation of the prohibition, refunds of amounts collected in violation, a civil penalty of up to $15,000 for each service arising out of the prohibited referral, exclusion from participation in the federal healthcare programs, and a civil penalty of up to $100,000 against parties that enter into a scheme to circumvent the Stark Law s prohibition. Under an emerging legal theory, knowing violations of the Stark Law may also serve as the basis for liability under the False Claims Act. The types of financial arrangements between a physician and an entity that trigger the self-referral prohibitions of the Stark Law are broad, and include direct and indirect ownership and investment interests and compensation arrangements. The 2009 Inpatient Prospective Payment System Final Rule ( IPPS Final Rule ) published on August 18, 2008 further revised the Stark Law regulations, certain provisions of which became effective on October 1, Although many of the provisions of the Stark Law regulations were revised, the provisions of the IPPS Final Rule that could have a significant impact on the Obligated Group include: (a) the definition of entity and the affect on services provided under arrangements, (b) the stand in the shoes provisions under which certain physicians are treated as standing in the shoes of their physician organizations, (c) limitations placed on revenue-based or percentage payments for space and equipment, and (d) limitations on per click arrangements. The definition of an entity for Stark purposes now includes the person or entity that performs DHS services, as well as the person or entity that bills for DHS services. The change in definition has a delayed effective date of October 1, This change significantly affects the manner in which an under arrangements relationship may be structured and will require many of those relationships to be restructured or terminated. In addition, many revenue-based and percentage payments for space or equipment may no longer comply with space rental, equipment rental, fair market value, or indirect compensation exceptions. Further, many per-unit or per-click compensation methodologies for space and equipment rental charges will no longer comply with space rental, equipment rental, fair market value, or indirect compensation exceptions. The changes to percentage based and per-click compensation arrangements also have a delayed effective date of October 1, In the 2009 IPPS Final Rule, CMS also finalized its proposal to implement an information collection instrument referred to as the Disclosure of Financial Relationships Report ( DFRR ). The DFRR is designed to collect information concerning the ownership and investment interests and compensation arrangements between hospitals and physicians. CMS has stated it will send the DFRR to 500 hospitals, but that it may decide to decrease the number. Those hospitals that receive a DFRR will have 60 days in which to complete and send the information to CMS, and failure to do so could result in substantial civil monetary penalties. CMS also indicated that it envisions the DFRR as a one-time information collection instrument, depending on the information it receives and other factors, CMS may propose future rulemaking to use the DFRR or some other instrument as a periodic or regular collection instrument. At a minimum, the new Stark Law regulations may require the Corporation to amend or terminate certain arrangements with physicians or other referral sources to comply with the regulations new requirements. At this point, it is uncertain whether or how these regulations will affect the financial condition and results of operations of the Obligated Group. A number of states (including Wisconsin) have passed similar statutes pursuant to which similar types of prohibitions are made applicable to all other health plans or third party payors. The Wisconsin statutory prohibition on self-referrals (the Wisconsin Stark Statute ) imposes broad prohibitions on the ability of a physician or other health care worker to refer patients to entities outside his or her group office practice in which the physician health care worker is an investor, subject to certain exceptions. An arrangement might comply with the Federal Stark Law, but fail to comply with the Wisconsin Stark Statute or vice-versa. Although management of the Corporation believes that the Corporation has used its best efforts to comply with the Federal Stark Law and the Wisconsin Stark Statute, as currently interpreted, there can be no assurance that regulatory authorities will not take a contrary position or that the Corporation will not be found to have violated the Federal Stark Law or the Wisconsin Stark Statute. Sanctions under the Federal Stark Law and the Wisconsin Stark Statute, including exclusion from the Medicare and Medicaid programs, could have a material adverse effect on the financial condition and results of operations of the Obligated Group. 32

37 False Claims Laws. There are principally three federal statutes addressing the issue of false claims. First, the federal False Claims Act (the FCA ) imposes civil liability (including substantial monetary penalties and damages) on any person or corporation that (1) knowingly presents or causes to be presented a false or fraudulent claim for payment to the federal government; (2) knowingly makes, uses, or causes to be made or used a false record or statement to obtain payment from the federal government; or (3) engages in a conspiracy to defraud the federal government by getting a false or fraudulent claim allowed or paid. Specific intent to defraud the federal government is not required to act with knowledge. The FCA authorizes private persons to file qui tam actions on behalf of the United States. The FCA was recently amended when the Fraud Enforcement and Recovery Act ( FERA ) was signed into law by President Barack Obama on May 20, Before FERA, liability under the FCA was dependant upon either the presentment of a false claim to the federal government or a false statement made with the intent of inducing the federal government to pay a false claim. FERA extends the FCA to cover claims or statements made to government contractors, grantees, or other recipients of federal funds. Although FERA has yet to be interpreted, it is possible that a Medicare provider might now be subject to a suit under the FCA for knowing avoiding an obligation to repay overpayments, even if the provider made no false representations to the federal government. In addition to the FCA, the Civil Monetary Penalties Law authorizes the imposition of substantial civil money penalties against an entity that engages in activities including, but not limited to, (1) knowingly presenting or causing to be presented, a claim for services not provided as claimed or which is otherwise false or fraudulent in any way; (2) knowingly giving or causing to be given false or misleading information reasonably expected to influence the decision to discharge a patient; (3) offering or giving remuneration to any beneficiary of a federal health care program likely to influence the receipt of reimbursable items or services; (4) arranging for reimbursable services with an entity which is excluded from participation from a federal health care program; (5) knowingly or willfully soliciting or receiving remuneration for a referral of a federal health care program beneficiary; or (6) using a payment intended for a federal health care program beneficiary for another use. The Secretary of HHS, acting through the OIG, also has both mandatory and permissive authority to exclude individuals and entities from participation in federal health care programs pursuant to this statute. Finally, it is a criminal federal health care fraud offense to: (1) knowingly and willfully execute or attempt to execute any scheme to defraud any healthcare benefit program; or (2) to obtain, by means of false or fraudulent pretenses, representations or promises any money or property owned or controlled by any healthcare benefit program. Penalties for a violation of this federal law include fines and/or imprisonment, and a forfeiture of any property derived from proceeds traceable to the offense. On February 24, 2009, Senator Charles Grassley (R-Iowa) introduced Senate Bill 458, The False Claims Act Clarification Act of The bill was referred to the Senate Judiciary Committee and, as of the date of this Reoffering Circular, has not been reported out of the Committee. The legislation seeks to amend the FCA in light of recent case rulings that its sponsors believe have led to a narrowed interpretation of the existing FCA. If enacted, Senate Bill 458 would greatly expand potential liability under the FCA (even more so than FERA) and could effectively eliminate several longstanding defenses intended to protect against speculative lawsuits. In particular, Senate Bill 458, among other changes, eliminates the public disclosure bar (which currently prohibits a qui tam relator from bringing a complaint that is based on information already available to the public) as a jurisdictional defense to qui tam suits, extends the statute of limitations to ten years in all cases, and generally expands liability for false claims. The effect of such legislation, if enacted, cannot be determined at this time. The Obligated Group is not currently aware of any false claim actions, including qui tam actions, currently pending against the Corporation. However, because of the lack of regulatory guidance and the scarcity of case law interpreting the False Claims Act, there can be no assurances that, in the future, the Obligated Group will not be the subject of a false claims actions, including qui tam actions. Health Plans and Managed Care. Most private health insurance coverage is provided by various types of managed care plans, including health maintenance organizations ( HMOs ) and preferred provider organizations ( PPOs ), that generally use discounts and other economic incentives to reduce or limit the cost and utilization of health care services. Medicare and Medicaid also purchase hospital care using managed care options. Payments to 33

38 hospitals from managed care plans typically are lower than those received from traditional indemnity or commercial insurers. Managed care plans have replaced indemnity insurance as the prime source of non-governmental payment for hospital services, and as a result hospitals must be capable of attracting and maintaining managed care business to remain competitive, often on a regional basis. Regional coverage and aggressive pricing may be required. However, it is also essential that contracting hospitals be able to provide the contracted services without significant operating losses, which may require multiple forms of cost containment. Managed care plans generally pay providers on a fee-for-service basis or through the use of capitation rates. Fee-for-service rates are typically negotiated with providers and, for institutional care, may be based on a fixed rate per day of care. The rates are usually discounted from the typical charges for the care provided. As a result, the discounts offered to managed care plans may result in payment to a provider that is less than its actual cost. Additionally, the volume of patients directed to a provider may vary significantly from projections, and/or changes in the utilization may be dramatic and unexpected, thus jeopardizing the provider s ability to manage this component of revenue and cost. Some managed care plans employ a capitation payment method under which hospitals are paid a predetermined periodic rate for each enrollee in the plan who is assigned or otherwise directed to receive care at a particular hospital. The hospital may assume financial risk for the cost and scope of institutional care given. If payment is insufficient to meet the hospital s actual costs of care, or if utilization by such enrollees materially exceeds projections, the financial condition of the hospital could erode rapidly and significantly. Often, managed care contracts are enforceable for a stated term, regardless of hospital losses and may require hospitals to care for enrollees for a certain time period, regardless of whether the managed care plan is able to pay the hospital. Hospitals also from time to time have disputes with managed care payors concerning payment and contract interpretation issues. The prevelance of managed care arrangement can impose several business risks to hospitals. First, failure to maintain managed care contracts could have the effect of reducing the market share and net patient services revenues of the Obligated Group. Conversely, participation may result in lower net income if the Corporation is unable to adequately contain its costs. Second, a hospital is generally not able to serve the patients of alternative delivery systems with which it does not contract. Third, a hospital generally is required to substantially reduce its charges to obtain a contract to service alternative delivery system patients. Fourth, the alternative delivery systems market is becoming increasingly competitive and many of the alternative delivery systems with which the Corporation has contacted may not survive, which may result in the Corporation being responsible for providing services for which the Corporation may not ultimately be compensated. Physician Recruitment. The IRS and OIG have issued various pronouncements that could limit physician recruiting and retention arrangements. In IRS Revenue Ruling 97-21, the IRS ruled that tax-exempt hospitals that provide recruiting and retention incentives to physicians risk loss of tax-exempt status unless the incentives are necessary to remedy a community need and accordingly provide a community benefit; improvement of a charitable hospital s financial condition does not necessarily constitute such a purpose. The OIG has taken the position that any arrangement between a federal healthcare program-certified facility and a physician that is intended to encourage the physician to refer patients may violate the federal Anti-Kickback Statute unless a regulatory exception applies. Physician recruitment and retention arrangements may also implicate the Stark Law. While the OIG has promulgated a practitioner recruitment safe harbor to the Anti-Kickback Statute, it is limited to recruitment in areas that are health professional shortage areas ( HPSAs ). The Stark Law exception for practitioner recruitment is not limited to HPSAs: it applies to the recruitment of physicians who are relocating their practices to the geographic area served by the hospital, so long as certain requirements are met. The Stark Law also contains an exception pertaining to retention arrangements that allows hospitals, in limited circumstances, to pay incentives to retain a physician in underserved areas. 34

39 An exception to the Stark Law applies to payments from a hospital directly to a physician to induce the physician to relocate his or her medical practice to the hospital s service area and join the hospital s medical staff, provided several requirements are met. Among other requirements, the physician must be allowed to establish staff privileges at any other hospital and unless restricted under another contract that complies with the Stark Law, must be free to refer business to any entity. The exception also applies to payments from a hospital, either indirectly through payments made to another physician or physician practice, or directly to a physician who joins a physician practice, provided the physician practice receiving the payment does not impose additional practice restrictions on the recruited physician and meets other requirements. Management of the Corporation believes that the physician recruitment arrangements of the Corporation is in material compliance with these laws and regulations, but no assurance can be given that regulatory authorities will not take a contrary position or that the Corporation will not be found to have violated applicable law, or that future laws, regulations or policies will not have a material adverse impact on the ability of the Corporation to recruit and retain physicians. Emergency Medical Treatment and Active Labor Act. The federal Emergency Medical Treatment and Labor Act ( EMTALA ) imposes certain requirements on hospitals and facilities with emergency departments. Generally, EMTALA requires that hospitals provide appropriate medical screening to patients who come to the emergency department to determine if an emergency medical condition exists. The hospital must stabilize the patient, and the patient cannot be transferred unless stabilization has occurred. On September 9, 2003, CMS issued rules clarifying hospital obligations under EMTALA. These rules expand the definition of a hospital emergency department to include any department or facility of the hospital, regardless of whether it is located on or off the main hospital campus, that (i) is licensed by the state in which it is located under applicable state law as an emergency room or emergency department; (ii) is held out to the public as a place that provides care on an emergency medical or urgent care basis or (iii) provides at least one third of all of its outpatient visits for the examination and treatment of emergency medical conditions. The rules also clarify the physician on-call requirements, now allowing hospitals the discretion to develop their on-call lists in a way that best meets the needs of their communities. Furthermore, the rules permit hospital departments that are off-campus to provide the most effective way for caring for emergency patients without requiring that the patient be moved to the main campus. On August 18, 2006, CMS released the 2007 Final Rule, which included two revisions to current EMTALA regulations, one relating to labor and delivery related discharges and the other a further clarification of the emergency department definition. The IPPS Final Rule also contained some modifications to EMTALA obligations. Under the IPPS Final Rule, if an individual with an unstable emergency medical condition presents to a participating hospital and is admitted, the admitting hospital has satisfied its EMTALA obligation. If the patient is subsequently transferred to a hospital with capabilities for specialized care, that hospital does not have an EMTALA obligation to accept the individual. In 2008, CMS finalized requirements that hospitals must meet to participate in a community call plan to share on-call responsibilities without violating EMTALA. Failure to comply with EMTALA may result in a hospital s exclusion from the Medicare and/or Medicaid programs, as well as civil monetary penalties. As such, failure of the Corporation to meet its responsibilities under EMTALA could adversely affect the financial condition of the Obligated Group. Management of the Corporation believes its policies and procedures are in material compliance with EMTALA, but no assurance can be given that a violation of EMTALA will not be found. Any sanctions imposed as a result of an EMTALA violation could have a material adverse effect on the future operations or financial condition of the Obligated Group. Joint Ventures. The OIG has expressed its concern in various advisory bulletins that many types of joint venture arrangements involving hospitals may implicate the Anti-Kickback Statute, since the parties to joint ventures are typically in a position to refer patients of federal health care programs. In its 1989 Special Fraud Alert, the OIG raised concern about certain physician joint ventures where the intent is not to raise investment capital to start a business but rather to lock up a stream of referrals from the physician investors and compensate these investors indirectly for these referrals. The OIG listed various features of suspect joint ventures, but noted that its list was not exhaustive. These features include: (i) whether investors are chosen because they are in a position to make referrals; (ii) whether physicians with more potential referrals are given larger investment interests; (iii) 35

40 whether referrals are tracked and referral sources shared with investing physicians; (iv) whether the overall structure is a shell (i.e., one of the parties is an ongoing entity already engaged in a particular line of business); and (v) whether investors are required to invest a disproportionately small amount or are paid extraordinary returns in comparison with their risk. In April 2003, the OIG issued a Special Advisory Bulletin indicating that contractual joint ventures (where a provider expands into a new line of business by contracting with an entity that already provides the items or services) may violate the Anti-Kickback Statute and expressing skepticism that existing statutory or regulatory safe-harbors would protect suspect contractual joint ventures. Any evaluation of compliance with the Anti-Kickback Statute depends on the totality of the facts and circumstances. While management of the Corporation believes that the joint venture arrangements to which the Corporation is a party are in material compliance with the Anti-Kickback Statute and OIG pronouncements, any determination that it is not in compliance with the Anti-Kickback Statute and OIG pronouncements could have a material adverse effect on the future financial condition of the Corporation. Enforcement Affecting Clinical Research. In addition to increasing enforcement of laws governing payment and reimbursement, the federal government has also heightened enforcement of laws and regulations governing the conduct of clinical trials at hospitals. HHS elevated and strengthened its Office of Human Research Protections, one of the agencies with responsibilities for monitoring federally funded research. In addition, the National Institutes of Health significantly increased the number of facility inspections that these agencies perform. The Food and Drug Administration ( FDA ) also has authority over the conduct of clinical trials performed in hospitals when these trials are conducted on behalf of sponsors seeking FDA approval to market the drug or device that is the subject of the research. The FDA s inspection of facilities has increased significantly in recent years. These agencies enforcement powers range from substantial fines and penalties to exclusions of researchers and suspension or termination of entire research programs. Management of the Obligated Group believes that clinical research being conducted by the Obligated Group is in substantial compliance with material applicable requirements. Licensing, Surveys, Investigations and Audits. On a regular basis, health care facilities, including the Members of the Obligated Group, are subject to numerous legal, regulatory, professional and private licensing, certification and accreditation requirements which include, but are not limited to, requirements relating to Medicare and Medicaid participation and payment, private payors, The Joint Commission, and the various federal, state and local agencies created by the National Health Planning and Resources Development Act of Renewal and continuance of certain of these licenses, certifications and accreditations are based on inspections, surveys, audits, investigations or other reviews, some of which may require or include affirmative action or response by the Obligated Group. Management of the Obligated Group currently anticipates no difficulty renewing or continuing currently held licenses, certifications or accreditations. Nevertheless, actions in any of these areas could result in the loss of utilization or revenues, or hinder the Obligated Group s ability to operate all or a portion of their facilities, and, consequently, could adversely affect the Obligated Group s ability to make principal, interest and premium, if any, payments with respect to the Series 2008B Bonds. No assurance can be given as to the effect on future operations of existing laws, regulations and standards for certification or accreditation or of any future changes in such laws, regulations and standards. Environmental Laws and Regulations. The Members of the Obligated Group are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations. These include, but are not limited to: air and water quality control requirements; waste management requirements; specific regulatory requirements applicable to asbestos and radioactive substances; requirements for providing notice to employees and members of the public about hazardous materials handled by or located at the hospital; and requirements for training employees in the proper handling and management of hazardous materials and wastes. The Members of the Obligated Group may be subject to requirements related to investigating and remedying hazardous substances located on their property, including such substances that may have migrated off the property. Typical hospital operations include the handling, use, storage, transportation, disposal and/or discharge of hazardous, infectious, toxic, radioactive, flammable and other hazardous materials, wastes, pollutants and contaminants. As such, hospital operations are particularly susceptible to the practical, financial and legal risks 36

41 associated with the environmental laws and regulations. Such risks may result in damage to individuals, property or the environment; may interrupt operations and/or increase their cost; may result in legal liability, damages, injunctions or fines; may result in investigations, administrative proceedings, civil litigation, criminal prosecution, penalties or other governmental agency actions; and may not be covered by insurance. Business Relationships and Other Business Matters Integrated Physician Groups. The Members of the Obligated Group often own, control or have affiliations with relatively large physician groups. Generally, the sponsoring hospital will be the primary capital and funding source for such alliances and may have an ongoing financial commitment to provide growth capital and support operating deficits. These types of alliances are generally designed to respond to trends in the delivery of medicine to better integrate hospital and physician care, to increase physician availability to the community and/or to enhance the managed care capability of the affiliated hospitals and physicians. However, these goals may not be achieved, and an unsuccessful alliance may be costly and counterproductive to all of the above-stated goals. Integrated delivery systems carry with them the potential for legal or regulatory risks in varying degrees. The ability of hospitals or health systems to conduct integrated physician operations may be altered or eliminated in the future by legal or regulatory interpretation or changes, or by health care fraud enforcement. In addition, participating physicians may seek their independence for a variety of reasons, thus putting the hospital or health system s investment at risk, and potentially reducing its managed care leverage and/or overall utilization. Hospital Pricing. Inflation in hospital costs may evoke action by legislatures, payors or consumers. It is possible that legislative action at the state or national level may be taken with regard to the pricing of health care services. Indigent Care. Tax-exempt hospitals often treat large numbers of indigent patients who are unable to pay in full for their medical care. In particular, urban, inner-city hospitals often treat significant numbers of indigents. These hospitals may be susceptible to economic and political changes that could increase the number of indigents or the financial responsibility for caring for this population. General economic conditions that affect the number of employed individuals who have health coverage affects 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 health care programs (including Medicare and Medicaid) may increase the frequency and severity of indigent treatment by such hospitals and other providers. It also is possible that future legislation could require that tax-exempt hospitals and other providers maintain minimum levels of indigent care as a condition to federal income tax exemption or exemption from certain state or local taxes. Physician Medical Staff. The primary relationship between a hospital and physicians who practice in it is through the hospital s organized medical staff. Medical staff bylaws, rules and policies establish the criteria and procedures by which a physician may have his or her privileges or membership curtailed, denied or revoked. Physicians who are denied medical staff membership or certain clinical privileges or who have such membership or privileges curtailed or revoked often file legal actions against hospitals and medical staffs. Such actions may include a wide variety of claims, some of which could result in substantial uninsured damages to a hospital. In addition, failure of the hospital governing body to adequately oversee the conduct of its medical staff may result in hospital liability to third parties. Physician Supply. Sufficient community-based physician supply is important to hospitals and health systems. The shortage of physicians could become a significant issue for health providers to face in the coming years. In addition, CMS annually reviews overall physician reimbursement formulas. Changes to physician compensation formulas could lead to physicians locating their practices in communities with lower Medicare populations. The Obligated Group may be required to invest additional resources for recruiting and retaining physicians, or may be required to increase the percentage of employed physicians in order to continue serving the growing population base and maintain market share. 37

42 Competition Among Health Care Providers. Increased competition from a wide variety of sources, including specialty hospitals, other hospitals and health care systems, inpatient and outpatient health care facilities, long-term care and skilled nursing services facilities, clinics, physicians and others, may adversely affect the utilization and/or revenues of hospitals. Existing and potential competitors may not be subject to various restrictions applicable to hospitals, and competition, in the future, may arise from new sources not currently anticipated or prevalent. Specialty hospitals that attract away an important segment of an existing hospital s admitting specialists may be particularly damaging. For example, some large hospitals may have significant dependence on heart surgery programs, as revenue streams from those programs may cover significant fixed overhead costs. If a significant component of such a hospital s heart surgeons develop their own specialty heart hospital (alone or in conjunction with a growing number of specialty hospital operators and promoters) taking with them their patient base, the hospital could experience a rapid and dramatic decline in net revenues that is not proportionate to the number of patient admissions or patient days lost. It is also possible that the competing specialty hospital, as a for-profit venture, would not accept indigent patients or other payors and government programs, leaving low-pay patient populations in the full-service hospital. In certain cases, such an event could be materially adverse to the hospital. A moratorium imposed under Stark on physician investment in new specialty hospitals recently expired. A variety of proposals have been advanced recently to permanently prohibit such investments, but none have been included in any final legislation or enactment of law. Nonetheless, specialty hospitals continue to represent a significant competitive challenge for full-service hospitals. Additionally, scientific and technological advances, new procedures, drugs and appliances, preventive medicine and outpatient health care delivery may reduce utilization and revenues of the hospitals in the future or otherwise lead the way to new avenues of competition. In some cases, hospital investment in facilities and equipment for capital-intensive services may be lost as a result of rapid changes in diagnosis, treatment or clinical practice brought about by new technology or new pharmacology. Antitrust. Enforcement of the antitrust laws against health care providers is becoming more common, and antitrust liability may arise in a wide variety of circumstances, including medical staff privilege disputes, third-party contracting, physician relations, and joint venture, merger, affiliation and acquisition activities. In some respects, the application of the federal and state antitrust laws to health care is still evolving, and enforcement activity by federal and state agencies appears to be increasing. In particular, the Federal Trade Commission has publicly acknowledged increasing enforcement action in the area of physician joint contracting. Likewise, increased enforcement action exists relating to a retrospective review of completed hospital mergers. Violation of the antitrust laws could subject a hospital to criminal and civil enforcement by federal and state agencies, as well as treble damage liability by private litigants. At various times, a Member of the Obligated Group may be subject to an investigation by a governmental agency charged with the enforcement of the antitrust laws, or may be subject to administrative or judicial action by a federal or state agency or a private party. The most common areas of potential liability are joint activities among providers with respect to payor contracting, medical staff credentialing, and use of a hospital s local market power for entry into related health care businesses. From time to time, a Member of the Obligated Group may be involved in joint contracting activity with other hospitals or providers. The precise degree to which this or similar joint contracting activities may expose a Member of the Obligated Group to antitrust risk from governmental or private sources is dependent on specific facts which may change from time to time. A U.S. Supreme Court decision now allows physicians who are subject to adverse peer review proceedings to file federal antitrust actions against hospitals. Hospitals regularly have disputes regarding credentialing and peer review, and therefore may be subject to liability in this area. In addition, hospitals occasionally indemnify medical staff members who are involved in such credentialing or peer review activities, and may also be liable with respect to such indemnity. Recent court decisions have also established private causes of action against hospitals which use their local market power to promote ancillary health care business in which they have an interest. Such activities may result in monetary liability for the participating hospitals under certain circumstances where a competitor suffers business damage. Government or private parties are entitled to challenge joint ventures that may injure competition. Liability in any of these or other antitrust areas of liability may be substantial, depending on the facts and circumstances of each case, and may have a material adverse impact on the Obligated Group. Labor Relations and Collective Bargaining. Hospitals are large employers with a wide diversity of employees. Increasingly, employees of hospitals are becoming unionized, and many hospitals have collective 38

43 bargaining agreements with one or more labor organizations. Employees subject to collective bargaining agreements may include essential nursing and technical personnel, as well as food service, maintenance and other trade personnel. Renegotiation of such agreements upon expiration may result in significant cost increases to hospitals. Employee strikes or other adverse labor actions may have an adverse impact on operations, revenue and hospital reputation. Wage and Hour Class Actions and Litigation. Federal law and many states impose standards related to worker classification, eligibility and payment for overtime, liability for providing rest periods and similar requirements. Large employers with complex workforces, such as hospitals, are susceptible to actual and alleged violations of these standards. In recent years there has been a proliferation of lawsuits over these wage and hour issues, often in the form of large, sometimes multi-state, class actions. For large employers such as hospitals and health systems, such class actions can involve multi-million dollar claims, judgments and/or settlements. A major class action decided or settled adversely to any Obligated Group Member could have a material adverse impact on its financial condition and result of operations. Health Care Worker Classification. Health care providers, like all businesses, are required to withhold income taxes from amounts paid to employees. If the employer fails to withhold the tax, the employer becomes liable for payment of the tax imposed on the employee. On the other hand, businesses are not required to withhold federal taxes from amounts paid to a worker classified as an independent contractor. The Internal Revenue Service (the IRS ) has established criteria for determining whether a worker is an employee or an independent contractor for tax purposes. If the IRS were to reclassify a significant number of hospital independent contractors (e.g., physician medical directors) as employees, back taxes and penalties could be material. Staffing Shortages. In recent years, the health care industry has suffered from a scarcity of nursing personnel, respiratory therapists, pharmacists and other trained health care technicians. A significant factor underlying this trend includes a decrease in the number of persons entering such professions. This is expected to intensify in the future, aggravating the general shortage and increasing the likelihood of hospital-specific shortages. Competition for employees, coupled with increased recruiting and retention costs, will increase hospital operating costs, possibly significantly, and growth may be constrained. This trend could have a material adverse impact on the financial conditions and results of operations of hospitals. Professional Liability Claims and General Liability Insurance. In recent years, the number of professional and general liability suits and the dollar amounts of damage recoveries have increased in health care nationwide, resulting in substantial increases in malpractice insurance premiums, higher deductibles and generally less coverage. Professional liability and other actions alleging wrongful conduct and seeking punitive damages are often filed against health care providers. Insurance does not provide coverage for judgments for punitive damages. Litigation also arises from the corporate and business activities of hospitals, from a hospital s status as an employer or as a result of medical staff or provider network peer review or the denial of medical staff or provider network privileges. As with professional liability, certain of these risks may not be covered by insurance. For example, some antitrust claims or business disputes are not covered by insurance and may, in whole or in part, become a direct liability of a Member of the Obligated Group if determined or settled adversely. There is no assurance that hospitals will be able to maintain coverage amounts currently in place in the future, that the coverage will be sufficient to cover malpractice judgments rendered against a hospital or that such coverage will be available at a reasonable cost in the future. The ability of, and the cost to, the Obligated Group Members to insure or otherwise protect themselves against malpractice claims may adversely affect their future results of operations or financial condition. For further information, see BUSINESS OF THE OBLIGATED GROUP Professional and Casualty Insurance Program in Appendix A to this Reoffering Circular. 39

44 Future Legislation Legislation is periodically introduced in the U.S. Congress and in various state legislatures that could result in limitations on hospital revenues, reimbursement, costs or charges or that could require an increase in the quantity of indigent care required to maintain charitable status. The effect of any such proposals, if enacted, cannot be determined at this time. In addition to legislative proposals previously discussed herein, other legislative proposals that could have an adverse effect on the Obligated Group include: (a) any changes in the taxation of not for profit corporations or in the scope of their exemption from income or property taxes; (b) limitations on the amount or availability of tax exempt financing for corporations described in Section 501(c)(3) of the Code; and (c) regulatory limitations affecting the ability of the Obligated Group to undertake capital projects or develop new services. Legislative bodies have considered legislation concerning the charity care standards that nonprofit, charitable hospitals must meet to maintain their federal income tax-exempt status under the Code and legislation mandating that nonprofit, charitable hospitals have an open-door policy toward Medicare and Medicaid patients as well as offer, in a non-discriminatory manner, qualified charity care and community benefits. Excise tax penalties on nonprofit, charitable hospitals that violate these charity care and community benefit requirements could be imposed or their tax-exempt status under the Code could be revoked. The scope and effect of legislation, if any, that may be enacted at the federal or state levels with respect to charity care of nonprofit hospitals cannot be predicted. Any such legislation or similar legislation, if enacted, could have the effect of subjecting a portion of the income of the Obligated Group to federal or state income taxes or to other tax penalties and adversely affect the ability of the Obligated Group to generate net revenues sufficient to meet its obligations and to pay the debt service on the Series 2008B Bonds and its other obligations. Enforcement of Remedies; Risks of Bankruptcy The obligations of the Members of the Obligated Group under the Master Indenture and the Series 2008B Obligation are general obligations of the Members of the Obligated Group and are secured only by the security interest granted to the Master Trustee in the Unrestricted Receivables of the Members of the Obligated Group. Enforcement of the remedies mentioned under the headings SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE Acceleration and Other Remedies in Appendix D to this Reoffering Circular and SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE Remedies; Rights of Obligation Holders in Appendix C to this Reoffering Circular may be limited or delayed in the event of application of federal bankruptcy laws or other laws affecting creditors rights and may be substantially delayed and subject to judicial discretion in the event of litigation or the required use of statutory remedial procedures. If a Member of the Obligated Group were to file a petition for relief under Title 11 of the United States Bankruptcy Code (the Bankruptcy Code ), the filing would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against such Member of the Obligated Group and any interest it has in property. If a bankruptcy court so ordered, such Member of the Obligated Group s property, including its accounts receivable and proceeds thereof, could be used, at least temporarily, for the benefit of such Member of the Obligated Group s bankruptcy estate despite the claims of its creditors. A Member of the Obligated Group could file a plan of reorganization under the Bankruptcy Code. A plan is the vehicle for satisfying, and provides for the comprehensive treatment of, all claims against such a Member of the Obligated Group, and could result in the modification of rights of any class of creditors, secured or unsecured. To confirm a plan of reorganization, with one exception discussed below, it must be approved by the vote of each class of impaired creditors. A class approves a plan if, of those who vote, those holding more than one-half in number and two-thirds in amount vote in favor of a plan. Approval by classes of interests requires a vote in favor of the plan by two-thirds in amount. If these levels of votes are attained, those voting against the plan or not voting at all are nonetheless bound by the terms thereof. Other than as provided in the confirmed plan, all claims and interests are discharged and extinguished. If fewer than all of the impaired classes accept the plan, the plan may nevertheless be confirmed by the bankruptcy court, and the dissenting claims and interests would be bound thereby. For this to occur, one of the impaired classes must vote to accept the plan and the bankruptcy court must determine that the plan does not discriminate unfairly and is fair and equitable with respect to the non-consenting class. A plan is 40

45 fair and equitable if each class is treated in accordance with its credit priority and no class receives a distribution until senior classes are paid in full. The Bankruptcy Code establishes different fair and equitable tests for secured claims and interest holders. To be confirmed, the bankruptcy court must also determine that a plan, among other requirements, provides creditors with more than would be received in the event of liquidation, is proposed in good faith, and that the debtor s performance is feasible. Risks Related to Obligated Group Financings The obligations of the Members of the Obligated Group under the Series 2008B Obligation and the Master Indenture will be limited to the same extent as the obligations of any debtor under applicable federal and state laws governing bankruptcy, insolvency and avoidance of fraudulent transfers and the application of general principles of creditors rights and as additionally described below. Although, upon the reoffering of the Series 2008B Bonds the Corporation and the Foundation will be the only Obligated Group Members, the Master Indenture permits the addition of other Obligated Group Members if certain conditions are met. See Summary of Certain Provisions of the Master Indenture Entrance Into the Obligated Group in Appendix C. The joint and several obligations described herein of the Members of the Obligated Group to make payments of debt service on the Obligations issued pursuant to and under the Master Indenture may not be enforceable to the extent (1) enforceability may be limited by applicable bankruptcy, moratorium, reorganization, fraudulent conveyance or similar laws affecting the enforcement of creditors rights and by general equitable principles or (2) such payments (a) are requested to be made with respect to payments on any Obligation that is issued for a purpose that is not consistent with the charitable purposes of the Member of the Obligated Group from which such payment is requested or that is issued for the benefit of any entity other than a tax-exempt organization; (b) are requested to be made from any money or assets that are donor restricted or that are subject to a direct or express trust that does not permit the use of such money or assets for such payment; (c) would result in the cessation or discontinuation of any material portion of the health care or related services previously provided by the Member of the Obligated Group from which such payment is requested; or (d) are requested to be made pursuant to any loan violating applicable usury laws. The extent to which the money or assets of any present or future Member of the Obligated Group falls within the categories referred to above cannot be determined and could be substantial. The foregoing notwithstanding, the accounts of the Members of the Obligated Group are and will continue to be combined for financial reporting purposes and will be used in determining whether various covenants and tests contained in the Master Indenture (including tests relating to the issuance of Additional Indebtedness) are satisfied. A Member of the Obligated Group may not be required to make any payment of any Obligation, or portion thereof, or the recipient of such payment may be compelled to return such payment, the proceeds of which were not lent or otherwise disbursed to such Member of the Obligated Group to the extent that such payment would conflict with, or would be prohibited or avoidable under applicable laws. The application of the law relating to the enforceability of guaranties or obligations of a Member of the Obligated Group to make debt service payments on behalf of another Member of the Obligated Group is not amenable to an unqualified declaration of whether a transfer would be prohibited or subject to avoidance. As a general matter, in addition to a transfer of property made with the actual intent to hinder, defraud or delay creditors, a transfer of an interest in property by an entity may be avoided if the transfer is made for less than reasonably equivalent value or fair consideration and the transferor (1) is insolvent (e.g., is unable to pay its debts as they become due), (2) rendered insolvent by the transaction, (3) is undercapitalized (i.e., operating or about to operate without property constituting reasonably sufficient capital given its business operations), or (4) intended or expected to incur debts that it could not pay as they became due. The lack of certainty in the treatment of transfers is attributable to several factors. First, there is no true uniform law governing fraudulent transfers. Such transfers may be avoided under the Bankruptcy Code, state law variants of the Uniform Fraudulent Transfer Act and its predecessor, the Uniform Fraudulent Conveyance Act, or other non-uniform statutes or common law principles. Second and more importantly, the standards for determining the reasonable equivalence of value, or the fairness of consideration, and the measure for determining insolvency are subjective standards resolved in the exercise of judicial discretion after engaging in a fact intensive analysis. This 41

46 subjectivity has resulted in a conflicting body of case law and a lack of certainty as to whether a given transfer would be subject to avoidance. In addition, the Bankruptcy Code provides a means to avoid transfers of a debtor s interests in property made on account of an antecedent debt within 90 days of the debtor filing for relief, or one year if the transferee is an insider, if, as a result of that transfer, the transferee receives more than it would have received in a liquidation of the debtor under Chapter 7 of the Bankruptcy Code. Whether the creation of a lien, or a payment, made by a Member of the Obligated Group would be determined to be avoidable would be dependent on the particular circumstances surrounding the transfer. 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 nonprofit 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 that 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. Certain Matters Relating to Enforceability of Security Interest in Unrestricted Receivables The enforceability, priority and perfection of the security interest in Unrestricted Receivables created under the Master Indenture may be limited by a number of factors, including, without limitation: (1) provisions prohibiting the direct payment of amounts due to health care providers from Medicaid and Medicare programs to persons other than such providers; (2) the absence of an express provision permitting assignment of receivables due under the contracts between the Members of the Obligated Group and third-party payors, and present or future legal prohibitions against assignment; (3) certain judicial decisions which cast doubt on the right of the Master Trustee, in the event of the bankruptcy of a Member of the Obligated Group, to collect and retain accounts receivable from Medicare, Medicaid and other governmental programs; (4) commingling of proceeds of accounts receivable with other moneys of the Members of the Obligated Group not so pledged under the Master Indenture; (5) statutory liens; (6) rights arising in favor of the United States of America or any agency thereof; (7) constructive trusts or equitable or other rights impressed or conferred thereon by a federal or state court in the exercise of its equitable jurisdiction; (8) federal and state laws governing fraudulent transfers as discussed above; (9) federal bankruptcy laws that may affect the enforceability of the Master Indenture or the security interest in the Unrestricted Receivables; (10) rights of third parties in Unrestricted Receivables converted to cash and not in the possession of the Master Trustee; and (11) claims that might arise if appropriate financing or continuation statements or amendments of financing statements are not filed in accordance with the Uniform Commercial Code, as from time to time in effect. Credit Enhancement of Existing Debt For various purposes under the Master Indenture, such as amendments thereto or the enforcement of remedies thereunder, the Master Trustee is instructed to take direction from the holders of specified percentages of the Outstanding Obligations. Under certain circumstances, the bond insurers and letter of credit banks which provided or may provide credit enhancement for certain series of outstanding revenue bonds or future bond issues (collectively, the Credit Enhancers ) may have interests different than those of the holders of the Series 2008B Bonds. In addition, the Bond Insurer Covenants have been included in the Master Indenture for the benefit of Ambac. A failure by the Members of the Obligated Group to comply with the Bond Insurer Covenants would give rise to an event of default under the Master Indenture. The Bond Insurer Covenants may only be enforced by, and may be waived solely by, Ambac. Certain Other Matters Relating to Security for the Series 2008B Bonds 1. Pursuant to the terms of the Master Indenture, the Obligated Group Members may incur additional Indebtedness (including additional Related Bonds) which is entitled to the benefits of security which does not extend to any other Indebtedness (including any Obligation). Such security may include Liens on the Property (including health care facilities) or any depreciation reserve, debt service or interest reserve or similar fund. See the information under the heading SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE 42

47 Liens on Property and MODIFICATION OF MASTER INDENTURE PROVISIONS FOR THE BENEFIT OF THE BOND INSURER Liens on Property in Appendix C to this Reoffering Circular. 2. Pursuant to the provisions of the Master Indenture, certain of the rights and remedies afforded the holders of Obligations under the Master Indenture, including without limitation the right to demand acceleration of the Series 2008B Obligation may be initiated by the holders of 25% in aggregate principal amount of the Obligations outstanding subject to the right of 51% of the holders of Obligations to direct all remedies under the Master Indenture. Such a majority may be comprised solely of the holders of Obligations other than the Series 2008B Obligation. Upon the Fixed Rate Conversion Date, the Series 2008B Obligation will constitute approximately 53.1% of the aggregate principal amount of the Obligations Outstanding under the Master Indenture. 3. Certain amendments to the Bond Indenture and the Loan Agreement may be made with the consent of the owners of not less than a majority of the principal amount of the outstanding Bonds issued under the Bond Indenture. Certain amendments to the Master Indenture may be made with the consent of a majority of the holders of the Obligations outstanding under the Master Indenture. Such amendments may adversely affect the security of the Bondholders and such majority may be comprised wholly or partially of the holders of Obligations other than the Series 2008B Obligation. 4. The Facilities of the Corporation are not comprised of general purpose buildings and generally would not be suitable for industrial or commercial use. In addition, the use of the Facilities on which the Corporation s hospital facilities are located is restricted by the terms of the Lease with Milwaukee County. See the information under the heading BONDHOLDERS RISKS Ground Lease above for a description of such restrictions. Consequently, it could be difficult to find a buyer or lessee for such Facilities and, upon any default, the Bond Trustee may not realize the amount of the outstanding Bonds from the sale or lease of such Facilities if it were necessary to proceed against such Facilities, whether pursuant to a judgment, if any, against the Corporation or any other Member of the Obligated Group, or otherwise. Maintenance of Tax-Exempt Status of the Corporation and the Series 2008B Bonds If the Corporation does not comply with certain covenants set forth in the Bond Indenture and the Loan Agreement, including the covenant to comply with provisions of the Internal Revenue Code of 1986, as amended, or if certain representations or warranties made by the Corporation in conjunction with the original issuance of the Series 2008B Bonds are false or misleading, the interest payable on the Series 2008B Bonds may become subject to federal income taxation retroactive to the date of issuance of such Series 2008B Bonds, regardless of the date on which such noncompliance or misrepresentations is ascertained. The Bond Indenture does not provide for the payment of any additional interest or penalty in the event of the taxability of interest on the Series 2008B Bonds. Loss of tax-exempt status by any Obligated Group Member could result in loss of the exclusion for federal income tax purposes from gross income of the owners of the Series 2008B Bonds of the interest on the Series 2008B Bonds which, in turn, could result in a default under the Loan Agreement. Any such event would have material adverse consequences on the future financial condition and results of operations of the Obligated Group. Additionally, the loss of federal tax-exempt status by an Obligated Group Member would adversely affect that Obligated Group Member s access to future tax-exempt financing. The maintenance of such status is contingent on compliance with general rules based on the Code, regulations, and judicial decisions regarding the organization and operation of tax exempt hospitals and health systems. The IRS interpretation of and position on these rules as they affect the organization and operation of health care organizations (for example, with respect to providing charity care, joint ventures, physician and executive compensation, physician recruitment and retention, etc.) are constantly evolving. The IRS reserves the right to, and in fact occasionally does, alter or reverse its positions concerning tax-exemption issues, even concerning long-held positions upon which tax-exempt health care organizations have relied. In addition, the IRS has asserted that tax-exempt hospitals that are in violation of Medicare and Medicaid regulations regarding inducement for referrals may also be subject to revocation of their tax-exempt status. Because a wide variety of hospital-physician transactions potentially violate these broadly stated prohibitions on inducement for referrals, the IRS has broadened the range of activities that may directly affect tax exemption, without defining 43

48 specifically how those rules will be applied. As a result, tax-exempt hospitals, particularly those that have extensive transactions with physicians, are currently subject to an increased degree of scrutiny and, potentially, enforcement activities by the IRS. The IRS s policy position is not necessarily indicative of a judicial adjudication of the applicable issues. Section 4958 of the Code imposes excise taxes on excess benefit transactions between disqualified persons and tax-exempt organizations such as the Corporation. According to the legislative history and regulations associated with Section 4958, these excise taxes may be imposed by the IRS either in lieu of or in addition to revocation of exemption. The legislation is potentially favorable to taxpayers because it provides the IRS with a punitive option short of revocation of exempt status to deal with incidents of private inurement. However, the standards for tax exemption have not been changed, including the requirement that no part of the net earnings of an exempt entity inure to the benefit of any private individual. Consequently, although the IRS has only infrequently revoked the tax exemption of nonprofit health care corporations in the past, the risk of revocation remains and there can be no assurance that the IRS will not direct enforcement activities against any Member of the Obligated Group. In 1990, the Employee Plans and Exempt Organizations Division of the IRS expanded the Coordinated Examination Program (referred to as 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. One or more of the Members of the Obligated Group could be audited by the IRS. Management of the Corporation believes that each Member of the Obligated Group 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 Member of the Obligated Group. Loss of tax-exempt status by any of the Obligated Group Members could result in loss of the exclusion from gross income of the interest on the Series 2008B Bonds that, in turn, could result in a default under the Bond Indenture, potentially triggering an acceleration of the Series 2008B Bonds under the Bond Indenture. Any such event would have material adverse consequences on the future financial condition and results of operations of the Obligated Group. Additionally, the loss of federal tax-exempt status by a Member of the Obligated Group could adversely affect its access to future tax-exempt financing. As described under the heading TAX EXEMPTION in this Reoffering Circular, failure to comply with certain legal requirements may cause the interest on the Series 2008B Bonds to become included in gross income of the recipients thereof for federal income tax purposes. In such event, the Series 2008B Bonds may be accelerated at the written request of holders of not less than 25% of the aggregate principal amount of the Series 2008B Bonds then outstanding. The Bond Indenture does not provide for the payment of any additional interest or penalty in the event the interest on the Series 2008B Bonds becomes included in gross income for federal income tax purposes. Although the IRS has only infrequently taxed the interest received by holders of bonds that were represented to be tax-exempt, the IRS has recently reviewed a number of bond issues and concluded that such bond issues did not comply with applicable provisions of the Code and related regulations. The IRS has typically entered into closing agreements with issuers and beneficiaries of such bond issues under which potentially substantial payments have been made to the IRS to settle the issue of whether the interest on such bond issues could be treated as tax-exempt. No assurance can be given that the IRS will not examine a holder of the Series 2008B Bonds, the Corporation or its Affiliates or the Series 2008B Bonds. If such an examination were to occur, it could have an adverse impact on the marketability and price of the Series 2008B Bonds and could lead to claims by the IRS for payment of substantial amounts by the Corporation and its Affiliates to resolve any issue. Charity Care, Underinsured and Uninsured Patients Recently, focus has increased on the provision of charity care by not for profit health care institutions and their pricing policies and billing and collection practices involving the underinsured and uninsured. This increased 44

49 focus has resulted in congressional hearings, governmental inquiries and private, purported class action litigation against more than 100 not for profit health care institutions nationwide, generally alleging the overcharging of underinsured and uninsured patients. Management of the Corporation cannot predict the impact that these or related developments may have on the Obligated Group or the health care industry generally. In addition, lawsuits have been filed in both federal and state courts alleging, among other things, that hospitals have failed to fulfill their obligations to provide charity care to uninsured patients and have overcharged uninsured patients. Investment Income During certain fiscal years, investment income has constituted a significant portion of the net income of the Obligated Group. In other years, the Obligated Group has experienced losses on its investments. No assurance can be given that the investments of the Obligated Group Members will produce positive returns or that losses on investments will not occur in the future. See Appendix B Combined Financial Statements of Children s Hospital of Wisconsin, Inc. and Children s Hospital and Health System Foundation, Inc. and Appendix A FINANCIAL PERFORMANCE for more information. To the extent investment returns are lower than anticipated or losses on investments occur, the Obligated Group Members may also be required to make additional deposits in connection with pension fund liabilities. Additional Risk Factors The following factors, among others, may also adversely affect the operation of health care facilities, including the facilities of the Corporation, to an extent that cannot be determined at this time: 1. Increased efforts by insurers and governmental agencies to limit the cost of hospital services (including, without limitation, the implementation of a system of prospective review of hospital rate changes and negotiating discounted rates), to reduce the number of hospital beds and to reduce utilization of hospital facilities by such means as preventive medicine, improved occupational health and safety and outpatient care. 2. Cost increases without corresponding increases in revenue could result from, among other factors: increases in the salaries, wages, and fringe benefits of hospital and clinic employees; increases in costs associated with advances in medical technology or with inflation; or future legislation that would prevent or limit the ability of the Obligated Group to increase revenues. 3. Any termination or alteration of existing agreements between any of the Members of the Obligated Group and individual physicians and physician groups who render services to the patients of the Corporation or any termination or alteration of referral patterns by individual physicians and physician groups who render services to the patients of the Member with whom such Member does not have contractual arrangements. 4. Future contract negotiations between public and private insurers, employers and participating hospitals, including the Member s hospitals, and other efforts by these insurers and employers to limit hospitalization costs and coverage could adversely affect the level of reimbursement to any of the Members of the Obligated Group. 5. An inflationary economy and difficulty in increasing room charges and other fees charged while at the same time maintaining the amount or quality of health services may affect the Corporation s operating margins. 6. The cost and effect of any future unionization of employees of any of the Members of the Obligated Group. 7. The possible inability to obtain future governmental approvals to undertake projects necessary to remain competitive both as to rates and charges as well as quality and scope of care could adversely affect the operations of the Members of the Obligated Group. 45

50 8. Imposition of wage and price controls for the health care industry, such as those that were imposed and adversely affected health care facilities in the early 1970s. 9. Increased unemployment or other adverse economic conditions which could increase the proportion of patients who are unable to pay fully for the cost of their care. In addition, increased unemployment caused by a general downturn in the economy of the Corporation s service area or by the closing of operations of one or more major employers in such service areas may result in a significant change in the demographics of such service areas, such as a reduction in the population. 10. Limitations on the availability of and increased compensation necessary to secure and retain nursing, technical or other professional personnel. 11. Changes in law or revenue rulings governing the nonprofit or tax-exempt status of charitable corporations such as the Obligated Group Members, such that nonprofit corporations, as a condition of maintaining their tax-exempt status, are required to provide increased indigent care at reduced rates or without charge or discontinue services previously provided. 12. Efforts by taxing authorities to impose or increase taxes related to the property and operations of nonprofit organizations or to cause nonprofit organizations to increase the amount of services provided to indigents to avoid the imposition or increase of such taxes. 13. Proposals to eliminate the tax-exempt status of interest on bonds issued to finance health facilities, or to limit the use of such tax-exempt bonds, have been made in the past, and may be made again in the future. The adoption of such proposals would increase the cost to the Obligated Group Members of financing future capital needs. In the future, other events may adversely affect the operations of the Members of the Obligated Group, as well as other health care facilities, in a manner and to an extent that cannot be determined at this time. RATINGS Moody s Investors Service ( Moody s ) and Standard & Poor s Ratings Services ( Standard & Poor s ) have assigned ratings of Aa3 and AA-, respectively, for the Series 2008B Bonds. The ratings and an explanation of their significance may be obtained from the rating agency furnishing such rating. Such ratings reflect only the respective views of the rating agencies. The Obligated Group has furnished such rating agencies with certain information and materials relating to the Series 2008B Bonds and the Obligated Group that have not been included in this Reoffering Circular. Generally, rating agencies base their ratings on the information and materials so furnished and on investigations, studies, and assumptions by the rating agencies. There is no assurance that a particular rating will be maintained for any given period of time or that it will not be lowered or withdrawn entirely if, in the judgment of the agency originally establishing the rating, circumstances so warrant. None of the Authority, the Remarketing Agents or the Obligated Group has undertaken any responsibility to bring to the attention of the holders of the Series 2008B Bonds any proposed revision or withdrawal of the rating of the Series 2008B Bonds or to oppose any such proposed revision or withdrawal. Any such change in or withdrawal of such rating could have an adverse effect on the market price of the Series 2008B Bonds. INDEPENDENT AUDITORS The combined financial statements of Children s Hospital of Wisconsin, Inc. and Children s Hospital and Health System Foundation, Inc. as of and for the years ended December 31, 2007 and 2008 and the additional combining information as of and for the year ended December 31, 2008 included in Appendix B to this Reoffering Circular have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report therein (which expresses an unqualified opinion and includes an explanatory paragraph which indicates as of January 1, 2008, the Obligated Group adopted the provisions of Financial Accounting Standards Board (FASB) Statement No. 157, Fair 46

51 Value Measurements, and FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities including an Amendment of FASB Statement No Authority LITIGATION There is not now pending or, to the knowledge of the Authority, threatened any litigation restraining or enjoining the reoffering of the Series 2008B Bonds or questioning or affecting the validity of the Series 2008B Bonds or the proceedings or authority under which they are to be reoffered. Neither the creation, organization or existence of the Authority nor the title of the present members or other officials of the Authority to their respective positions is being contested. There is no litigation pending or, to the Authority s knowledge, threatened which in any manner questions the right of the Authority to enter into, or the validity or enforceability of, the Bond Indenture (including the Supplemental Bond Indenture) or the Loan Agreement or to secure the Series 2008B Bonds in the manner provided in the Bond Indenture and the Act. The Obligated Group There is no litigation pending or threatened which in any manner questions the right of the Obligated Group to secure the Series 2008B Bonds in accordance with the provisions of the Bond Indenture, the Loan Agreement or the Master Indenture. There is no litigation, proceeding or investigation pending or, to the Corporation s knowledge, threatened against any Member of the Obligated Group, except litigation, proceedings or investigations in which the probable ultimate recoveries and the estimated costs and expenses of defense, in the opinion of its special counsel either will be entirely within the applicable insurance policy limits of such Obligated Group Member (subject to applicable deductibles) or will not have a materially adverse effect on the operations or condition, financial or otherwise, of the Obligated Group. LEGAL MATTERS All legal matters incidental to the original issuance of the Series 2008B Bonds were approved by Quarles & Brady LLP, Bond Counsel to the Authority, on the Original Issuance Date. Certain legal matters relating to the conversion of the Series 2008B Bonds to the Fixed Rate Mode are subject to the approval of Quarles & Brady LLP, Bond Counsel, whose opinion will be delivered on the Fixed Rate Conversion Date. Certain legal matters will be passed on for the Authority by Quarles & Brady LLP, its general counsel, for the Obligated Group by its counsel, Foley & Lardner LLP, and for the Remarketing Agents by their counsel, Jones Day, Chicago, Illinois. In General TAX EXEMPTION The original opinion of Bond Counsel and the descriptions of the tax laws contained in this Reoffering Circular are based on laws and official interpretations of them in existence on the date the Series 2008B Bonds were originally issued. There can be no assurance that those laws or the interpretations of them will not change or that new laws will not be enacted or regulations issued while the Series 2008B Bonds are outstanding in a manner that would adversely affect the value of an investment in the Series 2008B Bonds or the tax treatment of the interest paid on the Series 2008B Bonds. Federal Income Tax Opinion of Bond Counsel On July 29, 2008, the date the Series 2008B Bonds were originally issued, Quarles & Brady LLP, Bond Counsel, delivered a legal opinion with respect to whether the interest on the Series 2008B Bonds must be included in the gross income for federal income tax purposes of an owner of a Series 2008B Bond under law existing at that time (the Original Bond Counsel Opinion ). See Appendix E hereto Original Bond Counsel Opinion. 47

52 Other Federal Income Tax Considerations As noted in the Original Bond Counsel Opinion, interest on the Series 2008B Bonds is included in the adjusted current earnings of corporations for purposes of the alternative minimum tax imposed by Section 55 of the Code. The Code also contains numerous other provisions which could adversely affect the value of an investment in the Series 2008B Bonds for particular Bondholders. For example, (1) Section 265 of the Code, denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Series 2008B Bonds or, in the case of a financial institution, that portion of a holder s interest expense allocated to interest on the Series 2008B Bonds, (2) Section 265 of the Code denies a deduction for expenses that are allocable to the interest on the Series 2008B Bonds, (3) Section 265 of the Code denies a deduction for otherwise allowable deductions of a regulated investment company that are allocable to distributions of the interest on the Series 2008B Bonds paid during the taxable year (or after the close of the taxable year pursuant to Section 855 of the Code), (4) interest on the Series 2008B Bonds may affect the federal income tax liabilities of life insurance companies and, with respect to insurance companies subject to the tax imposed by Section 831 of the Code, Section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15 percent of the sum of certain items, including interest on the Series 2008B Bonds, (5) interest on the Series 2008B Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Code, (6) passive investment income, including interest on the Series 2008B Bonds, may be subject to federal income taxation under Section 1375 of the Code for Subchapter 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 the Subchapter S corporation is passive investment income and (7) Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account receipts or accruals of interest on the Series 2008B Bonds in determining gross income. There may be other provisions of the Code which could adversely affect the value of an investment in the Series 2008B Bonds for particular Bondholders. Investors should consult their tax advisors to determine how the provisions described under this heading and under the headings ORIGINAL ISSUE DISCOUNT and BOND PREMIUM and other provisions of the Code relating to the ownership of tax-exempt obligations apply to them. Wisconsin Income Tax The interest on the Series 2008B Bonds is not exempt from present Wisconsin income taxes. Fixed Rate Conversion On the Fixed Rate Conversion Date for the Series 2008B Bonds, Bond Counsel will deliver its opinion that the conversion of such Series 2008B Bonds to the Fixed Rate Mode will not, in and of itself, adversely affect the exclusion of interest on the Series 2008B Bonds from gross income of the owners of the Series 2008B Bonds for federal income tax purposes (the Conversion Opinion ). See Appendix F Form of Conversion Opinion. The Conversion Opinion is based on existing laws, regulations, rulings and court decisions, and relies upon, among other matters, the accuracy of certain representations made on the Fixed Rate Conversion Date, including those described herein. Bond Counsel has not verified any such representations by independent investigation. Failure of any of the factual representations to be correct may result in interest on the Series 2008B Bonds being included in gross income of the owners of the Series 2008B Bonds for federal income tax purposes, possibly from the date of original issuance of the Series 2008B Bonds. The Conversion Opinion relates to the Fixed Rate Conversion and does not otherwise address or consider any actions that may have been taken (or not taken) or any events that may have occurred (or not occurred) since the original issuance of the Series 2008B Bonds. Except as expressly set forth in the Conversion Opinion, Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the issuance of the Series 2008B Bonds have adversely affected or may adversely affect the tax status of the interest on such Series 2008B Bonds. The Original Bond Counsel Opinion has not been updated or affirmed. 48

53 ORIGINAL ISSUE DISCOUNT For federal income tax purposes, the Series 2008B Bonds maturing August 15 of each of the years 2017, 2018, 2019 and 2037 (under this caption, the Discount Bonds ) have an original issue discount equal to the excess of the principal amount payable upon maturity date of each such maturity over the respective issue price of each such maturity. With respect to each maturity of the Discount Bonds, the issue price for such Discount Bonds will be the initial public offering price as set forth on, or as derived from the yield set forth on, the cover page of this Reoffering Circular (assuming it is the first price to the public at which a substantial amount of such Discount Bonds are sold) and the issue date will be the date on which such Discount Bonds are first reoffered to the public. Under existing law, the original issue discount on a Discount Bond accrued in the hands of an owner is treated for federal income tax purposes as interest, which is excludable from gross income under Section 103 of the Code, assuming compliance with certain covenants. The original issue discount on each of the Discount Bonds is treated as accruing daily from the issue date of such Bond until its stated maturity date on the basis of a constant interest rate compounded at the end of each sixmonth accrual period (or shorter period from the date of original issue) ending February 15 and August 15. The daily portions of the original issue discount are determined by allocating to each day in an accrual period the ratable portion of the original issue discount allocable to the accrual period. Owners of Discount Bonds should consult their own tax advisors with respect to the computation for federal income tax purposes of the amounts of original issue discount that accrue during the period in which such Discount Bonds are held. As described above regarding tax-exempt interest, all or a portion of the original issue discount that accrues in each year to an owner of a Discount Bond may result in certain collateral federal income tax consequences. In the case of a corporation, such portion of the original issue discount will be included in the calculation of the corporation s alternative minimum tax liability. Corporate owners of any Discount Bonds should be aware that the accrual of original issue discount in each year may result in an alternative minimum tax liability although the owners of such Discount Bonds will not receive a corresponding cash payment until a later year. The owner s basis for determining gain or loss on a sale, maturity or other disposition of a Discount Bond generally will equal the owner s cost, increased by any original issue discount that accrues during the period that the Discount Bond is held by such owner. Generally, any gain or loss recognized by an owner on a sale, exchange or payment at maturity of a Discount Bond (based on the owner s basis) will be taxable as capital gain or loss (assuming the Discount Bond is held as a capital asset). An owner will recognize a taxable gain on a Discount Bond redeemed prior to maturity on the difference between the owner s basis and the call price of the Discount Bond. Owners who purchase Discount Bonds in the initial public offering but at a price different than the issue price for such maturity should consult their own tax advisors with respect to the tax consequences of the ownership of the Discount Bonds. The Code contains certain provisions relating to the accrual of original issue discount in the case of subsequent purchasers of bonds such as the Discount Bonds. Owners who do not purchase Discount Bonds in the initial public offering should consult their own tax advisors with respect to the tax consequences of the ownership of the Discount Bonds. Owners of Discount Bonds also should consult their tax advisors with respect to the possible state and local income, excise or franchise tax consequences arising from the original issue discount of the Discount Bonds. It is possible that under the applicable provisions governing the determination of state and local income taxes, accrued interest on the Discount Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment until a later year. BOND PREMIUM For federal income tax purposes, the Series 2008B Bonds maturing August 15 of each of the years 2024 and 2029 (the Premium Bonds ) have bond premium equal to the difference between the amount of their basis for determining loss on a sale or exchange of each such maturity and the principal amount payable upon the maturity date (or if callable, on the earlier call date) of each such maturity. 49

54 Under existing law, the amortizable bond premium on a Premium Bond is not deductible from gross income; rather, the portion of the bond premium attributable to a taxable year ( amortizable bond premium ) is applied against (and operates to reduce) the amount of interest payments on the Premium Bonds. The amortizable bond premium of each Premium Bond is calculated on a daily basis from the issue date of such Premium Bond until its stated maturity date (or call date, if any) on the basis of a constant interest rate compounded at each six-month period (or shorter period from the date of original issue) ending February 15 and August 15 (with straight line interpolation between the compounding dates). An owner s basis for determining gain or loss on a sale, maturity or other disposition of a Premium Bond generally will equal the owner s cost decreased by any amortizable bond premium for the period that the Premium Bond is held by such owner. Generally, any gain or loss recognized by an owner on a sale, exchange or payment at maturity of a Premium Bond (based on the owner s basis) will be taxable as capital gain or loss (assuming the Premium Bond is held as a capital asset). An owner will recognize a taxable gain on a Premium Bond redeemed prior to maturity on the difference between the owner s basis and the call price of the Premium Bond. Owners of Premium Bonds should consult their tax advisors with respect to the computation for federal income tax purposes of the amounts of amortization bond premium for the periods during which such Premium Bonds are held. Owners who do not purchase Premium Bonds in the initial public offering should consult their own tax advisors with respect to the tax consequences of the ownership of the Premium Bonds. In addition, owners of Premium Bonds should consult their tax advisor with respect to the possible state and local income, excise or franchise tax consequences arising from the bond premium on the Premium Bonds. CONTINUING DISCLOSURE AGREEMENT In order to provide certain continuing disclosure with respect to the Series 2008B Bonds in accordance with Rule 15c2-12, concurrently with the original issuance of the Series 2008B Bonds, the Corporation, on behalf of the Obligated Group, entered into the Continuing Disclosure Agreement for the benefit of the holders of the Series 2008B Bonds with DAC, under which the Corporation has designated DAC as Disclosure Dissemination Agent. Under the Continuing Disclosure Agreement, the Obligated Group agreed to file quarterly financial information in addition to the annual financial information required by Rule 15c2-12. The Continuing Disclosure Agreement is attached as Appendix G to this Reoffering Circular. Failure by the Corporation to comply with the Continuing Disclosure Agreement will not constitute an event of default under the Master Indenture, Bond Indenture or Loan Agreement and Bondholders are limited to the remedies described in the Continuing Disclosure Agreement. See the information under the heading FORM OF CONTINUING DISCLOSURE AGREEMENT - Remedies in Event of Default in Appendix G to this Reoffering Circular. Failure by the Corporation to comply with the Continuing Disclosure Agreement must be reported in accordance with Rule 15c2-12 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. FINANCIAL ADVISOR Kaufman Hall & Associates, Skokie, Illinois, has served as financial advisor to the Members of the Obligated Group in connection with the financing described in this Reoffering Circular. Kaufman Hall & Associates, Inc. is a national consulting firm which acts as capital advisor to health care organizations, particularly in the areas of short and long-term debt financing, mergers and acquisitions and overall capital planning. REOFFERING Goldman, Sachs & Co. and Robert W. Baird & Co. (together, the Remarketing Agents ) will agree pursuant to a Remarketing Agreement among the Corporation and the Remarketing Agents, to use their best efforts to reoffer the Series 2008B Bonds on the Fixed Rate Conversion Date, subject to certain conditions. The Remarketing Agreement provides that the Remarketing Agents will remarket all of the Series 2008B Bonds if any 50

55 are remarketed. Pursuant to the Remarketing Agreement, the Corporation will pay the Remarketing Agents a fee of $1,275, to remarket the Series 2008B Bonds. Pursuant to the Remarketing Agreement, the Corporation will indemnify the Remarketing Agents against losses, claims and liabilities arising out of materially incorrect or incomplete statements of information contained in this Reoffering Circular pertaining to the Obligated Group. MISCELLANEOUS The references herein to the Bond Indenture, the Series 2008B Bonds, the Loan Agreement, the Series 2008B Obligation and the Master Indenture and other materials are brief outlines of certain provisions of these documents and materials. Such outlines do not purport to be complete, and for full and complete statements of such provisions reference is made to such instruments and other materials, executed counterparts of which will be on file at the principal corporate trust office of the Bond Trustee subsequent to the reoffering of the Series 2008B Bonds. All statements in this Reoffering Circular involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Reoffering Circular is not to be construed as a contract or agreement between the Obligated Group or the Authority and the purchasers or owners of any of the Series 2008B Bonds. Pursuant to the documents under which the Authority has agreed to sell and the Remarketing Agents have agreed to purchase the Series 2008B Bonds, the Corporation has agreed to indemnify the Authority and the Remarketing Agents against certain liabilities, including liabilities under the federal securities laws. The execution and delivery of this Reoffering Circular have been duly authorized by the Authority. The Authority has not, however, prepared nor made any independent investigation of the information contained in this Reoffering Circular except the information under the headings THE AUTHORITY and LITIGATION Authority. WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY This Reoffering Circular is approved: CHILDREN S HOSPITAL OF WISCONSIN, INC. By: /s/ Lawrence R. Nines Executive Director By: /s/ Timothy L. Birkenstock Treasurer and Chief Financial Officer CHILDREN S HOSPITAL AND HEALTH SYSTEM FOUNDATION, INC. By: /s/ Timothy L. Birkenstock Treasurer and Chief Financial Officer 51

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57 APPENDIX A CHILDREN S HOSPITAL OF WISCONSIN, INC. AND CHILDREN S HOSPITAL AND HEALTH SYSTEM FOUNDATION, INC.

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59 TABLE OF CONTENTS Page CORPORATE ORGANIZATION...1 Obligated Group...1 Non-Obligated Affiliates...2 THE BUSINESS OF THE OBLIGATED GROUP...4 CHW Facilities...4 Hospital Services...5 Utilization Statistics...8 Medical and Dental Staff...9 Support Staff...12 Research, Teaching and Medical Education Programs...13 Accreditation, Licenses and Membership...14 Professional and General Liability Insurance...14 Retirement Plan...14 Corporate Compliance...15 SERVICE AREA AND COMPETITION...17 Primary Service Area...17 Demographic Information...18 Market Share and Competition...18 NEAREST TERTIARY COMPETITORS OF THE HOSPITAL...20 FINANCIAL PERFORMANCE...20 Summary of Financial Results...20 Historical Debt Service Coverage...22 Historical Capitalization...23 Historical Liquidity...24 Capital Expenditure Program...24 Sources of Patient Service Revenue...25 Investment Income...25 Management Discussion and Analysis...26 Critical Accounting Policies...30 Interest Rate Agreements...31 GOVERNANCE AND MANAGEMENT...31 The Parent Board of Directors...31 CHW Board of Directors...32 The Foundation Board of Directors...34 Conflict of Interest Policy...37 Executive Management i-

60 Children s Hospital and Health System, Inc. Children s Hospital of Wisconsin, Inc. Children s Hospital and Health System Foundation, Inc. Children s Medical Group, Inc. Children s Service Society of Wisconsin Seeger Health Resources, Inc. ($) Children s Health Education Center, Inc. National Outcomes Center, Inc. Children s Specialty Group, Inc. (#) Children s Physician Group, P.C. Children s Research Institute, Inc. Surgicenter of Greater Milwaukee, LLC(*) -ii- Children s Family and Community Partnerships, Inc. Med-Health Financial Services, Inc. ($) Children s Community Health Plan, Inc. ($) ($) For Profit (#) Unconsolidated Entity Member of Obligated Group Children s Physician Group, P.C. is an Illinois Service Corporation owned by the President of Children s Medical Group, Inc. and held in trust for Children s Hospital and Health System, Inc. (*) Disregarded entity for purposes of federal and state income tax

61 INTRODUCTION This Appendix A contains information related to the business affairs and financial condition of the Obligated Group described in the front part of this Reoffering Circular. At the time of conversion of the Series 2008B Bonds, the Obligated Group will be composed of Children s Hospital of Wisconsin, Inc. ( CHW ) and Children s Hospital and Health System Foundation, Inc. (the Foundation ). There is no present intention to alter the composition of the Obligated Group. CHW and the Foundation have a common parent corporation, Children s Hospital and Health System, Inc. (the Parent ). CHW and the Foundation are also affiliated with a number of other entities identified on the preceding page (together with the Parent, the Non-Obligated Affiliates ). CHW, the Foundation, the Parent and the Non-Obligated Affiliates are referred to collectively as the System. CHW and the Foundation are the only members of the System in the Obligated Group, and are jointly and severally obligated under the Master Indenture. Neither the Parent nor the other Non-Obligated Affiliates is obligated under the Master Indenture, the Series 2008B Obligations, the Loan Agreement or otherwise with respect to the Series 2008B Bonds. Total combined operating revenues of the Obligated Group were $475 million in 2008, representing approximately 77% of the consolidated total operating revenues of the System. Combined net assets of the Obligated Group were $460 million at December 31, 2008, representing approximately 87% of the consolidated net assets of the System. This Appendix A should be read in conjunction with the combined financial statements of the Obligated Group included in APPENDIX B, the descriptions of the conversion of the Series 2008B Bonds contained in this Reoffering Circular, and the information under the caption BONDHOLDERS RISKS in this Reoffering Circular. Obligated Group Children s Hospital of Wisconsin, Inc. CORPORATE ORGANIZATION CHW is a Wisconsin nonstock, nonprofit corporation and a charitable organization under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code ). CHW owns and operates the only freestanding children s hospital in the State of Wisconsin (the Main Hospital ) and provides a full range of inpatient and outpatient pediatric programs and related ancillary services. Together with the Non-Obligated Affiliates, CHW serves the health and well-being of children through leadership roles in pediatric health care delivery, research into the causes and treatment of childhood diseases, education for physicians, nurses and allied health professionals, and advocacy on issues related to children s health. The Main Hospital is located in Wauwatosa, Wisconsin, a Milwaukee suburb located five miles west of downtown Milwaukee and is situated on the grounds of the Milwaukee Regional Medical Center, Inc. ( MRMC ). CHW operates all 296 of its approved beds at the Main Hospital, including a 72-bed pediatric intensive care unit, a 43-bed neonatal intensive care unit, a 24-bed hematology/oncology/transplant unit, a 157-bed pediatric/medical/surgery unit. CHW also operates a 28-bed day surgery unit. The emergency department trauma center at the Main Hospital is recognized by the American College of Surgeons as a Level 1 pediatric trauma center the only one of its kind in Wisconsin and one of only 22 in the United States. In addition to inpatient services, CHW provides outpatient diagnosis and treatment for a wide variety of pediatric disorders at more than 170 subspecialty clinics. See the material beginning on page A-6 for a more complete description of the services offered by CHW. CHW also operates a 42-bed (approved) inpatient facility located in Neenah, Wisconsin, approximately 90 miles north of the Main Hospital ( CHW Fox Valley ). CHW operates 41 of its 42 approved beds at CHW Fox Valley. See the material beginning on page A-8 for a more complete description of the services offered at the this and other regional facilities. CHW provides care for children from Wisconsin, the Upper Peninsula of Michigan, and northern Illinois and receives referrals on a national basis. During 2008, a total of 25,284 infants, children and adolescents were admitted to CHW s inpatient facilities and 273,858 were seen in CHW s specialty outpatient clinics. Also during A-1

62 2008, the emergency department/trauma center treated 59,984 children and 14,628 surgical procedures were performed in the surgical facilities located on at the Main Hospital. The System includes three physician groups, Children s Physician Group, P.C. ( CPG ), Children s Medical Group, Inc. ( CMG ), and Children s Specialty Group, Inc. ( CSG ), whose physicians are primary users of the System s facilities. CHW is a teaching affiliate of The Medical College of Wisconsin, Inc. (the Medical College ), a medical school located on a site adjacent to the Main Hospital. Children s Hospital and Health System Foundation, Inc. The Foundation is a Wisconsin nonstock, nonprofit corporation and a charitable organization under Section 501(c)(3) of the Internal Revenue Code. The Foundation is responsible for fundraising for the System. Gifts received by the Foundation are available for distribution to CHW and to the other tax-exempt members of the System, as appropriate, or as may be designated by the donor. In 2008, the Foundation received approximately $26.7 million in donations, of which approximately $22.2 million was donor restricted to uses other than the payment of debt service. During that same year, the Foundation distributed approximately $9.3 million to CHW and $18.1 million to the Non-Obligated Affiliates (including approximately $11.6 million to CRI (defined below)). Non-Obligated Affiliates A description of the Non-Obligated Affiliates follows below. In fiscal year 2008, none of the System s consolidated income from operations was derived from the combined income from operations of the Non-Obligated Affiliates. Children s Hospital and Health System, Inc. (the Parent ) The Parent is a Wisconsin nonstock, nonprofit corporation and a charitable organization under Section 501(c)(3) of the Internal Revenue Code. The Parent is the sole corporate member of CHW, the Foundation and certain of the Non-Obligated Affiliates. The Parent provides administrative and infrastructure support services to all System entities. Such services include support in the areas of: administration, financial services, corporate compliance, human resources, corporate counsel, information systems, public relations, planning and marketing, and managed care. The Parent also provides urgent care services at five offsite locations for patients who require nonemergency care after day-time hours. These urgent care centers are walk-in, pediatric primary care clinics. Children s Health Education Center, Inc. ( CHEC ) CHEC is a Wisconsin nonstock, nonprofit corporation and a charitable organization under Section 501(c)(3) of the Internal Revenue Code. CHEC offers resources and programs for children, parents, teachers and caregivers to help keep children and teens healthy and safe. Programs combine new technology, models and handson learning for a group-based educational experience. CHEC encourages children, directly and through the adults who care for them, to make a lifetime of healthy choices. Children s Medical Group, Inc. ( CMG ) CMG is a Wisconsin nonstock, nonprofit corporation and a charitable organization under Section 501(c)(3) of the Internal Revenue Code. CMG began operations in The 58 physicians currently employed by CMG provide primary care services and represent more than 27% of the pediatric primary care physicians practicing in the Milwaukee metropolitan area. CMG operates 17 facilities located in four counties throughout southeastern Wisconsin and each facility is staffed by one to eight pediatricians. CMG physicians generated 219,375 patient visits in Children s Physician Group, P.C. ( CPG ) CPG was formed through an acquisition of an Illinois physician group consisting of 14 physicians on January 1, It is an Illinois nonprofit corporation and a charitable organization under Section 501(c)(3) of the Internal Revenue Code. CPG provides pediatric physician services in Northern Illinois. A-2

63 Children s Research Institute, Inc. ( CRI ) CRI is a Wisconsin nonstock, nonprofit corporation and a charitable organization under Section 501(c)(3) of the Internal Revenue Code. CRI advances pediatric health care through dedicated laboratory and clinical research. CRI focuses on initiatives to provide answers and improved solutions to childrens unmet health care needs. Research efforts are organized around eight translational research themes: genomics, immunology/host response/cancer, cardiovascular biology, developmental and cell biology, community health and prevention, clinical research effectiveness and outcomes, behavioral health, and health services research. The Foundation funds, in part, the operations of CRI. See INTRODUCTION Obligated Group Children s Hospital and Health System foundation, Inc. In December 2006, CRI opened its new state-of-the-art translational and basic research building which was built collaboratively with the Medical College. See BUSINESS OF THE OBLIGATED GROUP Research, Teaching and Medical Education Programs below. Children s Service Society of Wisconsin ( CSSW ) CSSW is a Wisconsin nonstock, nonprofit statewide child welfare agency. Its mission is to build, sustain and enhance a nurturing environment for Wisconsin children. CSSW is accredited nationally by the Council on Accreditation of Services for Families and Children. It is also licensed as a child-placing agency and certified as an outpatient mental health clinic by the State of Wisconsin. CSSW has been chartered by the State as a child welfare agency since It is a founding member of the Child Welfare League of America. CSSW is the sole corporate member of Children s Family and Community Partnership, Inc. ( CFCP ), a Wisconsin nonstock, nonprofit corporation that administers foster care case management services and in-home safety services to families and children under contract with the State of Wisconsin, Bureau of Milwaukee Child Welfare. CFCP operates in two of the three state-designated service areas in Milwaukee County and serves over 2,500 children. Children s Specialty Group, Inc. ( CSG ) CSG is a Wisconsin nonstock, nonprofit physician organization jointly owned by the Parent and the Medical College (each own a 50% share). Its physicians, who are Medical College faculty members, provide care in medical and surgical specialty areas at the Main Hospital as well as other hospitals and clinics throughout Wisconsin and Northern Illinois. National Outcomes Center, Inc. ( NOC ) NOC is a Wisconsin nonstock, nonprofit corporation and a charitable organization under Section 501(c)(3) of the Internal Revenue Code. NOC provides outcomes assessment through risk-adjusted comparisons of clinical outcomes between programs at CHW and other children s hospitals in the U.S. NOC information is used by a variety of customers. Families can make informed choices by using this information to select the appropriate facility for their children. Referring physicians can use this information to make better referral decisions for their patients. CHW is also able to use information provided by NOC for marketing and contract negotiation purposes. Seeger Health Resources, Inc. ( SHR ) SHR is a Wisconsin for-profit corporation that operates and invests in health care-related activities. Med- Health Financial Services, Inc., a subsidiary of SHR, is a collection agency that provides services to the System and other health care providers. In 2005, SHR formed Children s Community Health Plan, Inc. ( CCHP ), an insurance corporation located in Milwaukee, Wisconsin, organized as a managed care plan under chapter 611 of the Wisconsin Statutes. CHHP was formed by SHR in connection with a strategic plan designed to better control Medicaid services, costs and reimbursement. CCHP contracts with the State of Wisconsin s Medicaid program, primarily in Southeastern Wisconsin, to provide comprehensive medical care benefits to its members. CCHP s enrollment began February 1, 2006, and has since grown to approximately 27,300 enrollees as of June A-3

64 Surgicenter of Greater Milwaukee LLC ( Surgicenter ) Surgicenter is a Wisconsin limited liability company wholly owned by the Parent that owns a medical office building and operates an ambulatory surgery center. See Appendix B for further information regarding the corporate history of the Surgicenter. CHW Facilities Main Hospital THE BUSINESS OF THE OBLIGATED GROUP The Main Hospital is located on the grounds of MRMC, a Wisconsin nonstock, corporation organized to aid and support the development and functioning of the 248-acre campus situated on land owned by Milwaukee County (the MRMC Campus ). The campus is home to a variety of nonprofit health care and related research and educational facilities organizations, including the Medical College and Froedtert Memorial Lutheran Hospital, Inc. ( Froedtert ), an independent, nonprofit, 451-bed * (staffed) tertiary hospital. CHW leases the land on which the Main Hospital is located from Milwaukee County. See BONDHOLDERS RISKS The Ground Lease in this Reoffering Circular. The Main Hospital was constructed in 1988 and is a nine level, 357,000 square foot facility that is connected to the Medical College through an enclosed walkway. The facility is also connected to Froedtert through a corridor into CHW s Emergency Department/Trauma Center (the ED/TC ). The ED/TC is leased to CHW by Froedtert and permits the sharing, with Froedtert, of a common entrance and air emergency transport services. CHW completed a 292,000 square foot expansion to CHW s inpatient facilities in 1995 and an eight-level, 191,000 square foot hospital outpatient building in 1994, which provides space for outpatient specialty services. A parking structure containing approximately 1,500 parking spaces is connected to CHW and the hospital outpatient building by two skywalks. The Parent adopted a campus master site and facilities plan in 2003 (the Original Master Plan ), which is reviewed annually and updated as necessary by the Parent. The first phase of the Original Master Plan included the construction of the new parking structure containing 1,630 spaces (completed in 2004), a new corporate office building consisting of 240,000 square feet of administrative and physician office space (completed in 2005), and the construction of the Children s Research Institute, a 90,000 square foot pediatric research facility (completed in 2006). Since the adoption of the Original Master Plan in 2003, patient volume at CHW has increased much faster than the projections upon which the Original Master Plan was based. For this reason, the Parent Board adopted certain modifications to the Original Master Plan in 2005, which provide for a more timely and cost-effective resolution to the current facility constraints, which include, among other things, a shortage of intensive care and specialty care beds (the Revised Master Plan ). Pursuant to the Revised Master Plan a new bed tower was added to the Main Hospital (the West Tower ) which opened in April Construction of the West Tower was completed on time at a projected cost of $167.0 million. The West Tower consists of 13 floors and is approximately 425,000 gross square feet. With the completion of the West Tower, staffed beds increased from 236 beds to 296 beds. Future Plans Future developments in the Revised Master Plan include renovations to the Main Hospital, the expansion of some space and services (the Hospital Renovation Project ) and the strategic Ambulatory & Diagnostic Metro * Froedtert & Community Health, Inc. and Affiliates Consolidated Financial Statements, June 30, 2008 A-4

65 Expansion away from the Main Hospital (the Metro Clinic ). The Hospital Renovation Project will include relocation of inpatient and support services to the West Tower, allowing portions of the Main Hospital to be renovated and provide space for surgical suites, surgical prep and recovery, enhanced diagnostics and outpatient clinics. These renovations and expansions are currently in the planning and development phases and are expected to occur over the next several years. The Metro Clinic is part of CHW s strategic plan to provide services closer to its families. The Metro Clinic is a partnership between CSG and CMG which is expected to protect and grow CHW s market share by improving patient and referring physician satisfaction and enhancing patient access and convenience. The project, which is located in New Berlin, approximately 10 miles from the Main Hospital, will decompress space constraints on the Main Hospital. The Metro Clinic allows CHW to develop this strategy with minimal capital investment, as the facility was developed by a local firm who owns the building and the surrounding property. The Corporation leases the Metro Clinic building from the developer. The Metro Clinic opened in August The estimated costs associated with the Hospital Renovation Project are approximately $115 million, to be phased in over several years, and expected to be financed with internal cash and equity. CHW anticipates that approximately $15 million of costs associated with the Hospital Renovation Project will be expended in fiscal year 2010, including cath lab renovations and surgical suite expansion. Management is committed to a facilities planning and development process designed to enable CHW to best service its growing patient volumes. In connection with this process, CHW evaluates potential facilities expansion projects based on its facility needs and its access to capital. Such expansion may involve, among other things, the development, construction and/or expansion of health care facilities at the Main Hospital and in the surrounding Milwaukee metropolitan area and Northern Illinois. The board of directors of CHW has not authorized any material facilities expansion projects other than those described in this Appendix A, and it is not clear what form any future expansion would take. CHW Fox Valley CHW Fox Valley is located on the campus of Theda Clark Medical Center ( TCMC ), an unaffiliated acute care adult hospital. CHW leases 25,366 square feet of space from TCMC to house its operations. The initial term of the lease was renewed for a five-year period in 2007 and automatically renews for four additional periods of five years. CHW Kenosha Since 1999, CHW has leased and operated a 31-bed (approved) inpatient facility in Kenosha, Wisconsin (approximately 50 miles south of the Main Hospital) ( CHW Kenosha ). This inpatient facility is located on a single floor (10,750 square feet) in the main hospital facility of Kenosha Hospital and Medical Center ( KHMC ), an unaffiliated acute care adult hospital. The lease between CHW-Kenosha and KHMC for the hospital space expires September 30, Lease negotiations have been completed and Management has decided to close CHW- Kenosha. As a result of this decision, only inpatient services will be discontinued (which discontinuation is not expected to have a material effect on CHW s operations), and the Parent s continued presence in the Kenosha market will include the following: (i) two CMG primary care pediatrician practices, (ii) CHW Clinics-Kenosha, which provides specialists in asthma/allergy, cardiology, gastroenterology, genetics and urology (iii) CSSW programs, including Child and Family Counseling; and (iv) the Kenosha Child Advocacy Center, which provides comprehensive assessments of children suspected to be victims of abuse or neglect and medically evaluates children placed in out-of-home care. Management does not expect that the discontinuation of inpatient services described above will have a material effect on the operations of the System. Hospital Services Main Hospital CHW provides a comprehensive range of pediatric health care services at the Main Hospital including pediatric medical and surgical care, cardiology, oncology, neonatology, neurology and intensive care. These A-5

66 services are complemented by a complete range of diagnostic and therapeutic services including laboratory, radiology, nuclear medicine, diagnostic imaging, ultrasound and other services. Surgical Services. Surgical services are available from surgeons specializing in orthopedic surgery, thoracic surgery, general pediatric surgery, cardiac surgery, neurosurgery, and transplant surgery. The day surgery program enables children to return home the same day they have a procedure. Day surgery procedures include ear tube placements, hernia repairs, removal of adenoids, and removal of certain kinds of growths. Specialty Clinics. CHW operates approximately 170 outpatient sub-specialty clinics at the Main Hospital including services in child psychiatry, child development, bone dysplasia, neurofibromatosis, cleft lip and palate, dental, craniofacial, amputee, allergy, cerebral palsy, cystic fibrosis, dermatology, diabetic, eye, gastroenterology, genetics, muscular dystrophy, neurology, orthopedics, otolaryngology (ear, nose and throat), plastic surgery, sickle cell and spina bifida. Diagnostic and Therapeutic Services. Diagnostic and therapeutic services include magnetic resonance imaging (MRI), computerized topographic (CT) scanning, cardiac catheterization, electron microscopy, electroencephalogram, electrocardiogram (EKG), electromyography, evoked potential studies, extracorporeal membrane oxygenation (ECMO), physical therapy, audiology, speech therapy, pulmonary function testing, radiology and laboratory services, sleep disorder testing, stress testing, and ultrasound imaging. Other Specialty Services. CHW provides a wide variety of specialty services and programs that address inpatient, outpatient and community needs, including the following: Herma Heart Center. The Herma Heart Center is the largest pediatric heart center in the State of Wisconsin, treating children with a variety of congenital heart defects and heart diseases. The staff of the Herma Heart Center includes pediatric cardiologists, pediatric cardiovascular surgeons, cardiology nurses and technicians. Cancer Care Program. CHW s cancer care program cares for inpatients and outpatients undergoing diagnosis and treatment for cancer and blood disorders. Patients requiring inpatient cancer care and bone marrow transplant patients are cared for in CHW s 24-bed hematology/oncology/transplant (HOT) unit. CHW s cancer care program operates in collaboration with The Blood Center of Wisconsin. Management believes that this collaboration has allowed CHW to acquire extensive experience in pediatric bone marrow transplantation involving donors unrelated to the patient. Pediatric Intensive Care Unit ( PICU ). The 72-bed PICU serves critically ill children who require 24-hour care by a team of specially trained physicians, nurses, respiratory therapists and others. The typical patient population includes patients who have undergone cardiovascular surgeries, heart, kidney, and liver transplants, craniofacial reconstructions, traumas, neurosurgeries, and extra corporeal membrane oxygenations. Neonatal Intensive Care Unit ( NICU ). The 43-bed NICU provides critical care to newborns 0-28 days old who have major health problems such as cardiac anomalies, pulmonary dysfunction, metabolic disorders, and surgical problems. The NICU is supported by the critical care transport service, which transports neonates requiring specialized care at CHW from other institutions in the area. Care is provided utilizing an interdisciplinary approach with physicians, critical care nurses, pharmacists, physical therapists, dieticians and others. Emergency Department/Trauma Center. CHW is a regional Level I pediatric trauma referral center. The ED/TC is staffed on a 24-hour basis with physicians and nurses trained in pediatric, critical, and trauma care. On-call support is provided by available medical and surgical specialists. The ED/TC has 30 examination rooms, four advanced life support rooms and a trauma room. In 2008, approximately 49 percent of the Main Hospital s inpatient admissions came through the ED/TC. The trauma room inside the ED/TC is equipped to treat children who have injuries to multiple body systems. Children s Hospital of Wisconsin Poison Center. CHW operates the statewide poison center, which provides 24-hour service to all Wisconsin hospitals, physicians, families and individuals requesting A-6

67 information on the treatment and prevention of ingestion of poisonous substances and drug overdoses. Staffed with experienced health care professionals with a variety of medical backgrounds, it also offers clinical toxicology consultation and educational programs in poison prevention. The Epilepsy Monitoring Unit ( EMU ). The EMU is a six-bed monitoring unit utilized for the diagnosis and treatment of children with intractable epilepsy. This unit also has four mobile units for monitoring patients in the PICU and other areas of the Main Hospital. The EMU is staffed by CHW s Neurosciences Center staff, with nursing care provided by inpatient nurses specially trained to care for pediatric epilepsy patients. Neurophysiology technologists monitor video and EEG equipment in the unit 24 hours a day. The EMU is the largest pediatric unit of its kind in Wisconsin, with approximately 60 admissions per month. Child Protection Center. The Child Protection Center offers comprehensive, high quality and objective clinical assessments for children who are suspected victims of sexual and/or physical abuse or neglect. The Child Protection Center provides these services within a culturally sensitive framework. Communication and cooperation with other community organizations are emphasized. Regional Sites CHW has developed a regional services approach to extend its reach throughout Wisconsin and Northern Illinois. This approach provides inpatient and outpatient services within local communities and fosters strong relationships with local pediatricians and family practitioners. Patients needing primary or secondary pediatric care can be treated locally, while those patients that require tertiary care are transferred to the Main Hospital. Fox Valley and Kenosha. Expanded inpatient and outpatient services have historically been focused primarily in the Fox Valley and Kenosha. CHW staffs 41 of its 42 approved pediatric beds at CHW Fox Valley, including a 22-bed NICU and a 19-bed pediatric unit, all of which are supported by a hospitalist program that provides specialized inpatient physician care. Outpatient specialty clinics at CHW-Fox Valley include asthma/allergy, child protection, diabetes, cardiology, urology, and gastroenterology. As discussed above, inpatient services will be discontinued at CHW-Kenosha, but an outpatient ambulatory clinic providing pediatric specialty outpatient services, as well as a Child Advocacy Center that treats and assesses abused children, are both expected to remain open. In addition, a hospitalist program comprised of physicians whose primary focus is general medical care of hospitalized patients was added in Kenosha in December 2006 to provide specialized inpatient physician care and may continue. CHW has also developed several relationships with facilities and pediatric providers that extend beyond the Fox Valley and Kenosha sites described above, including sharing expertise with providers in Green Bay and Marshfield, Wisconsin as well as McHenry and Lake counties in Illinois. Management is committed to formulating and implementing specific strategic plans designed to increase CHW s presence in McHenry and Lake counties in northern Illinois. Further, in connection with CHW s overall strategic plan, CHW continues to evaluate new business opportunities that may involve the affiliation with, or the acquisition of, new health care enterprises or entities throughout Wisconsin and northern Illinois. The board of directors of CHW has not authorized any new business opportunities, and it is not clear what form any new business opportunity would take. A-7

68 Utilization Statistics Certain historical utilization data for CHW, including the Main Hospital, CHW Fox Valley, and CHW Kenosha, is depicted in the following table: CHW Utilization Data Six Months Ended Years Ended December 31, June 30, * 2009** 2008 Patient days Inpatient 80,490 79,335 76,953 42,978 40,120 Short Stay 11,872 11,309 10,750 6,260 5,803 Total 92,362 90,644 87,703 49,238 45,923 Admissions Inpatient 13,412 14,161 14,126 6,998 6,794 Short Stay 11,872 11,309 10,750 6,260 5,803 Total 25,284 25,470 24,876 13,258 12,597 Average Length of Stay Percentage of Occupancy (Main Hospital) 96.5% 95.8% 91.5% 82.9% 96.0% Surgeries (Main Hospital) Inpatient Surgeries 5,853 5,756 5,663 2,987 2,878 Outpatient Surgeries 8,775 8,474 8,514 4,842 4,238 Total 14,628 14,230 14,177 7,829 7,116 Outpatient Visits (including ancillary visits) 273, , , , ,731 Emergency Room Visits 59,984 61,379 60,018 34,344 30,860 Total Outpatient Encounters 348, , , , ,707 Source: CHW Records * On July 1, 2006, the number of approved beds at the Main Hospital increased from 222 to 236. The increase in bed capacity was due to the renovation of existing medical/surgical and intensive care space. ** On April 20, 2009, the number of approved beds at the Main Hospital increased from 236 to 296. The increase in bed capacity was due to the opening of the West Tower. A-8

69 The bed capacity by category at the Main Hospital is set forth below. As of the date of the Reoffering Circular, the numbers below include 41 staffed beds at CHW Fox Valley (19 pediatric/medical/surgical beds and 22 neonatal beds ) and 21 staffed beds at CHW-Kenosha. Main Hospital Staffed Beds Medical and Dental Staff Routine Service: Pediatric/Medical/Surgical 157 Hematology/Oncology/Transplant 24 Intensive Care: Pediatric 72 Neonatal 43 Total 296 The medical staff at the Main Hospital as of December 31, 2008 was composed of 825 active, associate, and courtesy/consulting staff members, including 431 hospital based physicians and 394 community based physicians. These 825 staff members hold 1,052 different specialties. See the table beginning on page A-11 for a distribution of the medical staff at the Main Hospital by specialty. Admitting and clinical privileges at CHW are granted to physicians commensurate with their education, training and experience. Approximately 51% of the members of the Medical Staff Main Hospital as of December 31, 2008 were faculty members at the Medical College. The number of physicians on the Medical Staff Main Hospital as of December 31, 2006 and 2007 were 834 and 830, respectively. As of December 31, 2008, the medical staffs of CHW Fox Valley and CHW Kenosha included 274 and 168 physicians, respectively. As of December 31, 2008, included in the approximately 420 members of the Medical College faculty are 312 pediatric specialists that are also members of CSG. The following chart depicts the annual growth in the number of CSG pediatric specialists for the years ended December 31, 2000 through Children's Specialty Group Physician Growth Source: Children s Specialty Group The Medical Staff Main Hospital is governed by Medical Staff bylaws, which detail its structure, governance and functions. The Medical Staff bylaws provide policies on appointments, clinical privileges, hearings and appeals and establish several standing, special and ad hoc committees to oversee Medical Staff affairs. A-9

70 The medical staff at the Main Hospital is comprised of active, associate, honorary, and courtesy/consulting physicians appointed for two-year periods. Active and associate staff members include physicians who significantly utilize CHW s services and facilities and participate in the medical activities of CHW. Active staff members must be board certified or equivalent; associate members must be board eligible. All new incoming physicians are categorized as courtesy/consulting staff members unless they enter as department chairs. Courtesy/consulting staff members have full hospital privileges but are not eligible to vote on medical staff issues outside of their section and are not eligible to hold medical staff office positions or to act as section chiefs. A breakdown of the medical staff at the Main Hospital membership by appointment category follows: Medical Staff by Membership Type (As of December 31, 2008) Appointment Total Hospital Based Community Based Active Associate Courtesy/Consulting Total Source: CHW Records The following table shows the number of specialties held by the medical staff at the Main Hospital as of December 31, Certain members of the medical staff hold more than one specialty. Specialties Held by Medical Staff at the Main Hospital (As of December 31, 2008) Specialty Hospital Based Community Based Total Medical Staff Specialties Adolescent Medicine Allergy/Immunology Anesthesiology Bone Marrow Transplant Cardiology Cardiothoracic Surgery Child Development Child Protection Critical Care Dental Dermatology Electrophysiology Emergency Medicine Endocrinology Family Practice Gastroenterology General Pediatrics Genetics Gynecology Hand Surgery Hematology/Oncology Hospitalist Medicine Infectious Disease Internal Medicine A-10

71 Specialty Hospital Based Community Based Total Medical Staff Specialties Medical Toxicology Neonatology Nephrology Neurodevelopmental Disabilities Neurology Neurosurgery Obstetrics/Gynecology Ophthalmology Oral/Maxillofacial Surgery Orthopedics Otolaryngology Palliative Care Pathology Physical Medicine & Rehab Plastic Surgery Podiatry Psychiatry Pulmonary Radiation Oncology Radiology Rheumatology Sleep Medicine Solid Organ Transplant Special Needs Sports Medicine Surgery Urgent Care Urology Total ,052 Source: CHW Records The top 20 admitting physicians accounted for 27.3% of admissions at the Main Hospital during 2008 and are summarized below. The average age of all physicians is 47 years. Top 20 Admitting Physicians by Specialty for 2008 Admitting Physician Specialty Age of Admitting Physician Patients Admitted Percent of Total Admissions Pediatrics % Pediatrics Surgery Surgery Surgery Surgery Neurosurgery Surgery Surgery Surgery A-11

72 Admitting Physician Specialty Age of Admitting Physician Patients Admitted Percent of Total Admissions Support Staff Oncology Oncology Hospital Medicine Pediatrics Neurosurgery Cardiovascular Surgery Surgery Hospital Medicine Oncology Neurosurgery Total 3, % Source: CHW Records CHW and the other System entities have a common goal of being an employer of choice and are committed to providing a total compensation program to attract, reward, motivate and retain qualified and competent employees. There are no unions representing CHW employees. Over the last year CHW has experienced a decrease in its turnover and vacancy rate and an increase in our applications received for System openings. Turnover in 2008 was 12.7% compared to 13.9% in The 2009 turnover projections are significantly lower. The vacancy rate in 2008 averaged 4.06%, current vacancy for 2009 is averaging 2.64%. The Parent has 4,908 employees compared to 4,614 in Management of CHW believes that its success in recruitment and retention, particularly for nursing staff, has been achieved through a philosophy of investing in its current employees, including by offering opportunities for promotion and external education. CHW was re-designated a Magnet hospital in The Magnet Recognition Program provides national recognition to health care organizations that demonstrate sustained excellence in nursing care. This prestigious program is administered by the American Nurses Credentialing Center which is the nation s largest and foremost nursing accrediting and credentialing organization. The success of management s philosophy is illustrated in the following chart: Years of Service Inpatient Nurses as of December 31, 2008 under 2 years 23% 2-5 years years years 20 over 20 years % The following table depicts the allocation of CHW s nursing staff by occupation as of December 31, The average age of all nurses is 37.9 years. Registered Nurses 1,170 Licensed Practical Nurses 8 Nurse Practitioners 21 Total 1,199 A-12

73 Research, Teaching and Medical Education Programs Pediatric Research In addition to providing direct health care services, CHW functions as a teaching and clinical research institution, maintaining research efforts that have contributed significantly to improving the quality of life and health care services for children. Based on the concept of translational research, clinical problems from patients bedsides are taken to the laboratory for study. Laboratory discoveries are then converted into new treatments, preventions, therapies, and cures for patients. CHW has experienced exceptional clinical outcomes, establishing national benchmarks for care, and has attracted worldwide attention. As an example of exceptional clinical outcomes, CHW, along with the Medical College, is credited with the first known survival of a patient with rabies who did not receive the rabies vaccine after exposure. Oversight and development of clinical, basic, and translational research activities is provided by CRI. Currently, CRI/CHW has oversight of over 900 active clinical studies. For example, in collaboration with the State Laboratory of Hygiene at the University of Wisconsin s Madison campus, researchers at CHW developed a newborn screening to detect severe combined immunodeficiency ( SCID ) sometimes referred to as Bubble Boy Disease. On January 1, 2008, Wisconsin became the first state in the nation to screen all newborns for SCID. In 2007, the National Institutes of Health (NIH) designated the Kidney Disease Research Program housed within the CRI s facility as one of only two Research Centers of Excellence in Pediatric Nephrology in the United States. The Medical College was awarded $4.6 million by the NIH which will fund research that has as its goal the development of unique therapies that will limit or cure genetic or acquired kidney disorders. In addition, NIH-funded pediatric research is being conducted in the areas of genetics, hematology, infectious diseases, otolaryngology, gastroenterology, general surgery, rheumatology, psychiatry, and quality of life. CRI works to provide an environment that brings together scientists with complementary skills. This philosophy has helped to attract key scientists from other biomedical research institutions and has helped to increase funding for pediatric research from outside sources. For instance, the Medical College s Department of Pediatrics NIH funding alone has increased from $4.9 million in 2003 to over $11.2 million in 2008, a 125% increase. In addition to the external research grants awarded primarily to the Medical College, the System supports research efforts by spending over $10 million annually for research equipment, staff, supplies, and administration. Pediatric medical research, conducted primarily by Medical College faculty, takes place at the Medical College s facilities, at the Main Hospital, and at the new translational and biomedical research facility. The 5-level translational and biomedical research facility, which opened in 2006, was built collaboratively with the Medical College. The research facility is comprised of two distinct wings, one that houses the CRI s pediatric research laboratories and one that contains the Medical College s adult research laboratories. In April 2007, the facility was honored by The Business Journal as the Best New Development or Renovation in health care as part of its annual Real Estate Awards. Medical Students, Residents and Fellows CHW is a major teaching affiliate of the Medical College. Third-year medical students rotate through CHW during their required pediatric rotation and many of these students return for their fourth-year electives in pediatric subspecialties, pediatric surgery, and pediatric radiology. In addition, 81 family practice residents rotated through the hospital in 2008 to meet the pediatric training requirements of their program. CHW also has a threeyear pediatric residency program and a two-year pediatric dental program with 104 and 13 residents, respectively, rotating through in One hundred fifty-two residents received training beyond their initial residency. With the support of the Medical College, CHW has established academic fellowship programs in pediatric critical care, anesthesiology, gastroenterology, emergency medicine, hematology/oncology, neonatology, and other specialties. Residents of child psychiatry programs affiliated with the Medical College spend approximately one year with CHW s psychiatry program. The residency and fellowship programs are an integral part of physician recruitment at CHW, as many residents and fellows join the Medical Staff once their training is completed. A-13

74 Nursing and Allied Health CHW has affiliation agreements with 19 schools for the clinical education of nursing students in the area of pediatric nursing. In 2008, approximately 615 undergraduate and graduate nursing students received training at CHW. In addition to affiliations with nursing programs, CHW has approximately 15 affiliations representing 25 allied health programs. Over 466 students completed pediatric rotations in social work, radiology and other diagnostic imaging, pharmacy, occupational therapy, dietetics, respiratory therapy, speech, and audiology. Accreditation, Licenses and Membership CHW is accredited by The Joint Commission. The Joint Commission no longer schedules accreditation surveys rather The Joint Commission conducts unannounced surveys. The most recent full unannounced survey at the Main Hospital took place in July 2007 after which CHW s accreditation was renewed for three years. With the opening of the West Tower in April 2009, CHW anticipates an unannounced extension survey within six months of the Tower s opening. CHW also maintains active membership or affiliations with the following organizations including: The American Hospital Association; the Medical College; MRMC; NACHRI; Child Health Corporation of America; and the Wisconsin Hospital Association. CHW holds three Certificates of Approval (licenses) issued by the State of Wisconsin Department of Health and Family Services to operate its hospitals in Milwaukee, Neenah and Kenosha. CHW is also subject to federal, state, and local regulation and periodic inspection and the review of adequacy of fire prevention methods and other building standards, as well as State of Wisconsin hospital requirements and Medicaid and Medicare conditions of participation. See GOVERNMENTAL REGULATION State Approval below. Professional and General Liability Insurance The Injured Patients and Families Compensation Fund (the Fund ), established in 1975, was created by Section of the Wisconsin Statutes to pay the portion of professional malpractice damage awards that exceed Wisconsin health care providers underlying primary professional liability insurance limits. Currently, the required primary coverage limits for Wisconsin health care providers are $1,000,000 for each occurrence and $3,000,000 for all occurrences in any one policy year. CHW carries the required primary insurance through PIC Wisconsin/ProAssurance. The Fund assesses health care providers on an annual basis for Fund administrative expenses and an amount based on the previous year s loss experience. Provided that CHW complies with Fund rules regarding primary insurance coverage and payment of Fund assessments, CHW cannot, in accordance with Wisconsin Statutes Section (5), be liable for payment of professional liability damage awards that are in excess of CHW s primary insurance coverage. The Fund along with Wisconsin laws which place caps on non-economic damages, have served to stabilize the medical liability insurance market and keep premiums down. Retirement Plan The System maintains a pension plan that includes employees of CHW, the Foundation, the Parent and several of the Non-Obligated Affiliates. The pension plan is a non-contributory, defined benefit plan covering all employees with one year of service who work at least 1,000 hours. The benefits are based on years of service and the employee s compensation during the last ten years of employment. The plan is subject to the Employee Retirement Income Security Act of The System regularly makes contributions to the pension plan sufficient to provide the plan with assets to fund retirement benefits. As of December 31, 2008, the market value of the pension plan assets totaled approximately $95.2 million, which was approximately $99.0 million less than the projected benefit obligation. See footnote 6 in the Obligated Group s financial statements in APPENDIX B hereto for a description of the funded status of the pension plan. A-14

75 Corporate Compliance The members of the Obligated Group are committed to programs, policies, procedures and education to ensure that they and their affiliates, members, directors, officers, independent contactors and employees conduct activities in full compliance with applicable federal, state and local laws and ethical standards. To promote satisfaction of this commitment, the Parent Board has adopted a corporate compliance program. The program is intended to promote awareness of the requirements of applicable federal, state and local laws and the ethical standards of the organization and to prevent and detect any violations of the laws or standards. A-15

76 TOTAL PATIENT DISCHARGE AND PEDIATRIC POPULATION BY REGION The following map sets forth CHW s total patient discharges by region in 2008 (including the Southeast region of Wisconsin, which represents CHW s primary service area) and the pediatric population of each region as of December 31, Source: Medstat Market Expert CHW Records A-16