I New Hanover Regional Medical Center September 15,2020, VIA EMAIL ‘Mr Blake Thomas, Esq. Deputy General Counsel N.C. Department of Justice ‘thomas @ncdoj.gov Dear Me. Thomas: “Thank you very much for your July 29 letter. We appreciate the thoughtful feedback provided by the Department of Justice, and it was very hepfl to have this feedback so early inthe transaction process, We are writing on behalf of New Hanover Regional Medical Center (*NHRMC°) and [New Hanover County (he “County”), respectively, to provide initial responses tothe questions ‘and requests for information mised in your letter. NHRMC and the County are committed to Continued openness and transparency, and a continued dialogue with your office, relating to the ‘proposed transaction with Novant Health Inc. ("Novant") Below you will find additional backround about the transaction, as well as specific responses to the issues raised in your letter. We hope that you will find this information helpful. We would be happy to provide additional information to facilitate the Department of Justice's ongoing review upon request. L “Trae ‘After an extensive and transparent public bidding process, the ‘County and NHRMC selected Novant as the winning bidder because the proposed transaction with ‘Novant will ensure that residents and businesses in the fast-growing southeastern region of North Carolina have access to a stateof-he-art hospital network that can deliver high-quality and innovative healtheare in @ comprehensive and costefective manner. Through the Novant transaction, NHRMC will receive the resources and capital investments necessary to enhance and expand its facilites and services, including $5 billion that will be used to fund NHRMC''s strategic and ordinary capital expenditures, mental and behavioral health initiatives, and charitable foundation, among other things. As a result of the Novant transaction, the UNC School of Medicine and UNC Health will nearly double the number of medical students at the medical school's Wilmington Branch, create a new UNC Health Scienees campus at SEAHEC, enhance Clinical trials and expend medical residencies at NHRMC. Moreover, the Novant transaction will allow NHRMC and Novant’s Brunswick Medical Center to combine their complimentary services, facilities and expertise in a manner that creates significant efficiencies, improves treatment ‘outcomes, and enances the overall patient experience. Nem Hanouer Regional ttedcal enter 2153 South Teh Steet Wilmington NC28402 nhc oxgImaddition, the Novant transaction will ensure that the most valnerable communities inthe region receive access to quality care by expanding charity care at NHRMC, Under Novant’s charity care policies, patients whose incomes are below 300% ofthe poverty line will receive care ‘without ever being billed for such care Furthermore, the Novant transaction wil help the regional economy because Novant has ‘committed to establishing @ corporate center inthe area and to maintaining existing relationships ‘with loal vendors and suppliers. Unlike other bidders, Novant has also committed to maintaining ‘he current employment levels at NHRMC as well as to providing employees with competitive salaries and benefits packages. 2 Letter of Intent. We appreciate your feedback on the Leer of Intent C*LOP"). The LOL {s an important document that forms the basis from which the parties are developing definitive agreements, bu, 88 you correctly note, the LOI is non-binding in most respects. Many iPnot most. of the LOI terms and conditions will be addressed more comprehensively, and with greater specificity, in the binding definitive agreements. With that being said. we offer the following specific esponses to your comments: A. Obligation to Comply with N.C. Gen, Sit, § 131E-13, Novant’s obligation to comply with N.C, Gen, Stat. § 131E-13 is an important and material commitment tha was specifically neotisted in the LOI. Solely forthe Fimited purpose of allocating contractual lability for damages among the partes, Novant’s covenant to comply with § 31E-13 will be subject to a ‘materially qualifier that we believe i consistent with other transactions of this scope and size The intent ofthis qualifier, and other similar qualifiers that are applicable to all partis throughout the definitive document, isto reduce the likelihood thatthe parties become engaged in disputes regarding alleged monetary damages resulting from otherwise minor, immaterial questions shout ‘compliance (or inconsistencies) with applicable laws. Independent of the allocation of contractual liability for damages among the panies, however, we note that Novant will continue to be obligated to Filly comply with § 131E-13 under the terms ofthe statute. The definitive agreements will also clude Novant’ acknowledgement thatthe North Carolina Attomey General is empowered to require Novant to comply withthe terms cof § 131E-13 in all respects ~ without any materiality qualifier - regardless of te allocation of contractual lability for damages among NHRMC, the County, and Novant. B. Modification. Given the long-term nature of Novant’s commitments, the partes believe a degree of flexibility is necessary and desirable to ensure that Novant ean continse (0 jperate the health system inthe best interests of the local community by adapting operations to changes that wil almost cenainly occur over time in a highly dynamic industry. One way (0 provide this Rexibilty st allow modifications o certain covenants with the approval ofthe locl ‘goveming board (the “Local Board”), which will have certain reserved powers inthis regard so 85 to facilitate future adherence to the material terms of the definitive agreements. However, Novant obligation to comply with applicable law will not be subject to modification, with or without Local Board approval C. ogee Majeure: Novant's covenant to comply with § 1318-13 will not be subject to any force majeure provisD. _Enforwement and Foundation. We acknowledge and appreciate the points raised bout the roles of the Local Board, County, and Foundation, respectively in footnote 1 of your letter. Those tems were not fully developed inthe LOI, s, by way of expansion and clarification, \we offer the fllowing description ofthe anticipated role of each ofthese ents (i) ‘The Local Board’s primary function will be oversight ofthe operations of the health system, and its powers and authority will he addressed inthe corporate bylaws applicable to the Local Board. The Local Board will not be pary to the definitive agreements, and, therefore, will not have any specific rights or role with respect to enforcing the terms of the definitive agreements other than to exercise its delegated authority with respect to certain key matters as set forth in the definitive agreements and the health system's corporate bylaws, The Local Board's approval rights expressed in the [LOI are intended tobe limited to approving certain modifications to terms tht we believe are operational in nature, but key fo the overall spirit and intent of the transaction (it ‘hese are important safeguards to ensure the County and NHRMC get the benefits contemplated by the proposed transaction). Again, these changes are intended to provide a ‘degree of flexibility thats necessary in the context of his transaction, but never to overstep 48 i relates to § 131E+13, As further explained below, the Local Board will only have a limited specific ole with respect to ongoing oversight of the Foundation. (ii) The County, a a party tothe definitive agreements, wil be responsible for enforcing the definitive agreements, including, but not limited to, Novant’s material ‘commitments and covenants described in Section 4 of the LOI and the coresponding schedules. The definitive agreements will include customary enforcement mechaniam the County can use in the event Novant breaches any of its covenants or commitments Consistent with § 131E-13. the definitive agreements wil also include a repatriation right ‘he County could exereise to reaequie the assets and operation ofthe health system inthe unlikely event of a breach of eertin of Novant’s more material commitments, including compliance with § 13113. (ii) “The parties intend for the Foundation to be an independent foundation that ‘operates without oversight or contro! by the Local Board or County Commissioners, While the members of the Foundation's Board of Disectors ‘Foundation Board") will be appointed by the County Commissioners and the Loeal Board, itis expected thatthe Foundation Board will funtion independently. As noted above, the Foundation Board will rot have any role with respect to the enforcement of the definitive agreements 2. Review of Affiliated Charitable Entities. To the extent thet other charitable ents liiated with NHRMC and the County transfor asses in connection with this transaction, we ‘would anticipate that such review would occur simullancously with the Departtaent of Justice's ‘review ofthe global transaction, With respect fo the two specific examples cited in your lete, the parties do not currently expect Pender Memorial Hospital, Incorporated (“Pender”) oF New Hanover Regional Medical Center Foundation, Inc. (NHRMC Foundation”) to sell or asign assets in connection with this transtetion, The parties antieipae that Novant will hecome te sole member of Pender and assume NHRMC"s existing obligations with respect to the ongoing ‘management of Pender, Further, the parties anticipate that Novant will acquire the right to apptthe NHRMC Foundation's board of directors; however, none of the NHRMC Foundat will be transferred to Novant or any other party in connection with this transaction, 3. Government Filings. You also asked us to provide you with copies of any governmental filings related tothe transection. To the extent any such filings are made, we will promply provide you with acopy ofeach filing. We note that the Federal Trade Commission Premerger Notification (Ofice has indieated that this transuetion is not subject to the premerger natiication requirements Under the Hart-Seott-Rodino Act. 4. Next Steps. The parties are curently negotiating an asset purchase agreement, which s the primary definitive agreement referenced in the LOI. We expect to make the final asset purchase ‘agreement available to the public on or around September 18, 2020. It is anticipated that the County may vote on the agreement and transaction in one of its regularly scheduled mestings in October. I the County votes to approve the agreement, the closing would be expected to take place at some point in the months thereafter. The agreement will include customary closing ‘conditions requiring receipt of applicable governmental and regulatory approvals, ax requned under applicable law. In our continuing efforts to keep you apprised and informed with respect to this transaction, we intend to provide you with a copy of the draft definitive agreement prior to making it publily available, ‘As noted above, we are extremely excited about the proposed transaction with Navant because we believe that the $5 billion that Novant has commited to invest at NHRMC will ensure that residents and businesses in the fast-growing southeastern region of North Carolin have access to 4 state-of-the-art hospital network that can deliver high-quality and innovative healtheare in a comprehensive and cost-effective manner. ‘We hope that you find the above responses to your inuiries helpful, but please do not hesitate to contact us with any additional questions or comments. We welcome the opportunity for continued dialogue with the Department of Justice on these, and other, matirs relating 10 the proposed Novant transaction Sincerely Farm Std OSes eey Lym Gordon Wa Copley Chie Legal Ofer and General Counsel County Atoney New Hanover Regional Medical Center New Hanover Countyce: Swain Wood, Esq, General Counsel, N.C. Department of Justice Kevin Anderson, Director, Consumer Protetion Division, N.C. Department of Justice im D” Arruda, Section Chief, Consumer Protection Division, N.C. Department of Justice Jennifer Harrod, Esq, Special Deputy Attomey General, NC. Department of Justice Joseph M, Kahn, Esq, Hall, Render, Kilian, Heath & Lyman, LLP