DocuSign Envelope ID: D147E55C-1643-47ED-B2B6-B757C93AE493

STONEBRIDGE HEALTHCARE, LLC

August 20, 2020

Honorable Jim Coppinger

Hamilton County Mayor
208 Courthouse
625 Georgia Avenue
Chattanooga, TN 37402

Re: Proposed Acquisition of Erlanger Health System

Dear Mayor Coppinger:

This letter of intent sets forth a non-binding agreement in principle between StoneBridge
Healthcare, LLC (“StoneBridge”) and Chattanooga-Hamilton County Hospital Authority d/b/a/
Erlanger Health System (“Erlanger”), covering some of the major terms and conditions of the
proposed purchase by StoneBridge or by one or more affiliates of StoneBridge (collectively,
“Buyer”) of substantially all of the assets of certain affiliates of Erlanger (collectively, “Seller”)
which are associated with or used in the operation of the hospitals listed on Exhibit A (individually,
a “Hospital” and collectively, the “Hospitals”), including, without limitation, the assets listed on
Exhibit B-1 (the “Assets”), but specifically excluding the assets listed on Exhibit B-2 (the
“Excluded Assets”) and the liabilities listed on Exhibit B-3 ( the “Excluded Liabilities").

1. Type of Transaction. Pursuant to a definitive agreement or agreements to be

prepared by StoneBridge and acceptable to StoneBridge and Erlanger (the “Definitive
Agreement”), the transaction would be structured as a sale by Seller to Buyer of the Assets.

2. Transaction Value. Buyer would pay consideration of $475 million comprised of

a purchase price of $200 million and capital expenditures of $275 million during the first five
(5) years following the closing of the transaction. Buyer intends to pay Seller as a purchase price
for the Assets $200 million, which includes a normalized level of Net Working Capital (as
hereinafter defined) of the Hospitals (the “Purchase Price”). A normalized level of Net Working
Capital will be defined as 8% of “Total Operating Revenue”. “Net Working Capital” shall mean
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the difference between those current assets of the Hospitals to be purchased by Buyer and those
current liabilities of the Hospitals to be assumed by Buyer, in each case as set forth on Exhibit
C (referenced to Erlanger’s audited financial statements for the year ended June 30, 2019). The
capital expenditures commitment is detailed in Section 6(g) below.

3. Payment of Purchase Price. Buyer would pay the Purchase Price to Seller at
closing by wire transfer of federal funds to an account of Seller’s designation. The definitive
agreement will indicate that the transaction would not be subject to a financing contingency.

4. Encumbrances. Seller will convey good and marketable title to the Assets to
Buyer free and clear of all liens, liabilities, encumbrances and defects in title (other than mutually
agreed upon permitted encumbrances).

5. Liabilities. Except as the parties may agree in the Definitive Agreement, Buyer
will not assume and Seller will remain responsible for, and would indemnify Buyer against, any
and all long-term liabilities, indebtedness, capital leases, unfunded pension obligations,
commitments or obligations of any kind whatsoever, which relate to the sale of the Assets or the
operation thereof by Seller prior to or resulting from the closing, including, without limitation,
environmental claims or claims associated with alleged violations of environmental laws for acts
prior to or result from the closing, tax matters, government or private payor claims of any kind,
including, without limitation, Medicare and Medicaid, and medical malpractice or general
liability claims.

6. Additional Terms and Conditions.

(a) Employees. Buyer would commit to hire substantially all of the Hospitals’
active employees in good standing as of the closing in positions and at compensation levels
reasonably consistent with those provided by Seller. Buyer would provide benefits and establish
terms and conditions of employment. Buyer would honor prior service credit under current Seller
welfare plans for purposes of satisfying pre-existing condition limitations in Buyer’s welfare
benefit plans. With respect to employees covered by other qualified retirement plans of Seller,
Buyer would honor prior length of service for purposes of eligibility and vesting in Buyer’s
retirement benefit plans, but would not make contributions to such plans with respect to prior
service and would not assume such other retirement or pension plans, for which Seller will be
solely responsible.

(b) Covenant Not to Compete. Seller and its affiliates will execute and deliver
at the closing covenants not to compete without the consent of the Buyer within a geographic area,
and containing other terms acceptable to Buyer and Seller.

(c) Allocation of Purchase Price. The Purchase Price will be allocated among
the Assets based upon agreed fair values, pursuant to procedures specified in the Definitive
Agreement.

(d) Board of Trustees. Following the closing, Buyer, with guidance from the
existing hospital board, would appoint a Board of Trustees for each Hospital comprised of the
Hospital’s Chief Executive Officer, Chief of the Medical Staff, physicians on the Hospital’s
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medical staff and members of the community. The Board of Trustees will be responsible for
(i) adopting a vision, mission and values statement; (ii) participating in development and review
of operating and capital budgets and facility planning (Buyer has ultimate authority for budgets
and planning); (iii) participating in periodic evaluations of the Hospital CEO; (iv) granting medical
staff privileges and, when necessary, taking disciplinary action consistent with the Hospitals’
Bylaws (with the advice of counsel); (v) assuring medical staff compliance with The Joint
Commission requirements (with the advice of counsel); (vi) supporting physician recruitment
efforts; and (vii) fostering community relationships and identifying service and education
opportunities.

(e) Medical Staff. Subject to due diligence review, Buyer anticipates that the
current Hospitals’ medical staff by-laws and clinical privileges for physicians and other
practitioners at the Hospitals will remain in place as of the closing.

(f) Indigent Care. Buyer would adopt reasonable indigent care policies for the
Hospitals. Buyer would cause the Hospitals to treat any patient presented to the emergency room
who has a medical emergency or who, in the judgment of a staff physician, has an immediate
emergency need. No such patient will be turned away because of age, race, gender or, as required
by applicable law, inability to pay. Buyer would cause the Hospitals to continue to participate in
the Medicare and Medicaid programs. This covenant shall be subject in all respect to changes in
governmental policy.

(g) Capital Expenditures and Improvements. During the first five (5) years
following the closing, Buyer will commit to make at least $275 million in capital expenditures and
improvements for the Hospitals. As used herein, “capital expenditures” shall include expenditures
for new equipment, equipment replacement, facility renovations, new facilities, medical office
space, development of new services, quality improvement programs, physician recruitment,
information systems and other capital improvements, including commitments incurred pursuant to
operating or capital leases.

(h) Continuation of Services. For a period of at least five (5) years following
the closing, Buyer will continue to operate the Hospitals as general acute care hospitals and will
continue all essential services provided at the Hospitals on the closing date, subject to (i) the
availability of qualified physicians, (ii) community needs, and (iii) economic feasibility. This
covenant shall be subject to changes in governmental policy.

7. Access to Information. Pending the execution of the Definitive Agreement, Seller

will permit Buyer and its representatives reasonable access to inspect and appraise the Assets,
the Hospitals and their business prospects, and will disclose and make available to
representatives of Buyer additional books, agreements, papers and records relating to the
ownership and operation of the Hospitals in order that the Buyer can determine the financial and
operational details of the Hospitals and their affiliated business operations. Buyer will provide
Seller with a “due diligence” list of required items to effectuate the intent of this paragraph. In
this regard, Buyer agrees that such inspection shall not unduly interfere with the operations of
the Hospitals and that no such inspection shall take place and no employees or physicians

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associated with the Hospitals shall be contacted by Buyer with respect to the proposed
transaction without Buyer first coordinating such inspection or contact with Seller.

8. No Violation. Buyer has relied on Seller’s representation that it is not currently

bound under any binding or enforceable contract or agreement with any third party, which would
materially interfere with the transactions contemplated hereby. This letter of intent, and the
transactions contemplated hereby, will not violate any contract, agreement or commitment
currently binding on Seller.

9. Expenses. Each party shall bear its own expenses in connection with the
implementation of this letter of intent, regardless of whether the Definitive Agreement is
executed.

10. Definitive Agreement. Except for the provisions of Sections 7, 8, 9, 10 and 12

hereof, this letter of intent is not intended to be a binding agreement and shall not give rise to
any obligations between the parties. Further, due to the complexity of the proposed transaction,
it is the expressed intention of the parties that except for the provisions of Sections 7, 8, 9, 10
and 12 hereof, no binding contractual agreement shall exist between them by virtue of this letter
unless and until Buyer and Seller shall have executed the Definitive Agreement, which shall
contain the provisions outlined above and the representations, warranties, and other terms and
conditions customary in this type of transaction, all of which must be acceptable to both parties
in their sole discretion (including, without limitation, contingencies for all necessary regulatory
approvals). Either party may for whatever reason terminate this letter of intent and further
negotiations by written notice to the other party. In such event, there shall be no liability between
us as a result of the execution of this letter of intent, any action taken in reliance on this letter of
intent, or such termination, except with respect to claims arising from alleged breaches of
obligations imposed by the provisions of Sections 7, 8, 9, 10 and 12 hereof.

11. Continuation of Operations. From the date hereof until the closing, Seller shall
continue to operate the Hospitals in the ordinary course of business consistent with past practice.
Without Buyer’s prior written consent, Seller shall not (i) remove or transfer any of the Assets,
except in the ordinary course of business consistent with past practice, (ii) make any material
change in the business or operation of the Hospitals, or (iii) enter into any other significant
contract, commitment or transaction with respect to the Hospitals or the Assets.

12. No-Shop Provision. From the date of execution of this letter of intent until
November 30, 2020 (unless negotiations are terminated by Buyer, in which case the November 30,
2020 date shall not apply), Seller will not, directly or indirectly, without the prior written approval
of Buyer (a) offer for sale the Assets (or any material portion thereof) or any ownership interest in
any entity owning any of the Assets, (b) solicit offers to buy all or any material portion of the
Assets or any ownership interest in any entity owning any of the Assets, (c) hold discussions with
any party (other than Buyer) looking toward such an offer or solicitation or looking toward a
merger or consolidation of any entity owning any of the Assets or (d) enter into any agreement
with any party (other than Buyer) with respect to the sale or other disposition of the Assets (or any
material portion thereof) or any ownership interest in any entity owning any of the Assets or with

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respect to any merger, consolidation, or similar transaction involving any entity owning any of the
Assets.

Please indicate your approval of the terms and conditions of this proposal and your
intention to enter into these negotiations by executing two copies of this letter in the space provided
below and returning one executed copy to me, whereupon we shall proceed promptly with the
preparation and negotiation of the Definitive Agreement. Please be advised that this proposal shall
expire unless there has been delivered to StoneBridge a fully executed copy of this letter no later
than 5:00 p.m., Eastern time, on September 11, 2020.

[Signature page follows]

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We look forward to a successful and mutually rewarding relationship in respect of the

transactions set forth herein.

Sincerely,

STONEBRIDGE HEALTHCARE, LLC

By: ______________________________________
Joshua Nemzoff
Chief Executive Officer

THE FOREGOING IS APPROVED:

THIS _______ DAY OF ___________, 2020

____________________________________

By: _________________________________

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EXHIBIT A

HOSPITALS

Erlanger Baroness Hospital

Children’s Hospital of Erlanger

Erlanger East Hospital

Erlanger North Hospital

Erlanger Bledsoe Hospital

Erlanger Western Carolina Hospital

Erlanger Behavioral Health Hospital

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EXHIBIT B-1

ASSETS

• All of the assets of certain affiliates of Erlanger (“Seller”) utilized in the operation of the
Hospitals including any associated medical office buildings, physician clinics, ancillary
services, land and buildings.

• Real property used in connection with the operation of the Hospitals, or acquired for the
benefit of the Hospitals, including any other buildings, leaseholds, improvements or
fixtures.

• Equipment, inventory and supplies.

• Patient accounts receivable, net of allowance for doubtful accounts.

• Estimated amounts due from third party payers.

• Due from other governments.

• Inventories.

• Receivable from Walker County, Georgia.

• Other current assets.

• Patient, medical, personnel and other records of the Hospitals.

• Licenses, permits and trade names.

• Any prepaid expenses and deposits.

• The contracts relating to the Hospitals, other than contracts (if any) which are commercially
unreasonable and/or may be considered in violation of regulatory requirements.

• All other property, whether tangible or intangible, of every kind, character or description,
owned by Seller and used in the operation of the Hospitals.

• Any interests in any affiliated joint ventures.

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EXHIBIT B-2

EXCLUDED ASSETS

• Cash and cash equivalents.

• Temporary investments.

• Assets limited as to use.

• Deferred pension adjustments.

• Deferred amounts from debt funding.

• All of Seller’s insurance proceeds arising in connection with the operation of the Assets or
the Hospitals prior to the closing.

• All amounts due or to become due to Seller from the Medicare, Medicaid or other payor
programs in respect of cost report periods ended on or prior to closing.

• All documents, records, operating manuals and film pertaining to the Hospitals proprietary
to Seller or which Seller is required by law to retain.

• Any contracts, commitments or agreements which are commercially unreasonable or have

regulatory issues associated with such contracts.
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EXHIBIT B-3

EXCLUDED LIABILITIES.

• Long term debt and capital lease obligations.

• Net pension liability.

• Other long term liabilities.

• Deferred gain from sale leaseback.

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EXHIBIT C

COMPUTATION OF NET WORKING CAPITAL

Current Assets Current Liabilities

Patient accounts receivable, Accounts payable and accrued

net expenses

Estimated amounts due from Accrued salaries and related

third parties liabilities

Due from other Due to other governments

governments
Other current liabilities
Inventories

Receivable from Walker

County, Georgia

Other current assets