The Charlotte-Mecklenburg Hospital Authority (North Carolina) Doing Business As Atrium Health

The information in this Preliminary Official Statement is subject to completion or amendment. This Preliminary Official Statement is not an offer to sell the 2018A Bonds and is not a solicitation of an offer to buy the 2018A Bonds in any jurisdiction where the offer or sale of the 2018A Bonds is not permitted. DTC Book-EntryOnly * Preliminary, Subjectto Change November __,2018 Citigroup U Dated: Our Business: New Issue Bond Counsel: Redemption: Due: Interest PaymentDates: Denominations: Delivery Date: Tax Exemption: Security: Purpose: Limited Information: Authority’s Counsel: nderwriters’ Counsel:

PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER 18, 2018

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prior tomaturity.See“Descriptionofthe2018ABonds—Redemption” onpage25. The 2018ABondsaresubjecttooptional,extraordinary andmandatoryredemption January 15,asshownontheinsidecover. January 15andJulyofeachyear,commencing15,2019. $5,000 oranymultiplethereof. On oraboutNovember13,2018. Date ofdelivery. exempt fromStateofNorthCarolinaincometaxes.See“TaxTre item oftaxpreferenceforpurposesthefederalalternativeminimumand(3) the grossincomeofownersthereofforfederaltaxpurposes,(2)notan In theopinionofbondcounsel,intereston2018ABondsis(1)excludablefrom Sources ofPayment”onpage6. Bonds createdbyourbondorderandtheseriesresolution.See“Security the moneyandsecuritiesheldbytrusteeinfundsaccountsfor2018A (2) payments from,orRevenuesof,othermembersoftheobligatedgroup,and(3) The 2018ABondsarelimitedobligationspayablesolelyfrom(1)ourRevenues, Finance” onpage28. bonds and(2)paycertainexpensesofissuingthe2018ABonds.See“Plan We willusetheproceedsof2018ABondsto(1)refundcertainouroutstanding in theSoutheastregion. organizations, whichprovidesafullspectrumofhealthcareandwellnessprograms Atrium Healthisoneofthenation’sleadingandmostinnovativehealthcare statement initsentiretyto make aninformeddecisionregardingthe2018ABonds. Only selectedinformationispresentedonthiscover. Youshouldreadthisofficial Keith A.Smith,Esq.,ExecutiveVicePresidentandGeneral CounseloftheAuthority. Nexsen Pruet,PLLC,Charlotte,NorthCarolina. Robinson, Bradshaw&Hinson,P.A.,Charlotte,North Carolina. H ealth CareRefundingRevenueBonds ‑ M Wells FargoSecurities ec Doing Businessas (North Carolina) $161,670,000* Atrium k Series 2018A lenb H u ealth r g

Hospital Au Ratings: Moody’s:Aa3 BofA MerrillLynch t (See “Ratings”herein) h ority atment” onpage39. S&P: AA-

The Charlotte-Mecklenburg Hospital Authority (North Carolina) Doing Business as Atrium Health

$161,670,000* Health Care Refunding Revenue Bonds Series 2018A

MATURITY SCHEDULE

$__,___,___ Serial Bonds

Year Amount Interest Rate Yield CUSIP Number

$______% Term Bonds maturing January 15, 20__ Yield _.__% CUSIP:

______*Preliminary, Subject to Change

You should rely only on the information contained in this official statement. The Local Government Commission of North Carolina and we have not, and the underwriters have not, authorized any person who offers or sells the 2018A Bonds to provide you with information in addition to or inconsistent with the information contained in this official statement, or to represent anything else about us or the 2018A Bonds. If anyone provides you with additional or inconsistent information, you should not rely on it.

Unless we specify an earlier date, the information appearing in this official statement is current as of the date of this official statement shown on the front cover. Our business, financial condition, results of operations or prospects may have changed since that date.

The underwriters have provided the following sentence for inclusion in this official statement. The underwriters have reviewed the information in this official statement in accordance with, and as part of, their respective responsibilities to you under the federal securities laws as applied to the facts and circumstances of this transaction, but the underwriters do not guarantee the accuracy or completeness of such information.

We are not, and the underwriters are not, offering to sell the 2018A Bonds or soliciting an offer to buy the 2018A Bonds in any jurisdiction where the offer or sale of the 2018A Bonds is not permitted.

In reliance upon exemptions, we are not (1) registering the 2018A Bonds under the Securities Act of 1933, as amended, or any state securities laws or (2) qualifying our bond order or the series resolution under the Trust Indenture Act of 1939. Neither the Securities and Exchange Commission nor any other federal or state securities commission or regulatory authority has recommended, approved or disapproved the 2018A Bonds or determined if this official statement is adequate, accurate or complete. Any representation to the contrary is a criminal offense.

In connection with this offering, the underwriters may overallot or effect transactions which stabilize or maintain the market price of the 2018A Bonds at a level above that which might otherwise prevail in the open market. The underwriters may discontinue any such stabilizing at any time.

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements.” Such statements are generally identifiable by the terminology used such as “plan,” “project,” “expect,” “anticipate,” “intend,” “believe,” “estimate,” “budget” or other similar words. 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. We do not plan to issue any updates or revisions to those forward-looking statements if or when their expectations, or events, conditions or circumstances on which such statements are based, occur.

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TABLE OF CONTENTS Page INTRODUCTION AND SUMMARY ...... 1 Our Business ...... 1 Obligated Group; Designated Affiliates; Combined Group ...... 1 Use of Proceeds ...... 2 Issuance of the 2018A Bonds ...... 2 Our Outstanding Bonds; Additional Bonds ...... 2 Security and Sources of Payment for Our Bonds ...... 4 Bondholders’ Risks ...... 5 Trustee ...... 5 Financial Statements – Independent Auditors ...... 5 Continuing Disclosure ...... 5 Role of the Local Government Commission of North Carolina ...... 5 Definitions ...... 5 Limitation of Summaries; Obtaining Copies of Documents ...... 6 SECURITY AND SOURCES OF PAYMENT ...... 6 Limited Obligation; Revenue Pledge ...... 6 The Obligated Group ...... 7 Designated Affiliates; Combined Group...... 8 Limitation on Liens; Negative Pledge ...... 9 Assumption and Replacement of Bond Order ...... 10 BONDHOLDERS’ RISKS ...... 12 Risks Relating to Our Bonds ...... 12 Risks Relating to Our Business ...... 15 DESCRIPTION OF THE 2018A BONDS ...... 24 Denominations, Principal, Maturity and Interest ...... 24 Redemption ...... 25 Purchase in lieu of Redemption ...... 27 Registration, Transfer and Exchange ...... 27 Acceleration ...... 27 PLAN OF FINANCE ...... 28 General ...... 28 Refunded Bonds ...... 28 Project ...... 28 ESTIMATED SOURCES AND USES OF FUNDS ...... 29 ANNUAL DEBT SERVICE REQUIREMENTS ...... 30 CONTINUING DISCLOSURE ...... 35 Annual Information ...... 35 Material Event Notices ...... 36 Filing Alternatives ...... 37 Failure to Comply ...... 37 Termination of Undertaking ...... 37 Modification of Undertaking ...... 37 Quarterly Information ...... 38 LITIGATION ...... 38 LEGAL MATTERS ...... 39 TAX TREATMENT ...... 39 Opinion of Bond Counsel ...... 39 Other Tax Consequences ...... 40 Original Issue Discount ...... 40 Premium ...... 41 UNDERWRITING ...... 41

i FINANCIAL ADVISOR ...... 43 RATINGS ...... 43 CERTAIN RELATIONSHIPS ...... 43 MISCELLANEOUS ...... 43

Appendix A Information Concerning The Charlotte-Mecklenburg Hospital Authority and its Affiliates, Doing Business as Atrium Health, including The Charlotte-Mecklenburg Hospital Authority Combined Group Appendix B Basic Financial Statements of The Charlotte-Mecklenburg Hospital Authority d/b/a Atrium Health Appendix C Definitions of Certain Terms and Summary of the Bond Order and the Series Resolution Appendix D Form of Opinion of Bond Counsel Appendix E Book-Entry Only System

OFFICIAL STATEMENT

$161,670,000* The Charlotte-Mecklenburg Hospital Authority (North Carolina) Doing Business as Atrium Health Health Care Refunding Revenue Bonds Series 2018A

INTRODUCTION AND SUMMARY

This introduction and summary highlights selected information appearing elsewhere in this official statement and may not contain all of the information that is important to you. You should carefully read this official statement, including the appendices, before making an investment decision.

In this official statement, the terms “we,” “our” and “us” generally mean The Charlotte- Mecklenburg Hospital Authority and certain affiliates that are obligated directly or indirectly under our bond order to pay the 2018A Bonds. The terms “we,” “our” and “us” mean only The Charlotte- Mecklenburg Hospital Authority when describing the issuer of the 2018A Bonds and when the context otherwise requires.

Our Business

We do business directly and through our affiliates as Atrium Health. Atrium Health, one of the nation’s leading and most innovative healthcare organizations, provides a full spectrum of healthcare and wellness programs in the Southeast region.

Prior to February 2018, we did business as Carolinas HealthCare System. We are in the process of making changes to complete the shift to Atrium Health in several overlapping phases that remove the Carolinas HealthCare System name from our acute care hospitals and other facilities.

Please read Appendix A for more information about us, including our governance and management, facilities, services and operations and certain financial information.

Obligated Group; Designated Affiliates; Combined Group

We and certain of our affiliates have formed an obligated group under our bond order. You can find a complete list of the members of the obligated group in Appendix A. Members of the obligated group are jointly and severally liable for payment of the 2018A Bonds and the other bonds and obligations secured by our bond order.

Our bond order also authorizes the creation of a combined group, which consists of the members of the obligated group and any affiliates designated by us. Designated affiliates are not directly obligated to pay the 2018A Bonds or any other bonds or obligations secured by our bond order, but we have agreed to cause them to pay, loan or otherwise transfer funds to us to pay the 2018A Bonds and any other bonds and obligations secured by our bond order. Because we have no designated affiliates at this time, the members of the obligated group are the only members of the combined group. ______*Preliminary, Subject to Change

Only the members of the combined group have a direct or indirect obligation to pay amounts due with respect to the 2018A Bonds and any other bonds and obligations secured by our bond order.

If our long-term debt service coverage ratio for our most recently ended year for which financial statements are available is at least 2.0, our bond order permits the other members of the combined group to withdraw from the combined group. If a member of the combined group withdraws from the combined group, then it is no longer directly or indirectly obligated to pay the 2018A Bonds or any other bonds or obligations secured by our bond order.

As the issuer of the 2018A Bonds, we are obligated to pay the 2018A Bonds even if all of the other members of the combined group withdraw from the combined group.

Use of Proceeds

We will use the proceeds of the 2018A Bonds to: • refund a portion of our outstanding 2009A Bonds, which we describe in more detail under the heading “PLAN OF FINANCE – Refunded Bonds,” and • pay certain expenses of issuing the 2018A Bonds.

Issuance of the 2018A Bonds

We are issuing the 2018A Bonds under: • The State and Local Government Revenue Bond Act, Article 5 of Chapter 159 of the North Carolina General Statutes, as amended, • our second amended and restated bond order, which we adopted in 1997 and amended in 2001, 2002, 2007 and 2017, and which we refer to as our “bond order,” and • a series resolution we adopted pursuant to our bond order on October 1, 2018, which we refer to as the “series resolution.”

You should review the information under the heading “DESCRIPTION OF THE 2018A BONDS” for a description of certain provisions of the 2018A Bonds.

Our Outstanding Bonds; Additional Bonds

All bonds we issue under our bond order, including the 2018A Bonds, are secured equally by the pledge of our Revenues under our bond order and the joint and several obligations of the other members of the obligated group to pay under their member guaranty agreements or member security agreements. Each series of bonds, however, is separately secured by the funds and accounts for such series of bonds established under our bond order and the series resolution for that series.

We have previously issued the following series of bonds under our bond order:

Current Outstanding We refer to Name of Bonds Principal Amount these bonds as:

Health Care Refunding Revenue Bonds, Series $376,960,000 2016A Bonds 2016A Health Care Revenue Bonds, Series 2015A $9,090,000 2015A Bonds (Taxable) Health Care Revenue Bonds, Series 2015B (Taxable $30,000,000 2015B Bonds Commercial Paper) Health Care Revenue and Refunding Revenue $117,225,000 2013A Bonds Bonds, Series 2013A Health Care Revenue and Refunding Revenue $148,350,000 2012A Bonds Bonds, Series 2012A Health Care Revenue Bonds, Series 2011A $132,145,000 2011A Bonds Health Care Refunding Revenue Bonds, Series $182,075,000 2009A Bonds 2009A Variable Rate Health Care Refunding Revenue $80,910,000 2007B Bonds Bonds, Series 2007B Variable Rate Health Care Refunding Revenue $87,635,000 2007C Bonds Bonds, Series 2007C Variable Rate Health Care Revenue Bonds, Series $67,140,000 2007D Bonds 2007D Variable Rate Health Care Revenue Bonds, Series $77,220,000 2007E Bonds 2007E Variable Rate Health Care Revenue Bonds, Series $57,055,000 2007F Bonds 2007F Variable Rate Health Care Revenue Bonds, Series $113,825,000 2007G Bonds 2007G Variable Rate Health Care Revenue Bonds, Series $166,050,000 2007H Bonds 2007H Variable Rate Health Care Refunding Revenue $50,750,000 2005 Variable Bonds, Series 2005B, Series 2005C and Series Rate Bonds 2005D

As described in more detail under the heading “PLAN OF FINANCE,” we intend to issue the 2018A Bonds as part of a plan of finance that also calls for the issuance of the following additional series of bonds under our bond order (which we refer to as the “Other 2018 Bonds”):

We refer to Name of Bonds Principal Amount* these bonds as:

Variable Rate Health Care Revenue Bonds, Series $50,000,000 2018B Bonds 2018B Variable Rate Health Care Revenue Bonds, Series $50,000,000 2018C Bonds 2018C Variable Rate Health Care Revenue Bonds, Series $50,000,000 2018D Bonds 2018D Variable Rate Health Care Revenue Bonds, Series $50,000,000 2018E Bonds 2018E Variable Rate Health Care Revenue Bonds, Series $100,000,000 2018F Bonds 2018F Variable Rate Health Care Revenue Bonds, Series $50,000,000 2018G Bonds 2018G Variable Rate Health Care Revenue Bonds, Series $50,000,000 2018H Bonds 2018H

We expect to issue the 2018B Bonds, the 2018C Bonds, the 2018D Bonds and the 2018E Bonds simultaneously with the 2018A Bonds on November 13, 2018. We expect to issue the 2018F Bonds on November 20, 2018. We expect to issue the 2018G Bonds and 2018H Bonds on December 6, 2018.

We will use the proceeds of the Other 2018 Bonds to finance part of the costs of additional health care facilities as more specifically described under “PLAN OF FINANCE—Project.”

Under our bond order we can incur obligations other than bonds and secure such obligations equally with our bonds. Our bond order does not limit the amount of bonds or other obligations we can incur. Subject to certain limits contained in our bond order, we can pledge collateral to secure a particular series of bonds or other obligations without pledging such collateral as security for the 2018A Bonds.

Security and Sources of Payment for Our Bonds

The 2018A Bonds are payable solely from (1) our Revenues, (2) payments from, or Revenues of, the other members of the obligated group, and (3) money and securities held by the trustee in the funds and accounts for the 2018A Bonds created by our bond order and the series resolution. Before you invest in the 2018A Bonds, you should carefully review the discussion under the heading “SECURITY AND SOURCES OF PAYMENT.”

We have no taxing power. The 2018A Bonds are not secured by any mortgage on or security interest in any of our other property or assets. The 2018A Bonds are not secured by a pledge of the faith and credit of the State of North Carolina or any political subdivision of the State of North Carolina, including the City of Charlotte or Mecklenburg County. ______*Preliminary, Subject to Change

Bondholders’ Risks

Before you invest in the 2018A Bonds, you should carefully review the discussion of certain risks associated with our business and the 2018A Bonds under the heading “BONDHOLDERS’ RISKS.”

Trustee

U.S. Bank National Association serves as the trustee under our bond order for all of our bonds.

Financial Statements – Independent Auditors

You should review the basic financial statements of The Charlotte-Mecklenburg Hospital Authority (d/b/a Atrium Health) and its discretely presented component unit as of and for the years ended December 31, 2016 and 2017, which are included in Appendix B. The financial statements for such years have been audited by KPMG LLP, independent auditors, as stated in their report included in Appendix B.

Appendix A contains summary financial information for the combined group derived from the audited financial statements included in Appendix B.

Continuing Disclosure

We have agreed to provide certain information on an ongoing basis as required by Rule 15c2-12 of the Securities and Exchange Commission. Our agreement to provide continuing disclosure is described in more detail under the heading “CONTINUING DISCLOSURE.”

Role of the Local Government Commission of North Carolina

The Local Government Commission of North Carolina is an agency of the State of North Carolina and a division of the Department of State Treasurer. The Local Government Commission supervises the issuance of bonds by all North Carolina units of local government and most public authorities and provides assistance in the area of fiscal management.

The Local Government Commission has the statutory authority to require our governing board to allocate revenues in an amount sufficient to pay all our debt when due. The Local Government Commission also may order the implementation of a plan to raise the necessary revenues to pay such debt by any legally available means. If our governing board fails to comply with the Local Government Commission’s order within ten days, the order becomes effective and is implemented as if adopted by our governing board. Any officer or member of our governing board who fails or refuses to comply with a Local Government Commission order is deemed to forfeit his office or position.

The Local Government Commission acts on our behalf to sell our bonds to the underwriters. Because of this role, this official statement is prepared on the letterhead of the Local Government Commission and signed by an authorized officer of the Local Government Commission.

Definitions

Many terms used in this official statement, whether capitalized or not, are defined in our bond order and the series resolution. You can find complete definitions of those terms in Appendix C under the heading “DEFINITIONS OF CERTAIN TERMS.”

Limitation of Summaries; Obtaining Copies of Documents

This official statement summarizes certain provisions of the 2018A Bonds, our bond order, the series resolution and the member guaranty agreements and member security agreements that have been executed or may be executed in the future. We have not included or summarized all of the provisions of those documents in this official statement. You should read those documents if you want to understand all of their provisions, which define your rights if you purchase a 2018A Bond. You can obtain copies of our bond order and the series resolution and the forms of a member guaranty agreement and a member security agreement from us, any of the underwriters shown on the front page of this official statement, or the trustee.

SECURITY AND SOURCES OF PAYMENT

The following summary of certain provisions of our bond order and the series resolution does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of our bond order and the series resolution.

This summary should be read together with the discussion of the “Risks Relating to Our Bonds” under the heading “BONDHOLDERS’ RISKS.”

Limited Obligation; Revenue Pledge

Our obligation to pay the 2018A Bonds is limited. Under our bond order, the 2018A Bonds are payable by us only from our “Revenues,” which means:

• revenues, income and other money we earn and receive from or in connection with all facilities directly owned by us at which health care or medical services are provided,

• investment income and proceeds we receive from the liquidation or sale of securities held by us or on our behalf,

• insurance proceeds we receive,

• gifts, grants, bequests, contributions and donations we receive unless otherwise restricted, and

• payments we receive from any designated affiliates for the payment of bonds or other obligations secured by our bond order.

“Revenues” do not include (1) proceeds of any borrowings which may not be used to pay bonds and other obligations secured by our bond order, (2) any unrealized gains or losses with respect to any property, plant or equipment and (3) any revenues generated by residential real property or medical office buildings.

The only other sources of payment for the 2018A Bonds are:

• amounts paid by other members of the obligated group under member guaranty agreements,

• Revenues pledged by other members of the obligated group under member security agreements, and

• the money and securities held by the trustee in the funds and accounts for the 2018A Bonds created by our bond order and the series resolution.

Under our bond order, we have pledged our Revenues equally as security for the 2018A Bonds and all other bonds or obligations secured by our bond order. Our bond order does not limit the amount of bonds or other obligations we can incur.

We are required to deposit our Revenues with the trustee on a daily basis only if:

• an event of default occurs under our bond order or any series resolution or

• our long-term debt service coverage ratio is less than 1.10 for two consecutive years for which financial statements are available.

If we are required to deposit our Revenues with the trustee, then the trustee will distribute our Revenues, based on a management consultant’s report, to do any of the following:

• pay all necessary expenses of operating and maintaining the facilities directly owned by any member of the obligated group at which health care or medical services are provided,

• make the required deposits pro rata to each of the bond funds and accounts as prescribed in our bond order, and

• pay any other obligation secured under our bond order.

The Obligated Group

We and certain of our affiliates have formed an obligated group under our bond order. Members of the obligated group are jointly and severally liable for the payment of the 2018A Bonds and the other bonds and obligations secured by our bond order.

To become jointly and severally liable, a new member of the obligated group must sign a member guaranty agreement or a member security agreement. As of the date of this official statement, all of our affiliates who have joined the obligated group have signed member guaranty agreements, except Atrium Health Foundation, which has signed a member security agreement.

Under a member guaranty agreement, a member of the obligated group jointly and severally guarantees the payment and performance of all bonds and other obligations secured by our bond order. A member guaranty agreement is a general unsecured obligation of the member of the obligated group who signs it.

Under a member security agreement, a member of the obligated group also jointly and severally guarantees the payment and performance of all bonds and other obligations secured by our bond order, but only from its Revenues, which are pledged. If we default on the 2018A Bonds and are required to deposit our Revenues with the trustee, then each member of the obligated group who has signed a member security agreement also is required to deposit its Revenues with the trustee for distribution pursuant to our bond order.

A new member of the obligated group is not required to comply with certain provisions of our bond order or its member guaranty agreement or member security agreement if compliance with such provisions:

• is prohibited under an agreement binding on such member of the obligated group when it joins the obligated group, or

• would breach or constitute an event of default under an agreement binding on such member of the obligated group when it joins the obligated group.

If our long-term debt service coverage ratio for our most recently ended year for which financial statements are available is at least 2.0, our bond order does not limit admission to or withdrawal from the obligated group. If a member of the obligated group withdraws from the obligated group, then it is no longer jointly and severally liable for the payment of the 2018A Bonds or any other bonds or obligations secured by our bond order.

As the issuer of the 2018A Bonds, we cannot withdraw from the obligated group and we remain obligated to pay the 2018A Bonds even if all of the other members of the obligated group withdraw from the obligated group.

The provisions of our bond order regarding admission to and withdrawal from the obligated group are discussed in Appendix C under the heading “SUMMARY OF THE BOND ORDER AND THE SERIES RESOLUTION—Entry Into and Withdrawal from Obligated Group.”

Designated Affiliates; Combined Group

Our bond order also authorizes the creation of a combined group, which consists of the members of the obligated group and affiliates designated by us. As of the date of this official statement, we have no designated affiliates; therefore, the members of the obligated group are the only members of the combined group.

Designated affiliates are not directly obligated to pay the 2018A Bonds or any other bonds or obligations secured by our bond order. Instead, we have agreed to cause each designated affiliate to pay, loan or otherwise transfer to us:

• amounts needed to pay debt service on bonds or to pay other obligations secured by our bond order if the proceeds of such bonds or obligations were made available to or benefited that designated affiliate, and

• amounts needed to pay debt service on all other bonds and to pay other obligations secured by our bond order.

A designated affiliate is not obligated to pay amounts due on bonds or other obligations secured by our bond order greater than the amount of proceeds of such bonds or obligations used by or for such designated affiliate if any such additional payment obligation would:

• be avoidable as a fraudulent transfer or fraudulent conveyance under applicable bankruptcy, insolvency or similar laws or

• cause such designated affiliate to violate any law restricting the purposes for which their assets may be used if such additional payment were made.

Additionally, designated affiliates are not directly obligated to comply with provisions of our bond order unrelated to payment of bonds or other obligations; however, we have agreed to cause each designated affiliate to comply with the covenants and restrictions in our bond order that are applicable to

8 it. For example, we must cause any designated affiliates to charge fees and rates for their services sufficient to maintain the required long-term debt service coverage ratio of at least 1.10.

In order for a person to become a designated affiliate:

• we must submit a request in writing to the trustee and include a resolution of such person’s governing body, and

• we must either:

□ control such designated affiliate in the manner described below, or

□ have entered into an agreement with such designated affiliate that, in the judgment of our counsel, is sufficient to assure us that such designated affiliate will be required to comply with the terms and conditions of our bond order applicable to it.

Under our bond order, “control” means the power to direct the management, policies and disposition of assets and actions of a person, directly or indirectly, to the extent required to cause a designated affiliate to comply with the terms and conditions of our bond order. Such control can be exercised through the ownership of voting securities, by contract, partnership interest, membership, reserved powers or the power to appoint members, trustees or directors or otherwise.

If our long-term debt service coverage ratio for our most recently ended year for which financial statements are available is at least 2.0, our bond order does not limit our ability to designate or remove affiliates from the combined group. If a designated affiliate ceases to be a member of the combined group, then it is no longer indirectly liable for the payment of the 2018A Bonds or any other bonds or obligations secured by our bond order.

The provisions of our bond order regarding designation or removal of designated affiliates are discussed in Appendix C under the heading “SUMMARY OF THE BOND ORDER AND THE SERIES RESOLUTION—Designation as a Designated Affiliate; Removal of a Designated Affiliate.”

Limitation on Liens; Negative Pledge

Except as provided in our bond order, we may not create, incur, assume or allow to exist any mortgage on, pledge of, or other lien or encumbrance on:

• the facilities directly owned by any member of the obligated group at which health care or medical services are provided (which we refer to as the “obligated health care system”),

• property owned by a designated affiliate, or

• our Revenues.

We are permitted to pledge all or a portion of the obligated health care system or property owned by a designated affiliate to secure a particular series of bonds or other obligations without pledging such collateral as security for the 2018A Bonds if such pledge is a “permitted encumbrance” under our bond order. One example of a permitted encumbrance is liens that do not exceed the greater of 25% of the “Base Value” of our property, plant and equipment or 25% of the “Base Value” of our unrestricted net assets. The property subject to such liens could consist in part or in whole of cash, marketable securities or accounts receivable. “Base Value” means, at our option, either (1) the cost basis of property, net of accumulated depreciation, as shown on our financial statements for the most recently ended year for

9 which such statements are available, or (2) the appraised value of property as determined within the preceding two years by an appraiser selected by us and acceptable to the trustee.

To learn more about permitted encumbrances, you should read the complete definition of “permitted encumbrances” in Appendix C under the heading “DEFINITIONS OF CERTAIN TERMS” and the information in Appendix C under the heading “SUMMARY OF THE BOND ORDER AND THE SERIES RESOLUTION—Liens and Encumbrances.”

We also are permitted to pledge all or a portion of the obligated health care system, property owned by a designated affiliate or our Revenues to secure other obligations if all bonds and obligations secured by our bond order are equally secured by such pledge.

Assumption and Replacement of Bond Order

A person may assume all of our obligations under our bond order by entering into a new or existing bond indenture, bond resolution, bond order, series resolution or other comparable instrument (which we refer to as a “replacement bond order”). Before a replacement bond order can become effective, the following conditions must be satisfied:

• We and the trustee must receive an opinion of counsel addressed to us and the trustee stating that:

□ the replacement bond order has been duly authorized, executed and delivered by the person(s) purported to be bound by the replacement bond order, and is the legal, valid and binding obligation of each such person, subject in each case to customary exceptions,

□ the assumption of our obligations under our bond order is permitted under the terms of the replacement bond order and all requirements and conditions specified therein to the assumption of our obligations under our bond order have been complied with and satisfied, and

□ the assumption and replacement of our bond order with the replacement bond order will not require registration of the replacement bond order under the Securities Act of 1933, as amended.

• The trustee under the replacement bond order is an independent corporate trustee that meets the eligibility requirements for a successor trustee under our bond order.

• The replacement bond order must be approved by the Local Government Commission, if deemed applicable by the Local Government Commission.

• The trustee must receive an officer’s certificate certifying that, after giving effect to the assumption and replacement bond order, the person(s) obligated under the replacement bond order would continue to have at least a 1.10 long-term debt service coverage ratio determined in accordance with our bond order on a pro forma basis for the immediately preceding year for which financial statements are available.

• We and the trustee must receive an opinion of bond counsel stating that the assumption of our obligations under our bond order and the replacement of our bond order with the replacement bond order will not adversely affect the validity or federal tax-exempt status of the 2018A Bonds.

• We and the trustee must receive an original executed counterpart of the assumption and the replacement bond order.

• If required by the terms of the replacement bond order, the pledge of our Revenues under our bond order and the Revenues of any other member of the obligated group pledged under a member security agreement to secure the 2018A Bonds will be released and all such Revenues will secure all obligations entitled thereto under the replacement bond order.

• The trustee must receive evidence, reasonably satisfactory to the trustee, that

□ we have given written notice of the assumption and a copy of the replacement bond order to each rating agency then rating the 2018A Bonds and

□ the then current rating on the 2018A Bonds will not be withdrawn or reduced below the then current rating category after the assumption of the 2018A Bonds under the replacement bond order.

• We and the trustee must receive other customary opinions and certificates and reasonable indemnities as we and the trustee may reasonably require and request.

A replacement bond order, however, cannot:

• without the consent of the registered owner of the 2018A Bond to be affected,

□ change the times, amounts or currency of payment of the principal of, premium, if any, and interest on any 2018A Bond or

□ reduce the principal amount of any 2018A Bond or the redemption premium or the rate of interest on any 2018A Bond, or

• without the consent of the registered owners of all bonds then outstanding under our bond order, permit a preference or priority of any bond or bonds over any other bond or bonds.

If a replacement bond order becomes effective, then all bonds outstanding under our bond order, including the 2018A Bonds, will after that time be deemed issued and outstanding under the terms and provisions of such replacement bond order. Additionally, the trustee may transfer any member guaranty agreements and member security agreements to the trustee under such replacement bond order.

Our bond order does not restrict when the substitution of a replacement bond order may occur. In addition, a replacement bond order is not required to contain any specific terms, conditions and covenants.

BONDHOLDERS’ RISKS

Before you invest in our bonds, you should carefully review the following discussion of the risks involved and the information contained elsewhere in this official statement.

Risks Relating to Our Bonds

Because the 2018A Bonds are payable by us only from our Revenues, your remedies against us are limited if we default.

The 2018A Bonds are payable by us only from our Revenues. If we default on the 2018A Bonds, we are required to deposit our Revenues with the trustee, who will use them to pay our operating expenses, to pay debt service on the 2018A Bonds and the other bonds secured by our bond order and to pay other obligations secured by our bond order, based on a report of a management consultant. We cannot assure you that our Revenues will be sufficient to pay our operating expenses, the debt service on our bonds and any other obligations secured by our bond order. Except for collecting and applying our Revenues, neither the trustee nor you will have any other remedy against us.

We have not pledged any of our other real or personal property, such as land, buildings, equipment or investments, to secure payment of the 2018A Bonds and the other bonds and obligations secured by our bond order. If we default on the 2018A Bonds, neither the trustee nor you will be able to cause us to forfeit any of our land, buildings, equipment or investments.

Only the members of the combined group have a direct or indirect obligation to pay the 2018A Bonds.

Our bond order authorizes the creation of a combined group, which consists of the members of the obligated group and affiliates designated by us.

Members of the obligated group are jointly and severally liable for the payment of the 2018A Bonds and the other bonds and obligations secured by our bond order. To become jointly and severally liable, members of the obligated group must sign a member guaranty agreement or a member security agreement.

A member guaranty agreement is a general unsecured obligation of the member of the obligated group who signs it. If the member of the obligated group who signs a member guaranty agreement fails to pay any amount due under the member guaranty agreement, the trustee can sue such member of the obligated group to collect. If the trustee obtains a money judgment against such member of the obligated group, the trustee, with the assistance of the court and the sheriff, could attempt to levy and foreclose on the property of such member of the obligated group to satisfy the judgment.

A member security agreement is a limited obligation of the member of the obligated group who signs it, payable solely from and secured by the Revenues of such member of the obligated group. If we default on the 2018A Bonds, such member of the obligated group is required to deposit its Revenues with the trustee, who will use them to pay our operating expenses, to pay debt service on the 2018A Bonds and the other bonds secured by our bond order and to pay other obligations secured by our bond order, based on a report of a management consultant. Except for collecting and applying its Revenues, neither the trustee nor you will have any other remedy against such member of the obligated group.

Designated affiliates are not directly liable for the payment of the 2018A Bonds and the other bonds and obligations secured by our bond order. Instead, we have agreed to cause our designated affiliates to pay money to us that we will use to pay the 2018A Bonds and other bonds and obligations secured by our bond order. Neither the trustee nor you will have any claim against any designated

12 affiliate. The filing of a bankruptcy case by or against a designated affiliate is not an event of default under our bond order or the series resolution. Moreover, unless a designated affiliate has a contractual obligation to pay money to us that we can use to pay the 2018A Bonds and other bonds and obligations secured by our bond order, we will have no claim against such designated affiliate in a bankruptcy case filed by or against such designated affiliate.

We have certain affiliates who are not members of the combined group. These affiliates are not directly or indirectly obligated to pay the 2018A Bonds. Under our bond order only the members of the combined group are directly or indirectly obligated to pay the 2018A Bonds.

Bankruptcy or other applicable law may limit your ability to collect from the other members of the combined group.

As a practical matter, bankruptcy or other applicable law may limit your ability to collect from the other members of the combined group. For example, a creditor or the trustee in a bankruptcy case of a member of the combined group could ask a court to declare that the obligations of such member of the combined group with respect to the 2018A Bonds are not enforceable because they represent a “fraudulent conveyance.” It is possible that a court would agree. Federal and state fraudulent conveyance law provides that an obligation incurred by a guarantor may be avoided if, for example, (1) the guarantor did not receive “fair consideration” or “reasonably equivalent value” in exchange for the guaranty and (2) the guaranty renders the guarantor insolvent.

An action to enforce a charitable trust and to see to the application of its funds could be brought against any member of the combined group that is a charitable nonprofit corporation if honoring its obligations with respect to the 2018A Bonds would result in:

• such member of the combined group not having sufficient assets to carry out its charitable purposes, or

• cessation or discontinuation of any material portion of the health care or related services previously provided by such member of the combined group.

An action to enforce a charitable trust could arise on a court’s own motion or pursuant to a petition of the state attorney general or such other persons who have interests different from those of the general public.

The obligations of a member of the combined group also may not be enforceable to the extent that payments with respect to such obligations are:

• requested to be made from assets which are donor-restricted or which are subject to a direct, express or charitable trust which does not permit the use of such assets for such payments, or

• made with respect to an obligation which is not consistent with the governmental purposes of such member of the combined group or was incurred for the benefit of an entity that is not governmental or tax-exempt.

Even though the obligations of a member of the combined group with respect to the 2018A Bonds may not be enforceable for the reasons discussed above, the accounts of all members of the combined group will be combined for financial reporting purposes and will be used to determine whether we meet various covenants and tests contained in our bond order.

Our bond order does not limit the amount of obligations we can incur.

Our bond order does not limit the amount of obligations we can incur. Under our bond order, we can issue additional bonds and incur other obligations that are secured equally under our bond order with our bonds. Under our bond order, we also can incur debt or other obligations that are not secured under our bond order. We can pledge collateral, however, to secure only a specific series of bonds or other specific obligations if the pledge of such collateral is permitted under our bond order.

If our long-term debt service coverage ratio for our most recently ended year for which financial statements are available is at least 2.0, then our bond order does not restrict our ability to:

• transfer property, plant and equipment, cash and investments and receivables,

• merge (except for certain nonfinancial conditions), or

• change the membership of the combined group.

Because this test is based on our past financial performance, we could take these actions even if they would lead to a payment default or cause our long-term debt service coverage ratio during the then- current year to be less than the 1.10 minimum required under our bond order.

Even if our long-term debt service coverage ratio for our most recently ended year for which financial statements are available is less than 2.0, we can merge (subject to certain nonfinancial conditions) or change the membership of the combined group if:

• the 2018A Bonds and all other debt secured under our bond order is rated investment grade, or

• the Local Government Commission approves the transaction.

Such transactions could have a material adverse effect on our financial condition, including a reduction in the ratings of the 2018A Bonds.

Our bond order does not limit our ability to make acquisitions or engage in joint ventures.

We regularly evaluate and pursue potential acquisitions and joint ventures as part of our overall strategic planning and development process. Our bond order does not limit our ability to make acquisitions or engage in joint ventures. Such transactions could have a material adverse effect on our financial condition, including a reduction in the ratings of the 2018A Bonds.

We have signed a letter of intent and negotiated a member substitution agreement with Navicent Health, Inc., a Georgia nonprofit corporation headquartered in Macon, Georgia (“Navicent Health”). You should read the information in Appendix A under the heading “ATRIUM HEALTH COMPONENTS— Future Plans for the Combined Group” for additional information regarding this proposed transaction. As stated in Appendix A, the proposed transaction cannot be entered into until the Georgia attorney general holds a public hearing and issues a report regarding the public benefits of the proposed transaction. There can be no assurance that the Georgia attorney general will issue a favorable report or that the proposed transaction will close. If the member substitution agreement closes, we and Navicent Health intend to cause Navicent Health and its current subsidiaries (except Navicent Health Foundation) to become

14 members of our obligated group under our bond order and for Navicent Health’s existing debt to become parity debt under our bond order, but only after obtaining all approvals and consents required in connection therewith. If the required approvals and consents cannot be obtained, then Navicent Health and its current subsidiaries would not become members of our obligated group and Navicent Health’s existing debt would not become parity debt under our bond order. A purchaser of the 2018A Bonds should be comfortable with such purchase whether the proposed transaction occurs or not.

Our bond order can be replaced with a new bond order that may be substantially different.

Our bond order provides that, if certain conditions are met, it can be replaced with a new bond order. One of those conditions is that the ratings on the 2018A Bonds at the time the replacement bond order becomes effective would not be reduced below the then current rating category. Another one of those conditions is that, if deemed applicable, the Local Government Commission must approve the replacement bond order. You should read the information above under the heading “SECURITY AND SOURCES OF PAYMENT—Assumption and Replacement of Bond Order” for a more complete discussion of those conditions.

If the conditions in our bond order are satisfied, a replacement bond order is not required to contain any specific terms, conditions and covenants. A replacement bond order could change any or all of the provisions of our bond order, including the provisions relating to security and covenants relating to insurance, the rate covenant, restrictions on liens, sales of accounts or disposition of cash and other assets, the restrictions on joining or withdrawing from the obligated group, the designation and removal of designated affiliates and the rights and remedies of the trustee upon a default.

The exclusion of state and local bond interest from gross income for federal income tax purposes may be limited or eliminated to reduce the federal deficit and reform the federal income tax system.

In recent years, as the pressure to reduce the federal deficit and reform the federal income tax system has increased, limiting or eliminating the exemption of state and local bond interest has been discussed as one way to raise additional revenue. Any such limitation or elimination, if retroactive, would result in some or all of the interest on the 2018A Bonds being included in gross income of owners of the 2018A Bonds for federal income tax purposes. Any such limitation or elimination would also likely increase our future borrowing costs.

Risks Relating to Our Business

The impact of national healthcare reform on us is uncertain.

On March 23, 2010, President Obama signed into law H.R. 3590, entitled the “Patient Protection and Affordable Care Act,” and on March 30, 2010, he signed into law H.R. 4872, entitled the “Health Care and Education Reconciliation Act of 2010.” We refer to both of these collectively as the “Healthcare Reform Acts.” Some provisions of the Healthcare Reform Acts are already in effect, while others are being phased in through September 30, 2019.

The changes to various aspects of the healthcare system in the Healthcare Reform Acts are far reaching and include, among many others, substantial adjustments to Medicare reimbursement, establishment of individual mandates for healthcare coverage, extension of coverage to certain populations primarily through the expansion of Medicaid and private insurance, provision of incentives for employer-provided healthcare insurance and increased oversight provisions. The provisions of the Healthcare Reform Acts which encourage or mandate healthcare coverage for individuals can be expected to reduce the amount of uncompensated care we provide; however, the revisions to the Medicare reimbursement program could reduce our revenues.

Because national healthcare reform has such far reaching implications on the healthcare system in the United States and is expected to result in the promulgation of new regulations and guidelines for an indefinite but lengthy period of time into the future, the impact of national healthcare reform on us is uncertain. The implementation of various provisions of the Healthcare Reform Acts has been subject to delay, either pursuant to the terms of the provisions themselves (including required regulatory rulemaking), or court challenges from opponents to the law. President Trump and Congress are seeking to repeal all or most of the law. To date, Congress and the executive agencies responsible for implementation of the Healthcare Reform Acts (the Departments of Treasury, Health and Human Services and Labor) have been incrementally repealing, rescinding and modifying parts of the law and the regulations implementing the law. The individual exchange markets are in a state of flux, with many concerned that the federal government will not continue making payments to health insurers to reduce low-income insureds’ co-pays and deductibles. Additionally, the Healthcare Reform Acts have been subject to substantial litigation, with the constitutionality of the Healthcare Reform Acts still being challenged in courts around the country. The outcomes of legislative attempts to repeal or amend the Healthcare Reform Acts and legal challenges to the Healthcare Reform Acts are unknown, making it difficult for us to know for certain how the Healthcare Reform Acts will ultimately affect our operations and revenues.

In addition to the Healthcare Reform Acts, other legislation proposing to regulate, control or alter the methods of delivering and financing health care is regularly introduced and debated in Congress and state legislatures. Examples include bills that incentivize managed care enrollment, require provision of reduced cost or free care, impose mandatory or voluntary rate reductions and cost controls, affect competition among healthcare providers, establish new patient rights, establish quality standards, mandate technology investment or prohibit and punish certain healthcare activities or certain provider relationships deemed as incentivizing behavior detrimental to the healthcare system. Future healthcare legislation and proposals are likely to vary widely, and no determination can be made at this time as to whether any such legislation will be enacted into law, or, if enacted, what effect, if any, it may have on our operations or revenues.

We receive almost all of our revenues from government payers and commercial insurance companies who are likely to continue to seek to reduce what they pay us.

We strive to be paid appropriately for the services we provide, but third-party payers continue to require or ask us to accept lower rates of payment even as medical costs continue to rise.

We receive a substantial portion of our revenues from the Medicare and Medicaid programs. For example, about 40% of our 2017 total net patient revenue came from Medicare and Medicaid. Medicare is a federal program that provides certain hospital and medical insurance benefits primarily to persons age 65 and older. Medicaid is a joint federal-state program administered by the states that provides hospital and medical benefits to qualifying individuals who are unable to afford health care.

Because the federal government funds the Medicare program and participates in the Medicaid program, the rapidly rising cost of health care has put pressure on the federal budget. For example, as a result of the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012, an automatic 2% reduction of Medicare program payments for all healthcare providers, known as “sequestration,” took effect in March 2013. Since then, Congress has passed a number of bills, which have been signed into law, that have impacted sequestration, including spending reductions, adjustments to sequestration caps, and extending sequestration into additional federal fiscal years. The sequestration cuts that have been in place since 2013 are expected to continue to have an impact on our annual net revenues. Both sequestration and any possible abandonment of sequestration in favor of targeted healthcare spending decreases are likely to result in a net decrease in our operating revenues. The Healthcare Reform Acts have also made changes to the Medicare program that have reduced or are expected to reduce payments to healthcare providers.

The federal government also has reduced its matching payments made to the states to subsidize the cost of their Medicaid programs. As discussed below, North Carolina and South Carolina may also reduce their Medicaid expenditures. Attempts to further reduce Medicare and Medicaid funding will likely intensify as the pressure to reduce the federal deficit and balance the federal budget increases, and we believe that the federal government is likely to implement other reductions in Medicare and Medicaid funding.

Before investing in our bonds, you should consider whether you believe it is likely that the federal government and the States of North Carolina and South Carolina will continue to provide reasonable levels of reimbursement to health systems to cover the costs of providing care to Medicare and Medicaid patients.

Before investing in our bonds, you also should consider the impact that reductions in government reimbursement to other health care providers, such as physicians, may have on us. For example, in response to reductions in reimbursement, physicians are competing for services with hospitals in such areas as imaging and ambulatory surgery to offset reductions they are experiencing from third-party payers. Reductions in physician reimbursement also could make the predicted nationwide shortage of physicians discussed below worse, which could result in decreased use of programs and services at our facilities.

We also receive a substantial portion of our revenues from commercial insurance companies. For example, about 55% of our 2017 total net patient revenue came from commercial insurance companies. Insurance companies and employers also are increasing their efforts to control health care costs. For example, purchasers are shifting more costs to patients and limiting what costs are covered. We believe this trend will continue and that payment increases may not keep up with costs and increased use of our facilities. Our operating income (our total revenues minus our operating expenses) could be significantly reduced if increases in payments from insurance companies do not keep up with costs, existing contracts with insurance companies are terminated, or if we are excluded from narrow network insurance products.

Historically, medical inflation has outpaced general inflation. In addition, medical inflation could outpace our ability to increase reimbursement under long-term contracts with commercial insurance companies.

Pressures on state budgets may impact healthcare funding.

Many states continue to face budgetary and fiscal challenges, although in recent years North Carolina and South Carolina have had budget surpluses. Shortfalls between state revenues and spending demands, along with balanced budget requirements, have in the past and may in the future result in cutbacks to state-funded healthcare programs such as Medicaid. In recent years, North Carolina and South Carolina have reduced the rate of increase of Medicaid reimbursement to hospitals and continue to be under pressure to limit Medicaid expenditures. As of the date of this official statement, the States of North Carolina and South Carolina have not elected to participate in the expansion of Medicaid eligibility under the Healthcare Reform Acts. We believe that the States of North Carolina and South Carolina will continue to be under pressure to limit their Medicaid expenditures.

In September 2015, driven largely by a desire for state budget predictability, the North Carolina General Assembly enacted Session Law 2015-245, which required the North Carolina Department of Health and Human Services (which we refer to as the “NC DHHS”) to submit a Section 1115 waiver application proposing a restructuring of North Carolina’s Medicaid program to the Centers for Medicare & Medicaid Services (which we refer to as “CMS”). The NC DHHS submitted its final waiver application to CMS on June 1, 2016 and submitted an amendment thereto on November 20, 2017.

The changes proposed in the application, if approved by CMS, would transition North Carolina’s Medicaid program from a largely fee-for-service system to a system based on capitated contracts operated

17 by prepaid health plans. The prepaid health plans will include both commercial plans and “provider-led entities.” Session Law 2015-245, as amended, calls for four statewide contracts with commercial plans or provider-led entities and up to twelve regional contracts with provider-led entities. The capitated contracts will be awarded through a request for proposal process which began in August 2018. Proposals are due in October 2018, and the schedule calls for contract awards in February 2019. The initial capitated contracts may be awarded on staggered terms of three to five years, to prevent gaps in coverage if a contract is terminated. For now, behavioral health will continue to be separately managed by Local Management Entity - Managed Care Organizations. CMS must approve North Carolina’s waiver application prior to implementation, so implementation of the new managed care approach is currently targeted to begin in the fourth quarter of 2019. NC DHHS has made public, through the proposal process, its intent to mandate certain “rate floors” for hospitals during the first three years of Medicaid managed care. This mandate is intended to provide hospitals with assurances of receiving comparable reimbursement rates by managed care organizations as compared to existing Medicaid fee for service rates.

We, along with a group of 11 other health systems spanning the entire State of North Carolina, have formed a limited liability company to support the formation of a state-wide prepaid health plan. Participating with us are: Cape Fear Valley Health System, CaroMont Health, Cone Health, Duke University Health System, Mission Health, New Hanover Regional Medical Center, Novant Health, University of North Carolina Health Care System, Vidant Health, Wake Forest University Baptist Medical Center, and WakeMed Health & Hospitals. This group has selected Presbyterian Healthcare Services, which operates a provider-led Medicaid health plan in New Mexico, as a key partner in its collaboration to develop a new prepaid health plan in support of North Carolina’s Medicaid transition. This group intends to submit a proposal for a statewide contract in October 2018. There are no assurances, however, that our bid will be selected.

Pressures on the North Carolina budget may impact state tax exemptions.

Like other nonprofit hospitals, we are exempt from (or entitled to a refund of) North Carolina income, franchise, ad valorem property and sales taxes. From time to time, legislation has been introduced in the North Carolina legislature to limit or repeal certain of these state tax exemptions available to us and private nonprofit healthcare providers. In 2013, the North Carolina General Assembly imposed a cap ($31,700,000 from the state and $13,300,000 from local governments) on sales tax refunds to us and other nonprofit hospitals. Although imposition of this cap has not yet had a material adverse effect on our financial results, it could have a material adverse effect on our financial results over time, especially if the cap is lowered. Continued economic pressures may give rise to renewed efforts to lower this cap or further limit or repeal sales tax refunds.

Further increases in our volume of indigent care and uninsured and underinsured patients could adversely affect our financial condition.

In recent years we have increased our provision for uncollectible accounts because of higher volumes of indigent care and uninsured and underinsured patients. We believe this trend is due to a combination of broad economic factors, including but not limited to, lack of adequate increases in state Medicaid budgets, increasing numbers of individuals and employers who choose not to purchase insurance and insurers requiring patients to pay higher co-payments and deductibles. Additionally, many of these patients are being admitted through our hospitals’ emergency departments and often require more costly care, resulting in higher billings, which are the least collectible of all accounts. As discussed above, the Healthcare Reform Acts, by encouraging and mandating healthcare coverage for individuals, may reduce the number of patients that are uninsured, but there is no requirement in the Healthcare Reform Acts as to what amounts providers will be paid.

We receive partial reimbursement under the Medicaid program for care provided to many, but not all, of our indigent patients. Medicaid is designed to reimburse healthcare providers such as us at less

18 than actual cost and has not kept pace in recent years with the industry’s rapidly rising cost of personnel, supplies and technology.

Since 1996, we have received additional Medicaid reimbursement payments under North Carolina’s “Medicaid Reimbursement Initiative.” Under this program, we are eligible for additional reimbursement payments based on the cost deficits and treatment of indigent patients. The reimbursement payments are subject to final settlement based upon upper payment limits for Medicaid and uncompensated care. Elimination of, or reductions to, the Medicaid Reimbursement Initiative payments we receive could adversely affect our financial performance.

In addition, for the period subsequent to January 2011, providers have received additional Medicaid payments under the State of North Carolina’s “GAP Plan” to reduce the gap between Medicaid and uninsured costs and payments. Under the GAP Plan, we periodically pay an assessment to the State of North Carolina and periodically receive additional Medicaid payments from the State. Elimination of, or reductions in the amount of, the net receipts under the GAP Plan we have received historically could adversely affect our results of operations.

Beginning October 1, 2013, Medicare disproportionate share hospital (“DSH”) payments, made to certain healthcare providers to reimburse a portion of the costs of providing indigent care, were reduced initially by 75%. Thus, disproportionate share hospitals receive 25% of the amount they would have received under the statutory formula for Medicare DSH payments prior to the Healthcare Reform Acts. The remaining 75% of the funds was transitioned into an uncompensated care pool to be paid to hospitals for providing uncompensated care services. These pool payments are expected to decrease as uninsured consumers obtain insurance through the healthcare exchanges established under the Healthcare Reform Acts. Additionally, states’ Medicaid DSH allotments from federal funds were scheduled to be reduced beginning October 1, 2013; however, the Pathway for SGR Reform Act of 2013 subsequently repealed the reductions for fiscal years 2014 and 2015. The Protecting Access to Medicare Act of 2014, which became law on April 1, 2014, further delayed the reductions until October 1, 2016, but extended them through fiscal year 2024.

We also provide care, without charge or at discounted rates, to all uninsured patients who meet certain criteria under our financial assistance and uninsured discount policies. Key elements used to determine eligibility include a patient’s demonstrated inability to pay based upon family size and household income relative to federal income poverty guidelines.

Our business and financial results could be adversely affected by violations of the extensive and complex regulations that apply to our business.

The healthcare industry is subject to extensive federal, state and local laws and regulations. These laws and regulations require that hospitals meet various requirements, including those relating to the adequacy of medical care, equipment, personnel compensation and benefits, operating policies and procedures, billing patients for services, filing of Medicare and Medicaid reports, payments for services and supplies, maintenance of adequate records, privacy, building codes and environmental protection.

These laws and regulations are extremely complex and subject to interpretation. We often find there is little or no regulatory or judicial interpretation of these laws and regulations to guide us.

If we fail to comply with applicable laws and regulations, we could be subject to civil or criminal penalties, including the loss of our licenses to operate our hospitals and our ability to participate in the Medicare and Medicaid programs.

A determination that we have violated these laws, or even a public announcement that we are being investigated for possible violations of these laws, could harm our business reputation and materially adversely affect our business, financial condition, or results of operations.

In the future, different interpretations or enforcement of these laws and regulations could result in allegations that some of our current practices are improper or illegal or could require us to make changes in our facilities, equipment, personnel compensation and benefits, services, capital expenditure programs or operating expenses.

The healthcare industry is subject to regular and ongoing federal and state civil and criminal enforcement efforts.

The hospital industry is subject to regular, ongoing inquiries, audits and investigations relating to issues such as referrals of patients, physician recruiting practices, Medicare and Medicaid cost reporting, coding and billing practices, physician ownership and joint ventures involving hospitals.

Federal and state government agencies have engaged in coordinated civil and criminal enforcement efforts. See “LITIGATION” for a discussion of a civil antitrust lawsuit filed against us by the federal government and the State of North Carolina in June 2016 and two other lawsuits filed against us by individuals making similar allegations in September 2016 and February 2018. In addition, the Office of Inspector General of the United States Department of Health and Human Services, which is responsible for investigating fraud and abuse, and the United States Department of Justice periodically establish enforcement initiatives focusing on specific patient billing practices or other suspected areas of abuse. To the extent that these enforcement activities are part of the overall effort by federal and state governments to control and reduce health care costs, we expect these enforcement activities will take on additional importance and may become more intense.

We regularly cooperate with audits, inquiries and investigations and have received requests for information relating to a variety of subjects because of these enforcement activities. As a result of these audits, inquiries and investigations, claims and lawsuits may be brought against us from time to time. We cannot predict the results of any such claims and lawsuits. The ultimate resolution of these claims and lawsuits, individually or in the aggregate, may have a material adverse effect on our business (both in the near and long term), financial position, results of operations or cash flows.

Our business could be adversely affected by the rising cost and decreasing availability of malpractice and general liability insurance.

In recent years, the dollar amounts being sought and recovered in malpractice and general liability suits have increased nationwide, resulting in substantial increases in malpractice and general liability insurance premiums. Our insurance costs have increased over the past several years.

We self-insure portions of our professional and general liability coverage and maintain excess loss policies for professional and general liability coverage. We fund our self-insurance program annually based upon actuarial estimates. These estimates are based on a number of factors, including amount and timing of historical payments, severity of individual cases, anticipated volume of services provided and discount rates for future cash flows. Changes in these factors resulting in increases in these estimates could adversely affect our business.

The excess professional and general liability insurance we purchase is subject to policy aggregate limitations. If such policy aggregate limitations are partially or fully exhausted in the future, or actual payments of claims materially exceed projected estimates of claims, our business, financial position, results of operations or cash flows could be materially adversely affected.

As the rise in cybersecurity events increase, hospitals are at increasing risk of an attack in two areas: (1) patient data, such as social security numbers, date of birth, insurance information and medical records, and (2) access to medical technology that could lead to harmful clinical events. As a result, we have added cybersecurity insurance to our coverages at an additional cost to supplement the measures implemented under our cybersecurity strategy to combat these threats. See “Our business could be

20 adversely affected by the increasing risks of cybersecurity breaches and attacks” below for a more detailed discussion of cybersecurity risks.

Physicians, including those who practice at our hospitals, face significant and sometimes prohibitive increases in malpractice insurance premiums and limitations on availability, which could cause those physicians to limit their practices. That, in turn, could reduce use of programs and services at our hospitals.

Our operating performance may decline if we are not able to recruit and retain a sufficient number of quality physicians for our medical staffs.

Between now and 2030, a nationwide shortage of physicians is expected to emerge as a result of several factors, including population increases generally, the additional amount of healthcare needed for an aging population, the possibility of increased demand for healthcare services due to the Healthcare Reform Acts’ expansion of healthcare coverage described above and more physicians reaching retirement age than those entering medical practice. Reductions in government reimbursement could also adversely affect physicians, exacerbating this anticipated shortage. Medical schools across the country are being encouraged to increase enrollment to combat this expected shortage. A future shortage of physicians in our service area could reduce use of programs and services at our hospitals and materially adversely affect our financial condition.

The nationwide shortage of nurses and other skilled technicians could adversely affect our costs and our ability to operate our business.

In recent years, the hospital industry has suffered from a scarcity of nurses and some skilled clinicians to staff its facilities. Factors underlying this industry trend include an increase in the proportion of the population that is elderly, higher turnover rates for health professionals and the inability of educational institutions to meet the increasing demand in the number of nurses and other health professionals needed by the industry. These factors may intensify in years to come, aggravating the shortage of skilled personnel.

Because of this nationwide shortage of nurses and skilled technicians, we have been forced to pay higher than anticipated salaries to such personnel or to hire such personnel on a temporary basis through outside agencies at a higher cost. As competition for such employees intensifies, staffing shortages could have the continued effect of significantly increasing our personnel costs. While we have achieved adequate nurse and skilled technician staffing levels to date, this shortage could adversely affect our ability to sustain staffing levels necessary to maintain our existing levels of services.

Our facilities face competition for patients.

Our facilities face increased competition from freestanding ancillary service providers. If competitors are better able to attract patients, we may experience a decline in patient volume that could negatively impact our operations and financial performance.

We may not be able to offer certain new services, facilities or equipment without a certificate of need.

The State of North Carolina has a certificate of need law that regulates various types of activities and expenditures made by or on behalf of health facilities including hospitals. The purpose of the certificate of need law is to prevent unnecessary duplication of expensive health care services and equipment in an effort to contain health care costs.

Before undertaking certain types of activities or expenditures, we are required to obtain a certificate of need. We cannot assure you that we will receive certificates of need for future activities. The failure to receive certificates of need could have an adverse effect on our business.

Changes to certificate of need requirements in North Carolina could have an adverse effect on our business.

Although the certificate of need law limits our ability to offer certain new services, facilities and equipment, it also limits the ability of other healthcare providers to do so unless a need exists in the community. Recently, some states have amended their certificate of need laws to reduce or remove the controls imposed on new services, facilities and equipment. In each of these states, there were substantial increases in the number of health care facilities providing services. There have been increasing lobbying efforts in the North Carolina General Assembly to amend the certificate of need law in a similar manner. If the North Carolina certificate of need law were to be repealed and all healthcare providers were free to offer new services, facilities and equipment without regard to need or cost and without being required to treat all patients regardless of ability to pay, our business could be adversely affected.

Our business could be adversely affected by the increasing risks of cybersecurity breaches and attacks.

In the provision of healthcare services, we create, use and maintain electronic health data and financial data on equipment, networks and corporate systems and share such information with third party servicers. This subjects us to potential cybersecurity risks from outside unrelated parties, within the workforce and from faulty equipment and services. Healthcare institutions have been targeted by outside third parties, including technically sophisticated and well-resourced state-sponsored actors, attempting to access or compromise systems and to steal patient data. This can include hacks and malware. Outside parties may attempt to fraudulently induce hospital employees, partners, or other parties to disclose sensitive information or take other actions to gain access to data (including patients’ data). This can take the form of ransomware. In addition, hospital employees, some of whom have access to protected health information and other personally identifiable information, may receive “phishing” emails intended to trick recipients into surrendering their user names and passwords.

The fact that hospitals are a primary target of security breaches or other unauthorized access or actions exposes us to a risk of theft of patient data, regulatory actions, litigation, investigations, damage to reputation and brand, loss of patient or investor confidence in the security of systems and resulting fees, costs, including remediation costs, and expenses, loss of revenue, and other potential liability that could have a significantly adverse effect on our business. Successful ransomware attacks which restrict access to patient files and records also carry the risk of slowing down or even temporarily stopping our ability to provide patient care.

Our variable rate bonds expose us to certain risks.

Before we issue the 2018 Bonds, we will have approximately $700 million in outstanding variable rate bonds, representing about 38% of our total outstanding debt. As of the date of this official statement, about 35% of our outstanding variable rate bonds are variable rate demand bonds. Our existing variable rate bonds and their supporting liquidity facilities and letter of credit are described in more detail under the heading “FINANCIAL AND UTILIZATION INFORMATION OF THE COMBINED GROUP – Outstanding Bonds and Other Debt” in Appendix A and in Note 5 of our financial statements included in Appendix B.

After the issuance of the 2018 Bonds, we expect to have an additional approximately $400 million of variable rate bonds, including $200 million of variable rate demand bonds, $100 million of bonds bearing interest for a period of years at an index floating rate (which we refer to as “2018 FRN

Bonds”) and $100 million of bonds bearing interest for a period of years at a long-term rate (which we refer to as “2018 Put Bonds”).

The interest rate on our variable rate demand bonds is or will be reset either weekly or daily by the remarketing agents at the lowest rate necessary to cause the bonds to trade at par. Based on market conditions, however, the interest rate on our variable rate demand bonds can increase to a maximum of 12% per annum. In 2013 and 2016, we eliminated the short-term remarketing risk and bank downgrade risk relating to a portion of our variable rate demand bonds by converting the interest rate for our 2005 Variable Rate Bonds, 2007D Bonds, 2007F Bonds, 2007G Bonds and 2007H Bonds from daily or weekly rates to bank-bought index floating rates with holding periods ranging from 2022 to 2026. While held by the banks, these bonds will bear interest at a percentage of one-month LIBOR plus a fixed spread, subject to a maximum of 22% per annum. To attempt to manage the interest rate risk on our existing variable rate bonds, we have entered into our interest rate swaps. We do not, however, anticipate entering into interest rate swaps on any of the approximately $400 million variable rate 2018 Bonds.

Investors in our variable rate demand bonds have the right to tender their bonds for purchase on very short notice (e.g., weekly or daily). The remarketing agents have agreed to use their best efforts to remarket tendered bonds to new investors. To attempt to manage remarketing risk and to obtain the most favorable interest rates on the majority of our variable rate demand bonds, we obtained or will obtain, and must maintain, credit or liquidity facilities from highly-rated third-party banks whereby those banks agree to pay the purchase price of tendered bonds if they cannot be remarketed to new investors. We anticipate, however, that $100 million of the 2018 variable rate demand bonds will not have credit or liquidity facilities supporting them, but instead will rely solely on our liquidity should the remarketing agent not be able to remarket any tendered bonds to new investors.

Because our bank credit and liquidity facilities generally have terms of five years or less, we must regularly renew or replace our bank facilities. To manage bank renewal risk, we seek to renew or replace our bank facilities as far in advance of their stated expiration dates as reasonable. If we cannot renew or replace our bank facilities on reasonable terms, we may be required to refinance more of our variable rate demand bonds with fixed rate debt, which has historically had higher annual debt service, or convert these bonds to an interest rate mode that does not require the use of bank facilities. We cannot assure you that we will be able to renew or replace our bank facilities on reasonable terms, refinance our variable rate demand bonds or convert these bonds to an interest rate mode that does not require the use of bank facilities.

If the credit ratings of our bank facility providers are downgraded, the interest rate on our variable rate demand bonds is likely to increase, if they can be successfully remarketed to investors at all. If our variable rate demand bonds cannot be successfully remarketed (because of a bank downgrade or otherwise) and must be purchased by one of our bank facility providers, the bonds will become “bank bonds” that bear interest at a taxable interest rate which is intended to be higher than the tax-exempt rate the bonds are expected to bear. Unless “bank bonds” can be successfully remarketed or refinanced, they are subject to an accelerated principal repayment schedule (e.g., three to seven years) referred to as a “term out.” We cannot assure you that “bank bonds” will be successfully remarketed or refinanced.

Our 2005 Variable Rate Bonds, 2007D Bonds, 2007F Bonds, 2007G Bonds and 2007H Bonds in the bank-bought index floating rate mode are subject to mandatory tender by the banks at the end of the applicable holding period. We cannot assure you that we will be able to extend the holding periods on similar terms or find replacement banks to purchase such bonds on reasonable terms. Similarly, the 2018 FRN Bonds and 2018 Put Bonds will be subject to mandatory tender at the end of each initial holding period. We cannot assure you that we will be able to successfully remarket those bonds in new index floating rate or long-term rate modes. Failure to extend holding periods or find new buyers, as applicable, for any of those variable rate bonds will result in our being responsible for paying the purchase price of such bonds, which could have an adverse effect on our financial condition.

All of our existing variable rate bonds are hedged with interest rate swaps, which expose us to additional risks.

All of our existing variable rate bonds are hedged with interest rate swaps. Our interest rate swaps and the related risks to which they expose us are described in more detail in Note 5 of our financial statements included in Appendix B.

We entered into our interest rate swaps to attempt to manage the interest rate risk on our existing variable rate bonds; however, being a party to these swap agreements has and may continue to expose us to basis risk resulting from credit rating downgrades of the bond insurer who insures our 2007D Bonds, 2007E Bonds, 2007F Bonds and 2007G Bonds or the banks who provide credit or liquidity support for our variable rate bonds. In the past, these downgrades have caused, and future downgrades may cause, the interest rate we pay on our variable rate bonds to exceed the floating rate payments we receive under the related swaps. Our swap agreements under which we receive a floating rate based on LIBOR also expose us to tax risk (i.e., the risk that a change in marginal income tax rates will affect the relationship between the tax-exempt interest rate on our variable rate bonds and taxable interest rates such as LIBOR), although the conversion of our 2005 Variable Rate Bonds, 2007D Bonds, 2007F Bonds, 2007G Bonds and 2007H Bonds to a bank-bought index floating rate based on LIBOR reduced our exposure to tax risk.

As of the date of this official statement, all of our interest rate swaps have a negative fair value, which means that we would be required to make a payment to the swap providers if those agreements terminate. To reduce the interest rate risk and bank facility renewal risk associated with our variable rate bonds described above, we may desire to refinance all or some of our variable rate debt with fixed rate debt. Our ability to restructure our variable rate bonds, however, may not be cost effective and may be limited if the interest rate swaps continue to have a negative fair value that would require us to make substantial swap termination payments.

DESCRIPTION OF THE 2018A BONDS

Denominations, Principal, Maturity and Interest

We will issue the 2018A Bonds as registered bonds in denominations of $5,000 or any multiple thereof.

The 2018A Bonds will be dated the date of original delivery thereof. Interest will accrue from that original delivery date or, if interest has already been paid when the trustee authenticates a 2018A Bond, from the date it was most recently paid.

The 2018A Bonds will mature (subject to prior redemption) on the dates and in the aggregate principal amounts, and will bear interest at the rates, set forth in the maturity schedule on the cover page of this official statement.

We will pay interest on the 2018A Bonds semiannually in arrears on January 15 and July 15 of each year, beginning January 15, 2019. We will make each interest payment to the registered owners of the 2018A Bonds as of the close of business on each preceding January 1 and July 1 (each of which we refer to as a “regular record date”). Any interest that is not paid or duly provided for on time will cease to be payable to the registered owner as of a regular record date. Such defaulted interest will be paid to the person in whose name the 2018A Bond is registered as of a special record date or in any other lawful manner determined by us in accordance with the series resolution.

You should review Appendix E for information about payment of principal of, premium, if any, and interest on the 2018A Bonds while the book-entry only system is in effect. If the book-entry only system is ever discontinued, payment of the principal or redemption price of the 2018A Bonds will be payable upon presentation and surrender thereof at the principal corporate trust office of the trustee and interest will be paid by check or draft mailed by first class mail to the registered owners of the 2018A Bonds as of the regular record date.

Redemption

Mandatory Sinking Fund Redemption. We must redeem the 2018A Term Bonds maturing on January 15, 20__ in part by lot on January 15 of each of the years and in the principal amounts shown below at 100% of the principal amount of the 2018A Term Bonds being redeemed, plus accrued interest to the date of redemption:

Year Amount 20__ $_____,000 20______,000 20__* _____,000 ______*Maturity.

We must redeem the 2018A Term Bonds maturing on January 15, 20__ in part by lot on January 15 of each of the years and in the principal amounts shown below at 100% of the principal amount of the 2018A Term Bonds being redeemed, plus accrued interest to the date of redemption:

Year Amount 20__ $_____,000 20______,000 20__* _____,000 ______*Maturity.

Before the 45th day preceding each January 15, the trustee may apply the amounts accumulated for each mandatory sinking fund redemption of 2018A Bonds to the purchase of such 2018A Bonds at a price not exceeding the principal amount thereof plus accrued interest to the date of purchase. If the amount of 2018A Bonds purchased exceeds the amount of 2018A Bonds required to be redeemed on the following January 15, future sinking fund payments may be reduced by the amount of such excess in the years and amounts we designate.

Optional Redemption. On or after January 15, 20__, we may choose to redeem the 2018A Bonds maturing on and after January 15, 20__ before their stated maturity in whole or in part on any date, at 10__% of the principal amount of the 2018A Bonds being redeemed, plus accrued interest to the date of redemption.

In the case of a partial redemption, selection of the 2018A Bonds will be made by lot within a maturity as selected by the trustee, subject to the procedures of The Depository Trust Company (which we refer to as “DTC”).

Extraordinary Optional Redemption.

Insurance and Eminent Domain Proceeds.

We may choose to redeem the 2018A Bonds, in whole or in part on any date before their stated maturity at 100% of the principal amount of the 2018A Bonds being redeemed plus accrued interest to the

25 date of redemption, within 12 months after determining the loss resulting from the occurrence of either of the following events:

• all or any portion of the facilities directly owned by any member of the obligated group at which health care or medical services are provided sustain damage or destruction resulting in the receipt of net insurance proceeds in an amount greater than or equal to 10% of the Base Value of our property, plant and equipment; or

• all or any portion of the facilities directly owned by any member of the obligated group at which health care or medical services are provided is condemned, or title to all or a portion of such facilities is lost, resulting in the receipt of net proceeds in an amount greater than or equal to 10% of the Base Value of our property, plant and equipment.

“Base Value” means, at our option (which we may exercise with respect to all or any one or more items of property, plant and equipment), either (1) the cost basis of property, plant and equipment, net of accumulated depreciation, as shown on our financial statements for the most recently ended year for which financial statements are available, or (2) the appraised value of such property, plant and equipment as determined within the preceding two years by an appraiser selected by us and acceptable to the trustee.

We can use only the net proceeds received from the events described above that have been deposited in the redemption fund to redeem the 2018A Bonds in the manner described under this heading. In the case of a partial redemption, we will select the maturities and amounts of maturities of the 2018A Bonds to be redeemed and the trustee will select by lot within a maturity the 2018A Bonds to be redeemed, subject to the procedures of DTC.

You should also read “SUMMARY OF THE BOND ORDER AND THE SERIES RESOLUTION—Insurance and Eminent Domain Proceeds” in Appendix C.

Certain Dispositions of Financed Property.

We may choose to redeem the 2018A Bonds, in whole or in part, at 102% of the principal amount thereof to be redeemed plus accrued interest to the date of redemption on the earliest practicable date if:

• we determine in good faith that operation of any property (or portion thereof) financed or refinanced with the proceeds of the 2018A Bonds is not financially feasible or is otherwise not to our advantage;

• as a result thereof, we sell, lease or otherwise dispose of all or a portion of such property to an unrelated person; and

• bond counsel states in writing to us and the trustee that such bond counsel will be unable to render an unqualified opinion that the sale, lease or other disposition of all or a portion of such property will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the 2018A Bonds unless the 2018A Bonds are redeemed or retired in the amount specified in such written statement before or concurrently with such sale, lease or other disposition, or on a subsequent date before the first date upon which the 2018A Bonds are subject to redemption, without premium.

Notice of Redemption. The trustee will give notice of any redemption to all registered owners of 2018A Bonds being redeemed at least 30 days, and no more than 60 days, before the redemption date. The trustee will not mail a redemption notice if sufficient funds are not available to the trustee to pay the redemption price of the 2018A Bonds being redeemed, unless such redemption relates to a refunding of

26 the 2018A Bonds. Failure to send a redemption notice to any registered owner or any defect in any notice mailed will not affect the redemption of the 2018A Bonds of any other registered owner. While the book- entry only system is in effect, all redemption notices will be sent to DTC as discussed in Appendix E.

Effect of Redemption. From and after the redemption date, if the trustee or any paying agents hold a combination of money or “Defeasance Obligations” sufficient to pay the redemption price of the 2018A Bonds to be redeemed, then the 2018A Bonds called for redemption will cease to accrue interest and will no longer be secured under our bond order and the series resolution. Furthermore, the registered owners of such 2018A Bonds will have no rights with respect to the 2018A Bonds except to receive payment of the redemption price plus accrued interest to the redemption date. “Defeasance Obligations” are limited to certain types of investments as described in Appendix C under the heading “DEFINITIONS OF CERTAIN TERMS.”

Revocation of Redemption Notice. We can revoke our election to redeem 2018A Bonds if we notify the trustee in writing of our choice to do so at least five business days before the proposed redemption date. If we do revoke our election to redeem, then the 2018A Bonds will not be redeemed and any notice of redemption mailed will be null and void. The trustee will mail notice of such revocation to all registered owners of 2018A Bonds that had been called for redemption within five business days after receiving our notice of revocation.

Purchase in Lieu of Redemption

When any 2018A Bonds are subject to optional redemption or extraordinary optional redemption, we may instead choose to purchase the 2018A Bonds to be redeemed in lieu of redemption on the applicable redemption date at a purchase price equal to the redemption price of the 2018A Bonds to be redeemed.

To exercise our option to purchase 2018A Bonds in lieu of optional redemption, the trustee must receive a written request from us on or before the purchase date specifying that the moneys provided or to be provided by us shall be used to purchase such 2018A Bonds in lieu of redemption.

Our purchase of any 2018A Bonds in lieu of redemption will not be deemed to be a payment or redemption of such 2018A Bonds.

Registration, Transfer and Exchange

If the book-entry only system is in effect, transfers and exchanges will occur as described in Appendix E.

If the book-entry only system is not in effect, a registered owner may transfer or exchange 2018A Bonds in accordance with our bond order and the series resolution. A registered owner must furnish an appropriate assignment to the trustee in connection with any transfer or exchange. We and the trustee may require the registered owner of a 2018A Bond to pay a sum sufficient to cover any tax or other governmental charge in connection with any transfer or exchange.

We are not required to transfer or exchange 2018A Bonds that have been selected for redemption in whole or in part. Moreover, we are not required to transfer or exchange 2018A Bonds within 15 days before the date of mailing a notice of redemption of such 2018A Bonds.

Acceleration

The principal of and accrued interest on the 2018A Bonds may be accelerated if certain events of default under our bond order or the series resolution occur, including our failure to pay the principal of or interest on the outstanding 2018A Bonds when due and payable. For a description of the events of default

27 and the circumstances under which acceleration may occur and other remedies available to the trustee and the registered owners of the 2018A Bonds, you should read “SUMMARY OF THE BOND ORDER AND THE SERIES RESOLUTION—Events of Default and Remedies” in Appendix C.

PLAN OF FINANCE

General

We intend to issue the 2018A Bonds as part of a plan of finance that also calls for the issuance of the Other 2018 Bonds. We refer to the 2018A Bonds and the Other 2018 Bonds, collectively, as the “2018 Bonds.”

We will use the proceeds of the 2018 Bonds to: • refund a portion of our outstanding 2009A Bonds; • finance a part of the costs of additional health care facilities; and • pay certain expenses of issuing the 2018 Bonds.

Refunded Bonds

We will use the proceeds of the 2018A Bonds to refund $178,425,000 aggregate principal amount of our outstanding 2009A Bonds maturing on and after January 15, 2020. We will call the refunded 2009A Bonds for redemption on January 15, 2019 at a redemption price of 100% of their principal amount, plus accrued interest to the date of redemption.

When we issue the 2018A Bonds, we will deposit with the trustee proceeds of the 2018A Bonds and some of our other available cash in an aggregate amount sufficient to pay the redemption price of the refunded 2009A Bonds, plus accrued interest, to and including the January 15, 2019 redemption date. After we deposit this cash with the trustee, the refunded 2009A Bonds will no longer be deemed to be outstanding under our bond order.

Project

We will use the proceeds of the Other 2018 Bonds, excluding the 2018A Bonds, to finance a portion of the cost of the Project, including reimbursing ourselves for capital expenditures incurred over the past 18 months. The Project consists of acquisition, construction, renovation, expansion and equipping of the hospitals and other health care facilities of the combined group, and may include but is not limited to: • multiple facility renovations and aesthetic upgrades, • renovations to Carolinas HealthCare System NorthEast, • Emergency Department renovations at Carolinas HealthCare System Stanly, • lab renovations at Carolinas Medical Center, • the acquisition and installation of health care, IT and other equipment and other routine capital expenditures.

ESTIMATED SOURCES AND USES OF FUNDS

The estimated sources and uses of funds of the 2018A Bonds and the Other 2018 Bonds in connection with the plan of finance are as follows:

Sources

Par Amount of 2018A Bonds Par Amount of Other 2018 Bonds Original Issue Premium Equity Contribution

TOTAL SOURCES OF FUNDS Uses

Costs of the Project Refunding of 2009A Bonds Estimated Costs of Issuance1

TOTAL USES OF FUNDS ______1 Includes underwriters’ compensation, legal, financial and consulting fees, rating agency fees, printing fees and other costs of issuance of the 2018A Bonds and the Other 2018 Bonds.

ANNUAL DEBT SERVICE REQUIREMENTS

The following table sets forth, for each year ending December 31, the amounts required in such year for the payment of the principal of (whether at maturity or pursuant to sinking fund redemption) and interest on the 2018 Bonds and our other long-term debt that will be outstanding after we issue the 2018 Bonds. For purposes of the table below, interest on our existing variable rate long-term debt, all of which is hedged, is assumed to bear interest at the fixed payment rate under the related swap agreement.1

2018A Bonds 2018B Bonds 2018C Bonds 2018D Bonds 2018E Bonds 2018F Bonds Year Ending December 31, Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048

1 See Note 5 in Appendix B for a detailed description of our swap agreements. 30

2018G Bonds 2018H Bonds 2016A Bonds 2015A Bonds 2013A Bonds Year Ending December 31, Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest 2019 $ 15,650,000 $ 16,172,219 $1,415,000 $221,298 $ 2,490,000 $ 5,325,331 2020 16,235,000 15,537,444 1,455,000 183,414 2,605,000 5,210,406 2021 13,825,000 15,017,419 1,495,000 144,474 2,800,000 5,103,281 2022 24,880,000 14,128,969 1,535,000 104,478 2,980,000 5,001,681 2023 17,750,000 13,162,019 1,575,000 63,426 3,235,000 4,861,206 2024 21,780,000 12,262,519 1,615,000 21,318 3,505,000 4,692,706 2025 22,895,000 11,145,644 - - 3,790,000 4,510,332 2026 24,050,000 9,980,844 - - 4,105,000 4,312,956 2027 2,790,000 9,318,669 - - 4,750,000 4,091,581 2028 7,810,000 9,053,669 - - 4,990,000 3,848,081 2029 7,930,000 8,699,819 - - 5,250,000 3,592,082 2030 7,865,000 8,383,919 - - 6,375,000 3,301,456 2031 7,790,000 8,070,819 - - 6,655,000 3,025,620 2032 9,385,000 7,774,244 - - 6,900,000 2,788,406 2033 - 7,633,469 - - 7,145,000 2,538,153 2034 12,505,000 7,320,844 - - 7,460,000 2,228,300 2035 13,110,000 6,746,019 - - 6,705,000 1,886,475 2036 13,600,000 6,143,819 - - 7,035,000 1,555,275 2037 14,245,000 5,518,919 - - 7,380,000 1,207,200 2038 14,765,000 4,864,894 - - 8,820,000 814,500 2039 15,455,000 4,141,519 - - 12,250,000 300,075 2040 15,655,000 3,395,894 - - - - 2041 790,000 2,991,188 - - - - 2042 820,000 2,964,019 - - - - 2043 935,000 2,934,403 - - - - 2044 900,000 2,903,438 - - - - 2045 66,835,000 1,561,550 - - - - 2046 4,570,000 154,875 - - - - 2047 2,140,000 37,450 - - - - 2048 ------$376,960,000 $218,020,509 $9,090,000 $738,408 $117,225,000 $70,195,104

2012A Bonds 2011A Bonds 2009A Bonds 2007B Bonds 2007C Bonds Year Ending December 31, Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest 2019 $ 1,560,000 $ 7,183,400 $ 2,135,000 $ 6,666,156 $3,650,000 $75,281 $ 950,000 $ 3,488,027 - $ 3,836,222 2020 1,635,000 7,111,325 2,300,000 6,566,781 - - 1,050,000 3,442,632 - 3,836,222 2021 1,630,000 7,036,000 2,335,000 6,462,406 - - 4,150,000 3,273,037 - 3,836,222 2022 1,605,000 6,969,450 2,435,000 6,349,244 - - 625,000 3,232,999 - 3,836,222 2023 1,580,000 6,897,850 2,550,000 6,237,081 - - 1,800,000 3,158,824 - 3,836,222 2024 1,555,000 6,819,625 2,740,000 6,118,056 - - - 3,152,287 - 3,836,222 2025 1,515,000 6,750,600 2,800,000 5,993,406 - - - 3,152,287 - 3,836,222 2026 1,460,000 6,698,400 2,920,000 5,864,707 - - - 3,152,287 - 3,836,222 2027 17,040,000 6,250,500 3,095,000 5,721,631 - - 520,000 3,131,514 $ 8,035,000 3,513,801 2028 17,920,000 5,376,500 3,310,000 5,561,506 - - - 3,129,626 2,615,000 3,379,558 2029 18,840,000 4,457,500 3,410,000 5,393,506 - - - 3,129,626 3,005,000 3,249,437 2030 19,805,000 3,491,375 3,590,000 5,218,506 - - - 3,129,626 3,500,000 3,098,030 2031 20,820,000 2,475,750 3,770,000 5,034,506 - - - 3,129,626 4,040,000 2,923,149 2032 1,360,000 1,931,450 4,050,000 4,836,476 - - 6,870,000 2,855,187 9,915,000 2,510,551 2033 1,405,000 1,879,550 4,210,000 4,624,813 - - 7,185,000 2,543,216 10,365,000 2,058,465 2034 1,465,000 1,822,150 4,430,000 4,403,413 - - 7,510,000 2,217,118 10,845,000 1,585,476 2035 1,525,000 1,762,350 4,665,000 4,170,353 - - 7,850,000 1,876,257 11,335,000 1,091,074 2036 1,590,000 1,700,050 4,960,000 3,923,712 - - 8,210,000 1,519,781 11,850,000 574,219 2037 1,655,000 1,635,150 5,190,000 3,663,619 - - 16,680,000 823,643 12,130,000 44,249 2038 1,720,000 1,567,650 5,465,000 3,387,169 - - 17,510,000 63,589 - - 2039 1,800,000 1,488,250 5,765,000 3,092,381 ------2040 1,890,000 1,396,000 17,705,000 2,476,294 ------2041 1,990,000 1,299,000 18,655,000 1,521,844 ------2042 2,090,000 1,197,000 19,660,000 516,075 ------2043 22,895,000 572,375 ------2044 ------2045 ------2046 ------2047 ------2048 ------$148,350,000 $95,769,250 $132,145,000 $113,803,641 $3,650,000 $75,281 $80,910,000 $53,601,189 $87,635,000 $54,717,785

2007D Bond 2007E Bonds 2007F Bonds 2007G Bonds 2007H Bonds Year Ending December 31, Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest 2019 - $ 2,605,032 - $ 3,003,858 - $ 2,224,004 - $ 4,439,175 - $ 6,446,891 2020 - 2,605,032 - 3,003,858 - 2,224,004 - 4,439,175 - 6,446,891 2021 - 2,605,032 - 3,003,858 - 2,224,004 - 4,439,175 - 6,446,891 2022 - 2,605,032 - 3,003,858 - 2,224,004 - 4,439,175 - 6,446,891 2023 - 2,605,032 - 3,003,858 - 2,224,004 - 4,439,175 - 6,446,891 2024 - 2,605,032 - 3,003,858 - 2,224,004 - 4,439,175 - 6,446,891 2025 - 2,605,032 - 3,003,858 - 2,224,004 - 4,439,175 - 6,446,891 2026 - 2,605,032 - 3,003,858 - 2,224,004 - 4,439,175 - 6,446,891 2027 - 2,605,032 - 3,003,858 - 2,224,004 - 4,439,175 $ 7,175,000 6,191,536 2028 - 2,605,032 - 3,003,858 - 2,224,004 - 4,439,175 7,450,000 5,903,180 2029 - 2,605,032 - 3,003,858 - 2,224,004 - 4,439,175 7,725,000 5,604,146 2030 - 2,605,032 - 3,003,858 $ 1,900,000 2,156,113 - 4,439,175 6,175,000 5,359,388 2031 - 2,605,032 - 3,003,858 - 2,149,942 $ 1,625,000 4,381,081 6,800,000 5,097,399 2032 - 2,605,032 - 3,003,858 - 2,149,942 1,525,000 4,321,281 7,125,000 4,821,822 2033 - 2,605,032 - 3,003,858 - 2,149,942 1,825,000 4,251,081 7,225,000 4,541,635 2034 - 2,605,032 - 3,003,858 - 2,149,942 1,875,000 4,178,118 7,550,000 4,249,558 2035 - 2,605,032 - 3,003,858 - 2,149,942 1,950,000 4,102,313 7,825,000 3,946,642 2036 - 2,605,032 - 3,003,858 - 2,149,942 2,000,000 4,024,475 8,200,000 3,629,490 2037 - 2,605,032 - 3,003,858 - 2,149,942 1,925,000 3,949,156 8,900,000 3,286,213 2038 - 2,605,032 - 3,003,858 - 2,149,942 2,150,000 3,866,038 21,800,000 2,481,565 2039 - 2,605,032 - 3,003,858 - 2,149,942 34,450,000 2,627,463 8,725,000 2,100,513 2040 - 2,605,032 - 3,003,858 - 2,149,942 35,700,000 1,239,225 9,800,000 1,723,506 2041 $ 6,830,000 2,362,112 $17,380,000 2,384,116 - 2,149,942 28,800,000 93,600 10,150,000 1,330,565 2042 - 2,340,028 - 2,327,776 55,155,000 179,161 - - 10,550,000 922,256 2043 60,310,000 195,002 - 2,327,776 - - - - 7,950,000 605,185 2044 - - 59,840,000 193,981 - - - - 8,100,000 291,188 2045 ------6,825,000 22,082 2046 ------2047 ------2048 ------$67,140,000 $62,207,846 $77,220,000 $73,318,525 $57,055,000 $50,448,680 $113,825,000 $90,303,931 $166,050,000 $113,682,997

2005 Variable Rate Bonds Cleveland County Promissory Note Other Debt Debt Service Year Requirements Ending December 31, Principal Interest Principal Interest Principal Interest Principal Interest Total 2019 $ 5,870,000 $ 2,505,803 $ 1,387,830 $ 1,612,170 $ 898,159 $ 975,693 2020 6,205,000 2,165,726 1,443,057 1,556,943 933,215 940,636 2021 6,560,000 1,803,249 1,500,481 1,499,519 969,640 904,212 2022 - 1,773,390 1,560,190 1,439,810 1,007,486 866,365 2023 7,355,000 1,401,741 1,622,276 1,377,724 1,046,810 827,042 2024 7,785,000 974,306 1,686,830 1,313,170 1,087,668 786,184 2025 8,245,000 520,410 1,753,956 1,246,044 1,130,121 743,730 2026 8,730,000 40,943 1,823,752 1,176,248 1,174,231 699,620 2027 - - 1,896,326 1,103,674 1,220,063 653,789 2028 - - 1,971,787 1,028,213 1,267,684 606,168 2029 - - 2,050,251 949,749 1,317,163 556,689 2030 - - 2,131,838 868,162 1,368,573 505,278 2031 - - 2,216,671 783,329 1,421,991 451,861 2032 - - 2,304,880 695,120 1,477,493 396,359 2033 - - 2,396,599 603,401 1,535,161 338,690 2034 - - 2,491,968 508,032 1,595,081 278,771 2035 - - 2,591,132 408,868 1,657,339 216,513 2036 - - 2,694,242 305,758 1,722,027 151,825 2037 - - 2,801,455 198,545 1,789,240 84,611 2038 - - 2,187,935 87,065 1,231,457 17,775 2039 ------2040 ------2041 ------2042 ------2043 ------2044 ------2045 ------2046 ------2047 ------2048 ------$50,750,000 $11,185,568 $40,513,456 $18,761,544 $25,850,601 $11,001,811

CONTINUING DISCLOSURE

This section summarizes certain provisions of the series resolution and does not purport to be complete. It is subject to, and is qualified in its entirety by reference to, all the provisions of the series resolution.

Annual Information

For the benefit of the beneficial owners of the 2018A Bonds, we have agreed to provide the following to the Municipal Securities Rulemaking Board:

• Within seven months after the end of each fiscal year (currently December 31), our audited financial statements (accompanied, if required under the terms of our bond order, by the financial statements of the combined group). If our audited financial statements are not available by seven months after the end of such fiscal year, we will send our unaudited financial statements for such fiscal year to be replaced by our audited financial statements within 15 days after our audited financial statements become available for distribution.

• Within seven months after the end of each fiscal year, the financial and statistical data as of a date not earlier than the end of the preceding fiscal year for the type of information included under the following headings in Appendix A to this official statement:

□ The portion of the table relating to the combined group appearing under the caption “ATRIUM HEALTH COMPONENTS—Summary of Atrium Health Facilities”;

□ The table entitled “Combined Group Facilities Summary Utilization Information” under the caption “FINANCIAL AND UTILIZATION INFORMATION OF THE COMBINED GROUP—Summary of Historical Utilization Information”;

□ The table entitled “Combined Group Summary of Revenues and Expenses” under the caption “FINANCIAL AND UTILIZATION INFORMATION OF THE COMBINED GROUP—Summary of Historical Revenues and Expenses”;

□ The table entitled “Combined Group Summary Balance Sheet” under the caption “FINANCIAL AND UTILIZATION INFORMATION OF THE COMBINED GROUP—Balance Sheets”;

□ The information under the caption “FINANCIAL AND UTILIZATION INFORMATION OF THE COMBINED GROUP—Management’s Discussion of the Summary of Historical Revenues and Expenses and Balance Sheets of the Combined Group”; and

□ The table appearing under the caption “FINANCIAL AND UTILIZATION INFORMATION OF THE COMBINED GROUP—Third Party Reimbursement and Sources of Payment.”

• Within seven months after the end of each fiscal year, a calculation of the long-term debt service coverage ratio for such fiscal year.

Material Event Notices

For the benefit of the beneficial owners of the 2018A Bonds, we have also agreed to provide the following to the Municipal Securities Rulemaking Board:

• In a timely manner, not in excess of ten business days after the occurrence of the event, notice of any of the following events with respect to the 2018A Bonds:

□ principal and interest payment delinquencies;

□ non-payment related defaults, if material;

□ unscheduled draws on debt service reserves reflecting financial difficulties;

□ unscheduled draws on credit enhancements reflecting financial difficulties;

□ substitution of any credit or liquidity providers, or their failure to perform;

□ adverse tax opinions, or the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the 2018A Bonds or other material events affecting the tax status of the 2018A Bonds;

□ modification to the rights of the beneficial owners of the 2018A Bonds, if material;

□ bond calls, other than calls for mandatory sinking fund redemption, if material, and tender offers;

□ defeasance of any 2018A Bonds;

□ release, substitution or sale of any property securing repayment of the 2018A Bonds, if material;

□ rating changes;

□ bankruptcy; insolvency, receivership or similar event of any member of the obligated group, which for this purpose is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for any member of the obligated group in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of any member of the obligated group, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of any member of the obligated group);

□ the consummation of a merger, consolidation or acquisition involving any member of the obligated group or the sale of all or substantially all of the assets of any member of the obligated group, other than in the ordinary course of business, the entry into a

definitive agreement to undertake such an action or the termination of a definitive agreement relating to such actions, other than pursuant to its terms, if material; and

□ appointment of a successor or additional trustee or the change of name of the trustee, if material.

• In a timely manner, notice of our failure to provide the required audited financial statements and other annual financial and statistical information described above on or before the date specified.

Filing Alternatives

We may discharge our undertakings described above by:

• transmitting those documents, accompanied by identifying information, in an electronic format directly to the Municipal Securities Rulemaking Board; or

• transmitting those documents or notices in such other manner as may subsequently be permitted by the Securities and Exchange Commission.

Failure to Comply

If we fail to comply with the undertaking described above, any beneficial owner of the 2018A Bonds may take action to protect and enforce the rights of all beneficial owners with respect to such undertaking, including an action for specific performance. Our failure to comply with such undertaking, however, will not be an event of default and will not result in any acceleration of payment of the 2018A Bonds.

During the five years prior to the date of this official statement we have complied, in all material respects, with our previous undertakings relating to continuing disclosure of information pursuant to Rule 15c2-12.

Termination of Undertaking

The undertaking described above will terminate upon payment, or provision having been made for payment, in a manner consistent with Rule 15c2-12, in full of the principal of and interest on all of the 2018A Bonds.

Modification of Undertaking

We have reserved the right to modify from time to time the information to be provided to the extent necessary or appropriate in our judgment, provided that:

• any such modification may only be made in connection with a change in circumstances that arises from a:

□ change in legal requirements, □ change in law, or □ change in our identity, nature, or status;

• the information to be provided, as modified, would have complied with the requirements of Rule 15c2-12 issued under the Securities Exchange Act of 1934 (which we refer to as “Rule 15c2-12”) as of the date of this official statement, after taking into account any amendments or interpretations of Rule 15c2-12 by the Securities and Exchange Commission, as well as any changes in circumstances; and

• any such modification does not materially impair the interests of the beneficial owners of the 2018A Bonds, as determined either by parties unaffiliated with us (such as bond counsel), or by the approving vote of the owners of a majority in principal amount of outstanding 2018A Bonds in accordance with the terms of our bond order.

If any of our annual financial information contains modified operating data or financial information, we must explain, in narrative form, the reasons for the modification and the impact of the change in the type of operating data or financial information being provided.

Quarterly Information

Additionally, we have agreed to mail or otherwise make available, not later than 90 days after the end of each of the first three quarters of our fiscal year, quarterly reports to each beneficial owner of at least $1,000,000 of 2018A Bonds if properly requested by such beneficial owners in accordance with the definition in the series resolution of “Interested Beneficial Owner,” which you can find in Appendix C. The quarterly reports consist of our unaudited balance sheet, statement of operations and statement of cash flows and include a financial highlights discussion on such unaudited financial statements.

LITIGATION

There is no action, suit, proceeding, or investigation at law or in equity before or by any court, public board or body, pending or, to our knowledge, threatened, against or affecting us,

• challenging the validity of our bond order, the series resolution or the purchase agreement or the transactions contemplated by those documents,

• challenging the accuracy or completeness of this official statement or the validity of the transactions described in this official statement,

• in which any liability of ours is not adequately covered by insurance or any self-insurance reserves reasonably established by us, or

• except as described in the next paragraph, in which any judgment or order is reasonably likely to have a material adverse effect on our condition (financial or otherwise) or operations, our existence or authority to do business or our performance of our obligations under our bond order, the series resolution, any member guaranty agreements, any member security agreements or the purchase agreement.

In June 2016, the federal government and the State of North Carolina filed a civil antitrust lawsuit against us alleging that we have violated Section 1 of the Sherman Act by imposing steering restrictions in our negotiated agreements with four insurance companies in the Charlotte, North Carolina area. In August 2016 we answered the complaint and moved that it be dismissed as a matter of law. In March 2017, a federal district court judge denied our motion for judgement on the pleadings. This civil antitrust lawsuit seeks injunctive relief only and no monetary damages are sought. In September 2016, an individual filed a proposed class action lawsuit making similar allegations against us. This lawsuit seeks

treble damages for an unspecified amount but no class has been certified. In February 2018, another individual filed a separate lawsuit on behalf of an additional proposed class of plaintiffs. This second lawsuit makes similar allegations and seeks treble damages for an unspecified amount. We intend to vigorously defend these lawsuits; however, we cannot guarantee the outcome of the lawsuits. The ultimate resolution of these lawsuits could have a material adverse effect on our condition (financial or otherwise) or operations. Given the very early stages of these cases, it is impossible to estimate the likelihood of an unfavorable outcome or the risk of exposure facing us.

We are defendants in a number of malpractice and other legal actions. Based upon the opinions of our respective counsel representing us in those cases, we believe that our exposure for uninsured damages in those suits would be in an amount which would not have a material adverse effect on our financial condition.

There is no litigation or any other proceeding before any court or governmental body or agency pending or, to the knowledge of the Local Government Commission, threatened against or involving the Local Government Commission to restrain or enjoin the issuance or delivery of the 2018A Bonds or the execution or delivery by the Local Government Commission of the purchase agreement and the performance of its obligations under the purchase agreement.

LEGAL MATTERS

Robinson, Bradshaw & Hinson, P.A., Charlotte, North Carolina, bond counsel, will pass upon the authorization and validity of the 2018A Bonds. You can find the proposed form of such approving opinion in Appendix D.

Certain legal matters relating to this offering, other than the validity of the 2018A Bonds, will be passed upon

• for us by Keith A. Smith, Esq., our Executive Vice President and General Counsel, Charlotte, North Carolina, and

• for the underwriters by Nexsen Pruet, PLLC, Charlotte, North Carolina.

TAX TREATMENT

Opinion of Bond Counsel

The opinion of bond counsel will state that under existing law interest on the 2018A Bonds

• is excludable from gross income for federal income tax purposes;

• is not an item of tax preference for purposes of the federal alternative minimum tax; and

• is exempt from State of North Carolina income taxes.

The Internal Revenue Code of 1986, as amended (which we refer to as the “Code”), and the regulations promulgated under the Code contain a number of requirements that must be satisfied after the issuance of the 2018A Bonds in order for interest on the 2018A Bonds to be and remain excludable from gross income for purposes of federal income taxation. Examples include:

• the requirement that we rebate certain excess earnings on proceeds and amounts treated as proceeds of the 2018A Bonds to the United States Treasury;

• restrictions on investment of such proceeds and other amounts; and

• restrictions on the ownership and use of the facilities financed with proceeds of the 2018A Bonds.

The foregoing is not intended to be an exhaustive listing of the post-issuance tax compliance requirements of the Code, but is illustrative of the requirements that must be satisfied by us after the issuance of the 2018A Bonds to maintain the exclusion of interest on the 2018A Bonds from income for federal income taxation purposes. Failure to comply with certain of such requirements may cause interest on the 2018A Bonds to be included in gross income retroactively to the date of issuance of the 2018A Bonds. We have agreed to comply with these requirements. The opinion of bond counsel delivered on the date of issuance of the 2018A Bonds will be conditioned on the compliance with such requirements, and bond counsel has not been retained to monitor compliance with requirements such as those described above after the issuance of the 2018A Bonds.

Bond counsel’s opinions are based on existing law, which is subject to change. Such opinions are further based on factual representations made to bond counsel as of the date of such opinion. Bond counsel assumes no duty to revise or supplement its opinions to reflect any facts or circumstances that may thereafter come to bond counsel’s attention or to reflect any changes in law that may thereafter occur or become effective. Moreover, bond counsel’s opinions are not a guarantee of a particular result and are not binding on the Internal Revenue Service or the courts; rather, such opinions represent bond counsel’s professional judgment based on its review of existing law and in reliance on the representations and covenants that it deems relevant to such opinions.

Other Tax Consequences

You should be aware that ownership of the 2018A Bonds may result in collateral federal, state or local tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain S corporations with “excess net passive income,” foreign corporations subject to the branch profits tax, life insurance companies and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry or have paid or incurred certain expenses allocable to the 2018A Bonds. Bond counsel expresses no opinion regarding any such collateral tax consequences. You should consult your tax advisors regarding collateral tax consequences.

Original Issue Discount

The original issue discount in the selling price of the 2018A Bonds maturing on January 15 in the years ______, to the extent properly allocable to each owner of such 2018A Bond, is excludable from gross income for federal income tax purposes with respect to such owner. The original issue discount is the excess of the stated redemption price at maturity of such 2018A Bond over its initial offering price to the public, excluding underwriters and other intermediaries, at which price a substantial amount of the 2018A Bonds of such maturity were sold.

Under Section 1288 of the Code, original issue discount on tax-exempt bonds accrues on a compound basis. The amount of original issue discount that accrues to any owner of a 2018A Bond during any accrual period generally equals (1) the issue price of such 2018A Bond plus the amount of original issue discount accrued in all prior accrual periods, multiplied by (2) the yield to maturity of such

2018A Bond (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), minus (3) any interest payable on such 2018A Bond during such accrual period. The amount of original issue discount so accrued in a particular accrual period will

• be considered to be received ratably on each day of the accrual period;

• be excludable from gross income for federal income tax purposes; and

• increase the owner’s tax basis in such 2018A Bond.

If you purchase a 2018A Bond at an original issue discount, you should consult your tax advisors regarding the determination and treatment of original issue discount for federal income tax purposes and with respect to state and local tax consequences of owning such 2018A Bond.

Premium

The 2018A Bonds maturing on January 15 in the years ______have been sold at initial public offering prices that are in excess of the amount payable at maturity. An amount equal to the excess of the purchase price of a 2018A Bond over its stated redemption price at maturity constitutes premium on such 2018A Bond. You must amortize any premium over such 2018A Bond’s term using constant yield principles, based on the 2018A Bond’s yield to maturity. As premium is amortized, your basis in such 2018A Bond and the amount of tax-exempt interest received will be reduced by the amount of amortizable premium properly allocable to you. This will result in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes on sale or disposition of such 2018A Bond prior to its maturity. Even though your basis is reduced, no federal income tax deduction is allowed. If you purchase a 2018A Bond at a premium, whether at the time of initial issuance or after initial issuance, you should consult your tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to state and local tax consequences of owning such 2018A Bond.

UNDERWRITING

The Local Government Commission, with our approval, has entered into a purchase agreement with Citigroup Global Markets Inc., on its own behalf and as representative of the various underwriters shown on the cover page of this official statement. Pursuant to that purchase agreement, the underwriters have agreed to purchase the 2018A Bonds at a price of $______, which equals the aggregate principal amount of the 2018A Bonds, less underwriters’ compensation of $______. The underwriters must purchase all of the 2018A Bonds if any of the 2018A Bonds are purchased. The initial public offering prices set forth on the cover page of this official statement may be changed by the underwriters.

The underwriters may offer and sell the 2018A Bonds to certain dealers (including dealer banks and dealers depositing the 2018A Bonds into investment trusts) and others at prices lower than the public offering price set forth on the cover page of this official statement.

Citigroup Global Markets Inc. (which we refer to as “Citi”), one of the underwriters of the 2018A Bonds, has entered into a retail distribution agreement with Fidelity Capital Markets, a division of National Financial Services LLC (which we refer to as “Fidelity”). Under this distribution agreement, Citi may distribute municipal securities to retail investors at the original issue price through Fidelity. As part of this arrangement, Citi will compensate Fidelity for its selling efforts.

BofA Merrill Lynch is the trade name for certain securities-related capital markets and investment banking services of Merrill Lynch, Pierce, Fenner & Smith Incorporated (which we refer to as “Merrill Lynch”).

Wells Fargo Securities is the trade name for certain securities-related capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National Association (which we refer to as “Wells Fargo Bank”), which conducts its municipal securities sales, trading and underwriting operations through the Wells Fargo Bank, NA Municipal Products Group (which we refer to as “Municipal Products Group”), a separately identifiable department of Wells Fargo Bank, registered with the Securities and Exchange Commission as a municipal securities dealer pursuant to Section 15B(a) of the Securities Exchange Act of 1934.

Wells Fargo Bank, one of the underwriters of the 2018A Bonds, acting through its Municipal Products Group, has entered into an agreement (which we refer to as the “WFA Distribution Agreement”) with its affiliate, Wells Fargo Clearing Services, LLC (which we refer to as “Wells Fargo Advisors”), for the distribution of certain municipal securities offerings, including the 2018A Bonds. Pursuant to the WFA Distribution Agreement, Wells Fargo Bank will share a portion of its underwriting compensation with respect to the 2018A Bonds with Wells Fargo Advisors. Wells Fargo Bank has also entered into an agreement (which we refer to as the “WFSLLC Distribution Agreement”) with its affiliate, Wells Fargo Securities, LLC, for the distribution of municipal securities offerings, including the 2018A Bonds. Pursuant to the WFSLLC Distribution Agreement, Wells Fargo Bank pays a portion of Wells Fargo Securities, LLC’s expenses based on its municipal securities transactions. Wells Fargo Bank, Wells Fargo Securities, LLC and Wells Fargo Advisors are each wholly-owned subsidiaries of Wells Fargo & Company.

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various investment banking services for us for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers. Such investment and trading activities may involve or relate to our securities and instruments (directly, as collateral securing other obligations or otherwise) and/or to persons and entities with relationships with us.

The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.

FINANCIAL ADVISOR

We have retained Kaufman, Hall & Associates, LLC, Skokie, Illinois (which we refer to as “KaufmanHall”) as our financial advisor in connection with the issuance of the 2018 Bonds. Although KaufmanHall has assisted in the preparation of this official statement, KaufmanHall was not and is not obligated to undertake, and has not undertaken to make, an independent verification and assumes no responsibility for the accuracy, completeness or fairness of the information contained in this official statement.

RATINGS

Moody’s Investors Service, Inc. (which we refer to as “Moody’s”) has assigned a rating of “Aa3” with a stable outlook to the 2018A Bonds. S& P Global Ratings, a division of Standard & Poor’s Financial Services LLC (which we refer to as “S&P”), has assigned a rating of “AA-” with a stable outlook to the 2018A Bonds. These ratings reflect the views of Moody’s and S&P. You should contact Moody’s and S&P to obtain an explanation of the significance of these ratings.

We cannot assure you that these ratings will remain in effect for any given period of time. Moody’s or S&P may lower, suspend or withdraw its rating. The underwriters are not obligated to notify you if Moody’s or S&P revises, suspends or withdraws its rating. If Moody’s or S&P lowers, suspends or withdraws its rating, the market price of the 2018A Bonds could be adversely affected.

CERTAIN RELATIONSHIPS

You should be aware of the following relationships between us and members of our financing team: • Robinson, Bradshaw & Hinson, P.A., bond counsel, has served, is serving or expects to serve in the future as counsel to some or all of the underwriters in matters unrelated to the 2018A Bonds and also represents us in matters unrelated to the 2018A Bonds. Angelique R. Vincent-Hamacher, a shareholder of Robinson, Bradshaw & Hinson, P.A., serves on our Board of Commissioners.

• Nexsen Pruet, PLLC, counsel for the underwriters, represents us in matters unrelated to the 2018A Bonds.

MISCELLANEOUS

Any statements in this official statement involving matters of opinion, whether or not expressly stated as an opinion, are intended to be opinions and not facts.

The Local Government Commission has authorized the execution and distribution of this official statement. The Local Government Commission and its staff assume no responsibility for the accuracy or completeness of any representation or statement in this official statement except for material with respect to it included under the caption “LITIGATION.”

We have supplied the information contained in this official statement relating to us and have supplied or reviewed the summaries of all documents to which we are parties. We have duly approved the execution and delivery of this official statement.

LOCAL GOVERNMENT COMMISSION OF NORTH CAROLINA

By: Greg C. Gaskins Secretary

THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY, on its own behalf and on behalf of the other members of the combined group

By: Anthony C. DeFurio Executive Vice President and Chief Financial Officer

APPENDIX A

Information Concerning

THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY AND ITS AFFILIATES, DOING BUSINESS AS ATRIUM HEALTH, INCLUDING THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY COMBINED GROUP

The information contained herein as Appendix A to this official statement has been obtained from The Charlotte-Mecklenburg Hospital Authority.

[THIS PAGE INTENTIONALLY LEFT BLANK] TABLE OF CONTENTS Page THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY ...... 1 ATRIUM HEALTH ...... 1 THE COMBINED GROUP ...... 1 ATRIUM HEALTH COMPONENTS ...... 4 Summary of Atrium Health Facilities ...... 4 Combined Group Medical Group Division, Inpatient Facilities and Research Center ...... 8 Component Unit ...... 20 Regional Enterprise Facilities ...... 20 Strategic Services Agreements ...... 22 Joint Ventures ...... 23 Certain Summary Financial and Utilization Information for the Component Unit, Regional Enterprise Facilities and Joint Ventures ...... 24 Combined Group Medical and Dental Staff ...... 25 Clinically Integrated Network, Accountable Care Organization and Population Health Activities ...... 26 Future Plans for the Combined Group ...... 27 GOVERNANCE AND MANAGEMENT ...... 30 Corporate Relationships ...... 30 Board of Commissioners ...... 30 Management ...... 31 COMBINED GROUP SERVICE AREA ...... 3 4 General ...... 34 Patient Origin Data ...... 35 Population ...... 35 Employment and Income in the Primary Service Area ...... 36 COMPETITION IN COMBINED GROUP PRIMARY SERVICE AREA ...... 37 FINANCIAL AND UTILIZATION INFORMATION OF THE COMBINED GROUP ...... 39 Summary of Historical Utilization Information ...... 39 Summary of Historical Financial Information...... 44 Summary of Historical Revenues and Expenses ...... 45 Balance Sheets ...... 46 Management’s Discussion of the Summary of Historical Revenues and Expenses and Balance Sheets of the Combined Group ...... 47 Third-Party Reimbursement and Sources of Payment ...... 49 Fiscal Control and Budgetary Procedures ...... 49 Outstanding Bonds and Other Debt ...... 50 Historical Debt Service Coverage ...... 51 Historical Pro-Forma Debt Service Coverage ...... 52 Historical and Historical Pro-Forma Liquidity and Capitalization Ratios ...... 53 Relationship with Mecklenburg County ...... 53 Insurance ...... 53 Retirement and Pension Plans ...... 54 Real Property Restrictions ...... 55 Lease of the Carolinas HealthCare System Union Hospital Real Estate from Union County ...... 55 Future Capital Expansion Plans ...... 55

TABLE OF CONTENTS (continued) Page

EMPLOYEES, EDUCATIONAL PROGRAMS AND LICENSES ...... 56 Employees ...... 56 Educational Programs ...... 56 Licenses, Approvals and Accreditations ...... 58

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In this Appendix A, the terms “we,” “our” and “us” mean only The Charlotte-Mecklenburg Hospital Authority.

THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY We were organized in 1943 under the North Carolina Hospital Authorities Act and have our headquarters in Charlotte, Mecklenburg County, North Carolina. We are a public body and a body corporate and politic which is authorized to construct and operate health care and hospital facilities, borrow money through the issuance of bonds, and secure such bonds by a pledge of our revenues.

Our mission is to improve health, elevate hope and advance healing – for all. These five simple but powerful words is our promise to patients. Our vision is to be the first and best choice for care. We also recognize that employees are our most valuable asset and have identified four core values we hold in the highest regard: caring, commitment, integrity and teamwork.

ATRIUM HEALTH We, directly and through our affiliates, do business as Atrium Health (“Atrium Health”), one of the nation’s leading and most innovative healthcare organizations, which provides a full spectrum of healthcare and wellness programs in the Southeast region.

Atrium Health’s diverse network of care locations includes academic medical centers, hospitals, freestanding emergency departments, physician practices, surgical and rehabilitation centers, home health agencies, nursing homes and behavioral health centers, as well as hospice and palliative care services. Atrium Health works to enhance the overall health and wellbeing of its communities through high quality patient care, education and research programs, and numerous collaborative partnerships.

For financial reporting purposes, Atrium Health is divided into a “Primary Enterprise” and “Component Units.” The Primary Enterprise consists of us and all our affiliates whose assets and income we control without limitation. As of the date of this official statement, Atrium Health Foundation, previously The Carolinas HealthCare Foundation, Inc., which raises and holds economic resources for our direct benefit, is the only Component Unit. Although Atrium Health includes certain healthcare facilities and physician groups in the Carolinas managed by us or our affiliates pursuant to management agreements (the “Regional Enterprise Facilities”), only the management fees and contracted service fees earned by Atrium Health, not the financial position or results of operations of those facilities, are reflected in the combined financial statements of Atrium Health. (See Appendix B.)

THE COMBINED GROUP Our Second Amended and Restated Bond Order adopted as of September 9, 1997, as amended by a First Amendment thereto dated as of November 1, 2001, a Second Amendment thereto dated as of June 1, 2002, a Third Amendment thereto dated as of September 11, 2007 and a Fourth Amendment thereto dated as of September 13, 2016 (as amended, the “Bond Order”), authorizes the creation of a Combined Group, which consists of the Obligated Group and Designated Affiliates. Only the Combined Group has a direct or indirect obligation to pay amounts due with respect to the 2018 Bonds. (See “SECURITY AND SOURCES OF PAYMENT” in the forepart of this official statement.)

As of the date of this official statement, the primary members of the Obligated Group, in addition to us, are Mercy Hospital, Inc., Carolinas Physicians Network, Inc., Managed Health Resources, Inc.,

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Carolinas-Anson Healthcare, Inc., Carolinas Medical Center at Home, LLC, Carolinas Palliative Care and Hospice Network, Inc., Hospice of Cabarrus County, Inc., Atrium Health Foundation, Cleveland Ambulatory Services, LLC, Union Health Services, LLC, and Carolinas Ambulatory Surgery, Inc.1

Because none of the members of the Obligated Group have Designated Affiliates at this time, the only members of the Combined Group are the members of the Obligated Group.

Except for Atrium Health Foundation, we control, directly or indirectly, each of the members of the Obligated Group, including the members identified in the footnote above. The income of each of the members of the Combined Group is exempt from federal and State of North Carolina income taxation.

An organizational chart of Atrium Health, showing the primary members of the Combined Group, is shown on page A-3 hereof.

1 As of the date of this official statement, the other members of the Obligated Group are: Carolinas College of Health Sciences, Carolinas Healthcare Information Exchange, LLC, Carolinas Health Network, Inc., Carolinas Hospital Network, Inc., CHS Anesthesia Services Group, Inc., CHS Pharmacy Services, Inc., Mercy Equipment Corporation, Mercy Health Services, Inc., Pineville Radiation Therapy Center, LLC, Union Medical Office Building, LLC, Union Medical Services, LLC, University Radiation Therapy Center, LLC and West Stanly Imaging, L.L.C. None of these entities are shown in the organizational chart on page A-3 hereof because their function and operation are not critical to describing and understanding the Combined Group or Atrium Health.

A-2 The Charlotte-Mecklenburg Hospital Authority d/b/a Atrium Health

Primary Enterprise Component Unit Regional Enterprise Facilities

Medical Group Division Atrium Health Foundation AnMed Health System Carolinas Physicians Network, Inc. An Med Health d/b/a AnMed Health Medical Center and AnMed Health Carolinas Medical Center Women's and Children's Hospital

Carolinas Medical Center - Mercy Cannon Memorial Hospital d/b/a AnMed Health Cannon

Carolinas HealthCare System Behavioral Health - Charlotte and Blue Ridge HealthCare System, Inc. Davidson

Levine Children's Hospital Blue Ridge HealthCare Hospitals, Inc. d/b/a Carolinas HealthCare System-Blue Ridge Morganton, Carolinas Health Care System-Blue Ridge Valdese, James G. Cannon Research Center and Phifer Wellness Center

Carolinas-Anson Healthcare, Inc. d/b/a Carolinas HealthCare System Grace Lifecare, Inc. d/b/a Grace Ridge Anson Retirement Community

Grace Nursing Center, Inc. d/b/a Grace Carolinas HealthCare System Cleveland Heights Health and Rehabilitation Center

Carolinas HealthCare System Valdese Nursing Home, Inc. d/b/a College Kings Mountain Pines Health and Rehabilitation Center Carolinas HealthCare System Lincoln CareAlliance Health Services d/b/a Roper St. Francis Healthcare (10% interest) Carolinas HealthCare System NorthEast Bon Secours-St. Francis Xavier Hospital, Inc. Mercy Hospital, Inc. d/b/a Carolinas HealthCare System Pineville Roper Hospital, Inc. Carolinas HealthCare System Stanly Roper St. Francis Mount Pleasant Hospital Carolinas HealthCare System Union Columbus Regional HealthCare System

Jesse Helms Nursing Center Columbus Regional Health Network Carolinas HealthCare System University The Moses H. Cone Memorial Hospital d/b/a Cone Health Carolinas Rehabilitation - Charlotte, Mount Holly and NorthEast The Moses H. Cone Memorial Hospital Operating Corporation d/b/a The Moses H. Cleveland Pines Cone Memorial Hospital, Wesley Long Hospital, Women's Hospital, Behavioral Health Hospital, Annie Penn Hospital and Huntersville Oaks Penn Nursing Center

Alamance Regional Medical Sardis Oaks Center, Inc.

Randolph Hospital, Inc. Stanly Manor Scotland Health Care System Carolinas Medical Center at Home, LLC d/b/a Healthy@Home Scotland Memorial Hospital, Inc.

Carolinas Palliative Care and Hospice of Scotland County Hospice Network, Inc. d/b/a Hospice of Member of the Combined Group Anson County and Hospice of Union County Operating division of a Member Scotland Regional Health Network of the Combined Group, not Hospice of Cabarrus County, Inc. separately incorporated. St. Luke's Health Care, Inc. Carolinas Ambulatory Surgery, Inc. d/b/a St. Luke's Hospital, Inc. Center for Orthopaedic Surgery

Cleveland Ambulatory St. Luke's Physician Network, Inc. Services, LLC

Union Health Services, LLC d/b/a Union West Surgery Center

Managed Health Resources, Inc.

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ATRIUM HEALTH COMPONENTS

Summary of Atrium Health Facilities

The following table describes the number of licensed beds, beds in service, level of care and location of Atrium Health’s medical group division, principal inpatient facilities, home health operations and palliative and hospice care operations as of June 30, 2018, except as otherwise noted: Licensed Beds In Beds Service Level of Care Location Combined Group(1): Medical Group Division(2) -- -- Primary and Specialty Physician Care Throughout the Region Carolinas Medical Center(3) 629 629 Quaternary/Tertiary Charlotte, NC Carolinas HealthCare System Behavioral Health – Charlotte 66 66 Mental Health Charlotte, NC Levine Children’s Hospital(4) 198 198 Quaternary/Tertiary Charlotte, NC Carolinas HealthCare System Behavioral Health – Davidson 66 66 Mental Health Charlotte, NC Carolinas Medical Center – Mercy(5) 207 207 Tertiary/Acute Charlotte, NC Carolinas HealthCare System NorthEast 457 455 Tertiary/Acute Concord, NC Carolinas HealthCare System Pineville(6) 235 235 Tertiary/Acute Pineville, NC Carolinas HealthCare System Cleveland 241 161 Acute Shelby, NC Carolinas HealthCare System Union 182 161 Acute Monroe, NC Carolinas HealthCare System University 100 100 Acute Charlotte, NC Carolinas HealthCare System Kings Mountain 47 33 Acute/Swing Kings Mountain, NC 14 14 Mental Health Kings Mountain, NC 6 6 Chemical Dependency Kings Mountain, NC Carolinas HealthCare System Lincoln 101 101 Acute Lincolnton, NC Carolinas HealthCare System Stanly 97 82 Acute Albemarle, NC 12 12 Mental Health Albemarle, NC Carolinas HealthCare System Anson 15 15 Acute/Swing Wadesboro, NC Carolinas Rehabilitation – Charlotte 70 70 Rehabilitative Charlotte, NC Carolinas Rehabilitation – Mount Holly 40 40 Rehabilitative Mount Holly, NC Carolinas Rehabilitation – NorthEast 40 40 Rehabilitative Concord, NC Huntersville Oaks 168 168 Long-Term Huntersville, NC Sardis Oaks 124 119 Long-Term Charlotte, NC Cleveland Pines 120 120 Long-Term Shelby, NC Jesse Helms Nursing Center 7070Long-Term Monroe, NC Stanly Manor 9090 Long-Term Albemarle, NC 10 10 Assisted Living Albemarle, NC Carolinas Palliative Care and Hospice Network 50 36 Palliative care and Throughout the Region hospice services Healthy@Home -- -- Home Health Throughout the Region Subtotals 3,455 3,301 Regional Enterprise Facilities: AnMed Health AnMed Health Medical Center 461 311 Acute Anderson, SC AnMed Health Women’s and Children’s Hospital 72 50 Acute Anderson, SC AnMed Health Rehabilitation Hospital 60 60 Rehabilitative Anderson, SC Cannon Memorial Hospital 55 42 Acute Pickens, SC

Blue Ridge HealthCare System Carolinas HealthCare System Blue Ridge – 162 134 Acute Morganton, NC Morganton 22 22 Mental Health Morganton, NC Grace Heights Health and Rehabilitation Center 120 120 Long-Term Morganton, NC Grace Ridge Retirement Community 2525Long-Term Morganton, NC 35 35 Assisted Living Morganton, NC 1212Special Care Morganton, NC Carolinas HealthCare System Blue Ridge – 131 -- Acute Valdese, NC Valdese College Pines Health and Rehabilitation 104 104 Long-Term Valdese, NC Center Columbus Regional Healthcare System 154 100 Acute Whiteville, NC

Cone Health Moses H. Cone Memorial Hospital 468 382 Tertiary/Acute Greensboro, NC 49 49 Rehabilitative Greensboro, NC Wesley Long Hospital 175 128 Acute Greensboro, NC Women’s Hospital 134 133 Acute Greensboro, NC

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Licensed Beds In Beds Service Level of Care Location Annie Penn Hospital 110 53 Acute Reidsville, NC Alamance Regional Medical Center 182 175 Acute Burlington, NC 44 25 Mental Health Burlington, NC 12 -- Chemical Dependency Burlington, NC Behavioral Health Hospital 80 80 Mental Health Greensboro, NC Penn Nursing Center 8282Long-Term Reidsville, NC 10 10 Assisted Living Reidsville, NC Edgewood Place at the Village at Brookwood 105 105 Long Term Burlington, NC 24 24 Assisted Living Burlington, NC Randolph Hospital 145 85 Acute Asheboro, NC

New Hanover Regional Medical Center -- -- Primary and Specialty Wilmington, NC Physicians Group Physician Care

Roper St. Francis Healthcare(7) Roper Hospital 316 240 Tertiary/Acute Charleston, SC 52 52 Rehabilitative Charleston, SC Bon Secours-St. Francis Hospital 204 149 Acute Charleston, SC Roper St. Francis Mt. Pleasant Hospital 85 73 Acute Mt. Pleasant, SC

Scotland Health Care System Scotland Memorial Hospital 97 97 Acute Laurinburg, NC 7 7 Rehabilitative Laurinburg, NC Hospice of Scotland County 1212Hospice Laurinburg, NC St. Luke’s Hospital 25 25 Acute Columbus, NC 10 10 Special Care Columbus, NC Subtotals 3,841 3,011

TOTALS 7,296 6,312 ______(1) In September 2011, the South Carolina Department of Health and Environmental Control granted a certificate of need to Atrium Health to build and operate a 64-bed hospital to be located at Exit 83 on Interstate 77 in York County, South Carolina. The certificate of need was granted to Tenet Corporation following a reversal decision upon appeal. We have appealed that reversal to the South Carolina Appellate Court. The hospital is planned to have 48 medical/surgical beds, eight intensive care beds and eight obstetrical beds (labor, delivery, recovery and post-partum rooms). It will offer 24-hour emergency care, inpatient and outpatient surgical services, endoscopy suites, magnetic resonance imaging, computerized tomography scanning and a complementary array of other diagnostic imaging and support services. (2) Includes physician practices of Carolinas Physicians Network, NorthEast Physician Network and Faculty Physicians Network. See “ATRIUM HEALTH COMPONENTS–Combined Group Medical Group Division, Inpatient Facilities and Research Center–Medical Group Division” below. (3) Because of high census, the number of licensed beds and beds in service for Carolinas Medical Center had been temporarily increased to 690 as of June 30, 2018. This temporary increase is set to expire December 15, 2018. Additionally, a Certificate of Need was awarded in June 2018 for an additional 45 beds. (4) Because of high census, the number of licensed beds and beds in service for Levine Children’s Hospital had been temporarily increased to 217 as of June 30, 2018. This temporary increase is set to expire December 15, 2018. (5) Carolinas Medical Center – Mercy is a facility of Carolinas Medical Center. (6) Carolinas Medical Center Pineville was awarded a Certificate of Need in June 2018 for an additional 15 beds. (7) In June 2018, Roper St. Francis Healthcare notified us that it will reconfigure its approach to management services, which includes not renewing the existing management agreement with us, with the intended termination date being December 31, 2018. We expect to continue to partner with Roper St. Francis Healthcare on individual healthcare projects and services.

The locations of Atrium Health’s owned physician practices in Mecklenburg and surrounding counties are shown on the map located on page A-6 hereof. The locations of the principal inpatient facilities of Atrium Health are shown on the map located on page A-7 hereof.

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A-6 34 35 Atrium Health 30 33 31 32 Hyde

26 24

29 23 25

77 39 Ashe 38 Charleston 321 37 Watauga Wilkes

Avery 77 40 Mitchell 85 Caldwell Alexander Iredell Davie 27 28 McDowell Rowan Davidson Randolph 5 Burke Catawba 36 40

Lincoln Rutherford Cleveland 12 4 6 Cabarrus 13 8 20 18 10 22 74 5 17 Montgomery Polk Gaston 3 2 Stanly Moore 11 16 1 15 41 Mecklenburg Charleston 7 19 Cherokee Union Anson Richmond 9 York 21 14 Scotland

Chester 85 Lancaster 40 Chesterfield 74

Primary Service Area 321

Secondary Service Area 77

Combined Group Facilities Inpatient Regional Enterprise Facilities

1 Carolinas Medical Center 23 AnMed Health Medical Center

2 Carolinas HealthCare System Behavioral Health - Charlotte 24 AnMed Health Women's and Children's Hospital

3 Levine Children's Hospital 25 AnMed Health Rehabilitation Hospital

4 Carolinas HealthCare System Behavioral Health - Davidson 26 Cannon Memorial Hospital

5 Carolinas Medical Center - Mercy 27 Carolinas HealthCare System Blue Ridge - Morganton

6 Carolinas HealthCare System - NorthEast 28 Carolinas HealthCare System Blue Ridge - Valdese

7 Carolinas HealthCare System Pineville 29 Columbus Regional Healthcare System

8 Carolinas HealthCare System Cleveland 30 Cone Health - Moses H. Cone Memorial Hospital

9 Carolinas HealthCare System Union 31 Cone Health - Wesley Long Hospital

10 Carolinas HealthCare System University 32 Cone Health - Women's Hospital

11 Carolinas HealthCare System Kings Mountain 33 Cone Health - Annie Penn Hospital

12 Carolinas HealthCare System Lincoln 34 Cone Health - Alamance Regional Medical Center

13 Carolinas HealthCare System Stanly 35 Cone Health - Behavioral Health Hospital

14 Carolinas HealthCare System Anson 36 Randolph Hospital

15 Carolinas Rehabilitation - Charlotte 37 Roper Hospital

16 Carolinas Rehabilitation - Mount Holly 38 Bon Secours-St. Francis Hospital

17 Carolinas Rehabilitation - NorthEast 39 Roper St. Francis Mt. Pleasant Hospital

18 Huntersville Oaks 40 Scotland Memorial Hospital

19 Sardis Oaks 41 St. Luke’s Hospital

20 Cleveland Pines 21 Jesse Helms Nursing Center

22 Stanly Manor

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Combined Group Medical Group Division, Inpatient Facilities and Research Center

Medical Group Division. As of June 30, 2018, Atrium Health had 1,633 primary care and specialty physicians and 742 advanced care practitioners in its Medical Group Division, with locations in twenty-one North and South Carolina counties. These physicians’ practices, which include Carolinas Physicians Network, Inc., NorthEast Physician Network and the Carolinas Medical Center Division of Medical Education and Research that makes up the Faculty Physicians Network, help to complete the broad continuum of care offered by Atrium Health. 805 of these are community-based, primary care providers. The Medical Group Division has 301 National Committee for Quality Assurance recognized providers for Diabetes and 159 for Heart/Stroke. See the map on page A-6 for the locations of Atrium Health’s owned physician practices located in Mecklenburg and surrounding counties.

Atrium Health utilizes dedicated clinical resources and a technology backbone to provide direct patient care, enterprise patient navigation, and care coordination in the virtual environment. The infrastructure supports patients and providers seeking clinical expertise to determine the best options for care in emergent and non-emergent situations. In addition to the Physician Connect Line, contact centers such as the Poison Center, Behavioral Health Crisis Line, and Nurse Triage provide 24/7 access for patients and providers in need. The collection of virtual tools includes traditional methods such as voice with standard telephone and email, along with more advanced electronic methods such as video, texting and smartphones, for real time remote web-based patient monitoring, care and disease management and patient to provider two-way videoconferencing – depending on the needs of the clinical scenario. In 2017, Atrium Health provided over 5.4 million virtual encounters for its patients.

Carolinas Medical Center. Carolinas Medical Center is one of the largest and most comprehensive tertiary and quaternary hospitals in the Carolinas, operating a total of 959 inpatient beds, including 198 licensed pediatric beds at Levine Children’s Hospital, 66 licensed psychiatric beds at Carolinas Healthcare System Behavioral Health – Charlotte and 66 licensed psychiatric beds at Carolinas HealthCare System Behavioral Health – Davidson (but not including any temporary increases in licensed beds due to high census). Carolinas Medical Center was awarded a Certificate of Need for 45 additional beds in June 2018. As a regional referral center for the Piedmont area of North Carolina, Carolinas Medical Center also treats a significant number of patients from South Carolina and other parts of the southeastern United States. Carolinas Medical Center has approximately 46,000 inpatient discharges, delivers over 7,000 newborns and performs approximately 33,000 surgical procedures each year. Carolinas Medical Center and Levine Children’s Hospital were Magnet designated in 2013 and again in 2018 by the American Nurses Credentialing Center. For the eighteenth time, Carolinas Medical Center received Charlotte’s Consumer Choice Award as having the highest quality and image. This award, presented by National Research Corporation, is part of the nation’s largest and most comprehensive independent study of its kind, covering 300 markets throughout the United States. Carolinas Medical Center was also named as the best hospital in Charlotte by U.S. News and World Report in August 2018. One of only five medical centers in North Carolina designated as an Academic Medical Center Teaching Hospital and a Level I Trauma Center, as verified by the American College of Surgeons through December 2016, Carolinas Medical Center provides, among other services, the following specialized services:

• The Sanger Heart and Vascular Institute (SHVI), with approximately 5,600 heart and peripheral vascular surgeries and approximately 18,000 cardiac invasive and device procedures per year, represents one of the largest cardiac and vascular programs in the Southeast for both adult and pediatric patients. SHVI operates a multidisciplinary Heart Failure Clinic, one of the largest transplant centers in the Carolinas, a network of nine accredited Chest Pain Centers, a comprehensive cardiovascular rehabilitation program, one of the nation’s largest cardiac device management clinics, and an advanced clinical research

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program. SHVI contains one of the largest cardiology, cardiovascular and thoracic surgery groups in the Southeast with over 100 physicians and approximately 100 advanced care practitioners located in 16 counties in North and South Carolina. SHVI has received The Joint Commission Disease Specific Care Certifications in Ventricular Assist Device Destination Therapy/ Care. SHVI is also recognized by the American College of Cardiology/American Heart Association Action Registry – Get With The Guidelines 2015 Gold Performance Achievement Award for ST-Segment Elevation Myocardial Infarction /Non-ST Segment Elevation Myocardial Infarction.

In 2018, SHVI/ Levine Children’s Hospital received a two star rating for the four year period ended December 2017 within the Society of Thoracic Surgeon’s Congenital Heart Surgery Database. Focusing on neonatal and the most complex surgery, SHVI results within the STS Congenital Database were among the best demonstrating lower mortality and lower length of stay across the ten benchmarked procedures. Levine Children’s Hospital, in partnership with SHVI, has been recognized by Battelle Healthcare Colloquium as an Accredited Pediatric Heart Failure Institute. The Colloquium’s accreditation process, the only one offered for Pediatric Heart Failure, seeks to transform healthcare organizations by using process improvement methodologies to achieve heart failure goals. Levine Children’s Hospital is the first pediatric facility in the Carolinas and the eleventh in the nation to earn this distinction. STS Star ratings have been received at Carolinas Medical Center, Carolinas HealthCare System Pineville and Carolinas HealthCare System NorthEast for services ranging from adult cardiothoracic surgery, cardiac device implantation and percutaneous coronary intervention. SHVI has been certified as a Hypertrophic Cardiomyopathy Center of Excellence from the Hypertrophic Cardiomyopathy Association. SHVI’s research program includes participation in two National Institute of Health affiliated trials in cardiac electro physiology surrounding the care of atrial fibrillation, as well as three clinical regenerative medicine trials.

• Levine Children’s Hospital, with 198 licensed beds and approximately 11,000 discharges annually, is currently the largest children’s hospital between Atlanta and Washington, D.C. and offers comprehensive pediatric services in over 30 pediatric subspecialty areas. In 2018, the hospital was ranked in U.S. News and World Report Best Children’s Hospitals in six specialties: Cardiology and Cardiovascular Surgery, Cancer, Nephrology, Neurology and Neurosurgery, GI and GI surgery and Orthopedics. Levine Children’s Hospital serves as the regional children’s hospital for Atrium Health’s service area. Pediatric services include inpatient general pediatrics, intensive care services for pediatric, cardiac and neonatal patients (facility includes 85 neonatal intensive/progressive care beds), the only Commission on Accreditation of Rehabilitation Facilities accredited acute inpatient pediatric rehabilitative care in North Carolina (facility includes 13 pediatric rehabilitation beds), outpatient services focusing on subspecialty ambulatory care and procedural services, and 24/7 Level I Trauma care. Levine Children’s Hospital is designated as a Level I Trauma Center. Levine Children’s Hospital also provides quaternary services, including pediatric interventional cardiology, pediatric cardiovascular surgery, ventricular assist device, extracorporeal membrane oxygenation, total body cooling, complex pediatric hematology oncology, including Phase I and Phase II clinical trials, pediatric hemodialysis, peritoneal dialysis, pediatric heart, kidney, liver transplants, and Foundation for Accreditation of Cellular Therapy accredited blood and marrow transplants. Levine Children’s Hospital at Carolinas Medical Center is the first accredited pediatric heart failure institute in the Carolinas. Levine Children’s Hospital received The Joint Commission Disease Specific Care Certification in Advanced Inpatient Diabetes. Levine Children’s Hospital has a

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regional network of outpatient pediatric specialty centers to provide access to our pediatric specialists. A family-centered care approach transcends the various services.

• Levine Cancer Institute, headquartered on the Carolinas Medical Center campus, is a major cancer center, with approximately 1,000 highly skilled healthcare professionals providing care to more than 14,000 new cancer patients annually, that supports innovations in the delivery of cancer care in communities served by Atrium Health in North and South Carolina. Levine Cancer Institute was made possible by a significant gift from the Leon Levine Foundation, and was supplemented by local philanthropic support coordinated by Atrium Health Foundation. Levine Cancer Institute’s current research and administrative headquarters in Charlotte opened in October 2012. Due to rapid program expansion, Atrium Health is constructing a second outpatient center on the campus of Carolinas Medical Center, enhancing Levine Cancer Institute’s existing outpatient operations and developing a new 32-bed inpatient hematologic unit in Carolinas Medical Center, all expected to be completed by mid-2019.

Levine Cancer Institute at Carolinas Medical Center, part of the Accredited Network Cancer Program by the American College of Surgeons Commission on Cancer, offers a multidisciplinary team approach to the treatment of cancer in adults and children. Levine Cancer Institute is also designated as a Teaching Hospital Cancer Program and is a member in good standing with the Association of Community Cancer Centers. Its Gynecological Oncology program is the largest such program in North Carolina and in 2010, this program became the first in the country to receive The Joint Commission’s Disease Specific Care Certification in Inpatient Uterine Ovarian Cancer. The Cancer Institute was recently accredited by the National Accreditation Program for Breast Centers, a consortium of national, professional organizations dedicated to the improvement of the quality of care and monitoring of outcomes of patients with diseases of the breast. In addition, The Levine Cancer Institute’s Blood and Marrow Transplantation programs for children and adults are both accredited by the Foundation for the Accreditation of Cellular Therapy.

• Carolinas HealthCare System Neurosciences Institute, with over 86,000 neurology physician visits and over 10,500 neurosciences discharges annually, leads the region in advanced neurosurgical and neurological care across the continuum with prevention, treatment, research, and rehabilitation, and numerous sub-specialty options across the entire spectrum of spine and peripheral nerve disorders for adults and pediatrics. The Institute includes comprehensive neurological services and is home to several nationally accredited neurological programs such as Level IV Epilepsy Center, the highest level of accreditation by the National Association of Epilepsy Centers, multiple Joint Commission accredited Advanced Primary Stroke Centers with Gold Plus and Target Stroke Honor Roll Awards by the American Heart Association and American Stroke Association. The Institute holds the distinction of having the only multidisciplinary ALS/Neuromuscular Center in North and South Carolina, one of only two Movement Disorders/Parkinson’s Disease Centers in the Carolinas, and a comprehensive Multiple Sclerosis Center designated by the National Multiple Sclerosis Society’s Partners in Multiple Sclerosis Care. The Institute has also implemented an innovative joint initiative, known as RENEW, with the Carolinas Parkinson’s Disease/Movement Disorders Center, Carolinas Rehabilitation, LiveWELL and the YMCA to promote a community-based neuro-wellness program for people with Parkinson’s disease. In partnership with Carolinas Rehabilitation, the Institute offers specialized stroke, spine and brain injury rehabilitation programming in multiple locations throughout the region.

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• The Transplant Center at Carolinas Medical Center is a member of the United Network for Organ Sharing and is a Medicare-approved center for transplantation of the kidney, heart, liver, and pancreas for adults, transplantation of heart, kidney, liver and bone marrow for children, and live kidney donor transplants for both adults and children. Quality patient care is delivered following a continuum of care beginning with identification of patients and continuing through early intervention, evaluation, comprehensive treatment, transplantation, lifelong follow-up, patient/family and professional education and research. In 2017, the Transplant Center was the second largest overall program in North Carolina transplanting over 230 life-saving organ transplants with patient survival outcomes meeting or exceeding national averages. The Carolinas Medical Center Ventricular Assist Device programs received The Joint Commission’s Disease Specific Care Certification in Ventricular Assist Device Destination Therapy.

• The Women’s Center and Maternity Center offers comprehensive obstetrical services in a home-like environment and includes full-term and high-risk deliveries, postpartum and high- risk ante partum units, lactation services and obstetrical education. Delivering more than 7,000 babies annually, Carolinas Medical Center is the region’s High Risk Obstetrical Referral Center staffed with maternal fetal medicine and complex surgical specialists and has received The Joint Commission Disease Specific Care Certification in the management of Childbirth. The Women’s Center includes the Charlotte Fetal Care Center which offers the region’s only facility treating Twin-to-Twin Transfusion Syndrome and other high risk fetal conditions. The Women’s Center also includes an Assisted Reproductive Technology division which serves couples with reproductive difficulties including fertility preservation if there is a diagnosis of cancer and potential infertility-inducing chemotherapy or surgery.

• The Carolinas Medical Center’s Radiology Service offers the most complete array of diagnostic capabilities available in the region, including two combination PET/CT scanners, five MRI units and five multi-slice CT scanners with 16 to 64-slice capabilities. These services are available in both inpatient and outpatient environments on the Carolinas Medical Center campus. Within Levine Children’s Hospital radiology there is a dedicated pediatric radiology department, including North Carolina’s only dedicated pediatric MRI unit.

• The Carolinas Laparoscopic and Advanced Surgery Program (CLASP), led by the Department of General Surgery, has pioneered minimally invasive surgical techniques. CLASP has extensively studied various methods of surgical education for residents and attending physicians and has won numerous national research awards. CLASP continues to be recognized nationally and internationally as a leader in minimally invasive surgery.

• Carolinas HealthCare System SouthPark is located approximately five miles from the campus of Carolinas Medical Center and provides outpatient services including a hospital- based 24-hour, 14-bed freestanding emergency department and a medical office building with observation care, imaging, laboratory and pharmacy services. Opened in May 2014, the emergency department treats over 15,000 patients a year.

• Carolinas Medical Center was recognized in 2018 on Becker’s Hospital Review list of 100 Great Hospitals in America which, based on various rankings and awards from reputable sources, is a list of hospitals considered healthcare leaders in their region, state or the nation.

• Other services provided in Carolinas Medical Center’s primary service area and beyond include:

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○ The region’s most comprehensive, multidisciplinary disaster response team, Carolinas MED-1 (a mobile emergency department) & the Metrolina State Medical Assistance Team, are directed and operated through Carolinas Medical Center. These mobile disaster response units and programs have been instrumental in the deployment and provision of medical care during catastrophic events, including hurricanes Katrina, Matthew and Florence.

○ The Carolinas Poison Center, the official Poison Control Center for North Carolina.

○ MedCenter Air is the largest comprehensive medical air ambulance service in the Carolinas with six aircraft (three rotor aircraft, two jet airplanes and one turbo prop planes) and twelve mobile intensive care units. MedCenter Air is accredited by The Commission on Accreditation of Medical Transport Systems through April 2019.

○ Serving as the official healthcare provider for the Carolina Panthers, Charlotte Motor Speedway, Charlotte Knights Baseball and the PGA TOUR Wells Fargo Championship.

○ Comprehensive Community Health and Wellness programs offered in twelve area YMCAs through a strategic alliance with the YMCA of Greater Charlotte.

○ Carolinas Healthcare System Behavioral Health – Charlotte, a subprovider of Carolinas Medical Center and a 66-licensed bed acute psychiatric facility with a comprehensive outpatient continuum of care for both inpatients and outpatients suffering from mental and emotional illnesses.

○ Carolinas HealthCare System Behavioral Health – Davidson, a subprovider of Carolinas Medical Center and a 66-licensed bed acute psychiatric facility which opened in April 2014 with a comprehensive outpatient continuum of care for both inpatients and outpatients suffering from mental and emotional illnesses.

James G. Cannon Research Center. Located on the campus of Carolinas Medical Center is the James G. Cannon Research Center (the “Research Center”), the largest hospital-affiliated research facility for basic, clinical and translational research in the region. Dedicated in 1992, the 60,000 square-foot Research Center houses bench research laboratories or “wet labs,” and research core facilities including a state-of-the-art accredited vivarium. The Research Center, in collaboration with the Medical Group Division and community physicians, supports approximately 1,100 projects that include clinical trials and studies as well as drug and device development. The primary research focus is translational research with a goal of moving new technology into clinical practice within five years.

The core research facilities include biostatistics, comparative medicine, confocal microscopy, electron microscopy, histology, flow cytometry, molecular biology and microarray and the vivarium. Notable equipment in the core facilities include a state-of-the-art JEOL JEM-1400 series 120kV Transmission Electron Microscope for high resolution imaging and analysis, an Ion Proton deep sequencer (the first of its kind in the State of North Carolina), a microarray facility, a fluorescent activated cell sorter, a laser capture microdissection microscope, DNA sequencers and ultracentrifuges as well as the following facilities: a biospecimen repository equipped with biobanking management system, Biosafety Level 2 facilities, tissue culture facilities and state-of-the-art instruments for genomics and proteomics. The Research Center also includes research administration offices and the following labs: • Atrium Health’s Next Generation Sequencing, Hematologic Oncology Translational “HOT” Research, and Oncology Pharmacology Research labs to support Levine Cancer Institute

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• Muscular Dystrophy Research Labs • Orthopaedic Biology Lab • Oral Medicine Research Lab • Liver Disease Research Lab • General Surgery Lab

Carolinas Medical Center – Mercy. Carolinas Medical Center – Mercy, a facility of Carolinas Medical Center, located near Carolinas Medical Center and close to downtown Charlotte, is a clinically advanced medical center serving as a specialty surgical and adult medicine hospital, with an adult family medicine teaching program. Services at Carolinas Medical Center – Mercy include comprehensive orthopedics care, and select medical and surgical programs of excellence. Carolinas Medical Center – Mercy is a Planetree Patient-Centered Care Designated hospital, the only such hospital to receive that designation in North Carolina and one of 25 in the country. Carolinas Medical Center – Mercy was Magnet designated in 2018 by the American Nurses Credentialing Center. Licensed for 207 beds, Carolinas Medical Center – Mercy provides a full-range of services which include:

• Horizons, an inpatient medical detoxification program.

• 24-hour emergency care serving as an accredited chest pain center by the Society of Chest Pain Centers.

• The Department of Family Medicine at Carolinas Medical Center – Mercy providing education and training for residents and medical students studying the specialty of Family Medicine.

• Cardiology Services provided through Sanger Heart and Vascular Institute includes treatment of adult cardiac conditions including diagnostic cardiac catheterization. Carolinas Medical Center – Mercy has received The Joint Commission Disease Specific Care Certification in Acute Coronary Syndrome.

• The Foot and Ankle Institute, a team of several of the nation’s leading specialists, with access to a comprehensive array of the latest diagnostic and treatment technologies, research and educational leadership in foot and ankle surgery. The Foot and Ankle Institute received the country’s first and only The Joint Commission Disease Specific Care Certification in Joint Replacement – Ankle.

• One of the largest Hip and Knee Centers in North Carolina, employing state-of-the art technology to provide total joint replacements for hip, knee and shoulder.

• The Bariatrics Center, designated by the American College of Surgeons as a Bariatric Surgery Center of Excellence.

• Women’s Center for Pelvic Health, designed exclusively for the advanced gynecology and urology needs of patients, and the only one of its kind in the Southeast combining the expertise of physicians from Carolinas Medical Center Women’s Institute and McKay Urology along with the resources of Charlotte Continence Center, a part of Carolinas Rehabilitation.

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Carolinas HealthCare System NorthEast. Carolinas HealthCare System NorthEast opened in 1937, operates 457 licensed-beds and provides tertiary medical and surgical services for Cabarrus and surrounding counties. Carolinas HealthCare System NorthEast provides the following specialized facilities and services:

• The Sanger Heart & Vascular Institute at Carolinas HealthCare System NorthEast provides a comprehensive array of cardiac services, including diagnostic and interventional cardiology, cardiac surgery and electrophysiology. Carolinas HealthCare System NorthEast serves as Cabarrus County’s only percutaneous coronary intervention center for primary angioplasty and was recognized by The American College of Cardiology and The American Heart Association in 2017 with the Gold Performance Achievement Award for the treatment of acute myocardial infarction. Carolinas HealthCare System NorthEast has received The Joint Commission Disease Specific Care Certification in Advanced Primary Stroke and Heart Failure.

• The Jeff Gordon Children’s Center offers comprehensive subspecialty care to patients in a multi-county region. The facility features an accredited Child Advocacy Center Pediatric Intensive Care Unit and Level IV Neonatal Intensive Care Unit. Located nearby, the Jeff Gordon Children’s Center Pediatric Pavilion provides a collection of outpatient pediatric subspecialty services.

• Levine Cancer Institute-Concord, a facility of Carolinas Medical Center, is the only Comprehensive Community Cancer Center in Cabarrus County and has consistently received accreditation by the American College of Surgeons. Levine Cancer Institute- Concord has advanced robotic technologies such as the daVinci® Surgical System and offers CyberKnife® stereotactic radio surgery treatment options, and state of the art radiation oncology facilities. A Phase I Clinical Trial Unit was opened at the facility in 2017.

• Carolinas HealthCare System NorthEast Gateway campus consists of two outpatient centers/medical office facilities which house the Gateway Surgery Center, Diagnostic Imaging Center, The NorthEast Pain Management Center, Breast Health Center, both primary and specialty physician practices, NorthEast Rehabilitative Services, Cardiac Rehabilitation, NorthEast Health and Fitness Institute, NorthEast Occupational Medicine, Urgent Care and Piedmont Orthopedic Specialists.

• The Hayes Women’s Center offers a wide spectrum of women’s services, including mother/baby couplet care, lactation services, maternal/fetal medicine services for high risk obstetric patients, board-certified neonatologists and obstetrics/gynecological hospitalists, available in-house 24 hours daily.

• Carolinas HealthCare System NorthEast is a Level III Trauma Center. The Emergency Care Center has specially trained staff and offers a 24-hour Chest Pain Center, stroke care and sexual assault and forensic nursing personnel.

• Carolinas HealthCare System Kannapolis, located in Kannapolis, provides hospital-based outpatient services, including a 24-hour, 14-bed emergency department with onsite lab and radiology services. Opened in January 2012, this emergency department treats approximately 36,000 patients a year.

• Carolinas HealthCare System Harrisburg, located in Harrisburg, provides hospital-based outpatient services, including a 24-hour, 12-bed emergency department with onsite lab and

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radiology services. Opened in June 2014, this emergency department treats approximately 23,000 patients a year.

• The Diagnostic Imaging Center has the latest technology including a 64-Slice CT scanner and a 1.5T open MRI scanner. The Breast Health Center provides digital mammography both on-site and in its mobile mammography van.

• Carolinas HealthCare System NorthEast is home to tertiary level Neuroscience Services for both pediatrics and adults. Services include 24-hour EEG monitoring, separate epilepsy monitoring facilities for pediatric and adult patients, comprehensive stroke care and comprehensive sleep services. Board certified neurologists are available in house 24/7 and support the Atrium Health Stroke Network for the facility. Carolinas HealthCare System NorthEast is the anchor (HUB) for the northern region

• Carolinas HealthCare System NorthEast has received The Joint Commission Disease Specific Care Certifications in Advance Inpatient Diabetes, comprehensive Epilepsy and Advanced Primary Stroke. In 2018 Carolinas HealthCare System NorthEast received multiple awards, including: o The American Heart Association award for the highest Get With The Guidelines (GWTG) Stroke award-Gold Plus and Target: Stroke Honor Roll Elite Plus. o The NCDR Platinum Performance Achievement Award ACTION Registry. o Healthgrades Patient Safety Excellence Award for the 5th consecutive year. o The top distinction for patient safety from Leapfrog with an “A” Hospital Safety Grade.

• NorthEast Rehabilitation is the only Comprehensive Outpatient Rehabilitation Center in Cabarrus County.

Carolinas HealthCare System Pineville. Carolinas HealthCare System Pineville opened in 1987 in the rapidly growing Charlotte suburb of Pineville, North Carolina. Carolinas HealthCare System Pineville is licensed for 235 beds and was awarded a Certificate of Need for 15 additional beds in June 2018. Located near the North Carolina – South Carolina border, it serves patients from Charlotte and Mecklenburg County in North Carolina, as well as patients from Lancaster and York Counties in South Carolina. Carolinas HealthCare System Pineville has received recognition by J.D. Powers and Associates for healthcare consumer satisfaction, by The Joint Commission as a Top Performer for Appropriate Care in treating patients with heart attack, heart failure, pneumonia, and surgical care for two consecutive years, and was named a Top 100 Hospital by Truven Health. Carolinas HealthCare System Pineville provides a wide range of services, which include:

• Sanger Heart and Vascular Institute, which includes three cardiac catheterization suites with electrophysiology, interventional and vascular services. In April 2012, Carolinas HealthCare System Pineville became the first open-heart surgery program located in a suburban setting in Mecklenburg County and provides Code STEMI and comprehensive diagnostic cardiology services, including nuclear medicine, ECG, and EKG. Carolinas HealthCare System Pineville is certified as part of Atrium Health’s Chest Pain Network. Carolinas HealthCare System Pineville has also been awarded The Joint Commission Disease Specific Care Certifications in Acute Coronary Syndrome and Heart Failure. Cardiac Rehabilitation is also provided in an outpatient setting.

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• Levine Cancer Institute at Carolinas HealthCare System Pineville is part of the Accredited Network Cancer Program by the American College of Surgeons Commission on Cancer. Levine Cancer Institute Radiation Therapy-Pineville offers intensity modulated radiation therapy, stereotactic body radiotherapy, brachytherapy and RapidArc® radiation treatment. Outpatient chemotherapy, a nurse navigator and other integrative support services such as dietician consults are offered on campus.

• Carolinas HealthCare System Neurosciences Institute at Carolinas HealthCare System Pineville services are also offered and include inpatient and outpatient EEG diagnostics. Carolinas HealthCare System Pineville’s Stroke program has been awarded The Joint Commission Disease Specific Certification. Surgical spine constitutes the remainder of the current neuroscience program at Carolinas HealthCare System Pineville.

• Carolinas HealthCare System Steele Creek is located approximately 10 miles from the campus of Carolinas HealthCare System Pineville and provides outpatient services including a hospital-based 24-hour, 23-bed freestanding emergency department and a medical office building with imaging and laboratory services. Opened in November 2009, the emergency department was the first freestanding facility of its kind in the Charlotte market and treats over 36,000 patients a year.

• The Maternity Center at Carolinas HealthCare System Pineville includes a 36-bed labor, delivery, recovery, postpartum and nursery unit which provides the patient with the full range of services during the birth experience in one room. A 10-bed, Level 3 Special Care Nursery is the first in Mecklenburg County designed with individual rooms for premature infants.

• Carolinas HealthCare System Pineville Inpatient Rehabilitation, a 29-bed, inpatient rehabilitation unit located on the campus of Carolinas HealthCare System Pineville, serves patients that have suffered disability due to stroke, amputation, and medical complexities and is accredited by the Commission on Accreditation of Rehabilitation Facilities.

• Comprehensive surgical services which include a daVinci® Surgical System and 11 operating rooms including an open heart surgery room. Carolinas HealthCare System Pineville’s orthopedic knee replacement program was awarded with The Joint Commission’s Disease Specific Care Certification in Joint Replacement – Knee.

• Procedural areas including endoscopy, interventional radiology, inpatient dialysis, and bronchoscopy.

• Comprehensive outpatient diagnostic and treatment services, including ultrasound, computerized axial tomographic, magnetic resonance imaging and angiography services, a sleep center, a wound and hyperbaric center, a pain center and outpatient pulmonary rehabilitation.

Carolinas HealthCare System Cleveland. Carolinas HealthCare System Cleveland, which opened in 1923, is a 241 licensed-bed acute care facility located in Shelby, North Carolina. Carolinas HealthCare System Cleveland provides a wide range of services, including a 24-hour emergency department that includes a Level III Trauma Center and a chest pain center accredited by the American Society of Chest Pain Centers, comprehensive outpatient diagnostic and treatment services, ultrasound, cardiac catheterization, nuclear medicine, computerized axial tomographic, magnetic resonance imaging,

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a cancer center accredited by the Commission on Cancer by the American College of Surgeons, a sleep center, comprehensive surgical services, a joint academy, obstetric and gynecology services, hyperbaric oxygen-wound therapy, outpatient centers for rehabilitation, imaging and ambulatory surgery, and medical oncology with two outpatient infusion centers located on the Carolinas HealthCare System Cleveland campus and in Rutherford County. Carolinas HealthCare System Cleveland is accredited by The Joint Commission as an Advanced Primary Stroke Center.

Cleveland Ambulatory Services, LLC (a multi-specialty ambulatory surgery center), assists in the delivery of care to patients in Cleveland County and surrounding areas. We own 100% of the membership interest in Cleveland Ambulatory Services, LLC.

Carolinas HealthCare System Union. Carolinas HealthCare System Union, which opened in 1953, is a 182 licensed-bed acute care facility. Carolinas HealthCare System Union is located in Union County, which is adjacent to Mecklenburg County, both of which are among the fastest growing counties in North Carolina. Carolinas HealthCare System Union provides a wide range of services, including a 24- hour emergency department, a women’s and children’s center, comprehensive outpatient diagnostic and treatment services, ultrasound, cardiac catheterization, nuclear medicine, computerized axial tomographic, magnetic resonance imaging, a cancer center, a sleep center, a wound care center, a pain center, comprehensive surgical services and obstetric and gynecology services. Carolinas HealthCare System Union has received The Joint Commission Disease Specific Care Certifications in Acute Coronary Syndrome, Advanced Primary Stroke and Inpatient Diabetes. Carolinas HealthCare System Union also operates a hospital-based, 24-hour, 8-bed emergency department and a medical office building with related outpatient services in Waxhaw at Carolinas HealthCare System Waxhaw, which opened in December 2011, as well as a two-room Ambulatory Surgery Center in Indian Trail. Atrium Health also manages Union County’s Emergency Medical Service, which provides ambulance services for Union County. See “FINANCIAL AND UTILIZATION INFORMATION OF THE COMBINED GROUP– Lease of the Carolinas HealthCare System Union Hospital Real Estate from Union County” herein.

Two entities, Union Health Services, LLC and Union Medical Services, LLC, were formed to assist Carolinas HealthCare System Union in providing ambulatory surgery services and magnetic resonance imaging. In addition, Union Medical Office Building, LLC was formed to develop and operate a medical office building on land it leases from us. We own 100% of the membership interests in these three limited liability companies.

Carolinas HealthCare System University. Carolinas HealthCare System University is a 100 licensed-bed acute care facility that serves northern Mecklenburg, southern Iredell and western Cabarrus Counties in North Carolina, one of the fastest growing areas in the region. Carolinas HealthCare System University opened in 1985 and provides a wide range of services, including a 24-hour emergency department, comprehensive outpatient diagnostic and treatment services, ultrasound, cardiac catheterization, nuclear medicine, computerized axial tomographic, magnetic resonance imaging and angiography services, two sleep center locations, comprehensive surgical services (utilizing, where appropriate, the daVinci® Surgical System), a separate outpatient surgery center, two Pain Center locations, an intensive coronary care unit and obstetric and gynecology services. Oncology services include radiation therapy and Levine Cancer Institute medical oncology, hematology and chemotherapy. Carolinas HealthCare System University has the busiest emergency department in Mecklenburg County. The adjacent University Medical Park houses a wide variety of physician groups, with over 195,000 square feet of office space. The fourth floor of the main hospital building houses a long term acute care hospital. Carolinas HealthCare System University also operates a hospital based, 24-hour, 11-bed emergency department which opened in April 2012 and a medical office building with related outpatient services, including an ambulatory surgery center, at Carolinas HealthCare System Huntersville.

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Carolinas HealthCare System Kings Mountain. Carolinas HealthCare System Kings Mountain, which opened in 1951 and is located in the eastern portion of Cleveland County, is licensed for 67 acute care, mental health and chemical dependency beds. Services provided by Carolinas HealthCare System Kings Mountain include a 24-hour emergency department that includes a chest pain center accredited by the American Society of Chest Pain Centers, outpatient diagnostic and treatment services, ultrasound, computerized axial tomographic, magnetic resonance imaging, a pain clinic and surgical services.

Carolinas HealthCare System Lincoln. Carolinas HealthCare System Lincoln is a 101 licensed- bed acute care facility situated in the northwest quadrant of the Charlotte metro area, serving patients from Lincoln County, North Carolina, including the fast-growing eastern portion of the county, as well as northern Gaston and southern Catawba Counties in North Carolina. Operating in a replacement facility which opened in July 2010, Carolinas HealthCare System Lincoln provides a wide range of services, including a 24-hour emergency department, comprehensive outpatient diagnostic treatment services, ultrasound, nuclear medicine, computerized axial tomographic, magnetic resonance imaging, a sleep center, comprehensive surgical services, an intensive care unit, obstetric and gynecology services, medical oncology with an outpatient infusion center, a separate outpatient imaging center, satellite physical therapy clinics and a hospital based ambulatory surgery center, Carolinas HealthCare System – East Lincoln Medical Plaza, which is located in eastern Lincoln County. Carolinas HealthCare System Lincoln has received The Joint Commission Disease Specific Care Certifications in Advanced Inpatient Diabetes, and Joint Replacement–Hip and Knee.

Carolinas HealthCare System Stanly. Carolinas HealthCare System Stanly, which opened in 1945, is a 109 licensed-bed acute care facility located in Albemarle, North Carolina and serves the areas of Stanly and Montgomery counties. Carolinas HealthCare System Stanly provides a wide range of services, including a 24-hour emergency department, obstetric and gynecology services, an intensive care unit, cancer center housing both medical and radiation oncology, rehabilitation services, outpatient pain management, hyperbaric wound services, a behavioral health unit, comprehensive surgical services, a sleep center, child advocacy center and diagnostic imaging services in two locations, one being a stand- alone imaging facility in Locust, North Carolina. Carolinas HealthCare System Stanly has received The Joint Commission Disease Specific Care Certifications in Advanced Primary Stroke, Total Knee Replacement and Advanced Inpatient Diabetes.

Carolinas HealthCare System Anson. Carolinas HealthCare System Anson is a 15 licensed-bed acute care facility located in Wadesboro, North Carolina. Operating in a replacement facility which opened in July 2014, Carolinas HealthCare System Anson utilizes a medical-home model of care that brings a mix of medical services, including the 15-bed hospital, under one roof. Carolinas HealthCare System Anson also has a 10-unit, 24-hour emergency department with one trauma room, 11 rooms dedicated to primary-care physicians, and additional space for general surgeons, obstetricians and other specialists to see patients on a rotating basis.

Carolinas Rehabilitation – Charlotte, Mount Holly and NorthEast. Carolinas Rehabilitation is a rehabilitation hospital located on the campus of Carolinas Medical Center and is licensed for 70 beds. Carolinas Rehabilitation – Mount Holly is a 40-bed rehabilitation facility located in Mount Holly, North Carolina and Carolinas Rehabilitation – NorthEast is a 40-bed rehabilitation facility located in Cabarrus County, North Carolina, both of which serve as an extension of Carolinas Rehabilitation’s Charlotte campus. Collectively, these facilities serve the Southeast, routinely admitting patients from across North and South Carolina, and are the only rehabilitation facilities in the region serving the catastrophically injured. Additionally, Carolinas Rehabilitation manages the 29-bed rehabilitation unit located on the campus of Carolinas HealthCare System Pineville.

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Carolinas Rehabilitation provides inpatient and outpatient programs in traumatic brain injury, spinal cord injury, orthopedic, stroke and other neurological impairments and oncology. These services are delivered by a comprehensive team of specially trained physicians and clinicians, rehabilitation nurses, therapists, neuropsychologists, social workers and vocational specialists. Carolinas Rehabilitation provides comprehensive rehabilitative care for children and adults disabled by spinal cord injury, brain injury, stroke, cancer, multiple trauma and other diseases. Carolinas Rehabilitation is also a teaching hospital that supports a residency program with 15 physical medicine and rehabilitation residents, including one resident in partnership with the Veterans Administration located in Salisbury, North Carolina and one brain injury fellowship. Outpatient physician clinics provide services in several specialty areas including lymphedema, neuro-rehabilitation, spasticity management, musculoskeletal/interventional therapies for acute pain/dysfunction, acupuncture, sports medicine, post- polio, multiple sclerosis and post-concussive syndrome.

In addition to being accredited by The Joint Commission, Carolinas Rehabilitation has more programs accredited by the Commission on Accreditation of Rehabilitation Facilities than any other facility in the region.

Skilled Nursing Facilities – Huntersville Oaks, Sardis Oaks, Cleveland Pines, Jesse Helms Nursing Center, and Stanly Manor. Huntersville Oaks, located in northern Mecklenburg County, provides skilled nursing care and rehabilitation services to a wide range of individuals. The facility is dually licensed for 168 short- and long-term care beds. Sardis Oaks, located in southeast Charlotte, provides skilled nursing care and rehabilitation services with a total of 124 dually licensed short- and long-term care beds. Cleveland Pines, located in Shelby, North Carolina, provides skilled nursing care and rehabilitation services with a total of 120 dually licensed short- and long-term care beds. Jesse Helms Nursing Center, located in Monroe, North Carolina, provides skilled nursing care and rehabilitation services with a total of 70 dually licensed short- and long-term care beds. Stanly Manor, located in Albemarle, North Carolina, provides skilled nursing care and rehabilitation services with a total of 100 licensed long-term bed, including 10 assisted living beds.

The skilled nursing facilities serve people in need of short-term rehabilitation after a traumatic injury, post-surgery or illness, clinically complex patients, and others. Nursing services offered to patients include wound care, ostomy care, chest tubes, intravenous therapy, access to radiology services and phlebotomy services. The facilities also offer long-term care to people needing skilled care for an extended amount of time. The skilled nursing facilities have a history of attaining and maintaining high quality measures, with two of the five facilities having been ranked among the best nursing homes according to U.S. News and World Report.

Carolinas Palliative Care and Hospice Network. Atrium Health’s Carolinas Palliative Care and Hospice Network, Inc., directly and through its affiliates, has 50 licensed beds and provides physical, social, emotional and spiritual support, including high quality hospice services, to residents facing life- threatening illnesses in all the communities it serves. Hospice of Union County, which was the first hospice in North Carolina and one of the first in the nation to open a residential care facility, along with its branch office, Hospice of Anson County, and Hospice and Palliative Care of Cabarrus County are the three hospices that provide these services for Atrium Health.

Healthy@Home. Carolinas Medical Center at Home, LLC, operating as Healthy@Home, was established in July 2009 and offers Medicare certified skilled nursing, physical therapy, occupational therapy and speech therapy, supported by in-home aide and social work services, and a full range of home medical equipment, home infusion products and in-home monitoring.

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Component Unit

Atrium Health Foundation. Atrium Health Foundation (the “Foundation”), formerly known as The Carolinas HealthCare Foundation, Inc., a member of the Combined Group, is a legally separate nonprofit corporation operated to, among other things, solicit funds from individuals, organizations, corporations, foundations and various other agencies for the promotion and support of medical care, education, and research. In the absence of specific donor restrictions, the Board of Directors of the Foundation has discretionary control over the amount of funds distributed. Additionally, the Board of Directors of the Foundation has the power to direct the actions and policies of the Foundation separately from Atrium Health. Funds received by Atrium Health from the Foundation are categorized as “other revenue” in the combined financial statements of Atrium Health. Since its inception, substantially all of the Foundation’s grants have been made to, and in support of, the Combined Group. The articles of incorporation of the Foundation provide that upon dissolution, its assets shall be distributed to us. (For more information regarding the Foundation, see Note 1 in the audited financial statements for the years ended December 31, 2017 and 2016 in Appendix B.)

Regional Enterprise Facilities

AnMed Health. In August 2009, we entered into a services and affiliation agreement with AnMed Health to provide managerial oversight. AnMed Health is based in Anderson, South Carolina and operates a 461 licensed-bed acute care facility known as AnMed Health Medical Center, a 72 licensed- bed hospital known as AnMed Health Women’s and Children’s Hospital and a 60 licensed-bed rehabilitation hospital known as AnMed Health Rehabilitation Hospital (a joint venture with the HealthSouth Corporation), all of which are located in Anderson, South Carolina. AnMed Health also owns and operates various outpatient clinics and physician practices in numerous locations in South Carolina and Georgia.

AnMed Health System is the sole member of Cannon Memorial Hospital, Inc., a 55-bed acute care facility located in Pickens, South Carolina.

Blue Ridge HealthCare System. In 1999, we entered into a management contract with Blue Ridge HealthCare System, Inc., which was created in 1999 when we, Valdese General Hospital, Inc. and Grace Hospital, Inc. formed the joint operating company to financially and operationally integrate our facilities owned by Valdese General Hospital, Inc. and the facilities comprising the Grace Healthcare System. Effective November 30, 2012, Valdese General Hospital, Inc. merged with Grace Hospital, Inc., which was renamed Blue Ridge HealthCare Hospitals, Inc.

Blue Ridge HealthCare Hospitals, Inc. owns and operates a full service, 315 licensed bed acute care hospital on two campuses: Carolinas HealthCare System – Blue Ridge Morganton (formerly known as Grace Hospital) located in Morganton, Burke County, North Carolina, and Carolinas HealthCare System - Blue Ridge Valdese (formerly known as Valdese Hospital) located in Valdese, Burke County, North Carolina. Blue Ridge HealthCare Hospitals, Inc. also owns, directly or through controlled affiliates, the 104 licensed-bed College Pines Health and Rehabilitation Center, located in eastern Burke County, and the 72 licensed-bed Grace Ridge Retirement Community, the 120 licensed-bed Grace Heights Health and Rehabilitation Center and the Phifer Wellness Center, all of which are located in Morganton, Burke County, North Carolina.

Blue Ridge HealthCare Hospitals, Inc. partners with the Edward Via College of Osteopathic Medicine to provide graduate medical education training opportunities for medical students, interns and residents with programs in Internal Medicine and Family Practice.

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Columbus Regional Healthcare System. In 2007, we entered into a management contract with Columbus Regional Healthcare System to manage the Columbus Regional Healthcare System in Whiteville, Columbus County, North Carolina. The contract was extended in 2017 for an additional five- year term. Columbus Regional Healthcare System is a full service, 154 licensed-bed community hospital owned by the County of Columbus and leased to Columbus Regional Healthcare System under the terms of a long-term lease. Effective November 3, 2008, Carolinas Physicians Network, Inc. entered into a management agreement with Columbus Regional Health Network, Inc., which consists of 10 physicians (39% primary care) in four locations. Columbus Regional Health Network has expanded services to seven clinic locations and added seven Advanced Care Providers.

Cone Health. In 2012, we entered into a management contract with The Moses H. Cone Memorial Hospital and The Moses H. Cone Memorial Hospital Operating Corporation to manage the entities and facilities that comprise Cone Health. Cone Health is based in Greensboro, North Carolina and operates four hospitals located in Greensboro: The Moses H. Cone Memorial Hospital, a 517 licensed-bed tertiary care teaching hospital (including 49 rehabilitative beds); the Wesley Long Hospital, a 175 licensed-bed community hospital; the Women’s Hospital, a 134 licensed-bed hospital providing services for women and infants and the Behavioral Health Hospital, an 80 licensed-bed inpatient psychiatric hospital. Additionally, Cone Health includes Alamance Regional Medical Center, a 238 licensed-bed community hospital, including 44 mental health beds and 12 chemical dependency beds, which is located in Burlington, North Carolina and serves the Triad community of North Carolina. Cone Health also includes Annie Penn Hospital, a 110 licensed-bed community hospital in Reidsville, North Carolina, that is also the site of Penn Nursing Center, which includes 82 long-term care beds and 10 adult care home beds.

Through an affiliation agreement effective June 1, 2016, Cone Health provides management oversight to Randolph Hospital, a 145-bed acute care facility located in Asheboro, North Carolina.

New Hanover Regional Medical Center Physicians Group. In November 2008, Carolinas Physicians Network, Inc. entered into a management contract with Carolina Healthcare Associates, Inc. to manage the physician network of New Hanover Regional Medical Center, which consists of 142 physicians, and 56 Advanced Care Providers (27% primary care) in 37 locations.

Roper St. Francis Healthcare. In 1998, we, The Medical Society of South Carolina and Bon Secours Health System, Inc. founded RBC Health System, Inc., which is now incorporated as CareAlliance Health Services and operates as Roper St. Francis Healthcare. We own a 10% membership interest in and manage Roper St. Francis Healthcare. Roper St. Francis Healthcare consists primarily of Roper Hospital, Bon Secours-St. Francis Hospital, Roper St. Francis Mount Pleasant Hospital, and a Physicians Network comprised of approximately 250 employed physicians. Roper Hospital is an integrated tertiary care hospital with 316 licensed beds, several diagnostic centers and ambulatory care centers, one freestanding surgery center, two remote, freestanding emergency departments, a 52 licensed- bed rehabilitation unit and a variety of other ancillary services serving the low country region of South Carolina. Bon Secours-St. Francis Hospital is a community hospital located in the West Ashley area of Charleston, South Carolina and is currently licensed for 204 beds. Roper St. Francis Mount Pleasant Hospital began operations in 2010. It is an 85-bed community hospital located on Highway 17 in Mount Pleasant, South Carolina approximately 13 miles from downtown Charleston.

Design and construction by Roper St. Francis Healthcare of a 50-bed hospital in Berkeley County, South Carolina commenced in January 2016 and is expected to be completed in August 2019. The hospital will feature a 24-hour emergency room, women’s services (including obstetrics), inpatient and outpatient surgery, intensive and critical care units, imaging, laboratory and pharmacy services and a medical office building.

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In June 2018, Roper St. Francis Healthcare notified us that it will reconfigure its approach to management services, which includes not renewing the existing management agreement with us, with the intended termination date being December 31, 2018. We expect to continue to partner with Roper St. Francis Healthcare on individual healthcare projects and services.

Scotland Health Care System. In April 2009, we entered into a management contract with Scotland Health Care System in Laurinburg, Scotland County, North Carolina. The contract was recently extended through March 31, 2026. Scotland Health Care System includes Scotland Memorial Hospital, a full service 104 licensed-bed community hospital (including seven rehabilitative beds), and Hospice of Scotland County. Effective May 1, 2010, Carolinas Physicians Network, Inc. entered into a management agreement with Scotland Regional Health Network, which was amended in March 14, 2018, to include management of a primary care practice owned by Scotland Memorial Hospital. Collectively, the practices managed by Carolinas Physician Network, Inc. consist of 16 physicians (24% primary care) in two locations.

St. Luke’s Hospital. In July 2008, we entered into a management contract with St. Luke’s Health Care, Inc. in Columbus, Polk County, North Carolina to manage St. Luke’s Hospital. Upon its ten year anniversary, a five year extension of the management contract was executed. St. Luke’s Hospital is a 25 licensed-bed facility, currently operating 25 beds under federally designated “critical access” status, on property owned by Polk County and leased to St. Luke’s Health Care, Inc. pursuant to a long-term lease. The facility also operates 10 licensed psychiatric beds and offers primary medical services and surgical services, as well as outpatient psychotherapy services, infusion services and pain services. Effective May 1, 2009, Carolinas Physicians Network, Inc. entered into a management agreement with St. Luke’s Physician Network, Inc., which consists of six physicians (50% primary care) in four locations.

Strategic Services Agreements

New Hanover Regional Medical Center. In July 2014, we entered into a services agreement with New Hanover Regional Medical Center, in Wilmington, New Hanover County, North Carolina to provide certain strategic affiliation services which include clinical affiliation services and operational support services. New Hanover Regional Medical Center and its affiliates include the following five hospital facilities with a total of 855 licensed beds (including 43 skilled nursing beds at Pender Memorial Hospital): New Hanover Regional Medical Center, NHRMC Behavioral Health Hospital, NHRMC Rehabilitation Hospital, NHRMC Orthopedic Hospital, Betty H. Cameron Women’s & Children’s Hospital and Pender Memorial Hospital located in Burgaw, Pender County, North Carolina. Additionally, we manage the New Hanover Regional Medical Center Physicians Group, a comprehensive multi-specialty network of physicians providing care throughout the region.

Southeastern Health. In March 2016, we entered into a services agreement with Southeastern Health, in Lumberton, Robeson County, North Carolina to provide certain strategic affiliation services which include clinical affiliation services, operational support services and information technology consulting services. Southeastern Health operates Southeastern Regional Medical Center, a full-service 292-licensed bed acute care hospital in Lumberton, North Carolina, as well as Southeastern Health Park (ambulatory surgical and care facility), Woodhaven Nursing, Rehab and Alzheimer’s Care Center, Southeastern Hospice House and over 40 primary care, specialty and urgent care clinics throughout the area.

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Joint Ventures

We and a large neurosurgical physician practice each own a 50% interest in an ambulatory surgery center, Carolina Center for Specialty Surgery, that specializes in minimally invasive spine surgery and related neurological pain procedures, as well as plastic and gynecologic surgery.

We own a 60% membership interest in two joint ventures with a gastroenterology group. The joint ventures operate eight endoscopy suites at four Carolina Endoscopy Centers in the Charlotte, North Carolina area.

We own a 50% membership interest in a joint venture with various surgeons serving Cabarrus County. The joint venture, Gateway Ambulatory Surgery Center LLC, owns and manages an ambulatory surgery center located in Concord, North Carolina.

We own a 50% membership interest in a joint venture with Wake Forest University Baptist Medical Center. The joint venture, MedCost, LLC, is based in Winston-Salem, North Carolina and is an integrated benefits solution company offering customized programs to help employers lower their health plan costs and provide more affordable benefits.

We own an 80% nonvoting interest in a joint venture with Community Hospital Corporation, a Texas non-profit corporation that owns and manages long-term acute care hospitals (LTACH) in several states. The joint venture, Carolinas Community Care, LLC, owns and operates LTACHs within Carolinas HealthCare System Kings Mountain and Carolinas HealthCare System University as well as a 40-bed LTACH on the campus of Carolinas HealthCare System Pineville.

We have entered into a Joint Development Agreement with an ambulatory surgery management firm to provide development and management services for two ambulatory surgery centers in Charlotte, North Carolina. Once the project is fully developed, we will own a 45% interest in the joint venture with the developer and participating physicians owning an aggregate of 55%. The joint venture is expected to be operational near the end of 2018.

We are also currently a participant in other joint ventures that provide imaging and radiation therapy in the region.

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Certain Summary Financial and Utilization Information for the Component Unit, Regional Enterprise Facilities and Joint Ventures

The following table summarizes certain financial information, derived from financial statements, for (1) the Component Unit and (2) the Regional Enterprise Facilities that provide inpatient care. Atrium Health Foundation is a member of the Obligated Group but none of the Regional Enterprise Facilities included in the table is a member of the Combined Group. The information set forth below is as of and for the year ended December 31, 2017 unless otherwise stated. The financial information included in this table (other than with respect to Atrium Health Foundation) is not included in the information set forth under the caption “FINANCIAL AND UTILIZATION INFORMATION OF THE COMBINED GROUP.”

Revenues Operating Over Unrestricted Total Income (Under) Total Assets Net Position Revenues (Loss) Expenses (In thousands of dollars) Component Unit: Atrium Health Foundation $ 355,266 $ 32,445 $ 25,861 $ (9,016) $ 31,392 Subtotal $ 355,266 $ 32,445 $ 25,861 $ (9,016) $ 31,392 Regional Enterprise Facilities: AnMed Health $ 944,637 $ 591,720 $ 554,029 $ (20,504) $ 43,439 Blue Ridge HealthCare System 411,182 280,682 266,702 4,933 10,197 Columbus Regional Healthcare System(1) 121,896 64,715 88,550 (959) 2,757 Cone Health(1) 2,606,301 1,642,502 1,836,565 51,690 66,329 Randolph Hospital(1) 116,687 39,032 119,964 (14,500) (12,200) Roper St. Francis Healthcare 1,142,834 369,020 900,239 (11,643) 8,608 Scotland Health Care System(1) 202,711 139,966 161,866 14,832 16,781 St. Luke’s Hospital(1) 39,251 28,888 42,353 875 2,168 Subtotal $ 5,585,499 $ 3,156,525 $ 3,970,268 $ 24,724 $ 138,079 Total $ 5,940,765 $ 3,188,970 $ 3,996,129 $ 15,708 $ 169,471 ______(1) Fiscal year ended September 30, 2017.

We do not currently guarantee any of the obligations of the Regional Enterprise Facilities. The management fees and contracted service revenues are recorded as “Other Revenue” in the combined statements of revenues, expenses, and changes in net position of Atrium Health.

The following table summarizes the surgical procedures performed at ambulatory surgery centers operated by joint ventures in which we own a membership interest. None of the joint venture entities in the table is a member of the Combined Group. Our share of earnings or distributions from the joint ventures are recorded as “Other Revenue” in the combined statements of revenues, expenses, and changes in net position of Atrium Health.

Year Ended Six Months December 31, Ended June 30, 2015 2016 2017 2017 2018 Carolina Center for Specialty Surgery 2,235 2,275 2,517 1,241 1,274 Gateway Ambulatory Surgery Center, LLC 6,474 6,835 7,366 3,265 3,135 Total 12,690 9,110 9,883 4,506 4,409

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Combined Group Medical and Dental Staff

The medical and dental staff of the Members of the Combined Group includes practitioners in 30 clinical specialties. The average age of the members of the medical and dental staff is approximately 48. As of June 30, 2018, the staff consisted of 3,276 physicians and dentists, 2,796 (or approximately 85%) of whom are board-certified. We verify the credentials for all members of the medical and dental staff.

The following table summarizes certain information concerning the Combined Group’s medical and dental staff as of June 30, 2018:

Average Primary Specialty Age Physicians Board Certified Allergy and Immunology 44 6 6 Anatomic Pathology 53 6 6 Anatomic-Clinical Pathology 50 25 25 Anesthesiology 47 111 96 Clinical Genetics and Genomics 43 2 2 Colon and Rectal Surgery 48 1 1 Dentistry 47 68 18 Dermatology 49 53 53 Diagnostic Radiology 50 192 183 Emergency Medicine 43 251 212 Family Medicine 47 215 206 Surgery 48 162 106 Internal Medicine 47 931 780 Interventional Radiology and Diagnostic Radiology 39 1 1 Neurology 50 107 100 Neurology with Special Qualification in Child Neurology 47 9 9 Neurological Surgery 44 27 20 Obstetrics and Gynecology 49 185 162 Ophthalmology 51 77 77 Oral and Maxillofacial Surgery 47 28 21 Orthopedic Surgery 49 163 140 Otolaryngology 50 59 57 Pediatrics 35 311 259 Physical Medicine and Rehabilitation 45 45 43 Plastic Surgery 51 42 27 Psychiatry 45 91 82 Radiation Oncology 49 34 32 Thoracic Surgery 57 15 15 Urology 53 57 55 Vascular Surgery 38 2 2 Totals 48 3,276 2,796

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Clinically Integrated Network, Accountable Care Organization and Population Health Activities

Carolinas Physician Alliance

Carolinas Physician Alliance, our clinically integrated network, continues to grow in number of physician members and geographical reach. The physician-led entity has been active in a hospital quality and efficiency program and will begin work that focuses on reducing waste and low value care.

Carolinas HealthCare System ACO, LLC

Consistent with its mission and the need for a shift in care delivery to accommodate the changing healthcare landscape, in 2016 Atrium Health formed a dedicated Population Health division with a vision to provide a sustainable, high quality healthcare delivery system that provides value to patients, employers and payers by delivering outstanding clinical care and outcomes while reducing inefficiencies, redundancies and their associated costs. The goal of the population health team centers upon shifting Atrium Health from fee-for-service based delivery system to value based care by modifying care management programs, redesigning primary care, building community relationships to address social determinants of health, as well as developing the data and analytics capabilities to successfully change the environment.

Carolinas HealthCare System ACO, LLC applied and was selected to participate as an accountable care organization in the Centers for Medicare and Medicaid Services Medicare Shared Savings Program – Track 1, and began providing Medicare beneficiaries with access to quality, coordinated care across the region on January 1, 2018. With over 99,000 attributed beneficiaries, this population will form a foundation from which to build actionable data and sustain high quality, low cost care for our patients.

Clinically Integrated Network and Accountable Care Organization Experience and Results

Over the past two years, we have worked to align our providers and resources and optimize our infrastructure. The ability to re-deploy current resources with improved focus led to quality outcomes for our patients that were recognized by our 2017 Merit-Based Incentive Payment System performance, resulting in Atrium Health receiving upward adjustments to Medicare payments in 2019.

Managing the continuum of care is a key focus of our value strategy. To better manage the cost, quality and utilization of our post-acute facilities, we worked in 2018 to establish a network of the highest performing post-acute providers. As a result, our Skilled Nursing Collaborative continues to achieve positive results including a first quarter Medicare Shared Savings Program performance that is 25% lower than all accountable care organizations within our peer groups.

A focus on high value care has also led us to examine inappropriate Emergency Department utilization. Our care management team studied usage rates and identified patients with inappropriate utilization that could be seen in an urgent care or virtual setting. Because of these efforts, the team reduced avoidable Emergency Department utilization by over 30%, resulting in the right care, in the right place, at the right time for our patients.

With a relatively small number of prescriptions driving the majority of our pharmacy spend, Carolinas Physician Alliance, in conjunction with pharmacy teammates, focused on reducing prescription costs to Atrium Health and its teammates who participate in the LiveWELL health plan. Through an in- depth analysis of pharmacy claims information, high cost pharmacy categories were successfully targeted for cost savings efforts due to the availability of lower cost alternative medications.

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Population Health Activities

A significant piece of our value strategy is caring for the whole person, not just by providing clinical services, but by addressing social determinants of health. In early 2018, Atrium Health launched a Community Resource Hub that provides the ability to connect patients with community resources, and for community partners to provide information back to clinicians. To better facilitate these connections, seven key social determinant questions have been embedded in our electronic medical record that ensures we are addressing food insecurity, transportation and housing concerns.

Community health provides a unique space to innovate care delivery. As seen in a Cleveland County, North Carolina pilot program, virtual clinics that were embedded into elementary schools to assist nurses in facilitating care succeeded in improving access to primary care, reducing early dismissals from school by 50% and significantly reducing Emergency Department utilization.

Atrium Health is partnering with Novant Health and the Mecklenburg County Health Department to utilize multiple methods to improve healthcare access to areas in our community with the highest need. This partnership also works with other holistic community resources to provide needed services to the most vulnerable patients.

As Atrium Health works toward meeting its contracted metrics for shared savings, we are providing better care for our patients. One example is the partnership with Humana to facilitate Humana care manager assisted visits within primary care practices. This provides physicians with vital information that may not have been available previously and provides a more impactful visit.

Extending outside walls in a different direction, Atrium Health continues to partner with employers in the area to expand relationships and provide health services to their employees. These services range from immunizations and health screenings to coaching and physician referrals.

Our virtual health initiative continues to place the power to engage in the hands of the patient. During the most recent flu season, we provided virtual visits to patients to stem the spread of the flu and manage the risk to other Atrium Health patients.

Future Plans for the Combined Group

We plan for, evaluate and pursue potential merger, acquisition and affiliation candidates as part of our overall strategic planning and development process. As part of our ongoing planning and property management functions, we review the use, compatibility and business viability of many of the Combined Group’s operations and, from time to time, the Combined Group may pursue changes in the use of, or disposition of, its facilities. In addition, discussions with respect to affiliation, merger, acquisition, disposition or change of use, including those that may affect the Combined Group, are held from time to time with other parties and may include the execution of non-binding letters of intent. These may be conducted with other providers and may relate to potential affiliation with the Combined Group. As a result, it is possible that the organizations and assets that currently constitute the Combined Group may change from time to time.

In February 2018, Atrium Health signed a letter of intent with Navicent Health, Inc., a Georgia nonprofit corporation headquartered in Macon, Georgia (“Navicent Health”), to enter into a strategic combination to enhance access, affordability, and equity of care for individuals and families in central and south Georgia. Navicent Health’s primary purpose is to oversee the operations of its subsidiaries in their mission of providing a comprehensive continuum of high quality, reasonably priced healthcare services to the region. Navicent Health has 970 licensed beds for medical, surgical, rehabilitation and hospice purposes. The Navicent Health system includes The Medical Center, Navicent Health, a nationally

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recognized tertiary teaching hospital that is the second largest hospital in the State of Georgia; Beverly Knight Olson Children’s Hospital, Navicent Health, the region’s only dedicated pediatric hospital; Navicent Health Baldwin and Medical Center of Peach County, Navicent Health, both rural hospitals; Rehabilitation Hospital, Navicent Health, the region’s oldest and most experienced rehabilitation provider; Pine Pointe, Navicent Health, which provides palliative and hospice care in homes and in its facility; Carlyle Place, Navicent Health, the area’s first continuing care retirement community; Navicent Health Foundation, the philanthropic arm of Navicent Health; as well as diagnostic and home care services.

In August 2018, Atrium Health and Navicent Health completed their negotiation of a member substitution agreement, pursuant to which AHNH Georgia, Inc., a newly-formed controlled affiliate of Atrium Health, will become the sole corporate member of Navicent Health (the “Sole Member”). Through this member substitution transaction, the Navicent Health system will become a regional hub in, and an integral part of, the Atrium Health system. Under Georgia law, the member substitution agreement cannot be entered into until the Georgia attorney general holds a public hearing and issues a report regarding the public benefits of the proposed transaction. The public hearing will be held on November 5, 2018. If the Georgia attorney general issues a favorable report with respect to the proposed transaction, Atrium Health and Navicent Health expect to sign the member substitution agreement and close the transaction as promptly as possible thereafter.

Some of the provisions of the member substitution agreement submitted to the Georgia attorney general are the following:

• Subject to certain reserved powers of the Sole Member, the Navicent Health board will remain the governing body of Navicent Health. The members of the Navicent Health board prior to closing will remain members of the initial Navicent Health board post-closing, with the addition of two new directors appointed by the Sole Member. Navicent Health will have the right to nominate two members to serve on the Atrium Health Board. The Navicent Health Chief Executive Officer will be an employee of Atrium Health and will report to the Atrium Health President and Chief Executive Officer, with accountability to both the Navicent Health and Atrium Health boards. • The Sole Member’s reserved powers will include, among others, the right to approve Navicent budgets; the right to approve Navicent borrowings and the discharge of Navicent debt; the right to approve mergers, joint ventures, acquisitions and similar transactions involving Navicent Health; the right to approve the appointment or removal of the Navicent Health Chief Executive Officer; and, with certain limitations, the right to cause the removal of the Navicent Health directors. • Navicent Health and Atrium Health will create a Navicent Health-led hub of health care facilities to coordinate an expanded system of healthcare in Central and South Georgia. • Atrium Health will agree to maintain an expanded array of healthcare services in the Navicent Health service area, including maintaining Navicent Health as an acute and tertiary provider, teaching hospital, and related system, and to maintain Navicent Health's facilities at a standard at least consistent generally with comparable Atrium Health hospitals. • Atrium Health will agree to ensure that Navicent Health’s indigent care obligations are funded at the greater of Navicent Health’s historical practices or the policies and practices applied generally across Atrium Health’s hospitals.

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• Atrium Health will commit to making certain capital expenditures at Navicent Health facilities within the first 10-year period following the closing of the transaction, across the following categories: (a) capital expenditures for routine maintenance and replacement of Navicent Health facilities and equipment; (b) investments in certain mutually agreed “strategic initiatives” of Navicent Health; (c) investments in strategic growth, including acquisition and development of other hospitals, health care systems, facilities and/or operations, in each case that are directly beneficial to Navicent Health's mission; and (d) investments in certain “discretionary initiatives” in Central and South Georgia, which will be reviewed and recommended by the Navicent Health board and approved by Atrium Health. • The source of the funds for the capital commitment expenditures will include Navicent Health’s existing cash, cash flows from the operations of the Navicent Health facilities following the closing of the transaction, Atrium Health cash ($425 Million) and possibly additional borrowings. In total, the capital expenditures at Navicent Health will equal at least $1 Billion over the first 10 years following the combination. • Except for Navicent Health Foundation, all of the current subsidiaries of Navicent Health will remain subsidiaries of Navicent Health. Navicent Health Foundation will become independent and will continue to support the activities of Navicent Health and its subsidiaries. As an independent body, Navicent Health Foundation will have the right to enforce Atrium Health’s contractual commitments to Navicent Health under the member substitution agreement.

The following table summarizes certain financial information, derived from audited consolidated financial statements of Navicent Health, Inc. and affiliates for the year ended September 30, 2017. Neither Navicent Health, Inc. nor any of its affiliates is a member of the Combined Group. The financial information included in this table is not included in the information set forth under the caption “FINANCIAL AND UTILIZATION INFORMATION OF THE COMBINED GROUP.”

Navicent Health, Inc. and Affiliates(1) Revenues Operating Over Unrestricted Cash Unrestricted Total Income (Under) and Investments Total Assets Long-Term Debt Net Assets Revenues (Loss) Expenses (In thousands of dollars)

$ 791,564 $ 1,682,142 $ 243,223 $ 1,017,083 $ 671,394 $ (116,780) $ (82,178)

______(1) In 2017, Navicent Health took a onetime write-off related to the implementation of a patient billing system.

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GOVERNANCE AND MANAGEMENT

Corporate Relationships

Other than Atrium Health Foundation, we control, directly or indirectly, each of the other Members of the Combined Group through restrictive provisions in their governing documents and/or through the power, directly or indirectly, to appoint and remove the members of the governing board of each of the other Members of the Combined Group.

Board of Commissioners

We are governed by the Board of Commissioners (the “Board”), comprised of 6 to 26 members (the “Commissioners”), who are appointed by the Chairman of the Board of County Commissioners of Mecklenburg County from nominees submitted by the Board. Commissioners are appointed for staggered three-year terms and may succeed themselves. The Board meets at least once per calendar quarter. The officers of the Board are the Chairman, First Vice Chairman, two Vice Chairmen and the Secretary. The officers are elected by the Board from among the Commissioners for one-year terms. The officers of the Board, the Chairman of its Finance and Compliance Committee and such other Commissioners as may be appointed by the Board serve as the Executive Committee of the Board. The Executive Committee is authorized to act for the Board when the Board is not in session. The standing committees of the Board are: the Executive Committee, which meets as necessary; the Finance and Compliance Committee and the Quality Care and Comfort Committee, each of which meets four times per year; the Strategic Planning Committee, which meets at least two times per year; the Nominating and Governance Committee, which meets at least twice each year; and the Compensation Committee, which meets at least three times each year.

The Board proactively adopts best practices pertaining to governance, including conflict of interest policies and annual disclosures, restrictions on use of external auditors, committee charters, senior management certification of interim financial statements, governance compliance audits and Board Committee oversight of external auditors. Additionally, certain members of the Board serve with certain members of the Board of Directors of the Foundation on an Investment Oversight Committee which meets quarterly to oversee the Combined Group’s various long-term investments.

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The Commissioners, the officers of the Board, the expiration dates of their terms and their occupations are as follows:

Board Members Term Expires Occupation Edward J. Brown III(1) 12/31/20 President, CEO and CFO, Hendrick Automotive Chairman Group Malcolm E. Everett III(1) 12/31/18 Principal, Cardinal Funding Services, Inc.; First Vice Chairman Retired, Director, Corporate & Community Affairs, Wachovia Corporation William C. Cannon, Jr. (1) 12/31/18 President, The Cannon Foundation, Inc. Vice Chairman Vicki S. Sutton(1) (2) 12/31/18 Former President, Paramount Parks, Civic Vice Chairman Leader and Private Investor Gracie P. Coleman(1) 12/31/20 Retired Executive Secretary Donnie R. Baucom 12/31/20 President, AAA Siding and Windows, Inc. Amy Woods Brinkley 12/31/19 Manager, AWB Consulting. LLC Marshall Carlson 12/31/18 President and COO, Hendrick Motorsports Michael R. Coltrane 12/31/18 Retired CEO, CT Communications, Inc. Rush S. Dickson III 12/31/20 President, Metro Marketing Nancy J. Gritter, M.D. 12/31/20 Physician, Metro Nephrology Associates, P.A. May Beverly Hemby 12/31/19 Homemaker and Civic Leader Hal A. Levinson 12/31/19 Senior Partner, Moore & Van Allen, PLLC James E. Mattei 12/31/20 Co-manager, Mattei Holdings, LLC Albert L. McAulay, Jr. (1) 12/31/18 President, The McAulay Smith Firm – Executive Search Firm Thomas C. Nelson 12/31/19 Chairman, President and CEO, National Gypsum Company William T. Niblock 12/31/18 President, Niblock Homes E.K. (Toby) Prewitt, Jr. 12/31/18 Retired Senior Vice President, SunTrust Bank Michael D. Rucker 12/31/20 Owner, Vision Group Realty Angelique R. Vincent-Hamacher 12/31/19 Attorney, Robinson, Bradshaw & Hinson, P.A. Donaldson G. Williams 12/31/19 President, Medalist Capital Richard “Stick” Williams 12/31/19 Retired President, Duke Energy Foundation Eugene A. Woods 12/31/20 President and CEO, Atrium Health Ronald H. Wrenn 12/31/19 CEO, 3fish, inc. ______(1) Member of the Executive Committee (2) Chairman, Atrium Health Foundation Management

Executive management of Atrium Health and the President of Atrium Health Foundation are as follows:

EUGENE A. WOODS (age 54), President and Chief Executive Officer. Mr. Woods joined Atrium Health in April 2016, and under his leadership, Atrium Health has been recognized as one of the Best Employers for Diversity by Forbes, number one on the list of Best Places to Work for Women & Diverse Managers by DiversityMBA and one of the 150 Top Places to Work in Healthcare by Becker’s Healthcare. Mr. Woods has more than 25 years of healthcare leadership experience, having overseen non-profit and for-profit managed hospitals, academic and community-based delivery systems and rural

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and urban facilities. Most recently, Mr. Woods served as President and Chief Operating Officer of CHRISTUS Health in Irving, Texas, since 2011. Mr. Woods holds a bachelor’s degree in health planning and administration as well as master’s degrees in business administration and health administration from The Pennsylvania State University. He has also served as the Chairman of the American Hospital Association Board of Trustees and, over his career, he has been the recipient of numerous industry distinctions including being named one of the 100 Great Leaders in Healthcare by Becker’s Healthcare, one of the Most Powerful Executives in Corporate America by Black Enterprise, and one of the Most Admired CEOs of 2018 by the Charlotte Business Journal. In addition, Mr. Woods has been renamed as one of the 100 Most Influential People in Healthcare, taking spot No. 12, as well as one of Modern Healthcare’s Top-25 Minority Executives in Healthcare for the fourth consecutive year.

ANTHONY C. DEFURIO (age 55), Executive Vice President and Chief Financial Officer. Mr. DeFurio came to Atrium Health in October 2017 from University of Colorado Health in Denver, Colorado, where he was Senior Vice President and Chief Financial Officer since 2006. Mr. DeFurio has over 30 years of leadership experience within complex healthcare organizations, including Chief Financial Officer for University of Colorado Hospital Authority, University of Iowa Hospitals and Clinics, Sisters of Charity Providence Hospitals, Catholic Health Initiatives (Centura) and an extensive career with Columbia/HCA and related entities. Mr. DeFurio holds a bachelor’s degree in biology from Indiana University in Pennsylvania as well as master’s degrees in business administration and health administration from the University of Pittsburg. He was named to Becker Hospital Review’s 2017 list of “Hospital and Health System CFOs to Know” and was previously named “CFO of the Year for Nonprofits” by the Denver Business Journal.

JIM D. DUNN (age 51), System Chief Human Resources Officer. Mr. Dunn joined Atrium Health in May 2018. He leads teams that focus on the engagement of Atrium Health teammates – from recruitment through retirement – including workforce relations, diversity and inclusion, compensation, benefits, learning and organizational development, teammate health, LiveWELL, recognition, events and human resources communications. Prior to joining Atrium Health, Mr. Dunn served as Executive Vice President and Chief Talent Officer at Parkland Health and Hospital System in Dallas, Texas, since 2014. Mr. Dunn also held the position of Human Resources and Learning Executive for the Cleveland Clinic, Chief Learning Officer for Texas Health Resources and the national Vice President of Human Resources and Talent Retention Strategies for the American Cancer Society. He also led the global Human Resources operations for former President Jimmy Carter at the Carter Presidential Center in Atlanta. Mr. Dunn holds a bachelor’s degree in chemistry and macro-environmental science from Howard University, a master’s degree in business administration from the Massachusetts Institute of Technology and a master of public health degree in occupational health from Emory University. Additionally, he holds multiple doctoral degrees in education, organizational development and healthcare administration from Emory University, Benedictine University and the Medical University of South Carolina, respectively. Among numerous achievements, Mr. Dunn received the Global Strategic HR and OD Award from the Organizational Development Institute for his work on informal cultures and was named among the 2018 Most Influential African-Americans in Corporate America by Savoy Magazine.

KEN D. HAYNES (age 50), Executive Vice President and Chief Operating Officer. Mr. Haynes came to Atrium Health in February 2017 from CHRISTUS Health’s Santa Rosa Hospital System in San Antonio, Texas, where he served as President and Chief Executive Officer. Mr. Haynes has over 25 years of extensive experience leading complex health organizations, including as President of the Saint Joseph Health System, Chief Operating Officer for St. Vincent Health System and various roles at Baptist Memorial Health Care in Memphis, Tennessee. Mr. Haynes holds a bachelor’s degree in health administration from the University of Alabama as well as master’s degrees in business administration and health administration from the University of Alabama at Birmingham.

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CAROL A. LOVIN (age 63), Executive Vice President and System Chief of Staff. Ms. Lovin is responsible for coordinating and integrating the work of the executive team and its relationship with the Board of Commissioners and leading the integration of new partners, working enterprise-wide to create differentiating capabilities and value. Ms. Lovin also serves as lead architect and integrator across Atrium Health’s external environment, overseeing corporate communications, marketing and external affairs and building Atrium Health into a meaningful national brand. With more than 30 years of healthcare experience advancing strategy, communications and operational execution, Ms. Lovin joined Atrium Health in July 2007 when NorthEast Medical Center, where she led strategic planning, marketing and business development, was integrated into Atrium Health. Prior to her current role, she served as Atrium Health’s Executive Vice President and Chief Strategy Officer, overseeing strategy, business development, marketing and communications and innovation. She also led the launch of Atrium Health’s innovation group and an advanced analytics group. Ms. Lovin holds a bachelor’s degree in nursing and a master’s degree in nursing from the University of Washington as well as a master’s degree in health services administration from the University of Michigan. Among others, recent recognitions include being named to Becker’s Hospital Review’s lists of “Women Hospital and Health System Leaders to Know” and “Hospital and Health System Chief Strategy Officers to Know.”

ROGER A. RAY, MD (age 59), Executive Vice President, Chief Physician Executive and Group President/Regional Executive-South Carolina. Dr. Ray is responsible for the management and direction of Atrium Health’s Medical Group Division, medical education and research, and service lines and care divisions. Dr. Ray also leads Atrium Health’s value strategy which includes population health management, Atrium Health’s clinically integrated network and the development of accountable care organizations. In his role as regional executive of South Carolina, he works to fortify and expand relationships with Atrium Health’s regional partners, ultimately helping to extend Atrium Health’s mission into more communities. Prior to joining Atrium Health in 2007, Dr. Ray served as the Chief Quality Officer for BayCare Health System in Tampa, Florida. Dr. Ray received his undergraduate degree from the University of Virginia and his medical degree from West Virginia University. He received a master’s degree in business administration from the University of Colorado. He is certified by the American Board of Psychiatry and Neurology, the American Board of Electrodiagnostic Medicine and the Certifying Commission in Medical Management.

KEITH A. SMITH (age 50), Executive Vice President and General Counsel. Mr. Smith has been with Atrium Health since 1997 and has more than 25 years of legal expertise in diverse areas including healthcare regulatory issues and healthcare transactions. His primary responsibility is managing Atrium Health’s legal affairs, corporate compliance, privacy, insurance and risk management programs. In addition to his responsibilities as Executive Vice President and General Counsel, Mr. Smith provides guidance in the areas of corporate governance, corporate law and healthcare regulatory issues. Mr. Smith holds a bachelor’s degree in history from Duke University and a juris doctor degree from Duke University School of Law.

ARMANDO L. CHARDIET (age 68), President, Atrium Health Foundation. Mr. Chardiet joined the Foundation in May 2017 and has more than 25 years of healthcare foundation and fundraising experience. He oversees all Atrium Health philanthropic initiatives and capital campaigns. Prior to joining the Foundation, Mr. Chardiet served as chair of the Philanthropy Institute at Cleveland Clinic and as chief advancement officer and assistant vice dean at the University of Pennsylvania Health System and University of Pennsylvania Medical School. Mr. Chardiet holds a bachelor’s degree in international relations and Latin American studies from Southern Connecticut University and a master’s degree in social policy research from the University of Pennsylvania.

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COMBINED GROUP SERVICE AREA

General

The Combined Group serves the City of Charlotte, Mecklenburg County and surrounding counties in North and South Carolina. Charlotte is the largest city and Mecklenburg County is the most populous county in North and South Carolina.

The Combined Group considers its primary service area to be Mecklenburg, Union, Gaston, Cleveland, Cabarrus, Lincoln, Anson, Stanly, Rowan and Rutherford Counties and part of Iredell County (which does not include Statesville) in North Carolina and York, Chester and Lancaster Counties in South Carolina. (See the maps highlighting the primary service area below and on page A-7 hereof.)

The Combined Group treats patients from virtually all counties in North Carolina but considers its secondary service area to be the twenty-one counties and part of Iredell County highlighted as such below and on the map on page A-7.

The map below depicts the two components of the Combined Group’s total service area as well as the locations of all hospitals located in the service area.

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Patient Origin Data

The following table summarizes the most recently available Combined Group patient origin data indicating the distribution of acute care inpatient discharges by market area for the years ended December 31, 2015, 2016 and 2017 and the seven months ended July 30, 2018.

Seven Months Ended Year Ended December 31, July 30, Market of Origin 2015 2016 2017 2018

Primary Service Area 91.6% 91.7% 92.0% 92.5% Secondary Service Area 4.5% 4.8% 4.6% 4.5% Other 3.9% 3.5% 3.3% 3.0%

TOTALS 100.0% 100.0% 100.0% 100.0% ______Source: Atrium Health Records; excludes normal newborns.

Population

The following table summarizes census population in 2000 and 2010 and projected population in 2022 for the Combined Group’s service area.

Population Census Projected Market Component 2000 2010 2022 Primary Service Area 1,897,544 2,436,421 2,896,930 Secondary Service Area 1,182,150 1,281,350 1,368,336 TOTALS 3,079,694 3,717,771 4,265,266 ______Source: Environmental Systems Research Institute, Inc. (“ESRI”).

Based on ESRI information, the population of the Combined Group’s primary service area increased at an annually compounded rate of approximately 2.5% from 2000 to 2010. A growth rate of approximately 1.5% is expected from 2010 through 2022.

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Employment and Income in the Primary Service Area

The following table summarizes certain information concerning employment in the Combined Group’s primary service area from 2008 through May 2018:

Rate of Year Labor Force Total Employed Total Unemployed Unemployment 2008 1,206,710 1,126,868 79,842 7.1% 2009 1,210,071 1,063,139 146,932 13.8% 2010 1,254,007 1,103,556 150,451 13.6% 2011 1,266,166 1,129,208 136,958 12.1% 2012 1,286,175 1,164,875 121,300 10.4% 2013 1,297,878 1,193,986 103,892 8.7% 2014 1,316,533 1,234,119 82,414 6.7% 2015 1,351,577 1,276,491 75,086 5.9% 2016 1,387,469 1,320,089 67,380 5.1% 2017 1,428,317 1,366,247 62,070 4.5% 2018(1) 1,456,848 1,406,868 49,980 3.6% ______(1) Through May 31, 2018.

Source: North Carolina Labor & Economic Analysis Division (LAUS) South Carolina Works Online Services

For 2015, the weighted average per capita income for Mecklenburg, Cabarrus, Gaston and Union Counties (counties representing 65% of the primary service area population based upon 2010 census data) was $47,581 compared to a per capita income of $41,296 for the State of North Carolina. Individually, Mecklenburg County had one of the highest per capita income figures for any county in the State of North Carolina for this time period. (Source: Bureau of Economic Analysis.)

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COMPETITION IN COMBINED GROUP PRIMARY SERVICE AREA

There are 22 acute care hospitals in the Combined Group’s primary service area, providing 5,137 licensed beds. The Combined Group provides 2,673 of the 5,137 licensed acute care beds in the primary service area. The names, locations and numbers of licensed beds (excluding long-term care facility and long- term acute beds) of all acute care hospitals in the Combined Group’s primary service area are as follows as of June 30, 2018, for the Combined Group, as of September 30, 2017 for Novant Health and the North Carolina facilities listed under Others, and as of September 30, 2017 for the South Carolina facilities listed under Others: Facility Location Licensed Beds Combined Group: Carolinas Medical Center(1) Charlotte, NC 959 Carolinas Medical Center – Mercy(2) Charlotte, NC 207 Carolinas HealthCare System NorthEast Concord, NC 457 Carolinas HealthCare System Pineville(3) Pineville, NC 235 Carolinas HealthCare System Cleveland Shelby, NC 241 Carolinas HealthCare System Union Monroe, NC 182 Carolinas HealthCare System University Charlotte, NC 100 Carolinas HealthCare System Lincoln Lincolnton, NC 101 Carolinas HealthCare System Kings Mountain Kings Mountain, NC 67 Carolinas HealthCare System Anson Wadesboro, NC 15 Carolinas HealthCare System Stanly Albemarle, NC 109 Subtotal 2,673 Novant Health: Novant Health Presbyterian Medical Center Charlotte, NC 602 Novant Health Matthews Medical Center Matthews, NC 157 Novant Health Charlotte Orthopedic Hospital Charlotte, NC 64 Novant Health Huntersville Medical Center Huntersville, NC 91 Novant Health Rowan Medical Center Salisbury, NC 268 Subtotal 1,182 Others: Caromont Regional Medical Center Gastonia, NC 435 Lake Norman Regional Medical Center Mooresville, NC 123 Rutherford Regional Medical Center(4) Rutherfordton, NC 143 Chester Regional Medical Center Chester, SC 82 Piedmont Healthcare System Rock Hill, SC 288 Springs Memorial Hospital Lancaster, SC 211 Subtotal 1,282 Total 5,137 ______(1) Includes 198 licensed beds at Levine Children’s Hospital and 132 licensed beds at Carolinas HealthCare System Behavioral Health – Charlotte and Davidson. Does not include the temporary increases due to high census that were in effect as of June 30, 2018, as explained on page A-5. Pursuant to a recently issued Certificate of Need, there will be an addition of 45 beds to Carolinas Medical Center’s license. (2) Carolinas Medical Center – Mercy is a facility of Carolinas Medical Center. (3) Pursuant to a recently issued Certificate of Need, there will be an addition of 15 beds to Carolinas HealthCare System Pineville’s license. (4) A Duke LifePoint Healthcare facility.

Source: Atrium Health Records, 2018 North Carolina Hospital License Renewal forms and South Carolina DHEC Hospitals and General Infirmaries Report.

A-37

The following table summarizes the most recently available patient selection percentages of the acute care facilities of the Combined Group and the Regional Enterprise Facilities in the primary and secondary service areas, based on inpatient discharge data during the years ended December 31, 2015 and 2016 and the nine months ended September 30, 2017.

Year Ended December 31, 2015 2016 2017(1) Primary Service Area 52.0% 52.0% 52.2% Secondary Service Area 18.4% 17.8% 17.7% Total Service Area 39.2% 38.9% 39.2% ______(1) For the nine months ended September 30, 2017. Source: Truven – North Carolina Inpatient Discharge Database, South Carolina Office of Research and Statistics and Atrium Health records; excludes normal newborns, acute care facilities only

The primary service area has approximately 68% of the total service area population, based on the projected year 2022 population censuses, as indicated by the table on page A-35 above.

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A-38

FINANCIAL AND UTILIZATION INFORMATION OF THE COMBINED GROUP

Summary of Historical Utilization Information

The table below summarizes certain information and shows recent utilization trends of the Combined Group’s medical group division and principal inpatient facilities during the years ended December 31, 2015, 2016 and 2017 and during the six months ended June 30, 2017 and 2018.

Total patient service volume at the Combined Group’s principal inpatient facilities, as measured by adjusted discharges (which measures inpatient and outpatient volumes), increased in the year ended December 31, 2016 from the year ended December 31, 2015, declined slightly in the year ended December 31, 2017 from the year ended December 31, 2016 and increased again for the six months ended June 30, 2018 from the six months ended June 30, 2017.

Combined Group Facilities Summary Utilization Information Year Ended Six Months December 31, Ended June 30, 2015 2016 2017 2017 2018 Medical Group Division (1) Practice locations 471 511 506 506 511 Total physicians 1,634 1,706 1,782 1,746 1,794 Patient visits (including faculty) 5,556,097 5,723,557 5,995,229 3,037,818 3,032,706

Total Acute Care Facilities Adjusted patient days (excluding 1,400,419 1,449,957 1,452,684 724,455 750,846 newborn)(2) Adjusted discharges (excluding 305,867 315,055 312,651 155,570 158,365 newborn)(2) Surgical procedures(8), (9), (11) 94,502 96,485 98,518 49,135 48,900

Carolinas Medical Center and Levine Children’s Hospital Licensed beds(3) 907 907 907 907 907 Beds in service(3) 907 907 907 907 907 Average daily census 738.6 735.6 745.9 752.4 755.5 Percentage occupancy of licensed beds(3) 81.4% 81.1% 82.2% 83.0% 83.3% Percentage occupancy of beds in service(3) 81.4% 81.1% 82.2% 83.0% 83.3% Patient days (excluding newborn) 269,575 269,223 272,244 136,179 136,749 Adjusted patient days (excluding 528,811 544,628 543,506 270,983 271,968 newborn)(2) Average length of stay (days) 5.9 5.9 6.0 6.1 6.2 Discharges (excluding newborn) 46,059 45,854 45,040 22,361 22,216 Adjusted Discharges (excluding 90,352 92,761 89,918 44,496 44,183 newborn)(2) Emergency room visits 130,497 130,087 128,131 65,470 63,107 Surgical procedures 33,398 33,848 34,104 17,012 16,589 Newborn deliveries 7,023 7,121 7,142 3,438 3,320

A-39

Combined Group Facilities Summary Utilization Information Year Ended Six Months December 31, Ended June 30, 2015 2016 2017 2017 2018

Carolinas Medical Center – Mercy(4) Licensed beds(5) 173 181 207 207 207 Beds in service(5) 173 181 207 207 207 Average daily census 104.2 114.5 122.6 124.0 134.3 Percentage occupancy of licensed beds(5) 60.2% 63.3% 59.2% 59.9% 64.9% Percentage occupancy of beds in service(5) 60.2% 63.3% 59.2% 59.9% 64.9% Patient days 38,016 41,907 44,765 22,442 24,307 Adjusted patient days 71,910 76,254 81,300 40,431 44,158 Average length of stay (days) 3.7 3.7 3.7 3.7 3.9 Discharges 10,141 11,229 11,985 6,025 6,298 Adjusted Discharges 19,182 20,432 21,766 10,854 11,442 Emergency room visits 38,965 38,496 36,593 18,805 17,735 Surgical procedures 11,057 11,443 11,379 5,577 5,751

Carolinas HealthCare System NorthEast Licensed beds 457 457 457 457 457 Beds in service 455 455 455 455 455 Average daily census 285.8 269.5 283.7 284.4 306.2 Percentage occupancy of licensed beds 62.5% 59.0% 62.1% 62.2% 67.0% Percentage occupancy of beds in service 62.8% 59.2% 62.3% 62.5% 67.3% Patient days (excluding newborn) 104,317 98,647 103,541 51,478 55,416 Adjusted patient days (excluding 221,061 223,444 225,827 112,485 116,587 newborn)(2) Average length of stay (days) 4.5 4.5 4.6 4.6 4.8 Discharges (excluding newborn) 22,965 21,870 22,524 11,227 11,448 Adjusted Discharges (excluding 48,666 49,538 49,126 24,532 24,085 newborn)(2) Emergency room visits 118,211 122,695 121,448 61,512 61,364 Surgical procedures(6) 11,559 11,420 11,906 6,153 5,795 Newborn deliveries 2,847 2,844 2,874 1,423 1,330

Carolinas HealthCare System Pineville(7) Licensed beds 235 235 235 235 235 Beds in service 229 235 235 235 235 Average daily census 184.2 191.9 203.6 205.1 214.2 Percentage occupancy of licensed beds 78.4% 81.6% 86.6% 87.3% 91.2% Percentage occupancy of beds in service 80.4% 81.6% 86.6% 87.3% 91.2% Patient days (excluding newborn) 67,226 70,227 74,322 37,116 38,778 Adjusted patient days (excluding 147,386 153,942 157,234 79,143 81,857 newborn)(2) Average length of stay (days) 4.4 4.3 4.3 4.4 4.4 Discharges (excluding newborn) 15,356 16,218 17,221 8,505 8,771 Adjusted Discharges (excluding 33,666 35,551 36,432 18,135 18,515 newborn)(2) Emergency room visits 98,206 98,796 99,132 50,554 48,529 Surgical procedures(8) 8,216 9,362 11,077 5,430 5,536 Newborn deliveries 2,475 2,491 2,311 1,117 1,108

A-40

Combined Group Facilities Summary Utilization Information Year Ended Six Months December 31, Ended June 30, 2015 2016 2017 2017 2018

Carolinas HealthCare System Cleveland Licensed beds 241 241 241 241 241 Beds in service 173 169 161 161 161 Average daily census 75.2 79.5 80.2 82.0 92.7 Percentage occupancy of licensed beds 31.2% 33.0% 33.3% 34.0% 38.4% Percentage occupancy of beds in service 43.5% 47.0% 49.8% 50.9% 57.6% Patient days (excluding newborn) 27,452 29,102 29,270 14,838 16,771 Adjusted patient days (excluding newborn) 82,827 89,125 87,868 44,592 47,694 Average length of stay (days) 3.8 3.9 4.0 4.1 3.9 Discharges (excluding newborn) 7,214 7,379 7,274 3,616 4,246 Adjusted discharges (excluding newborn) 21,766 22,598 21,836 10,867 12,075 Emergency room visits 68,708 69,221 68,272 34,901 33,836 Surgical procedures(9) 7,062 6,634 6,866 3,488 3,407 Newborn deliveries 1,021 1,048 1,011 472 541

Carolinas HealthCare System Union Licensed beds(10) 175 175 180 177 182 Beds in service(10) 150 161 161 162 161 Average daily census 89.1 90.5 89.5 91.4 93.0 Percentage occupancy of licensed beds(10) 50.9% 51.7% 49.7% 51.7% 51.1% Percentage occupancy of beds in service(10) 59.4% 56.2% 55.6% 56.4% 57.7% Patient days (excluding newborn) 32,522 33,127 32,680 16,551 16,842 Adjusted patient days (excluding 100,067 102,087 98,387 48,937 51,575 newborn)(2) Average length of stay (days) 3.8 3.8 3.7 3.7 3.8 Discharges (excluding newborn) 8,548 8,764 8,834 4,439 4,479 Adjusted Discharges (excluding 26,301 27,008 26,596 13,125 13,716 newborn)(2) Emergency room visits 76,836 78,190 79,351 40,125 40,375 Surgical procedures(11) 8,791 9,237 9,063 4,543 4,516 Newborn deliveries 1,119 1,172 1,097 519 471

Carolinas HealthCare System University Licensed beds 99 100 100 100 100 Beds in service 99 100 100 100 100 Average daily census 60.7 61.5 67.9 65.7 75.8 Percentage occupancy of licensed beds 61.4% 61.5% 67.9% 65.7% 75.8% Percentage occupancy of beds in service 61.4% 61.5% 67.9% 65.7% 75.8% Patient days (excluding newborn) 22,173 22,511 24,788 11,889 13,711 Adjusted patient days (excluding 86,573 91,469 95,700 47,655 52,204 newborn)(2) Average length of stay (days) 3.5 3.7 3.8 3.8 3.9 Discharges (excluding newborn) 6,266 6,113 6,557 3,127 3,510 Adjusted Discharges (excluding 24,465 24,839 25,315 12,534 13,364 newborn)(2) Emergency room visits 98,416 100,002 95,720 49,513 49,132 Surgical procedures 8,163 8,204 8,240 3,980 4,328 Newborn deliveries 1,560 1,515 1,461 712 783

A-41

Combined Group Facilities Summary Utilization Information Year Ended Six Months December 31, Ended June 30, 2015 2016 2017 2017 2018

Carolinas HealthCare System Kings Mountain Licensed beds 67 67 67 67 67 Beds in service 59 59 59 59 59 Average daily census 34.8 35.0 35.3 37.0 33.9 Percentage occupancy of licensed beds 51.9% 52.3% 52.7% 55.2% 50.6% Percentage occupancy of beds in service 58.9% 59.4% 59.9% 62.7% 61.6% Patient days (excluding newborn) 12,686 12,826 12,891 6,696 6,132 Adjusted patient days (excluding newborn) 43,108 45,214 44,994 22,617 22,588 Average length of stay (days) 4.5 4.8 4.8 4.8 4.6 Discharges (excluding newborn) 2,826 2,675 2,707 1,408 1,321 Adjusted discharges (excluding newborn) 9,603 9,430 9,448 4,756 4,866 Emergency room visits 34,350 35,864 34,987 18,056 17,136 Surgical procedures 923 921 792 376 471

Carolinas HealthCare System Lincoln Licensed beds 101 101 101 101 101 Beds in service 101 101 101 101 101 Average daily census 50.2 46.0 45.5 45.1 53.7 Percentage occupancy of licensed beds 49.7% 45.6% 45.1% 44.6% 53.2% Percentage occupancy of beds in service 49.7% 45.6% 45.1% 44.6% 53.2% Patient days (excluding newborn) 18,326 16,853 16,620 8,162 9,725 Adjusted patient days (excluding newborn) 56,203 56,928 55,815 26,669 31,686 Average length of stay (days) 3.9 3.9 3.8 3.7 4.2 Discharges (excluding newborn) 4,681 4,331 4,375 2,221 2,298 Adjusted Discharges (excluding newborn) 14,356 14,630 14,693 7,257 7,487 Emergency room visits 49,462 47,764 45,787 23,165 22,871 Surgical procedures 2,887 2,949 2,815 1,471 1,395 Newborn deliveries 441 467 440 216 224

Carolinas HealthCare System Stanly Licensed beds 109 109 109 109 109 Beds in service 94 94 94 94 94 Average daily census 42.4 41.2 43.5 44.2 42.6 Percentage occupancy of licensed beds 38.9% 37.8% 39.9% 40.5% 39.1% Percentage occupancy of beds in service 45.1% 43.8% 46.3% 47.0% 45.4% Patient days (excluding newborn) 15,470 15,068 15,876 7,994 7,716 Adjusted patient days (excluding newborn) 52,859 54,844 52,374 26,220 25,405 Average length of stay (days) 3.8 3.9 3.9 3.8 4.0 Discharges (excluding newborn) 4,056 3,883 4,030 2,089 1,914 Adjusted Discharges (excluding newborn) 13,859 14,133 13,295 6,852 6,302 Emergency room visits 34,919 31,305 31,892 15,919 16,085 Surgical procedures 2,413 2,444 2,240 1,099 1,091 Newborn deliveries 646 539 521 261 214

A-42

Combined Group Facilities Summary Utilization Information Year Ended Six Months December 31, Ended June 30, 2015 2016 2017 2017 2018

Carolinas HealthCare System Anson Licensed beds 15 15 15 15 15 Beds in service 15 15 15 15 15 Average daily census 1.4 0.9 1.2 1.1 1.8 Percentage occupancy of licensed beds 9.6% 5.7% 7.8% 7.1% 12.2% Percentage occupancy of beds in service 9.6% 5.7% 7.8% 7.1% 12.2% Patient days (excluding newborn) 524 312 426 194 332 Adjusted patient days (excluding newborn) 9,614 9,022 9,679 4,713 5,124 Average length of stay (days) 2.6 2.2 2.3 2.2 2.2 Discharges (excluding newborn) 199 143 186 89 151 Adjusted Discharges (excluding newborn) 3,651 4,135 4,226 2,162 2,330 Emergency room visits 13,770 13,974 15,094 7,531 7,859 Surgical procedures 33 23 36 6 21

Carolinas Rehabilitation – Charlotte, Mount Holly and NorthEast(12) Licensed beds(13) 157 151 152 153 150 Beds in service(13) 157 151 152 153 150 Average daily census 126.4 116.7 116.1 119.0 120.7 Percentage occupancy of licensed beds(13) 80.5% 77.3% 76.4% 77.8% 80.5% Percentage occupancy of beds in service(13) 80.5% 77.3% 76.4% 77.8% 80.5% Patient days 46,141 42,710 42,365 21,533 21,854 Adjusted patient days 56,407 54,430 54,362 27,571 27,996 Average length of stay (days) 16.7 15.9 15.2 15.3 15.8 Discharges 2,761 2,683 2,786 1,404 1,385

Behavioral Health Centers (14) Licensed beds(15) 159 136 134 136 132 Beds in service(15) 149 131 130 130 131 Average daily census 119.0 123.7 122.3 122.6 124.9 Percentage occupancy of licensed beds(15) 74.8% 90.9% 91.0% 90.2% 94.6% Percentage occupancy of beds in service(15) 79.8% 94.6% 94.3% 94.6% 96.2% Patient days 43,419 45,246 44,642 22,204 22,608 Adjusted patient days 75,212 78,801 77,215 40,934 37,564 Average length of stay (days) 7.6 8.3 8.9 9.0 9.0 Discharges 5,719 5,431 5,008 2,457 2,501

Nursing Centers(16) Licensed beds 582 582 582 582 582 Average daily census 534.3 523.9 513.5 519.8 493.3 Percent occupancy of licensed beds 91.8% 90.0% 88.2% 89.3% 84.7% Patient days 195,028 191,738 187,444 94,089 89,261

A-43

______(1) Includes physician practices that are owned, managed or staffed by the Medical Group Division. (2) Adjusted discharges and adjusted patient days for the acute care facilities includes utilization in joint ventures in which the Combined Group has an ownership interest, based on the percentage of ownership in such joint venture. (3) Licensed beds and beds in service for Carolinas Medical Center for the years ended December 31, 2015, 2016 and 2017 reflect the weighted average of a temporary increase of 80 licensed beds due to high census effective August 30, 2010. (4) Carolinas Medical Center – Mercy is a facility of Carolinas Medical Center. (5) Licensed beds and beds in service for Carolinas Medical Center – Mercy for the twelve months ended December 31, 2016 and 2017 reflect the weighted average of a permanent increase of 34 licensed beds effective October 12, 2016. (6) Inpatient surgical procedures for Carolinas HealthCare System NorthEast for the twelve months ended December 31, 2015 and 2016 have been restated to be consistent with other acute care facilities. (7) Includes the 29 rehabilitation beds of Carolinas HealthCare System Pineville Inpatient Rehabilitation, a facility of Carolinas HealthCare System Pineville. (8) Includes surgeries at Carolina Orthopedic Surgery Associates. Surgical procedures for the year ended December 31, 2016 have been restated to be comparable with the surgical procedures for the year ended December 31, 2017. (9) Includes surgeries at Cleveland Ambulatory Services. (10) Licensed beds and beds in service for Carolinas HealthCare System Union for the year ended December 31, 2017 reflect the weighted average of a permanent increase of 7 licensed beds effective May 1, 2017. (11) Includes surgeries at Union West Surgery Center. (12) Includes Carolinas Rehabilitation – Charlotte, Carolinas Rehabilitation – Mount Holly, and Carolinas Rehabilitation – NorthEast. (13) Licensed beds and beds in service for Carolinas Rehabilitation for the twelve months ended December 31, 2015, 2016 and 2017 reflect the weighted average of a temporary increase of 7 licensed beds at Carolinas Rehabilitation – Charlotte effective December 11, 2013, which expired January 27, 2016, was reinstated on December 1, 2016, and expired March 31, 2017. (14) Includes Carolinas HealthCare System Behavioral Health – Charlotte and Carolinas HealthCare System Behavioral Health - Davidson, both facilities of Carolinas Medical Center. Separate utilization information for these facilities is available upon request. (15) Licensed beds and beds in service for the Behavioral Health Centers for the year ended December 31, 2015, 2016, and 2017 reflect the weighted average of a permanent reduction of 23 licensed beds at First Step Behavioral Health, effective December 17, 2015 and another permanent reduction of 4 licensed beds at First Step Behavioral Health effective July 24, 2017. (16) Includes Huntersville Oaks, Sardis Oaks, Cleveland Pines, Jesse Helms Nursing Center, and Stanly Manor. Separate utilization information for these facilities is available upon request.

Summary of Historical Financial Information

The financial information of the Combined Group presented in this Appendix A for the three years ended December 31, 2015, 2016 and 2017 has been derived from the audited financial statements of Atrium Health. Financial information of Atrium Health is also presented for the six months ended June 30, 2017 and 2018. Such information has been derived from the Balance Sheets and Statements of Operations as of and for the six months ended June 30, 2017 and 2018. The Balance Sheets and Statements of Operations as of and for the six months ended June 30, 2017 and 2018 are unaudited but reflect all adjustments and normal recurring accruals that management considers necessary for a fair and comparable presentation of operating information for these periods. The results for the six-months ended June 30, 2018 are not necessarily indicative of results that may be expected for the entire year.

A-44

Summary of Historical Revenues and Expenses

The historical revenues and expenses of the Combined Group are set forth in the table below and differ from those in the Primary Enterprise that appear in Appendix B because the Foundation is a member of the Combined Group, but is a Component Unit and therefore not included in the Primary Enterprise. The summary of revenues and expenses presented herein represents the financial performance of the Combined Group in all material respects for the periods presented.

Combined Group(1) Summary of Revenues and Expenses (In thousands of dollars) Six Months Ended Year Ended December 31, June 30, 2015 2016 2017 2017 2018 Net patient service revenue $ 4,948,438 $ 5,136,830 $ 5,402,741 $2,697,697 $2,803,006 Other revenue 505,181 512,620 557,338 276,907 299,732 Total operating revenue 5,453,619 5,649,450 5,960,079 2,974,604 3,102,738 Operating expenses: Personnel costs 3,133,201 3,307,602 3,464,397 1,721,217 1,768,250 Other expenses 1,659,851 1,749,695 1,879,603 922,950 989,525 Depreciation and amortization 275,323 300,127 310,923 158,943 165,093 Interest expense 85,649 89,660 77,954 39,129 38,330 Total operating expenses 5,154,024 5,447,084 5,732,877 2,842,239 2,961,198 Operating income 299,595 202,366 227,202 132,365 141,540 Non-operating (loss) income: Interest and dividend income 48,222 49,596 58,366 21,031 31,278 Net (decrease) increase in the fair value of investments (143,396) 217,116 536,683 270,001 (19,600) Other, net (770) (227) (4,101) (116) (7) Total non-operating (loss) income, net (95,944) 266,485 590,948 290,916 11,671 Revenue over expenses before contributions of the Combined Group 203,651 468,851 818,150 423,281 153,211 Adjustment to exclude net expenses (revenue) of affiliates that are members of the Combined Group but not part of the Primary Enterprise 19,898 (5,276) (31,392) (12,234) 7,768 Revenue over expenses before contributions of the Primary Enterprise $ 223,549 $ 463,575 $ 786,758 $ 411,047 $ 160,979 ______(1) The financial information set forth in this table and the tables on pages A-49, 51, 52 and 53 and management’s discussion of the summary of historical revenues and expenses and balance sheets of the Combined Group on pages A- 47, 48 and 49 includes certain of our affiliates that are included in the Primary Enterprise, but that are not members of the Combined Group. Such affiliates represent less than 1% of the total revenue and less than 1% of the total assets of the Primary Enterprise for each of the fiscal years ended December 31, 2015, 2016 and 2017. See the definition of “Financial Statements” in Appendix C to this official statement.

A-45

Balance Sheets

The summary balance sheets of the Combined Group are set forth in the table below and differ from those in the Primary Enterprise that appear in Appendix B because the Foundation is a member of the Combined Group, but is a Component Unit and therefore not included in the Primary Enterprise. The summary balance sheets presented herein represents the financial position of the Combined Group in all material respects for the periods presented.

Combined Group(1) Summary Balance Sheet (In thousands of dollars)

December 31, June 30, 2015 2016 2017 2017 2018 Current Assets $1,151,044 $1,178,900 $1,150,510 $1,205,304 $1,218,864 Capital Assets- Net 3,036,299 3,052,779 3,054,753 3,016,505 3,070,265 Other noncurrent assets 3,611,310 4,082,150 4,834,993 4,369,586 4,860,281

Total assets 7,798,653 8,313,829 9,040,256 8,591,395 9,149,410

Deferred outflows of resources 286,190 371,246 277,277 372,110 235,818

Total assets and deferred outflows of resources $8,084,843 $8,685,075 $9,317,533 $8,963,505 $9,385,228

Current liabilities $ 971,425 $1,064,042 $1,025,615 $ 958,695 $1,042,445 Long-term liabilities 2,887,824 2,907,606 2,729,776 2,863,151 2,618,699

Total liabilities 3,859,249 3,971,648 3,755,391 3,821,846 3,661,144

Deferred inflows of resources 45,101 39,530 58,330 36,414 55,120

Net investment in capital assets 1,110,199 1,153,414 1,185,504 1,144,433 1,235,033 Restricted – by donor 279,091 306,682 345,526 323,969 353,140 Unrestricted 2,791,203 3,213,801 3,972,782 3,636,843 4,080,791 Total net position 4,180,493 4,673,897 5,503,812 5,105,245 5,668,964

Total liabilities, deferred inflows of resources and net position $8,084,843 $8,685,075 $9,317,533 $8,963,505 $9,385,228 ______(1) The financial information set forth in this table and the tables on pages A-49, 51, 52 and 53 and management’s discussion of the summary of historical revenues and expenses and balance sheets of the Combined Group on pages A- 47, 48 and 49 includes certain of our affiliates that are included in the Primary Enterprise, but that are not members of the Combined Group. Such affiliates represent less than 1% of the total revenue and less than 1% of the total assets of the Primary Enterprise for each of the fiscal years ended December 31, 2015, 2016 and 2017. See the definition of “Financial Statements” in Appendix C to this official statement.

A-46

Management’s Discussion of the Summary of Historical Revenues and Expenses and Balance Sheets of the Combined Group

All amounts shown below are in thousands of dollars.

Six Months Ended June 30, 2018 Compared with Six Months Ended June 30, 2017:

For the six months ended June 30, 2018, revenues exceeded expenses by $153,211, a decrease of $270,070 in excess revenues from the prior year. Operating income for the Combined Group was $141,540 for the six months ended June 30, 2018, an increase of $9,175 from the prior year. This increase was primarily due to improved commercial and government reimbursement. The Combined Group’s earnings before interest, taxes, depreciation and amortization (EBITDA) (defined as the sum of operating income plus depreciation, amortization and interest expense, divided by total operating revenue) was 11.1% for the six months ended June 30, 2018. Net non-operating income for the first six months of 2018 was $11,671 compared to net non-operating income for the prior year six months of $290,916. The decrease was a result of less favorable investment returns in the first six months of 2018 compared to the first six months of 2017.

Total operating revenue increased 4.3% to $3,102,738 largely due to net reimbursement increases, government payer settlements, and growth in some specific patient volumes. Although acute and tertiary care hospitals experienced only a slight increase in inpatient volumes, there was also outpatient volume growth in surgeries, endoscopy procedures and radiology procedures over the prior year. The Medical Group Division patient visits grew 0.2%. Other operating revenue increased 8.2% to $299,732 due to the growth in retail sales of specialty pharmaceuticals.

Total operating expenses increased 4.2% to $2,961,198. Employee compensation increased 2.7% to $1,768,250, due to the effects of annual wage and market adjustments and Medical Group provider growth and compensation increases. Other expenses, consisting primarily of pharmaceutical and supply costs, professional fees, rent and purchased services, increased to $989,525 primarily due to inflationary cost increases and growth in certain patient and specialty pharmacy volumes. Depreciation expense increased to $165,093 due to new capital projects placed into service over the previous 12 months.

Unrestricted cash and investments for the Combined Group increased from $4,203,508 at June 30, 2017 to $4,686,593 at June 30, 2018 due to continued strong results of operations and strong performance in the investment markets. The increase corresponds to a day’s cash on hand (calculated using unrestricted and internally designated cash plus investments as the numerator and total operating expenses minus depreciation and amortization divided by the number of days in the period as the denominator) total of 301 days at June 30, 2018. Debt-to-capitalization ratio (calculated using the outstanding principal amount of long-term debt (including current portion) as the numerator and the outstanding principal amount of long-term debt (including current portion) plus total unrestricted net position, defined as unrestricted plus invested in capital net assets, as the denominator) improved to 25.6% at June 30, 2018 as total unrestricted net position increased to $5,315,824. Net days in accounts receivable (calculated as patient accounts receivable, net as the numerator and a rolling three months of net patient service revenue divided by the number of days in the period as the denominator) continued to improve at 48.5 days as of June 30, 2018, compared to 53.4 days as of June 30, 2017.

A-47

Year Ended December 31, 2017 Compared with Year Ended December 31, 2016:

For the year ended December 31, 2017, revenues exceeded expenses by $818,150, an increase of $349,299 in excess revenues from the prior year. Operating income for the Combined Group was $227,202 in 2017, an increase of $24,836 from the prior year. The increase was primarily due to revenue growth as a result of higher patient volumes at the acute care facilities and growth in visits at the Medical Group Division and payer reimbursement rate increases from 2016. The Combined Group’s EBITDA percentage was 10.3% in 2017. Net non-operating income for 2017 was $590,948 compared to $266,485 in 2016. The increase was a result of the strong performance in the investment markets throughout the year.

Total operating revenue increased 5.5% to $5,960,079, largely due to increases in hospital outpatient volumes as well as growth of the Medical Group Division. Significant outpatient volume growth from the prior year included surgeries, radiology and endoscopies. Also, the Medical Group Division operating revenues increased 6.5% primarily due to growth in the number of new providers and growth in visits.

Total operating expenses increased 5.2% to $5,732,877. Personnel costs increased 4.7% to $3,464,397, largely attributable to Medical Group Division provider and volume growth, increased staffing to support the new providers, and annual wage and market adjustments across Atrium Health. Other expenses, consisting primarily of pharmaceutical and supply costs, professional fees, rent and purchased services, increased to $1,879,603 primarily due to patient volumes and inflationary cost increases, including the cost of new technologies. Interest expense decreased to $77,954 due to savings realized through the issuance of the 2016A Bonds and modifications made to various bank facilities related to variable rate bonds late in 2016 that generated savings throughout 2017.

Unrestricted cash and investments for the Combined Group increased from $3,915,127 at December 31, 2016 to $4,638,894 at December 31, 2017 due to continued strong results of operations and strong performance in the investment markets throughout the year with 2017 total investment returns nearly double the investment returns of 2016. The increase corresponds to a day’s cash on hand total of 312 days at December 31, 2017. Debt-to-capitalization ratio improved to 26.6% at December 31, 2017 as total unrestricted net position increased to $5,158,286. Net days in accounts receivable improved to 51.2 days as of December 31, 2017, compared to 54.4 days as of December 31, 2016.

Year Ended December 31, 2016 Compared with Year Ended December 31, 2015:

For the year ended December 31, 2016, revenues exceeded expenses by $468,851, an increase of $265,200 in excess revenues from the prior year. Operating income for the Combined Group was $202,366 in 2016, a decrease of $97,229 from the prior year. The decrease was a result of several factors that compressed revenue growth as compared to expense growth, including mounting governmental and commercial reimbursement pressures and higher personnel costs as acute staff levels in 2016 caught up with patient volume growth experienced throughout the later part of 2015. The Combined Group’s EBITDA percentage was 10.5% in 2016. Net non-operating income for 2016 was $266,485 compared to net non-operating losses in 2015 of $95,944. The increase was a result of the positive investment returns in 2016 versus the slightly negative investment returns of 2015.

Total operating revenue increased 3.6% to $5,649,450, largely due to increases in hospital outpatient volumes as well as growth of the Medical Group Division. Acute and tertiary care hospitals experienced a 2.1% increase in inpatient volumes and observation stays from the prior year. Significant outpatient volume growth from the prior year included surgeries, emergency room visits, endoscopy, and cardiovascular invasive procedures. Also, the Medical Group Division operating revenues grew 4.6% due

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primarily to growth in the number of new physicians and advanced clinical practitioners and growth in visits.

Total operating expenses increased 5.7% to $5,447,084. Personnel costs increased 5.6% to $3,307,602, due primarily to increases in hospital staffing to catch up to volume growth over the later part of 2015, increases in Medical Group Division provider salary and benefits, growth in corporate support personnel, and annual wage and market adjustments across Atrium Health. Other expenses, consisting primarily of pharmaceutical and supply costs, professional fees, rent and purchased services, increased to $1,749,695 primarily due to patient volumes and inflationary cost increases, including the cost of new technologies. Interest expense increased to $89,660 primarily related to increased issuance of commercial paper and issuance costs related to the 2016A Bonds.

Unrestricted cash and investments for the Combined Group increased from $3,513,113 at December 31, 2015 to $3,915,127 at December 31, 2016 due to positive results of operations and strong performance in the investment markets throughout the year. The increase corresponds to a day’s cash on hand total of 278 days at December 31, 2016. Debt-to-capitalization ratio improved to 30.4% at December 31, 2016 as total unrestricted net position increased to $4,367,215. Net days in accounts receivable increased slightly to 54.4 days as of December 31, 2016, compared to 52.5 days as of December 31, 2015.

Third-Party Reimbursement and Sources of Payment

The sources of the Combined Group’s gross patient revenue by type of payor, expressed as percentages of total gross patient revenue, for the three years ended December 31, 2015, 2016 and 2017 and the six months ended June 30, 2017 and 2018 were as follows:

Year Ended Six Months Ended December 31, June 30, 2015 2016 2017 2017 2018 Medicare 38.0% 38.1% 39.2% 39.5% 40.3% Commercial Insurance 35.9 36.0 34.6 34.3 33.6 Medicaid 16.8 16.9 16.7 16.8 16.7 Direct from Patient/Other 9.3 9.0 9.5 9.4 9.4 TOTAL 100.0% 100.0% 100.0% 100.0% 100.0%

Fiscal Control and Budgetary Procedures

Fiscal control of Atrium Health and the Combined Group is the responsibility of the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer, and the Finance and Compliance Committee of the Board. Atrium Health uses computerized systems to provide data to management on a monthly basis. The Finance and Compliance Committee reviews performance on a quarterly basis and recommends service rates to Atrium Health.

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Outstanding Bonds and Other Debt

As of June 30, 2018, the Combined Group had outstanding principal indebtedness equal to the following amounts, net of related unamortized premiums and discounts and unamortized gains on debt related derivative agreements:

June 30, 2018 (In thousands of dollars) Fixed Rate Bonds: Series 2009A(1) $ 182,075 Series 2011A 132,145 Series 2012A 148,350 Series 2013A 117,225 Series 2015A (Taxable) 9,090 Series 2016A 376,960

Variable Rate Bonds: Series 2005B-D 50,750 Series 2007B 80,910 Series 2007C 87,635 Series 2007D 67,140 Series 2007E 77,220 Series 2007F 57,055 Series 2007G 113,825 Series 2007H 166,050 Series 2015B (Taxable Commercial Paper) 30,000 Other Debt 68,135 Total Long-Term Debt and Commercial Paper Bonds (gross) $1,764,565 Net related unamortized premiums, discounts and gains on debt related derivative agreements 68,753 Total Long-Term Debt and Commercial Paper Bonds (net) $1,833,318 ______(1) Proceeds of our 2018A Bonds will be used to refund $178,425 of the 2009A Bonds maturing on and after January 15, 2020. The Series 2007B, 2007C and 2007E variable rate bonds described above currently bear interest at a rate reset either daily or weekly by the remarketing agent for each series and are subject to optional tender by the holders on very short notice. Each remarketing agent is required to use its best efforts to remarket any tendered bonds. The Series 2005B-D Bonds, Series 2007D Bonds, Series 2007F Bonds, Series 2007G and Series 2007H Bonds described above bear interest at bank-bought index floating rates with holding periods ranging from 2022 to 2026. For more information on the liquidity facilities and letters of credit supporting some of our variable rate bonds, see Note 5 in Appendix B.

In October 2015, we established a taxable commercial paper program providing for the issuance of up to $200 million in aggregate taxable commercial paper revenue bonds (the “CP Bonds”). The CP Bonds, which are supported by self-liquidity, may be issued with maturity dates from one to 270 days and all CP Bonds must be repaid by October 2055. As of June 30, 2018, $30 million aggregate principal amount of CP Bonds was outstanding. In November 2018, we plan to increase the maximum authorized amount of CP Bonds to $400 million. For more information on the CP Bonds, see Note 5 in Appendix B.

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Pursuant to our Interest Rate Exchange Agreement Policy, we enter into derivative agreements only for interest rate management purposes and do not speculate using derivative agreements. As of June 30, 2018, the aggregate negative fair value of our derivative agreements was $179.1 million. For more information on our derivative agreements, see Note 5 in Appendix B.

For a discussion of certain risks associated with our variable rate bonds and derivative agreements, see “BONDHOLDERS’ RISKS–Risks Relating to Our Business” in the front part of this official statement.

Historical Debt Service Coverage

The following table presents the Combined Group’s Historic Long-Term Debt Service Coverage Ratio (as such term is defined in the Bond Order), for the years ended December 31, 2015, 2016 and 2017. The debt service coverage ratio presented below measures how many times the Combined Group’s Income Available for Debt Service (as such term is defined in the Bond Order) would have covered the Long-Term Debt Service Requirement (as such term is defined in the Bond Order) on all bonds outstanding under the Bond Order during the years ended December 31, 2015, 2016 and 2017. Historic Long-Term Debt Service Coverage Ratio for the Combined Group (In thousands of dollars)

Year Ended December 31, 2015 2016 2017 Excess revenue over expenses $203,651 $468,851 $818,150

Add (exclude): Depreciation and Amortization 275,323 300,127 310,923 Interest 85,649 89,660 77,954 Unrealized Net (Gain) Loss on Investments and Other Assets 227,610 (246,089) (477,550)

Income Available for Debt Service $792,233 $612,549 $729,477

Long-Term Debt Service Requirement $87,861 $99,062 $85,139

Historic Long-Term Debt Service 9.01 6.18 8.56 Coverage Ratio

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Historical Pro-Forma Debt Service Coverage

The following table presents an historical pro-forma debt service coverage ratio for the Combined Group for the year ended December 31, 2017. The historical pro-forma debt service coverage ratio presented below measures how many times the Combined Group’s Income Available for Debt Service (as such term is defined in the Bond Order) would have covered the maximum annual debt service requirement on all outstanding long-term indebtedness of the Combined Group after giving effect to the issuance of the 2018 Bonds and the partial refunding of the Series 2009A Bonds.

Historical Pro-Forma Debt Service Coverage Ratio for the Combined Group (In thousands of dollars)

Year Ended December 31, 2017

Income Available for Debt Service(1) $729,477

Maximum Annual Debt Service Requirement(2), (3) $121,248

Historical Pro-Forma Debt Service Coverage Ratio 6.0 ______(1) From the table entitled “Historic Long-Term Debt Service Coverage Ratio for the Combined Group” on page A-51. (2) Although compliance with the rate covenant in the Bond Order is determined based on the Combined Group’s actual annual debt service requirement for each fiscal year, the historical pro-forma debt service coverage ratio in the table above is being calculated based on the maximum annual debt service in order to demonstrate the maximum impact that issuance of the 2018 Bonds and partial refunding of the Series 2009A Bonds would have had on the Combined Group’s historical debt service coverage ratio for the year ended December 31, 2017. (3) Assumes that (a) the 2018A Bonds are issued in the aggregate principal amount of $161,670,000 and bear interest at an average rate of 5.00% per annum, (b) the 2018B-C Bonds are issued in the aggregate principal amount of $100,000,000 and bear interest at an average rate of 5.00% per annum, (c) the 2018D-H Bonds are issued in the aggregate principal amount of $300,000,000 and bear interest at an average rate of 1.49% per annum, which is the 20-year SIFMA average as of October 10, 2018, all of which assumptions are preliminary and subject to change, and (d) interest on our existing variable rate long-term debt, all of which is hedged, bears interest at the fixed payment rate under the related swap agreement, as described in Note 5 in the audited financial statements for the years ended December 31, 2017 and 2016 in Appendix B.

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Historical and Historical Pro-Forma Liquidity and Capitalization Ratios

The following table presents certain liquidity and leverage ratios for the Combined Group as of December 31, 2016 and 2017 and historical pro-forma liquidity and leverage ratios for the Combined Group as of June 30, 2018, after giving effect to the issuance of the 2018 Bonds and the application of the proceeds thereof.

“Days Cash on Hand” was calculated using unrestricted and internally designated cash plus investments as the numerator and total operating expenses minus depreciation and amortization divided by the number of days in the period as the denominator. “Debt to Capitalization” was calculated using the outstanding principal amount of long-term debt (including current portion) as the numerator and the outstanding principal amount of long-term debt (including current portion) plus total unrestricted net position, defined as unrestricted plus invested in capital net assets, as the denominator.

Combined Group Combined Group Historical Historical Pro-Forma Financial Ratios Financial Ratios

As of December 31, As of December 31, As of June 30, 2016 2017 2018(1) Ratios Days Cash On Hand 278 312 323 Debt to Capitalization 30.4% 26.6% 29.4% ______(1) Assumes the 2018 Bonds are issued in the aggregate principal amount of $561,670,000 and $300,000,000 of such proceeds are used to reimburse us for prior capital improvements made to Atrium Health facilities, as more specifically described below under “--Future Capital Expansion Plans.” Such assumptions are preliminary and subject to change.

Relationship with Mecklenburg County

We are headquartered in Mecklenburg County, North Carolina. Pursuant to the North Carolina Hospital Authorities Act and our bylaws, the Chairman of the Board of County Commissioners of Mecklenburg County appoints the members of our Board from nominees submitted by our Board. Our revenue bonds, however, are not secured by a pledge of the faith and credit of Mecklenburg County and Mecklenburg County is not obligated to pay our debts or other liabilities.

Historically, we have worked with Mecklenburg County to strengthen the overall health of the community. We jointly manage, with another local health care provider, Mecklenburg County’s “911” emergency medical transport services.

Insurance

Insurance coverage for the properties and operations of the Combined Group, is as follows:

Property and Other Coverage (Excluding Liability Coverage)

The properties of the Combined Group are insured on a replacement value basis for fire and extended coverage perils in the amount of $1,250,000,000 per occurrence regardless of the number of locations. Directors’ and Officers’ liability insurance is provided for the Commissioners and key management personnel with limits in the amount of $60,000,000. Various other policies cover other

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exposures, including automobile collision and comprehensive, blanket employee dishonesty, crime and fiduciary responsibility and cybersecurity. Worker’s compensation coverage is maintained through a self- insurance program with stop loss coverage beginning at $800,000. Automobile liability coverage is maintained with a minimum $1,000,000 combined single limit for bodily injury and property damage.

Liability Coverage

The Combined Group has instituted a limited self-insurance program and depository fund and a wholly owned captive insurance company for professional liability and general liability claims. The self- insured program provides coverage for claims asserted on or after October 1, 1987. As of December 31, 2017, such fund had a balance of $134,984,000. Self-insurance is limited to $10,000,000 per occurrence, with no aggregate limit, and is funded annually based upon actuarial projections. The captive insurance company began writing professional liability coverage to certain Atrium Health employed physicians on June 1, 2012. The captive insures these physicians on a claims-made basis at $5,000,000 per occurrence limits and purchases reinsurance protection for amounts excess of $250,000 per claim. General liability, automobile liability, professional liability and aviation are also covered by umbrella liability insurance policies.

Retirement and Pension Plans

We provide retirement benefits using both defined contribution pension plans and defined benefit pension plans. Our largest defined contribution plan, a Section 401(k) defined contribution plan (the “DC Plan”), covers all our full-time employees and is funded by voluntary employee contributions and certain contributions by us. Defined contribution plan assets are not recorded in our balance sheet but are held in participant-directed individual accounts and were $2,852,999 and $2,298,342 at December 31, 2017 and December 31, 2016, respectively. Total contribution expense for the DC Plan was $94,104 and $84,050 for the years ended December 31, 2017 and 2016, respectively. In connection with changes to our defined benefit plans as described below, the DC Plan has been enhanced for employees hired on or after January 1, 2014 and was further enhanced for all others effective January 1, 2018 with an increase in our contributions.

We also maintain three single employer defined benefit pension plans (the “Atrium Health DB Plan”, which is the largest plan, and two smaller plans, the “CHS Cleveland DB Plan” and the “CHS Stanly DB Plan”). Late in 2013, we undertook certain steps to modernize our retirement benefits by closing the Atrium Health DB Plan to employees hired on or after January 1, 2014. The Atrium Health DB Plan was frozen for all employees effective January 1, 2018, after which no additional benefits will accrue under the Atrium Health DB Plan. Similarly, the CHS Cleveland DB Plan and the CHS Stanly DB Plan have also been closed to employees hired after January 1, 2015 and January 1, 2016, respectively, and were frozen for all employees effective January 1, 2018, after which no additional benefits will accrue under either plan.

For purposes of recording amounts related to the three defined benefit pension plans in our financial statements as of December 31, 2017, we use actuarial valuations as of January 1, 2017 that are “rolled forward” to the July 1, 2017 Measurement Date. The net investment returns for the Atrium Health DB Plan for the July 1, 2017 and July 1, 2018 Measurement Dates were 15% and 8%, respectively. The long-term investment return objective for the Atrium Health DB Plan is a total return of 7.5%, net of investment fees. The funded status of the Atrium Health DB Plan as of the July 1, 2017 Measurement Date was 72% (77% as of the July 1, 2018 Measurement Date) based on the market value of Atrium Health DB Plan assets. See Note 8 in the audited financial statements for the years ended December 31, 2017 and 2016 in Appendix B for more information on the three defined benefit pension plans and the related $380 million aggregate pension liability.

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Real Property Restrictions

The deeds from the City of Charlotte to us conveying the real property upon which Carolinas Medical Center and Carolinas Rehabilitation are located contain certain restrictions requiring us to use those sites for health care or hospital facilities.

The deeds from Mecklenburg County to us conveying the real property upon which Carolinas HealthCare System University, Huntersville Oaks and Carolinas HealthCare System Behavioral Health – Charlotte are located restrict the use of those sites to operation of health care or hospital facilities.

Lease of the Carolinas HealthCare System Union Hospital Real Estate from Union County

We lease the Carolinas HealthCare System Union hospital real estate (that is, the land, buildings and fixtures) from Union County, North Carolina pursuant to an Amended and Restated Lease Agreement dated as of January 1, 2012 (the “Union County Lease”). The initial term of the Union County Lease will remain in effect until December 31, 2061, unless earlier terminated, extended or renewed in accordance with the provisions thereof. Upon the expiration of the initial term, unless certain events of default exist, we have the option to extend and renew the Union County Lease for an initial renewal term of 25 years. During the term of the Union County Lease, Union County has the right to require us to purchase the Carolinas HealthCare System Union hospital real estate at a price determined in accordance with the Union County Lease. The purchase price as of June 30, 2018 was $128 million and is subject to scheduled increases beginning in 2030. We are obligated to make all payments due to Union County under the Union County Lease.

The Union County Lease requires us to operate Carolinas HealthCare System Union and any additions and improvements thereto solely for the preservation and promotion of public health and related uses in order to provide modern and adequate care, treatment and clinical services. Neither we nor Union County is permitted to transfer, convey, deliver or encumber Carolinas HealthCare System Union without the consent of the other, except that we may sublease or license portions of Carolinas HealthCare System Union in the ordinary course of business. Additionally, failure by us to operate a hospital in Union County constitutes an event of default under the Union County Lease. See Note 9 in the audited financial statements for the years ended December 31, 2017 and 2016 in Appendix B for more information on the Union County Lease.

Future Capital Expansion Plans

During the 10-year period from 2008 to 2017, we invested $2.2 billion in capital investments throughout the region. Those projects include the new women and children’s center at Carolinas HealthCare System Union and a new heart and vascular tower at Carolinas HealthCare System NorthEast.

Atrium Health’s vision is to be the first and best choice for care, and we have an aggressive growth strategy centered on expanding and building upon our world-class service lines and providing the best healthcare for all. Over the 5-year period from 2019 to 2023, we expect to make gross capital expenditures of approximately $3.1 billion. These expenditures will include strategic capital projects to grow Atrium Health, including a focus on the campuses of Carolinas Medical Center and Carolinas HealthCare System Pineville, with a mix of repurposing and modernizing existing space and adding care capacity and new facilities to support sub-specialty, world-class care for cancer, cardiology, children’s health, trauma and neurosciences. Also included are expenditures for the development of our next generation network of healthcare providers. This reflects Atrium Health’s long-term commitment to build healthier communities and deliver premier, innovative healthcare right in our backyards.

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The routine capital expenditures and major strategic capital projects noted above are expected to be funded with operating cash flows of the Combined Group, philanthropic resources, a limited amount of the proceeds (estimated at up to $100 million) from the 2018 Bonds, and to the extent necessary, cash reserves of the Combined Group, all without any expected material adverse impact on our liquidity.

In addition to the expenditures noted above, the remaining proceeds of the 2018 Bonds not being used to refund the 2009A Bonds are expected to be used to reimburse us for up to $300 million of capital expenditures incurred over the past eighteen (18) months. Such expenditures may include, but are not limited to, multiple facility renovations and aesthetic upgrades, renovations to Carolinas HealthCare System NorthEast, Emergency Department renovations at Carolinas HealthCare System Stanly, lab renovations at Carolinas Medical Center and the acquisition and installation of health care, IT and other equipment and other routine capital expenditures.

EMPLOYEES, EDUCATIONAL PROGRAMS AND LICENSES

Employees

As of June 30, 2018, the Combined Group, the Component Unit and the Regional Enterprise Facilities had approximately 62,000 full-time equivalent employees.

The Combined Group offers a range of employee benefits that management believes are comparable to and competitive with other employers and health care providers in the region. Among those benefits are health, dental, life and short/long-term disability insurance, defined contribution retirement savings plans, health savings account, educational assistance programs, and employee health services, all of which are available to substantially full-time employees.

At the present time there is a national shortage of technical personnel in areas such as specialty imaging, physical therapy, occupational therapy, speech therapy, pharmacy and laboratory and a shortage of advanced clinical practitioners (ACP) and experienced registered nurses. (See “BONDHOLDERS’ RISKS–Risks Relating to Our Business” in the forepart of this official statement.) Management responds to staffing shortages in these technical and nursing areas by maintaining a market driven compensation program that provides competitive salaries including a pay for performance incentive plan, differentials for weekender staffing, compensating nurses for precepting new staff, and working with staff to develop flexible schedules. In addition, management has created specific educational programs for ACPs including establishment of the Center for Advanced Practice, a centralized department that will facilitate customized core services for ACPs. The Combined Group recruits graduates from a number of nursing school programs in the primary service area. An average of approximately 550 new nursing school graduates are hired each year. In addition, on average the Combined Group hires approximately 1,500 experienced nurses each year. Management believes the above actions will ensure we can maintain an adequate complement of technical personnel.

Workforce relations at all the Combined Group’s facilities are satisfactory. No employees of the Combined Group are represented by a union on the date hereof.

Educational Programs

Medical School. In 2010, the University of North Carolina (UNC) officially designated Carolinas Medical Center as the UNC School of Medicine Charlotte Campus. For more than 40 years, Carolinas Medical Center has played an active role in providing clinical education for third and fourth year UNC medical students, who complete rotations in a wide variety of medical specialties as part of their overall training. The expansion of the UNC School of Medicine to Atrium Health is intended to help combat the expected shortage of physicians in coming years. The cohort of UNC medical students

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training at Atrium Health in Charlotte in 2018 was 27 third-year medical students and 23 Full-time (FTE) fourth-year students which includes visiting students. The transition to a larger program will occur when adequate funding is available from the State of North Carolina. The UNC School of Medicine Charlotte Campus is a popular choice for students and is known for its innovative curricula which is integrated into the thriving Atrium Health clinical setting.

Graduate Medical and Dental Education. Carolinas Medical Center has been designated by the State of North Carolina as one of five Academic Medical Center Teaching Hospitals in North Carolina. It is the only non-university teaching hospital in North Carolina with this designation.

As of the beginning of the July 1, 2018 academic year, Carolinas Medical Center’s freestanding, separately accredited residency programs had 340 physicians and dentists in the following specialties:

Year of Residency 1st 2nd 3rd 4th 5th-8th Obstetrics and Gynecology 6 6 6 6 3 Pediatrics 12 12 12 2 0 Family Medicine 12 11 11 3 0 Internal Medicine 19 12 12 8 10 General Surgery 8 8 7 5 16 Orthopedic Surgery 6 5 5 5 8 Emergency Medicine 14 14 14 7 4 Vascular Surgery 0 0 0 0 4 Psychiatry 3 3 0 0 0 Physical Medicine & Rehabilitation 0 5 5 5 0 Neurosurgery 1 1 1 1 1 Urology 0 1 1 1 1 Pharmacy 6 2 0 0 0 Dentistry 5 1 0 0 0 Oral Medicine 2 0 1 0 0 TOTAL 94 81 75 43 47

Carolinas Medical Center’s graduate education programs are accredited by the Accreditation Council for Graduate Medical Education. Dental programs are accredited by the American Dental Association Council on Hospitals and Institutional Dental Services.

In addition, Carolinas HealthCare System NorthEast’s Cabarrus Family Medicine Residency program began in 1996 as a training program for Family Medicine Physicians. The program accepts up to eight residents per year and benefits Carolinas HealthCare System NorthEast and the local community by infusing many of these primary care physicians into the community upon graduation.

Non-Physician Programs. Atrium Health also operates several non-physician education programs designed to meet workforce needs. Through two of its acute care facilities, Atrium Health operates two colleges offering nursing and allied health programs culminating in certificates, diplomas and degrees at the associate, baccalaureate and master’s degree level. Carolinas College of Health Sciences offers programs in histotechnology, medical laboratory science, nursing, phlebotomy, pre- professional general studies, radiation therapy, and radiologic technology. Cabarrus College of Health Sciences offers programs in health services management, medical assisting, medical imaging, nursing, occupational therapy, pre-professional and life sciences, and surgical technology. Both colleges are regionally accredited institutions of higher education and maintain programmatic accreditation for most clinical programs. With nursing being the largest program on each campus, the colleges graduated a total of 1,075 new registered nurses between 2012 and 2017 of which 83% were employed by Atrium Health

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upon graduation. In 2017 alone, 319 students completed a full program of study from both colleges making Atrium Health one of the top producing nursing and allied health entities in North Carolina.

Carolinas Medical Center, in partnership with the University of North Carolina at Charlotte, offers a master’s degree nurse anesthesia program graduating approximately 24 nurse anesthetists per year and an adult gerontology acute care nurse practitioner program graduating 12 nurse practitioners per year. Additionally, Atrium Health has affiliation agreements at the following facilities with a number of colleges and universities for clinical training of student and graduate nurses, respiratory therapists, physical therapists, occupational therapists, vocational therapists, speech therapists, medical records technicians, dieticians, pharmacists, social workers and administrators:

Medical Group Division Carolinas Medical Center Carolinas HealthCare System Behavioral Health – Charlotte Carolinas HealthCare System Behavioral Health – Davidson Carolinas Medical Center – Mercy Carolinas HealthCare System NorthEast Carolinas HealthCare System Pineville Carolinas HealthCare System Cleveland Carolinas HealthCare System Union Carolinas HealthCare System University Carolinas HealthCare System Kings Mountain Carolinas HealthCare System Lincoln Carolinas HealthCare System Stanly Carolinas HealthCare System Anson Carolinas Rehabilitation – Charlotte Carolinas Rehabilitation – Mount Holly Huntersville Oaks Sardis Oaks Carolinas Lab Network

Carolinas Medical Center is the site of one of North Carolina’s nine Area Health Education Centers. As such, it provides continuing medical education programs in medicine, dentistry, pharmacology and a variety of other areas of allied health.

Licenses, Approvals and Accreditations

Each of the Combined Group’s inpatient facilities is licensed by the Division of Health Service Regulation of the North Carolina Department of Health and Human Services. All of Atrium Health’s facilities have been approved by the Centers for Medicare and Medicaid Services for participation in the Medicare and Medicaid Programs. Carolinas Medical Center is also approved by the Centers for Medicare and Medicaid Services as a certified heart, kidney, liver and pancreas transplant center.

The Combined Group’s principal inpatient facilities shown on page A-4 which provide acute, tertiary and quaternary levels of care are accredited by The Joint Commission through periods ranging from April 2019 to August 2021.

Carolinas Rehabilitation, including all of its entities and programs, are accredited by the Commission on Accreditation of Rehabilitation Facilities through March 2020 and by The Joint Commission through June 2021.

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APPENDIX B

BASIC FINANCIAL STATEMENTS OF THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY D/B/A ATRIUM HEALTH

[THIS PAGE INTENTIONALLY LEFT BLANK] THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Basic Financial Statements and Other Financial Information December 31, 2017 and 2016 (With Independent Auditors’ Report Thereon) THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health)

Table of Contents

Page(s)

Independent Auditors’ Report 1–2

Management’s Discussion and Analysis – Unaudited 3–14

Basic Financial Statements as of and for the years ended December 31, 2017 and 2016:

Balance Sheets 15

Statements of Revenues, Expenses and Changes in Net Position 16

Statements of Cash Flows 17

Notes to Basic Financial Statements 18–62 Required Supplementary Information Schedule of Changes in the Net Pension Liability and Related Ratios (unaudited) 63

Schedule of Pension Contributions (unaudited) 64

Schedule of Pension Plan Investment Returns (unaudited) 65 Other Financial Information as of and for the years ended December 31, 2017 and 2016 Combining Schedule of Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position – Combined Group 66

Combining Schedule of Revenues, Expenses and Changes in Net Position – Combined Group 67

Combining Schedule of Cash Flows – Combined Group 68 Independent Auditors’ Report

The Board of Commissioners The Charlotte-Mecklenburg Hospital Authority: Report on the Financial Statements We have audited the accompanying financial statements of The Charlotte-Mecklenburg Hospital Authority (d/b/a Atrium Health) and its discretely presented component unit, as of and for the years ended December 31, 2017 and 2016, and the related notes to the financial statements, which collectively comprise Atrium Health’s basic financial statements.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of The Charlotte-Mecklenburg Hospital Authority (d/b/a Atrium Health) and its discretely presented component unit as of December 31, 2017 and 2016, and the respective changes in net position and cash flows for the years then ended, in accordance with U.S. generally accepted accounting principles.

Other Matters Required Supplementary Information U.S. generally accepted accounting principles require that management’s discussion and analysis on pages 3 through 14, the schedule of changes in the net pension liability and related ratios on page 63, the schedule of pension contributions on page 64, and the schedule of pension plan investment returns on page 65 be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of the financial reporting for placing the basic financial statements in an operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Atrium Health’s basic financial statements. The combining schedule of assets, deferred outflows of resources, liabilities, deferred inflows of resources and net position – combined group, the combining schedule of revenues, expenses and changes in net position – combined group and the combining schedule of cash flows – combined group, for the years ended December 31, 2017 and 2016 (collectively the Combining Information) are presented for purposes of additional analysis and are not a required part of the basic financial statements. The Combining Information is the responsibility of management and was derived from and related directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Combining Information is fairly stated in all material respects in relation to the basic financial statements as a whole.

Charlotte, North Carolina April 26, 2018

2 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Management’s Discussion and Analysis – Unaudited December 31, 2017 and 2016 (Dollars in thousands)

This Management’s Discussion and Analysis provides an overview of the financial position and results of activities of Atrium Health, previously Carolinas HealthCare System (CHS), for the years ended December 31, 2017, 2016, and 2015. It has been prepared by management and is required supplemental information to the basic financial statements and the notes that follow this section. Except as otherwise noted, the financial highlights in this analysis refer exclusively to the Primary Enterprise as described in note 1 of the notes to basic financial statements.

Certain information set forth in the following discussion contains “forward-looking statements” regarding the future oriented financial information, business plans and the future performance of Atrium Health and the health care industry that are based on the beliefs and assumptions of the management of Atrium Health and the information available to management at the time that these disclosures were prepared. Words such as “expects,” “plans,” “believes,” “will” and other similar expressions are intended to identify these forward-looking statements. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Actual results may differ materially from those expressed in or implied by any forward-looking statements. Atrium Health undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

Atrium Health Overview In February 2018, Carolinas HealthCare System became Atrium Health, representing our commitment to improve health, elevate hope and advance healing – for all, beyond geographical borders. For more information on the organization, see note 1 of the notes to basic financial statements. In February 2018, Atrium Health signed a Letter of Intent with Navicent Health, headquartered in Macon, Georgia, to enter a strategic combination. For more information on the arrangement, see note 10 of the notes to basic financial statements. Atrium Health Financial Highlights

For the year ended December 31, 2017, inpatient volumes, measured in discharges and observation stays (bedded discharges), were 179,638 or 0.2% over 2016 at the acute and tertiary care hospitals. Additionally, outpatient procedures, including surgeries, radiology, and endoscopies experienced growth from 2016.

For the year ended December 31, 2016, bedded discharges were 179,265 which was an increase of 2.1% from 2015 at the acute and tertiary care hospitals. Other significant outpatient volume growth from 2015 included surgeries, emergency room visits, endoscopy, and cardiovascular invasive procedures.

For the year ended December 31, 2017, Medical Group patient visits were 5,331,134 or 4.1% greater than 2016 due in large part to an increase in providers.

For the year ended December 31, 2016, Medical Group patient visits were 5,118,991 or 3.0% over 2015 due in large part to an increase in providers.

For the year ended December 31, 2017, net patient service revenue of $5,402,741 increased from 2016 by $265,911 or 5.2%. Total operating revenue in 2017 was $5,965,573. Total operating revenue consists of net patient revenue, grant revenue, pharmacy sales revenue, reimbursed services to affiliates and other revenue.

For the year ended December 31, 2016, net patient service revenue of $5,136,830 increased from 2015 by $188,392 or 3.8%. Total operating revenue in 2016 was $5,657,401.

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For the year ended December 31, 2017, operating income was $238,018, a 10.4% increase over 2016 operating income of $215,520.

For the year ended December 31, 2016, operating income was $215,520, a 31.4% decrease from 2015 operating income of $314,043.

For the year ended December 31, 2017, nonoperating income, net was $548,740, a $300,685 increase over 2016. This increase was primarily due to favorable changes in the market value of investments during the current year.

For the year ended December 31, 2016, nonoperating income, net was $248,055, a $338,549 increase over 2015. This increase was primarily due to favorable changes in the market value of investments during 2016.

In September 2017, Atrium Health approved the project to lease a new Medical Office Building located at the intersection of Kenilworth Avenue and Harding Place just north of Morehead St. in Charlotte. This project was approved to support the provider growth in central Charlotte. The project has a total budgeted cost of $40,000 and is expected to be completed in year 2020. $1,483 was incurred on this project during the year ended December 31, 2017.

In June 2017, Atrium Health approved the project to construct a new Medical Office Building on the campus of CHS Pineville. This project was approved to support market growth for key service lines. The project has a total budgeted cost of $100,000 and is expected to be completed in year 2020. $6,048 was incurred on this project during the year ended December 31, 2017.

In June 2017, Atrium Health approved the project to either construct or lease a new Medical Office Building in Fort Mill located at the intersection of Highway 160 and Fort Mill Parkway in Fort Mill, South Carolina. This project was approved to support routine provider growth, decompress volume at other Atrium Health sites and add new specialty care services for the area. The project has a total budgeted cost of $55,000 if self- constructed or $22,000 if a Third Party develops and Atrium Health leases and is expected to be completed in year 2020. $880 was incurred on this project during the year ended December 31, 2017.

In June 2017, Atrium Health approved the project to expand Foot and Ankle Operating Rooms (ORs) at Carolinas Medical Center (CMC) – Mercy, add a fourth OR and renovations to improve throughput in the OR. This project was approved to alleviate occupancy and OR utilization at CMC, improve utilization of the ORs and beds at CMC-Mercy, and expand OR capacity in the Central Division. The project has a total budgeted cost of $18,800 and is expected to be complete in year 2019. $321 was incurred on this project during the year ended December 31, 2017.

In March 2016, Atrium Health approved the project to construct a second outpatient center for oncology services on the CMC campus. This project was approved to enhance Levine Cancer Institute’s existing outpatient operations and develop a new 32 bed inpatient hematologic unit at CMC. The project has a total budgeted cost of $150,000 and is expected to be complete in year 2019. $27,836 was incurred on this project during the year ended December 31, 2017.

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In September 2014, Atrium Health approved the project to provide upgrades, renovations to existing areas within CHS NorthEast and new construction surrounding the cardiovascular service line. This project was divided into two phases. Phase I included renovation of Women’s Service and was completed in year 2016. Phase II includes new construction of the tower for cardiology and the modernization of G, H and J wings. This project has a total budgeted cost of $141,400 and is expected to be complete in year 2021. $27,479 was incurred on this project during the year ended December 31, 2017.

In December 2013, Atrium Health approved the project to replace Revenue Cycle technology to consolidate to one common system for both the Acute and Ambulatory environments. The project has a total budgeted cost of $92,600 and is expected to be complete in year 2019. $4,850 was incurred on this project during the year ended December 31, 2017.

In June 2012, Atrium Health approved the project to provide intensivist coverage through remote physiological monitoring and two-way audio/visual connectivity to a command center staffed by physicians, advanced practitioners and RNs all specializing in critical care. This project has a total budgeted cost of $24,700, of which $12,300 was related to the Atrium Health Primary Enterprise and $12,400 was related to the Regional facilities and was completed in year 2017. $555 was incurred on this project during the year ended December 31, 2017.

In March 2012, Atrium Health approved the project to construct a new 3-story addition to CHS Union to house a Women’s Center, freeing up space to be renovated to accommodate 25 new medical surgical beds. The project has a total budgeted cost of $57,200 and was completed in year 2017. $1,749 was incurred on this project during the year ended December 31, 2017.

Atrium Health utilizes interest rate swaps to manage interest rate risk exposure on certain series of bonds. Interest rate swaps necessarily involve counterparty credit risk and Atrium Health seeks to control this risk by entering into transactions with high quality counterparties and through the monitoring of exposure to each counterparty. Atrium Health is a party to 14 floating-to-fixed rate payer swap agreements tied to the Series 2005 B, C and D Refunding Revenue Bonds, Series 2007 B and C Refunding Revenue Bonds and Series 2007 D, E, F, G and H Revenue Bonds. These agreements are used to create synthetic fixed rate bonds by converting the variable rates on those series to fixed rates. Therefore, cash flows on these agreements are recorded as interest expense. These agreements are discussed in greater detail in note 5 of the notes to basic financial statements.

In July and August 2017, Atrium Health completed an annual ratings update with Moody’s Investors Service (“Moody’s”) and S&P Global Ratings (“S&P”). Moody’s maintained the Atrium Health rating at Aa3 Stable while S&P maintained the Atrium Health rating at AA- Stable. Overview of the Basic Financial Statements This discussion and analysis is intended to serve as an introduction to Atrium Health’s basic financial statements and the notes to the basic financial statements. This report also contains other required supplementary information in addition to the basic financial statements.

The Governmental Accounting Standards Board (GASB) requires three financial statements: the statement of net position (balance sheet); the statement of revenues, expenses and changes in net position; and the statement of cash flows.

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The balance sheets; statements of revenue, expenses and changes in net position; and statements of cash flows are presented on an accrual basis, in accordance with accounting principles generally accepted in the United States of America. This information provides an indication of Atrium Health’s financial health. The balance sheets include all of Atrium Health’s assets, deferred outflows of resources, liabilities, and deferred inflows of resources, as well as an indication about which assets can be utilized for general purposes and which are restricted as a result of bond covenants or other agreements. The statements of revenue, expenses, and changes in net position report all of the revenue and expenses during the periods indicated. The statements of cash flows report the cash provided and used by operating activities, as well as other cash sources, such as investment income, and other cash uses, such as repayment of debt and purchase of capital.

Notes to the basic financial statements provide additional information that is essential for a full understanding of the data provided in the basic financial statements. Required supplementary information relates to Atrium Health’s progress in funding its obligation to provide pension benefits to its employees. Financial Analysis and Results of Operations Assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position at December 31 are summarized in Table 1 and are discussed below: Table 1 – Summary Balance Sheets

2017 2016 2015

Current assets $ 1,124,103 $ 1,160,543 $ 1,134,555 Capital assets – net 3,049,626 3,047,086 3,030,583 Other noncurrent assets 4,513,888 3,790,268 3,341,291

Total assets 8,687,617 7,997,897 7,506,429

Deferred outflows of resources 277,277 371,246 286,190

Total assets and deferred outflows of resources $ 8,964,894 $ 8,369,143 $ 7,792,619

Current liabilities $ 1,024,356 $ 1,063,729 $ 971,111 Long-term liabilities 2,728,365 2,906,362 2,886,529

Total liabilities 3,752,721 3,970,091 3,857,640 Deferred inflows of resources 58,330 39,530 45,101 Net investment in capital assets 1,185,504 1,147,721 1,104,483 Restricted – by donor 28,002 28,379 25,819 Unrestricted 3,940,337 3,183,422 2,759,576 Total net position 5,153,843 4,359,522 3,889,878 Total liabilities, deferred inflows of resources and net position $ 8,964,894 $ 8,369,143 $ 7,792,619

Atrium Health classifies net position as net investment in capital assets, restricted – by donor, and unrestricted. Net investment in capital assets increased over the three year period due to debt principal payments and additional

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capital expenditures. The unrestricted net position increase was driven primarily by strong operating performance and positive investment returns.

The net position of Atrium Health at December 31, 2017 increased $794,321 from December 31, 2016. The increase in net position was due to positive results of operations of $238,018, investment and other nonoperating income of $548,740, and capital and other contributions of $7,563.

The net position of Atrium Health at December 31, 2016 increased $469,644 from December 31, 2015. The increase in net position was due to positive results of operations of $215,520, investment and other nonoperating income of $248,055, and capital and other contributions of $6,069.

Atrium Health’s cash and investment position at December 31, 2017, 2016 and 2015 was $4,338,138, $3,645,910 and $3,253,565, respectively. Days cash on hand for the Combined Group, which consists of all entities that have either a direct obligation (Obligated Group) or indirect obligation (Designated Affiliates, of which there are currently none) to pay amounts due on Atrium Health’s bonds, was 312, 278, and 263 at December 31, 2017, 2016 and 2015, respectively.

More detailed information about Atrium Health’s cash, investments and other financial instruments is presented in notes 2 and 3 of the notes to basic financial statements.

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Revenue and Expenses

Revenue, expenses and changes in net position are summarized in Table 2 and are discussed below: Table 2 – Statements of Revenues, Expenses, and Changes in Net Position

2017 2016 2015 Operating revenues Net patient service revenue $ 5,402,741 $ 5,136,830 $ 4,948,438 Other revenue 562,832 520,571 514,047 Total operating revenue 5,965,573 5,657,401 5,462,485

Operating expenses Personnel costs 3,461,411 3,305,457 3,131,025 Supplies 1,036,409 975,673 917,758 Purchased services 410,286 377,429 328,598 Other expenses 431,209 394,175 410,645 Depreciation and amortization 310,286 299,487 274,767 Interest expense 77,954 89,660 85,649 Total operating expenses 5,727,555 5,441,881 5,148,442 Operating income 238,018 215,520 314,043 Nonoperating income (loss) – net Interest and dividend income 55,849 46,957 45,727 Net increase (decrease) in the fair value of investments 498,792 202,375 (134,101) Other, net (5,901) (1,277) (2,120) Total nonoperating income (loss) - net 548,740 248,055 (90,494) Revenue over expenses before contributions 786,758 463,575 223,549 Capital contributions 7,651 5,945 7,489 Other contributions (88) 124 228 Cumulative effect of change in accounting principle — — (460,905) Increase (decrease) in net position 794,321 469,644 (229,639) Beginning net position 4,359,522 3,889,878 4,119,517 Ending net position $ 5,153,843 $ 4,359,522 $ 3,889,878

Operating Revenue

Operating revenues in 2017 increased 5.4% from 2016 and in 2016 increased 3.6% from 2015, largely due to increases in hospital patient volumes as well as growth of the Medical Group. More detail of operating revenue can be found in notes 6 and 7 of the notes to basic financial statements.

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Operating Expenses

Operating expenses in 2017 increased 5.2% from the prior year. Personnel costs, comprising 60.4% of the total Atrium Health operating expenses in 2017 increased 4.7% due to additional staffing to accommodate growth in the acute facilities, increases in Medical Group provider and volume growth, increased staffing to support the new providers and annual market adjustments across Atrium Health. Other operating expenses, consisting primarily of pharmaceutical and supply costs, professional fees, rent and purchased services, increased 7.5%, primarily due to growth in patient volumes and inflationary cost increases, including the cost of new technologies.

Operating expenses in 2016 increased 5.7% from the prior year. Personnel costs, comprising 60.7% of the total Atrium Health operating expenses in 2016, increased 5.6% due to increase in hospital staffing to catch up to volume growth over the later part of 2015, increases in Medical Group Division provider salary and benefits, growth in corporate support personnel, and annual market adjustments across Atrium Health. Other operating expenses, consisting primarily of pharmaceutical and supply costs, professional fees, rent and purchased services, increased 5.4%, primarily due to growth in patient volumes and inflationary cost increases, including the cost of new technologies. Nonoperating Income and Losses

Nonoperating income and losses, which consists primarily of realized and unrealized investment results, was impacted favorably in 2017 by market value appreciation of Atrium Health’s investments. As a governmental entity, Atrium Health is required to record all investment market value changes as a component of nonoperating income (loss).

Nonoperating gains from Atrium Health’s equity, fixed income, and cash investments was $554,641 in 2017 and $249,332 in 2016. Nonoperating losses from Atrium Health’s equity, fixed income and cash investments was $88,374 in 2015.

Interest and dividend income on the portfolio in 2017 was $55,849 and net realized and unrealized gains on the portfolio were $498,792. The net realized / unrealized gains were due to strong performance in the investment markets throughout the year, led by the equity portfolio, with 2017 total investment returns nearly double the investment returns of 2016.

Interest and dividend income on the portfolio in 2016 was $46,957 and net realized and unrealized gains on the portfolio were $202,375. The net realized / unrealized gains were due to strong performance in the investment markets throughout the year, led by the domestic equity portfolio, with positive 2016 total investment returns versus the slightly negative investment returns of 2015.

Management presents portfolio performance to the Investment Oversight Committee of Atrium Health as well as the Board of Commissioners, on a quarterly basis. Management meets regularly with Atrium Health’s investment consultant to review portfolio and investment manager performance and to identify and recommend changes to the investment strategy for consideration by the Investment Oversight Committee. Investment expenses consist of fees paid to Atrium Health’s investment managers and consultant.

Other net nonoperating expenses were $5,901, $1,277 and $2,120 for the years ended December 31, 2017, 2016 and 2015, respectively, due to capital disposals and donations.

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Capital Assets and Debt Administration Capital Assets Capital assets, net of depreciation and impairment at December 31, 2017, 2016 and 2015 are summarized in Table 3 and are discussed below. Table 3 - Capital Assets, net of Depreciation and Impairment

2017 2016 2015 Land $ 212,652 $ 197,514 $ 197,393 Buildings and improvements 3,341,291 3,226,186 3,148,777 Equipment 2,059,812 1,915,321 1,763,016 Construction in progress 211,774 217,626 171,834 Subtotal $ 5,825,529 $ 5,556,647 $ 5,281,020 Accumulated depreciation (2,775,903) (2,509,561) (2,250,437) Total $ 3,049,626 $ 3,047,086 $ 3,030,583

During the current fiscal year, significant additions to capital assets in excess of $10,000 included the following: Levine Cancer Institute $27,836

CHS NorthEast Modernization $27,479

Ongoing capital requirements are funded from a combination of operating cash, debt proceeds, and contributions. Atrium Health’s annual capital budget was $527,500 in 2017 and $470,184 in 2016. Cash outflows related to capital additions, net of retirements, for 2017, 2016 and 2015 totaled $300,869, $300,859 and $249,790, respectively. Total depreciation expense on capital assets was $308,171, $297,892 and $273,012 for 2017, 2016 and 2015, respectively. At December 31, 2017, Atrium Health had planned future capital spending of approximately $3,161,000 for 2018-2022 for ongoing routine and significant strategic IT and facility expansion projects. More detailed information about Atrium Health’s capital assets is presented in note 4 of the notes to the basic financial statements. Long-Term Debt Atrium Health can issue debt on behalf of Combined Group members as established under its Second Amended and Restated Bond Order, as further amended (the “Bond Order”).

Atrium Health’s debt service (scheduled principal and interest payments, excluding refinancing activity) for 2017, 2016 and 2015 totaled $114,431, $134,747 and $125,121, respectively.

The actual annual debt service coverage ratio was 8.56 and 6.18 for 2017 and 2016, respectively. The Bond Order requires an actual annual debt service coverage ratio of not less than 1.1.

More detailed information about Atrium Health’s outstanding debt is presented in note 5 of the notes to the basic financial statements.

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Events and Factors Expected to Impact Future Periods Healthcare has historically been a capital-intensive industry that requires significant reinvestment to keep pace with care as it advances and technology as it evolves especially if operating in a market with a growing population. An entity’s ability to re-invest to meet its long-term capital and program needs hinges largely on its ability to perform well financially. We believe that Atrium Health, with its geographic dispersion, world-class providers and specialty service lines, extensive primary care network and focus on growth, value and affordability, is well positioned to meet the demands of the fast-changing, capital-intensive industry in which we operate.

Recent years have seen growth in alternative payment models as the industry is moving from traditional fee for service to models that emphasize value and quality of services. This transition is not without financial risk to providers as these alternative payment models typically attribute a large percentage of rate increases to the achievement of value based targets. We believe Atrium Health is well poised to provide value to its payers and consumers by excelling at delivering high-value care in financially sustainable models.

External pressures on revenue streams are not new to the industry as governmental payers have long tried to bend the growth curve in healthcare spending. North Carolina lawmakers approved a Medicaid reform plan in which provider-led entities and commercial insurers will co-exist in a fully capitated system expected to be operational in 2019. We believe healthcare providers, like Atrium Health, who are currently completing large scale data analytics, transforming care delivery and reducing total cost of care will be more apt to withstand the future revenue pressures in a fully capitated Medicaid environment.

Employers are rapidly implementing high-deductible health plans and other plan design changes in an attempt to lower their health plan costs which, in turn, has led to greater consumerism. In a consumer-driven market, we believe that transparency, convenience and cost will ultimately drive consumers’ decisions in the future, which means that becoming more accessible and affordable is critical to financial viability. Truly integrated systems, like Atrium Health, are best positioned to achieve sustainable efficiencies and reduce the cost of care for consumers.

From a Federal perspective, there is heightened uncertainty on the future of Medicare and Medicaid policy. At the state level in North Carolina, health policy discussions are ongoing related to critical issues such as Certificate of Need and Medicaid Expansion. For the time being, we believe that the industry will remain in a period of great legislative uncertainty at the state and federal level.

Atrium Health remains a financially viable entity with a strong governing board; an experienced management team; a broad and connected continuum of highly specialized world-class clinical services and a commitment to high levels of quality, safety, patient experience, cost efficiency and teammate engagement which we believe, along with other attributes, will enable us to respond to future challenges and be the first and best choice for care in the communities we serve. Community Benefit The mission of Atrium Health is to improve Health, elevate Hope and advance Healing – for all. Our commitment to this mission requires both an “investments in” and a “partnerships with” the community spanning the entire geographic region within which Atrium Health operates.

Atrium Health defines and measures Community Benefit consistent with the North Carolina Healthcare Association (NCHA) guidelines and includes costs associated with:

• patient care provided to underinsured and uninsured patients, • medical education provided to the next generation of healthcare professionals,

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• medical research to stay on the “cutting edge” for new treatments and cost effective care, volunteerism of Atrium Health teammates and contributions to community groups and local nonprofit organizations, and • vital healthcare and community health improvement services as well as community building activities.

The community’s uninsured and underinsured care constitutes both a challenge and an opportunity for Atrium Health. It is a challenge to ensure that the necessary clinical programs and facility infrastructures are in place to meet the demand for all patients. It is also an opportunity to provide access to needed healthcare services for the large uninsured and underinsured population. The cornerstone of Atrium Health’s overall Community Benefit is its commitment to provide hospital and other healthcare services to all patients regardless of their ability to pay. North and South Carolina’s Medicaid programs, while providing healthcare coverage for many of the poor, disabled, and elderly residents, do not cover all who are unable to pay for healthcare. Also, Medicaid, by design, reimburses healthcare providers at substantially less than actual cost and has not kept pace in recent years with the industry’s rapidly rising cost of technology and enrollment. Within Mecklenburg, Cabarrus, Cleveland, Union, Lincoln, Stanly, and Anson counties, Atrium Health provides approximately 85% of the hospital services to the Medicaid and uninsured patient populations. In many cases, Atrium Health provides the only access to certain outpatient and physician specialty care for those in the community in need of financial assistance, as well as serving uninsured patients who are not eligible for financial assistance discounts, Medicaid, or other governmental funding. More detailed information about Atrium Health’s net patient service revenue is presented in notes 1 and 6 of the notes to basic financial statements.

Atrium Health supports and subsidizes medical education and research, which benefits not only Atrium Health and the patients it serves, but the entire healthcare provider community. Carolinas Medical Center (CMC) is the sponsoring institution for 40 training programs with 335 residents and fellows. In 2017, approximately 48% of the 113 residents and fellows that completed the program stayed in the Carolinas. Atrium Health continues to expand medical school access at the Charlotte campus of the University of North Carolina (UNC) School of Medicine by providing clinical education for medical students and growing the number of students that will be completing their third and fourth years of medical school. During the 2017-2018 academic year, the Charlotte campus of the UNC School of Medicine will have 26 full-time third year students, an estimated 100 fourth year students, and another 150 visiting students from other universities who will take advantage of CMC’s medical student rotation options. The Family Medicine Residency program, Union Track, trains physicians to provide full-scope primary care to the underserved in small towns or rural settings. The program, which currently trains seven residents, is embedded in a local physician practice, and is designed as an “apprenticeship model” in which the residents learn by practicing side-by-side with private practitioners. CHS NorthEast sponsors the Cabarrus Family Medicine Residency Program and a primary care sports medicine fellowship. These two programs, accredited by the Accreditation Council for Graduate Medical Education, train 24 family medicine residents, and one sports medicine fellow each year. Since its inception in 1996, the Cabarrus Family Medicine Residency Program has graduated 144 family medicine residents, with 71% staying in the Carolinas to practice.

Through two of its hospitals, Atrium Health owns, operates and subsidizes two colleges that offer nursing and allied health programs culminating in certificates, diplomas and degrees at the associate, baccalaureate and master’s degree levels, as well as noncredit continuing education programs and workshops. Carolinas College of Health Sciences, affiliated with Carolinas Medical Center, is located in Mecklenburg County, while Cabarrus College of Health Sciences, affiliated with CHS NorthEast, is located in Cabarrus County. In 2017, over 1,300 students were collectively enrolled in programs such as Nursing, Nurse Anesthetist, Surgical Technology, Pharmacy Technology, Clinical Laboratory Sciences, Interdisciplinary Health Studies, Radiation Therapy, Radiologic Sciences, Medical Assistant, and Occupational Therapy. An additional 705 students were enrolled in a continuing education program or workshops. With 357 graduates in 2017 alone, Atrium Health is one of the top producing nursing and allied health

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entities in North Carolina. Equally important, 94% of graduates accept positions in the Carolinas in their field of training providing a valuable workforce resource to alleviate projected clinical personnel shortages. In 2017, Carolinas College of Health Science was ranked 14th nationally among trade schools by Forbes. Also in 2017, Cabarrus College of Health Science BSN program was ranked fourth in the nation by RNtoBSNOnlineProgram.com. In addition to these accolades, giving back to the community is an important part of each College’s learning environment. Collectively, the two Colleges contributed over 7,700 volunteer hours in 2017.

Additionally, the Charlotte Area Health Education Center, operated and subsidized by Atrium Health, is the only organization providing continuing education to all area healthcare professionals from all settings, including hospitals, post-acute care and physician practices.

The ability to develop and advance medical discovery is a critical component to Atrium Health’s giving back to the community locally, nationally and globally. As scientific technologies and medical breakthroughs advance, more patients experience enriched, longer lasting quality of life standards. The Division of Therapeutic Research and Development cultivates patient-centered projects that are clinically relevant and fundamentally important to improving healthcare quality and effectiveness. Research and other sponsored programs throughout Atrium Health, encompassing more than 240 investigators and almost 960 active research studies and programs, are focused on the development of new treatments, therapies, diagnostics, or devices as well as conducting population-based research, developing innovative care delivery models and analyzing healthcare economics. Atrium Health’s research programs and initiatives leverage the scope and scale of the organization to provide patients with leading-edge treatments and therapies, as well as attract nationally respected physicians to the community.

Atrium Health and its team members together are “improving Health, elevating Hope and advancing Healing – for all” by becoming actively involved with, or contributing to, various organizations that seek to improve the overall health and well-being of the community. In 2017, Atrium Health teammates supported over 300 nonprofit organizations by volunteering nearly 40,000 work-hours in service projects including, but not limited to: distributing gifts across nine counties to more than 2,800 individuals and families as part of the Holiday Cheer project; providing 5,518 backpacks of nutritious food to low income children and families across the region; assembling personal care comfort kits and non-perishable meal kits for disaster victims; sponsoring and delivering holiday meal kits to low income families and elderly citizens; engaging local schools in a new mentoring program designed to partner teammates with students through Big Brothers Big Sisters “Beyond School Walls” program; launching an additional reading program in partnership with Charlotte Mecklenburg Schools; and contributing over 11,000 items during our Share the Warmth drive to Crisis Assistance Ministry and other non-profit organizations directly impacting over 350 individuals in our communities. Most of this volunteerism in 2017 was directed to organizations that support and promote community health priorities and other social determinants of health. In addition to teammate hours, Atrium Health also donated over $2 million in medical equipment, computer equipment and materials to international nonprofit organizations to help people in need as well as numerous other monetary and in-kind donations to local community partners such as The Spokes Group, MedAssist, Second Harvest Food Bank of Metrolina, Girls on the Run, and the American Red Cross.

To further improve the physical, mental, and spiritual health of our community in 2017, Atrium Health:

• screened 2,713 athletes in Mecklenburg, Union and Lincoln counties in North Carolina and York County in South Carolina during the annual Heart of a Champion Day with 102 student-athletes referred for additional medical evaluation, • trained 3,145 community members and Atrium Health teammates in the Mental Health First Aid program, a groundbreaking public education program that helps identify, understand, and respond to signs of mental illnesses and substance abuse disorders,

13 (Continued) THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Management’s Discussion and Analysis – Unaudited December 31, 2017 and 2016 (Dollars in thousands)

• added 20 new Faith Communities for a total of 155 in 10 counties within the Atrium Health Faith Community Health Ministry, a partnership program between Atrium Health and faith communities designed to promote better health through education, access to healthcare and encouragement toward wellness and wholeness,

• provided access to primary and specialty medical care to 6,049 eligible uninsured residents through Physician Reach Out in partnership with Care Ring,

• implemented and expanded the Healthy Together program to 19 schools where school leaders and staff committed to developing action plans to create policy, systems, and environmental changes. Atrium Health’s efforts resulted in 7,839 students joining the 5-2-1-0 League and committing to the Healthy Together program focused on childhood obesity.

• continued the One Charlotte partnership with Novant Health to improve the health in Mecklenburg County’s most vulnerable populations.

In addition to their time, Atrium Health teammates continue to donate millions of their own dollars to charitable organizations and other community based entities. In the 2017 Community Giving Campaign, Atrium Health teammates contributed over $3.63 million (not included in costs in note 1 of the notes to basic financial statements) to United Way and Arts Councils in Anson, Cabarrus, Cleveland, Gaston, Lincoln, Mecklenburg, Stanly, Union and York Counties and Children’s Miracle Network.

Atrium Health operates, often at a deficit due to high levels of uninsured and underinsured patients, certain health services that are essential to the community. For example, Atrium Health provides community clinics that are patient centered medical homes. These community clinics are operated at CMC-Myers Park, CMC-North Park and CMC- Biddle Point. Atrium Health offers behavioral health services through multiple outlets including outreach and educational programs to the community, a call line available 24 hours a day at no charge to the client, and quality services to patients across its multiple healthcare treatment locations. Additionally, Environmental Sustainability Solutions, operated by Atrium Health, demonstrates committed resources to understanding and mitigating negative environmental impacts while seeking creative solutions for healthy patient centered operations. In 2017, over 11,000 tons of waste were recycled, including six active sites for can and bottle recycling. Through the Energy Connect program, Atrium Health improved its energy efficiency, resulting in savings of $1.5 million. Atrium Health also operates the Carolinas Poison Center, one of 55 such centers in the United States certified by the American Association of Poison Control Centers, for the entire state of North Carolina. Its mission is to serve the people and healthcare professionals of North Carolina by providing information and assistance in the prevention, treatment and surveillance of poisonings and overdoses.

Additional detail regarding Atrium Health’s financial commitment to the community (20.9% of the Primary Enterprise’s operating expenses) is presented in note 1 of the notes to basic financial statements.

Finance Contact Atrium Health’s basic financial statements are designed to present users with a general overview of Atrium Health’s finances and to demonstrate Atrium Health’s accountability. If you have any questions about the report or need additional financial information, please contact the Senior Vice President of Finance, Atrium Health, 1000 Blythe Boulevard, Charlotte, NC 28203.

14 (Continued) THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Balance Sheets December 31, 2017 and 2016 (Dollars in thousands)

2017 2016 Primary Component Primary Component Assets and Deferred Outflows of Resources Enterprise Unit Enterprise Unit

Current assets: Cash and cash equivalents $ 131,540 $ 4,659 $ 142,725 $ 4,686 Short-term investments 198 10,329 — 6,765 Patient accounts receivable – net 729,164 — 732,526 — Other accounts receivable 94,331 11,659 115,661 8,563 Assets limited as to use – investments 32,820 — 34,148 — Inventories 67,405 — 63,325 — Prepaid expenses 68,645 488 72,158 320 Total current assets 1,124,103 27,135 1,160,543 20,334 Capital assets 5,825,529 11,572 5,556,647 11,504 Accumulated depreciation (2,775,903) (6,445) (2,509,561) (5,811) Total capital assets – net 3,049,626 5,127 3,047,086 5,693 Other noncurrent assets: Assets limited as to use: Investments designated for capital improvements 4,175,386 — 3,478,928 — Other long-term investments 31,014 285,768 24,257 257,766 Other assets limited as to use – investments 109,954 — 107,037 — Other assets 197,534 37,236 180,046 35,814 Total other noncurrent assets 4,513,888 323,004 3,790,268 293,580 Total assets 8,687,617 355,266 7,997,897 319,607 Deferred outflows of resources 277,277 — 371,246 — Total assets and deferred outflows of resources $ 8,964,894 $ 355,266 $ 8,369,143 $ 319,607 Liabilities, Deferred Inflows of Resources and Net Position

Current liabilities: Accounts payable $ 261,025 $ 183 $ 265,272 $ 307 Salaries and benefits payable 323,837 — 342,799 — Other liabilities and accruals 194,382 1,804 195,669 1,983 Estimated third-party payer settlements 176,647 — 194,140 — Current portion of long-term debt 68,465 — 65,849 — Total current liabilities 1,024,356 1,987 1,063,729 2,290 Long-term debt – less current portion 1,799,149 — 1,838,134 — Interest rate swap liability 219,841 — 224,535 — Pension liability 379,685 — 516,725 — Other liabilities 329,690 3,310 326,968 2,942 Total liabilities 3,752,721 5,297 3,970,091 5,232 Commitments and contingencies (notes 1, 2, 5 and 9) Deferred inflows of resources 58,330 — 39,530 — Net position: Net investment in capital assets 1,185,504 — 1,147,721 5,693 Restricted – by donor 28,002 317,524 28,379 278,303 Unrestricted 3,940,337 32,445 3,183,422 30,379 Total net position 5,153,843 349,969 4,359,522 314,375 Total liabilities, deferred inflows of resources and net position $ 8,964,894 $ 355,266 $ 8,369,143 $ 319,607

See accompanying notes to basic financial statements.

15 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Statements of Revenues, Expenses and Changes in Net Position Years ended December 31, 2017 and 2016 (Dollars in thousands)

2017 2016 Primary Component Primary Component Enterprise Unit Enterprise Unit

Net patient service revenue $ 5,402,741 $ — $ 5,136,830 $ — Other revenue 562,832 25,861 520,571 18,772 Total revenue 5,965,573 25,861 5,657,401 18,772 Operating expenses: Personnel costs 3,461,411 2,986 3,305,457 2,145 Supplies 1,036,409 — 975,673 — Purchased services 410,286 — 377,429 — Other expenses 431,209 31,254 394,175 28,091 Depreciation and amortization 310,286 637 299,487 640 Interest expense 77,954 — 89,660 — Total operating expenses 5,727,555 34,877 5,441,881 30,876 Operating income (loss) 238,018 (9,016) 215,520 (12,104) Nonoperating income: Interest and dividend income 55,849 2,517 46,957 2,639 Net increase in the fair value of investments 498,792 37,891 202,375 14,741 Other – net (5,901) — (1,277) — Total nonoperating income – net 548,740 40,408 248,055 17,380 Revenue over expenses before contributions 786,758 31,392 463,575 5,276 Capital contributions 7,651 2,204 5,945 17,468 Other contributions (88) 1,998 124 1,016 Increase in net position 794,321 35,594 469,644 23,760 Net position: Beginning of year 4,359,522 314,375 3,889,878 290,615 End of year $ 5,153,843 $ 349,969 $ 4,359,522 $ 314,375

See accompanying notes to basic financial statements.

16 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Statements of Cash Flows Years ended December 31, 2017 and 2016 (Dollars in thousands)

2017 2016 Primary Component Primary Component Enterprise Unit Enterprise Unit

Cash flows from operating activities: Receipts from third-party payers and patients $ 5,351,787 $ — $ 5,133,755 $ — Payments to suppliers (1,881,420) (13,650) (1,741,815) (12,983) Payments to employees (3,503,421) — (3,293,868) — Other receipts – net 586,321 729 470,978 870 Net cash provided by (used in) operating activities 553,267 (12,921) 569,050 (12,113) Noncapital financing activities (3,052) — 3,723 — Cash flows from capital and related financing activities: Purchase of capital assets (300,869) (70) (300,859) (617) Donated funds designated for building and equipment purchases 5,652 1,275 4,756 2,189 Acquisition of health related businesses (1,710) — (5,293) — Principal payments, refunding and retirements on short – and long-term debt (198,385) — (761,723) — Interest payments on short – and long-term debt (80,901) — (103,747) — Proceeds from issuance of long-term debt 164,855 — 730,723 — Decrease (increase) in other assets affecting capital and related financing activities 23 648 (1,721) 116 Other contributions (88) 1,998 — 1,016 Net cash (used in) provided by capital and related financing activities (411,423) 3,851 (437,864) 2,704 Cash flows from investing activities: Withdrawal from investments limited as to use — 9,000 100,000 9,400 Contributions to investments limited as to use (152,500) — (276,000) — Investment earnings 4,676 43 2,732 11 Decrease in other trusteed assets 802 — 7,675 — Purchase of investments (2,955) — (403) — Net cash (used in) provided by investing activities (149,977) 9,043 (165,996) 9,411 Net (decrease) increase in cash and cash equivalents (11,185) (27) (31,087) 2 Cash and cash equivalents: Beginning of year 142,725 4,686 173,812 4,684 End of year $ 131,540 $ 4,659 $ 142,725 $ 4,686

Reconciliation of operating income (loss) to net cash provided by (used in) operating activities: Operating income (loss) $ 238,018 $ (9,016) $ 215,520 $ (12,104) Interest expense considered capital financing activity 77,954 — 89,660 — Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 310,286 637 299,487 640 Decrease (increase) in patient accounts receivable – net 3,362 — (28,792) — Decrease (increase) in inventories and other current assets 20,192 (4,257) (30,213) (675) Decrease (increase) in other assets affecting operating activities 3,608 (173) (9,534) 12 (Decrease) increase in accounts payable and other current liabilities (37,089) — 35,541 — (Decrease) increase in other liabilities affecting operating activities (45,571) (112) (27,253) 14 (Decrease) increase in estimated third-party payer settlements (17,493) — 24,634 — Net cash provided by (used in) operating activities $ 553,267 $ (12,921) $ 569,050 $ (12,113)

See accompanying notes to basic financial statements.

17 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

(1) Significant Accounting Policies (a) Organization, Basis of Presentation, and Discretely Presented Component Unit Atrium Health, previously Carolinas HealthCare System, one of the nation’s leading and most innovative healthcare organizations, provides a full spectrum of healthcare and wellness programs throughout the Southeast region. Its diverse network of care locations includes academic medical centers, hospitals, freestanding emergency departments, physician practices, surgical and rehabilitation centers, home health agencies, nursing homes and behavioral health centers, as well as hospice and palliative care services. Atrium Health works to enhance the overall health and wellbeing of its communities through high quality patient care, education and research programs, and numerous collaborative partnerships. Atrium Health was organized in 1943 under the North Carolina Hospital Authorities Act. It is a public body and a body corporate and politic and, therefore, has been determined by the Internal Revenue Service to be exempt from federal and state income taxes. Atrium Health is headquartered in Charlotte, North Carolina.

For financial reporting purposes, Atrium Health is divided into the “Primary Enterprise” and “Component Unit.” The Primary Enterprise consists of The Charlotte-Mecklenburg Hospital Authority (d/b/a Atrium Health) and all affiliates whose assets and income Atrium Health controls without limitation. The Carolinas HealthCare Foundation, Inc. (the Foundation), Atrium Health’s sole Component Unit, raises and holds economic resources for the direct benefit of Atrium Health. The Foundation operates to raise funds to enhance, promote and support medical services, scientific education and research. It solicits contributions for Atrium Health entities and, in the absence of donor restrictions, its Board of Directors has discretionary control over the amounts to be distributed. The Foundation is reported on a basis consistent with Atrium Health’s calendar year and is discretely presented. Transactions between Atrium Health and the Foundation resulting in intercompany receivables, payables, revenues and expenses are not eliminated. Net capital and operating contributions to Atrium Health from the Foundation included in the statements of revenues, expenses and changes in net position were $29,646 and $24,809 for the years ended December 31, 2017 and 2016, respectively.

Certain healthcare facilities in the Carolinas and Georgia (the Regional Enterprise Facilities) are managed by Atrium Health or its affiliates pursuant to management agreements; however, only the management and contracted services fees earned by Atrium Health, not the financial position or results of operation of those facilities, are reflected in the financial statements of Atrium Health.

(b) The Combined Group Atrium Health’s Second Amended and Restated Bond Order authorizes the creation of a Combined Group, which consists of the Obligated Group and Designated Affiliates (there are no Designated Affiliates at this time). Only the Combined Group has a direct or indirect obligation to pay amounts due on Atrium Health’s bonds. As of December 31, 2017 and 2016, the members of the Combined Group were substantially all of the members of the Primary Enterprise and the Foundation. There are some affiliates of the Primary Enterprise which are not part of the Combined Group. The affiliates that are part of the Primary Enterprise, but not part of the Combined Group, made up less than 1% of the total revenue and less than 1% of the total assets of the Primary Enterprise for each of the years ended December 31, 2017 and 2016. Supplemental financial information for the Combined Group as of and for the years ended December 31, 2017 and 2016 is presented as Other Financial Information following the notes to basic financial statements. In January 2018, Atrium Health admitted an entity into the Combined Group that is currently part of the Primary Enterprise but whose revenues and assets of less than 1% and 1% of the Primary Enterprise, respectively, are not material to Atrium Health.

18 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

(c) Recently Adopted Governmental Accounting Standards In 2017, Atrium Health adopted GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, which requires measurement and reporting of other postemployment benefits in a manner similar to pensions. The adoption of this Statement had no material impact on the basic financial statements of Atrium Health.

In 2017, Atrium Health adopted GASB Statement No. 81, Irrevocable Split Interest Agreements, which requires a government to recognize assets, liabilities and deferred inflows of resources at the inception of an irrevocable split interest agreement for resources received pursuant to the agreement. Assets representing the government’s beneficial interests in irrevocable split interest agreements that are administered by a third party must be recognized under the Statement when control of present service capacity of the beneficial interests is maintained by the government. The adoption of this Statement had no material impact on the basic financial statements of Atrium Health.

In 2017, Atrium Health adopted GASB Statement No. 82, Pension Issues – an amendment of GASB Statements No. 67, No. 68, and No. 73, which resolves issues regarding payroll related presentation matters, employer payment classification and selection of assumptions and treatment of deviations from the guidance. The adoption of this Statement had no material impact on the basic financial statements of Atrium Health.

(d) Basis of Accounting The basic financial statements have been prepared on the accrual basis of accounting using the economic resources measurement focus in accordance with Generally Accepted Accounting Principles (GAAP) as prescribed by the GASB.

(e) Cash Equivalents For purposes of the balance sheets and statements of cash flows, Atrium Health considers all investments purchased with a maturity of three months or less and which are not limited as to use to be cash equivalents.

(f) Patient Accounts Receivable – Net Patient accounts receivable is recorded net of allowances for uncollectible accounts of $520,920 and $461,856 at December 31, 2017 and 2016, respectively. Net patient revenue is shown net of provision for uncollectible accounts of $678,860 and $580,924 for the years ended December 31, 2017 and 2016, respectively.

(g) Other Accounts Receivable Other accounts receivable consists primarily of amounts due from Regional Enterprise Facilities, other affiliates, federal and state governments and other nonpatient receivables from external parties.

19 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

(h) Capital Assets Property, plant and equipment are stated at cost. Atrium Health capitalizes expenditures for equipment when the unit of acquisition cost is five hundred dollars or greater and the estimated useful life is greater than three years. Expenditures that materially increase values, change capacities, or extend useful lives are capitalized. Routine maintenance, repairs and replacements are charged to expense when incurred. Depreciation is determined using the straight-line method over the estimated useful lives of the depreciable assets.

Estimated Property classification lives (years)

Land improvements 8–15 Buildings 5–40 Equipment 3–15

Atrium Health evaluates long-lived assets regularly for impairment. If circumstances suggest that assets may be impaired, an assessment of recoverability is performed prior to any write-down of assets. An impairment charge is recorded on those assets for which the estimated fair value is below its carrying amount. No material impairment charges to long-lived assets were recorded for the fiscal years ended December 31, 2017 and 2016.

(i) Cost of Borrowing Interest cost incurred on borrowed funds during the period of construction of capital assets is capitalized as a component of the costs of acquiring these assets.

(j) Other Assets Limited as to Use – Investments Other assets limited as to use include investments held in a revocable trust for the payment of contingencies not covered by insurance, amounts Atrium Health holds as custodian and amounts intended for future expenditures of Atrium Health.

(k) Other Assets Other assets consist of goodwill (representing the cost in excess of the fair value of the net position acquired in periods prior to the adoption of GASB Statement No. 69, Government Combinations and Disposals of Government Operations), teammate benefit plan assets not subject to GASB Statement No. 68 and investments in certain healthcare-related businesses accounted for using the cost or equity method.

20 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

(l) Deferred Outflows of Resources Deferred outflows of resources consist of the unamortized amounts related to long-term debt refunding transactions, the aggregate negative fair value of interest rate swaps that are effective hedges, benefit plan differences between expected and actual investment earnings, benefit plan differences between expected and actual experience related to demographic factors, benefit plan assumption changes and the excess cost of net position related to the acquisition of health-related businesses. The balance of the deferred outflows of resources at December 31, 2017 and 2016 is composed of the following:

2017 2016

Refunding of debt $ 211,269 $ 190,013 Aggregate negative fair value of interest rate swaps 7,597 34,438 Deferred outflows of resources related to Atrium Health DB Plan (note 8) 47,258 126,018 Deferred outflows of resources related to other plans (note 8) 4,263 14,931 Excess cost of net position acquired 6,890 5,846 $ 277,277 $ 371,246

(m) Other Liabilities and Accruals Other liabilities and accruals consists primarily of the current portion of benefit and incentive plan liabilities, current interest payable on long-term debt and other current accruals.

(n) Other Liabilities (Long-term) Other liabilities consist primarily of the long-term portions of self-insurance and benefit plan and incentive plan liabilities, a long-term liability payable to Union County and unearned rent. The provision for self-insurance claims includes estimates of the ultimate costs for both reported claims and claims incurred, but not reported.

(o) Deferred Inflows of Resources Deferred inflows of resources consist of the gain related to a 2008 sale-leaseback transaction, which is being amortized over the terms of the related leases, benefit plan differences between expected and actual experience related to demographic factors, and benefit plan assumption changes.

2017 2016

Sale-leaseback gain $ 28,155 $ 34,388 Deferred inflows of resources related to Atrium Health DB Plan 27,132 3,016 (note 8) Deferred inflows of resources related to other plans (note 8) 3,043 2,126 $ 58,330 $ 39,530

(p) Net Position The financial statements utilize a net position presentation. Net position is categorized as net investment in capital assets, restricted – by donor, and unrestricted.

21 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of bonds, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted net position consists of assets generated from revenues that have third-party limitations on their use. Unrestricted net position has no third-party restrictions on use. When both restricted and unrestricted resources are available for use, generally it is Atrium Health’s policy to use restricted resources first and then unrestricted resources when they are needed.

(q) Operating Revenues and Expenses For purposes of financial reporting, transactions deemed by management to be ongoing, major, or central to the provision of healthcare services, including interest costs, are reported as operating revenues and expenses; otherwise, they are reported as nonoperating income and losses.

(r) Financial Assistance and Community Benefit Costs Atrium Health, under its coverage and financial assistance programs, provides care without charge or at discounted rates to certain uninsured patients as well as any patient, regardless of insurance coverage, who experiences financial hardship. Key elements used to determine eligibility for financial assistance include a patient’s demonstrated inability to pay based on family size and household income relative to federal income poverty guidelines. Patients potentially eligible for other governmental programs, such as Medicaid, must pursue those options by fully cooperating in the eligibility process before receiving financial assistance from Atrium Health. Atrium Health’s cost of care (estimated using applicable cost to charge ratios) extended to uninsured patients qualifying for financial assistance was $141,675 and $147,662 for the years ended December 31, 2017 and 2016, respectively.

In addition to providing financial assistance to uninsured patients and in furtherance of its mission, Atrium Health provides a broad range of benefits and services, including medical education and research opportunities, to the community spanning the geographic region within which Atrium Health operates. These community benefits can be measured and categorized as follows:

Unpaid Cost of Medicare and Medicaid Services – Represents the net unreimbursed cost, estimated using the applicable cost to charge ratios, of services provided to patients who qualify for federal and/or state government healthcare benefits. Community Benefit Programs – Includes the unreimbursed cost of various medical education programs, and costs of various research programs, nonbilled medical services, in-kind donations and other services that meet a community need, but do not pay for themselves and would not be provided if based solely on financial considerations alone. Cost of care extended to uninsured and underinsured patients who do not qualify for financial assistance, estimated using applicable cost to charge ratios.

22 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

The total estimated cost of financial assistance and the aforementioned programs and services that benefit the community is as follows for the years ended December 31:

2017 2016

Cost of financial assistance to uninsured patients $ 141,675 $ 147,662 Unpaid cost of Medicare and Medicaid services 715,394 637,443 Community benefit programs 102,820 93,176 Community benefit subtotal 959,889 878,281 Cost of care extended to uninsured and underinsured patients who do not qualify for financial assistance 239,324 231,442 Community benefit including cost of care for patients not qualifying for financial assistance $ 1,199,213 $ 1,109,723

Percentage of the Primary Enterprise’s operating expenses 20.9 % 20.4 %

(s) Capital Contributions and Grants Funds donated to acquire property, plant and equipment are considered donations of capital and are included as a component of capital assets and net position.

(t) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Atrium Health considers critical accounting policies to be those that require more significant judgments and estimates in the preparation of its financial statements, including the following: recognition of net patient service revenues; valuation of accounts receivable, including contractual allowances and provisions for bad debts; reserves for losses and expenses related to teammate healthcare, professional liabilities, workers’ compensation and general liabilities; valuation of pension and other retirement obligations; and estimated third-party payer settlements. Actual results could differ from those estimates.

(u) Future Accounting and Reporting Requirements In 2015, the GASB issued GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. Statement 75 requires measurement and reporting of other postemployment benefits in a manner similar to pensions and must be adopted no later than the year ending December 31, 2018. The adoption of this Statement is not expected to have a material impact on the basic financial statements of Atrium Health.

In 2017, the GASB issued Statement No. 83, Certain Asset Retirement Obligations, which establishes the definition of asset retirement obligations and guidelines for the recognition and disclosure of liabilities associated with the retirement of a tangible capital asset. The requirements of this Statement are required to be adopted no later than the year ending December 31, 2019. The adoption of this Statement is not expected to have a material impact on the basic financial statements of Atrium Health.

23 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

In 2017, the GASB issued Statement No. 84, Fiduciary Activities, which establishes criteria for identifying fiduciary activities of governments and how those activities should be reported. The requirements of this Statement are required to be adopted no later than the year ending December 31, 2019. Atrium Health has not yet determined the impact of this Statement on the basic financial statements.

In 2017, the GASB issued Statement No. 85, Omnibus 2017, which addresses a variety of practice issues that relate to the application of certain GASB Statements. Those issues include blending component units, goodwill, fair value measurement and application, and postemployment benefits. The requirements of this Statement are required to be adopted no later than the year ended December 31, 2018. The adoption of this Statement is not expected to have a material impact on the basic financial statements of Atrium Health.

In 2017, the GASB issued Statement No. 86, Certain Debt Extinguishment Issues, which provides guidance for transactions in which cash and other monetary assets are placed in irrevocable trust for the sole purpose of extinguishing debt and for prepaid insurance on debt that is extinguished. The requirements of this Statement are required to be adopted no later than the year ended December 31, 2018. The adoption of this Statement is not expected to have a material impact on the basic financial statements of Atrium Health.

In 2017, the GASB issued Statement No. 87, Leases, which requires recognition of certain lease assets and liabilities for leases that were previously classified as operating leases. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. The requirements of this Statement are required to be adopted no later than the year ended December 31, 2020. Atrium Health has not yet determined the impact of this Statement on the basic financial statements.

In 2018, the GASB issued Statement No. 88, Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements, which provides guidance for additional disclosures in notes to government financial statements. The primary objective of this statement is to improve the information that is disclosed related to debt. The provisions of this Statement are required to be adopted no later than the year ended December 31, 2019. The adoption of this Statement is not expected to have a material impact on the basic financial statements of Atrium Health.

(v) Business Combinations and Certain Other Affiliations Atrium Health accounts for the acquisition of healthcare-related businesses in accordance with GASB Statement No. 69. Any excess of purchase price over the net position acquired is recorded as a deferred outflow of resources and is attributed to future periods in a systematic manner based upon professional standards. Any purchase price in excess of net position acquired prior to January 1, 2013 is being amortized over periods that do not exceed 25 years. The results of operations of these acquired entities are included in Atrium Health’s results of operations from the dates of acquisition.

24 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

(2) Cash, Investments and Other Financial Instruments (a) Cash and Cash Equivalents As of December 31, 2017, Atrium Health had cash and cash equivalents of $131,540 of which a portion was invested with the North Carolina Capital Management Trust’s Government Portfolio and a portion was invested with the North Carolina Capital Management Trust’s Term Portfolio, which is not rated but has maintained a stable net asset value since 2011. As of December 31, 2016, Atrium Health had cash and cash equivalents of $142,725, of which a portion was invested with the North Carolina Capital Management Trust’s Government Portfolio, which has a rating of AAAm from S&P Global Ratings.

For cash and cash equivalents, Atrium Health follows North Carolina General Statute 159-30, whereby all deposits of Atrium Health are held in depositories that are either insured or covered under statewide single financial institution collateral pools (the Pooling Method). Collateral is maintained for all the depositories’ governmental units in the state. The North Carolina State Treasurer monitors the Pooling Method depositories for adequate collateralization. Under the Pooling Method, all uninsured deposits are collateralized with securities held by the State Treasurer’s agent in the name of the State Treasurer. The amount of the pledged collateral is based on an approved averaging method for noninterest-bearing deposits and the actual current balance for interest-bearing deposits. Depositories using the Pooling Method report to the State Treasurer the adequacy of their pooled collateral covering uninsured deposits. The State Treasurer does not confirm this information with Atrium Health. Because of the inability to measure the exact amount of collateral pledged for Atrium Health under the Pooling Method, the potential exists for under collateralization, and this risk may increase in periods of high cash flows. However, each Pooling Method Depository is subject to financial stability standards and oversight by the State Treasurer of North Carolina.

(b) Investments Designated for Capital Improvements and Other Assets Limited as to Use Atrium Health may, for funds not required for immediate disbursement, make investments that are permissible for trustees, executors, and other fiduciaries under North Carolina law. Funds that are not needed for immediate operating needs and that have been designated by the Board of Commissioners for capital improvements, along with other trusteed assets, are invested in cash equivalents, fixed income securities, equity securities, equity securities held in common collective trust funds, a real asset mutual fund and limited partnerships. Investments included in the portfolio are reflected at fair value at the balance sheet date, as noted in the table below, with gains and losses reflected in nonoperating income (loss) in the accompanying statements of revenues, expenses and changes in net position.

Atrium Health operates a regional integrated healthcare system, which has significant capital needs arising from both changes in medical technology and a growing demand for healthcare services. At December 31, 2017, the fair value of investments designated for capital improvements of $4,175,386 is substantially less than the historical cost of property, plant and equipment of $5,825,529.

Atrium Health’s investments designated for capital improvements and other assets limited as to use (Bond proceeds held by trustee, Other long-term investments and Assets limited as to use – current and noncurrent), based on fair value as of December 31, 2017, and organized by investment type to provide an indication of the level of investment and deposit risks assumed, are as follows:

25 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

Ratings by nationally Effective Designated Other assets recognized duration for capital limited as agency in years improvements to use

Cash equivalents $ 170,780 $ 17,248

Fixed income: U.S. government treasuries and agencies AA 7.46 128,119 9,518 A9.825472 BBB 6.57 1,429 — Mortgage pass-throughs AAA 4.44 31,115 2,664 AA 3.83 83,702 1,947 A 3.99 918 — BBB 4.74 539 — B 3.19 1,242 — CCC 4.79 156 — Collateralized mortgage AAA 2.49 4,310 416 obligations AA 3.25 6,567 417 A 3.69 317 — BBB 6.31 2,552 127 Corporate bonds AAA 13.15 4,022 181 AA 7.66 13,230 834 A 6.38 62,996 3,822 BBB 5.97 118,699 7,477 BB 5.47 8,467 — B 7.44 481 — Municipal bonds AAA 5.68 5,525 281 AA 8.83 12,810 680 A 4.93 3,363 122 BBB 1.35 1,120 60 Asset-backed securities AAA 1.81 42,469 3,026 AA 3.66 20,196 1,043 A 3.97 9,446 736 BBB 5.84 999 137 Fixed income – other N/A 3.62 327,140 3,167 Long/short fixed income N/A N/A 255,981 9,244

Total fixed income (weighted average duration) 5.26 1,147,964 45,971 Equity: Domestic equities 1,268,733 39,291 International equities 685,209 23,246 Global equities 645,427 18,391 Long/short equity 4,023 246

Total equity 2,603,392 81,174

Real asset funds 103,697 3,581 Multi-strategy hedge funds 21,420 2,402 Commodity funds 103,603 4,144 Private equity funds 24,530 19,268 Total reported value $ 4,175,386 $ 173,788

26 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

Atrium Health’s investments designated for capital improvements and other assets limited as to use (Bond proceeds held by trustee, Other long-term investments and Assets limited as to use – current and noncurrent), based on fair value as of December 31, 2016, and organized by investment type to provide an indication of the level of investment and deposit risks assumed, are as follows:

Ratings by nationally Effective Designated Other assets recognized duration for capital limited as agency in years improvements to use

Cash equivalents $ 160,475 $ 19,583 Fixed income: U.S. government treasuries and agencies AA 10.55 86,550 6,037 A 6.71 1,043 246 Mortgage pass-throughs AAA 3.49 33,581 2,665 AA 4.28 49,988 3,006 A 0.33 2,938 117 Collateralized mortgage obligations AA 3.33 9,003 646 BBB 6.69 2,647 132 Corporate bonds AAA 11.09 6,991 486 AA 7.35 13,248 715 A 6.76 58,028 4,042 BBB 5.99 95,701 6,593 Municipal bonds AAA 5.72 7,917 365 AA 7.92 13,517 882 A 7.39 127 113 BBB 2.01 1,442 60 Asset-backed securities AAA 1.45 42,192 3,265 AA 4.57 18,953 987 A 4.46 9,939 580 BBB 5.89 386 81 Fixed income – other N/A 3.96 287,754 3,055 Long/short fixed income N/A N/A 171,750 6,339 Total fixed income (weighted average duration) 5.34 913,695 40,412

27 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

Ratings by nationally Effective Designated Other assets recognized duration for capital limited as agency in years improvements to use

Equity: Domestic equities $ 985,047 $ 36,675 International equities 503,861 18,452 Global equities 508,595 15,142 Long/short equity 177,948 11,626

Total equity 2,175,451 81,895 Real asset funds 85,839 2,965 Multi-strategy hedge funds 43,754 4,443 Commodity funds 68,918 2,673 Private equity funds 30,796 13,471 Total reported value $ 3,478,928 $ 165,442

(c) Custodial Credit Risk Custodial credit risk is the risk that Atrium Health will not be able to recover the value of its bank deposits, which are exposed to custodial credit risk if they are uninsured and uncollateralized. As of December 31, 2017 and 2016, all of Atrium Health’s bank deposits were either insured by federal depository insurance or collateralized by the Pooling Method.

Fixed income investments and equity securities are exposed to custodial credit risk if the securities are uninsured, are not registered in the name of Atrium Health, and are held by either the counterparty or the counterparty’s trust department or agent, but not in Atrium Health’s name. As of December 31, 2017 and 2016, all of Atrium Health’s fixed income investments and equity securities are held by Atrium Health’s custodial bank in Atrium Health’s name and are, therefore, not exposed to custodial credit risk.

(d) Credit Risk With respect to fixed income investments, credit risk is the risk that an issuer or other counterparty to an investment will not fulfill their obligations as required by the fixed income security. Atrium Health’s investment policy requires that the overall average credit quality of the core fixed income portfolios must be maintained at AA or higher, and the overall average credit quality of the core plus fixed income portfolios must be maintained at A or higher. As of December 31, 2017 and 2016, Atrium Health’s fixed income portfolio met these overall average requirements. The quality ratings of Atrium Health’s investments in fixed income securities (excluding long/short fixed income), as determined by nationally recognized statistical rating organizations, are disclosed in the preceding tables.

(e) Concentration of Credit Risk Credit concentration risk results from not adequately diversifying investments. Per Atrium Health’s investment policy equity and fixed income restrictions, (1) no more than 7% of any investment manager’s equity portfolio may be invested in securities of any one issuing corporation, and (2) fixed income investments in any single issuer (excluding obligations of the U.S. government and its agencies) may not

28 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

exceed 5% of any investment manager’s portfolio market value at the time of purchase. Although exceptions to these policy restrictions are at times granted to investment managers, at no time may an investment in any one corporation exceed 5% of that corporation’s outstanding shares while fixed income investments in any single issuer (excluding obligations of the U.S. government and its agencies) may not exceed 5% of the total issue at the time of purchase. At December 31, 2017 and 2016, no investment in any one corporation or single issuer exceeded 5% of the outstanding shares or total issue at the time of purchase, respectively.

(f) Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of a fixed income investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. Atrium Health monitors the interest rate risk inherent in its fixed income portfolio by measuring the effective duration in years, which measures the expected change in value of a fixed income security or portfolio for a given change in interest rates.

As a means of limiting interest rate risk, Atrium Health’s investment policy (excluding long/short fixed income) limits the effective duration in years of the core fixed income portfolio to a range of 75% to 125% of the duration of its benchmark (Barclay’s Capital Aggregate Bond Index) and limits the effective duration in years of the core plus fixed income portfolio to a range of 0% to 150% of the duration of its benchmark (blend of Barclays Capital Government/Credit Bond Index and Citi World Government Bond Index (WGBI)) at all times.

As noted in the December 31, 2017 table above, the effective duration in years of Atrium Health’s total core and core plus fixed income portfolios was 5.26 years while the Barclays Capital Aggregate Bond Index’s effective duration was 6.00 years and the blend of the Barclay’s Capital Government/Credit Bond Index and the Citi WGBI was 7.91 years.

As noted in the December 31, 2016 table above, the effective duration in years of Atrium Health’s total core and core plus fixed income portfolios was 5.34 years while the Barclays Capital Aggregate Bond Index’s effective duration was 5.89 years and the blend of the Barclay’s Capital Government/Credit Bond Index and the Citi WGBI was 7.80 years.

Atrium Health’s fixed income investments also include asset-backed securities that are sensitive to interest rate fluctuations due to embedded prepayment options.

(g) Foreign Currency Risk Foreign currency risk is the chance that changes in exchange rates will adversely affect the fair value of investments and deposits. Atrium Health’s investment policy limits foreign currency investments to international and global managers who can utilize such investments for currency hedging purposes only.

At December 31, 2017, Atrium Health had $199,560 of exposure to foreign currency risk in the form of cash and cash equivalents $525, mutual funds $98,953 (including approximately 99% in the British Pound and approximately 1% in the Canadian Dollar) and common stock in foreign currencies $100,082 (including approximately 22% in the Euro, approximately 19% in the Japanese Yen, approximately 14% in the British Pound, approximately 12% in the South African Rand, and the remaining 33% spread over other common stock in foreign currencies, none of which exceed 10%).

29 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

At December 31, 2016, Atrium Health had $130,897 of exposure to foreign currency risk in the form of cash and cash equivalents $447, mutual funds $70,261 (including approximately 99% in the British Pound and approximately 1% in the Canadian Dollar) and common stock in foreign currencies $60,189 (including approximately 22% in the British Pound, approximately 18% in the Euro, approximately 16% in the Japanese Yen and the remaining 44% spread over other common stock in foreign currencies, none of which exceed 10%). (3) Fair Value Measurements U.S. GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy that requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following describes the three levels of inputs used to measure fair value on a recurring basis:

Level 1 – Level 1 inputs are unadjusted quoted market prices in active markets for identical assets or liabilities that are available as of the measurement date.

Level 2 – Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.

Level 3 – Level 3 inputs are unobservable inputs that reflect Atrium Health management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Level 3 assets include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, or for which the determination of fair value requires significant management judgment or estimation.

Investments that do not have a readily determinable fair value are reported using net asset value (NAV) as a “practical expedient” as outlined in GASB 72.

Although Atrium Health management believes the fair value accounting estimates reflected in its financial statements are reasonable, there can be no assurances that Atrium Health could ultimately realize these values.

30 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

The fair value hierarchy classification of Atrium Health’s assets measured at fair value as of December 31, 2017 is summarized in the table below: Fair value at reporting date using Quoted prices in active Significant Other markets for other Significant Designated assets identical observableunobservable for capital limited as assets inputs inputs improvements to use (Level 1) (Level 2) (Level 3)

Investments by fair value level: Cash equivalents $ 170,780 $ 17,248 $ 188,028 $ — $ — Fixed income: U.S. government treasuries and agencies 129,602 9,590 — 139,192 — Mortgage pass-throughs 117,672 4,611 — 122,283 — Collateralized mortgage obligations 13,746 960 — 14,706 — Corporate bonds 207,895 12,314 — 220,209 — Municipal bonds 22,818 1,143 — 23,961 — Asset-backed securities 73,110 4,942 — 78,052 — Fixed income – other 327,140 3,167 330,307 — — Total fixed income 891,983 36,727 330,307 598,403 — Equity: Domestic equities 1,268,733 39,291 1,308,024 — — International equities 685,209 23,246 708,455 — — Global equities 421,509 12,272 433,781 — — Total equity 2,375,451 74,809 2,450,260 — — Real asset funds 103,697 3,581 107,278 — — Total investments by fair value level 3,541,911 132,365 $ 3,075,873 $ 598,403 $ —

Investments measured at the NAV: Global equities 223,918 6,119 Long/short fixed income 255,981 9,244 Long/short equity 4,023 246 Multi-strategy hedge funds 21,420 2,402 Commodity funds 103,603 4,144 Private equity funds 24,530 19,268 Total investments measured at the NAV 633,475 41,423 Total investments measured at fair value $ 4,175,386 $ 173,788

31 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

The fair value hierarchy classification of Atrium Health’s assets measured at fair value as of December 31, 2016 is summarized in the table below: Fair value at reporting date using Quoted prices in active Significant Other markets for other Significant Designated assets identical observableunobservable for capital limited as assets inputs inputs improvements to use (Level 1) (Level 2) (Level 3)

Investments by fair value level: Cash equivalents $ 160,475 $ 19,583 $ 180,058 $ — $ — Fixed income: U.S. government treasuries and agencies 87,593 6,283 — 93,876 — Mortgage pass-throughs 86,507 5,788 — 92,295 — Collateralized mortgage obligations 11,650 778 — 12,428 — Corporate bonds 173,968 11,836 — 185,804 — Municipal bonds 23,003 1,420 — 24,423 — Asset-backed securities 71,470 4,913 — 76,383 — Fixed income – other 287,754 3,055 290,809 — — Total fixed income 741,945 34,073 290,809 485,209 — Equity: Domestic equities 985,047 36,675 1,021,722 — — International equities 503,861 18,452 522,313 — — Global equities 317,714 9,907 327,621 — — Total equity 1,806,622 65,034 1,871,656 — — Real asset funds 85,839 2,965 88,804 — — Total investments by fair value level 2,794,881 121,655 $ 2,431,327 $ 485,209 $ —

Investments measured at the NAV: Global equities 190,881 5,235 Long/short fixed income 171,750 6,339 Long/short equity 177,948 11,626 Multi-strategy hedge funds 43,754 4,443 Commodity funds 68,918 2,673 Private equity funds 30,796 13,471 Total investments measured at the NAV 684,047 43,787 Total investments measured at fair value $ 3,478,928 $ 165,442

Fixed income and equity securities classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Atrium Health accounts for these investments through the use of quoted market prices for those investments with readily determinable fair values. Fixed income and equity

32 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

securities classified in Level 2 of the fair value hierarchy are valued using a matrix pricing technique provided by the external investment managers and Atrium Health’s investment custodian. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices, benchmark yields, reported trades, broker-dealer quotes, issuer spreads and benchmark securities, among others. Atrium Health management reviews the valuations received from third parties.

The table below discloses the unfunded commitments, redemption frequency and redemption notice period for investments measured at net asset value as of December 31, 2017 and 2016: Designated for Capital Improvements and Other Assets Limited as to Use Combined Unfunded commitments as of Redemption December 31, Redemption notice 2017 2016 2017 frequency period

Global equities $ 230,037 $ 196,116 $ — Monthly 6 days Long/short fixed income limited partnerships 265,225 178,089 — Quarterly 45–90 days Long/short equity limited partnerships 4,269 189,574 — Quarterly 60 days Multi-strategy hedge fund limited partnerships 23,822 48,197 — Annually 90 days Commodities fund of funds limited partnerships 107,747 71,591 — Daily 1 day Private equity fund of funds partnerships 43,798 44,267 5,159 n/a n/a Total $ 674,898 $ 727,834 $ 5,159

Global equities are strategies that invest primarily in domestic and international public companies. Fund managers of each strategy have the ability to shift investments among geographies, sectors, and industries. The fair values of the investments in this type have been determined using the NAV per share of the investments.

Long/short fixed income limited partnership investments are hedge fund strategies that invest both long and short primarily in fixed income. Fund managers of each hedge fund strategy have the ability to shift investments among sectors, duration, yield, and from a net long position to a net short position. The fair values of the investments in this type have been determined using the NAV per share of the investments.

Long/short equity limited partnership investments are hedge fund strategies that invest both long and short primarily in equities. Fund managers of each hedge fund have the ability to shift investments among sectors, styles, market capitalization, and from a net long position to a net short position. The fair values of the investments in this type have been determined using the NAV per share of the investments.

Multi-strategy hedge fund limited partnership investments are hedge fund strategies that invest both long and short primarily in relative value opportunities and special situations across equity, fixed income, and real estate. The fair values of the investments in this type have been determined using the NAV per share of the investments.

33 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

Commodities fund of funds limited partnerships are strategies that invest both long and short primarily in exchange traded commodities. Fund managers of each strategy have the ability to shift investments among commodities, sectors, timeframe, and from a net long position to a net neutral position. The fair values of the investments in this type have been determined using the NAV per share of the investments.

Private equity fund of funds partnerships are strategies that invest primarily in domestic and international public and private companies. Fund managers of each strategy have the ability to shift investments among geographies, sectors, industries, and the stage in the company’s life cycle. The fair values of the investments in this type have been determined using the NAV per share of Atrium Health’s ownership interest in partners’ capital. Investments of this type do not allow for redemptions. Instead, investments in the strategies are returned through partnership distributions that generally coincide with liquidations of the underlying assets of the funds. It is estimated that the current liquidation period for these investments was five to ten years at December 31, 2017.

The fair values of Atrium Health’s interest rate swaps (see note 5) were estimated using the zero coupon method. This method calculates the future net settlement payments required by the swap, assuming that the current forward rates implied by the yield curve correctly anticipate future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for hypothetical zero coupon bonds due on the date of each future net settlement on the swaps. The spot rates used for discounting are further adjusted for the credit (nonpayment) risk associated with the party that is a net debtor as of the measurement date. The swap valuations are considered Level 2 liabilities and were valued at $219,841 and $224,535 at December 31, 2017 and 2016, respectively.

34 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

The Carolinas HealthCare Foundation, Inc.’s Investments The Foundation’s investments at December 31, 2017 are as follows:

Fair value at reporting date using Quoted prices in active Significant markets for other Significant identical observable unobservable assets inputs inputs 2017 (Level 1) (Level 2) (Level 3)

Cash equivalents $ 18,291 $ 18,291 $ — $ — Fixed income 43,545 22,777 20,768 — Domestic equities 71,042 71,042 — — International equities 48,716 48,716 — — Global equities 32,741 32,741 — — Real asset funds 7,904 7,904 — — Total by fair value level 222,239 $ 201,471 $ 20,768 $ —

Investments measured at the NAV: Global equities 15,911 Long/short fixed income 29,777 Long/short equity 457 Multi-strategy hedge funds 225 Commodity funds 8,288 Private equity funds 19,200 Total assets measured at the NAV 73,858 Total assets measured at fair value $ 296,097

35 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

The Foundation’s investments at December 31, 2016 are as follows:

. Fair value at reporting date using Quoted prices in active Significant markets for other Significant identical observable unobservable a sse ts inputs inputs 2016 (Level 1) (Level 2) (Level 3)

Cash equivalents $ 17,850 $ 17,850 $ — $ — Fixed income 34,284 18,044 16,240 — Domestic equities 72,919 72,919 — — International equities 37,359 37,359 — — Global equities 12,681 12,681 — — Real asset funds 6,468 6,468 — —

Total by fair value level 181,561 $ 165,321 $ 16,240 $ —

Investments measured at the NAV: Global equities 13,613 Long/short fixed income 21,389 Long/short equity 22,413 Multi-strategy hedge funds 3,137 Commodity funds 4,212 Private equity funds 18,206 Total assets measured at the NAV 82,970 Total assets measured at fair value $ 264,531

36 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

(4) Capital Assets Capital assets activity for the year ended December 31, 2017, was as follows: Beginning Ending balance Additions Transfers Retirements balance

Depreciable capital assets: Land improvements $ 118,378 $ — $ 2,018 $ (823) $ 119,573 Buildings 3,107,808 7,767 116,696 (10,553) 3,221,718 Equipment 1,915,321 25,602 154,084 (35,195) 2,059,812 Depreciable capital assets – gross 5,141,507 33,369 272,798 (46,571) 5,401,103

Accumulated depreciation (2,509,561) (308,171) — 41,829 (2,775,903)

Depreciable capital assets – net 2,631,946 (274,802) 272,798 (4,742) 2,625,200

Nondepreciable capital assets: Land 197,514 — 15,138 — 212,652 Construction in progress 217,626 282,084 (287,936) — 211,774 Net capital assets $ 3,047,086 $ 7,282 $ — $ (4,742) $ 3,049,626

Capital assets activity for the year ended December 31, 2016, was as follows: Beginning Ending balance Additions Transfers Retirements balance

Depreciable capital assets: Land improvements $ 117,638 $ — $ 815 $ (75) $ 118,378 Buildings 3,031,139 6,589 74,279 (4,199) 3,107,808 Equipment 1,763,016 28,554 158,464 (34,713) 1,915,321

Depreciable capital assets – gross 4,911,793 35,143 233,558 (38,987) 5,141,507 Accumulated depreciation (2,250,437) (297,892) — 38,768 (2,509,561)

Depreciable capital assets – net 2,661,356 (262,749) 233,558 (219) 2,631,946 Nondepreciable capital assets: Land 197,393 — 121 — 197,514 Construction in progress 171,834 279,471 (233,679) — 217,626 Net capital assets $ 3,030,583 $ 16,722 $ — $ (219) $ 3,047,086

37 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

Net capitalized interest expense of $7,616 and $7,090 for the years ended December 31, 2017 and 2016, respectively, was included in the cost of projects. The cost of capital expenditures included in accounts payable was $30,890 and $25,945 as of December 31, 2017 and 2016, respectively. (5) Long-Term Debt Long-term debt, net of related issuance premiums and unamortized gains on debt-related derivative agreements, consists of the following as of December 31:

2017 2016

Series 2005 B, C, and D Variable Rate Refunding Revenue Bonds, maturing 2018 through 2026, bearing interest at variable rates which are adjusted weekly (weighted average rate for the year ended December 31, 2017 was 1.43%) $ 56,300 $ 61,545 Series 2007 A Revenue and Refunding Revenue Bonds, maturing 2017, bearing interest at 4.5% and 5.0% — 13,500 Series 2007 B Variable Rate Refunding Revenue Bonds, maturing 2018 through 2038, bearing interest at variable rates which are adjusted daily (weighted average rate for the year ended December 31, 2017 was 0.76%) 81,760 82,635 Series 2007 C Variable Rate Refunding Revenue Bonds, maturing 2027 through 2037, bearing interest at variable rates which are adjusted daily (weighted average rate for the year ended December 31, 2017 was 0.81%) 87,635 87,635 Series 2007 D Variable Rate Revenue Bonds, maturing 2041 through 2043, bearing interest at variable rates which are adjusted weekly (weighted average rate for the year ended December 31, 2017 was 1.56%) 67,140 67,140 Series 2007 E Variable Rate Revenue Bonds, maturing 2041 through 2044, bearing interest at variable rates which are adjusted daily (weighted average rate for the year ended December 31, 2017 was 0.79%) 77,220 77,220 Series 2007 F Variable Rate Revenue Bonds, maturing 2030 through 2042, bearing interest at variable rates which are adjusted weekly (weighted average rate for the year ended December 31, 2017 was 1.56%) 57,055 57,055

38 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

2017 2016

Series 2007 G Variable Rate Revenue Bonds, maturing 2031 through 2041, bearing interest at variable rates which are adjusted weekly (weighted average rate for the year ended December 31, 2017 was 1.43%) $ 113,825 $ 113,825 Series 2007 H Variable Rate Revenue Bonds, maturing 2027 through 2045, bearing interest at variable rates which are adjusted weekly (weighted average rate for the year ended December 31, 2017 was 1.20%) 166,050 166,050 Series 2008 A Refunding Revenue Bonds, maturing 2018, bearing interest at 4.25% 1,530 2,855 Series 2009 A Refunding Revenue Bonds, maturing 2018 through 2039, bearing interest at 4.0% to 5.25% 185,605 188,975 Series 2011 A Revenue Bonds, maturing 2018 through 2042 bearing interest at 3.0% to 5.25% 134,170 136,145 Series 2012 A Revenue and Refunding Revenue Bonds maturing 2018 through 2043 bearing interest at 2.0% to 5.0% 149,875 151,345 Series 2013 A Revenue and Refunding Revenue Bonds, maturing 2018 through 2039 bearing interest at 3.0% to 5.0% 119,640 121,950 Series 2015 A Taxable Refunding Revenue Bonds, maturing 2018 through 2024 bearing interest at 2.64% 10,470 11,815 Series 2015 B Taxable Commercial Paper Revenue Bonds (weighted average interest rate for the year ended December 31, 2017 was 1.15%) 30,000 30,000 Series 2016 A Refunding Revenue Bonds, maturing 2018 through 2047 bearing interest at 3.0% to 5.0% 390,560 390,560 Other long-term debt 68,563 70,678 1,797,398 1,830,928 Commercial paper and current portion (68,465) (65,849) 1,728,933 1,765,079 Net unamortized premiums 67,084 69,532 Unamortized gains on debt-related derivative agreements 3,132 3,523 $ 1,799,149 $ 1,838,134

39 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

A summary of changes in long-term debt during 2017 is as follows:

Beginning Ending balance Additions Retirements balance Fixed rate revenue bonds $ 1,017,145 $ — $ (25,295) $ 991,850 Variable rate revenue bonds 713,105 164,855 (170,975) 706,985 Commercial paper revenue bonds 30,000 135,000 (135,000) 30,000 Other long-term debt 70,678 — (2,115) 68,563 $ 1,830,928 $ 299,855 $ (333,385) $ 1,797,398

A summary of changes in long-term debt during 2016 is as follows:

Beginning Ending balance Additions Retirements balance Fixed rate revenue bonds $ 1,077,035 $ 390,560 $ (450,450) $ 1,017,145 Variable rate revenue bonds 714,005 294,735 (295,635) 713,105 Commercial paper revenue bonds 25,000 150,000 (145,000) 30,000 Other long-term debt 74,452 — (3,774) 70,678 $ 1,890,492 $ 835,295 $ (894,859) $ 1,830,928

As of December 31, 2017 and 2016, all of Atrium Health’s variable rate revenue bonds were hedged.

40 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

Debt service requirements for long-term debt in future years, excluding commercial paper but including the impact of other long-term debt (a note payable to a financial services company and a note payable to Cleveland County) and interest rate swap transactions discussed later in this note, are shown in the table below. Net swap payments, as reflected in the table below, are projected using the December 31, 2017 relationship between the Securities Information and Financial Markets Association (SIFMA) Municipal Swap Index and the one-month London InterBank Offered Rate (LIBOR) of approximately 109%, which is higher than interest projected using the 71% average relationship between SIFMA and LIBOR over the past 10 years.

Principal Interest Total

2018 $ 34,604 $ 80,935 $ 115,539 2019 36,006 79,350 115,356 2020 37,611 77,704 115,315 2021 39,275 75,976 115,251 2022 40,853 74,412 115,265 2023–2027 237,732 338,172 575,904 2028–2032 293,163 274,628 567,791 2033–2037 377,639 196,823 574,462 2038–2042 429,215 96,092 525,307 2043–2047 241,300 11,944 253,244 $ 1,767,398 $ 1,306,036 $ 3,073,434

Atrium Health’s Revenue Bonds (other than the Series 2015 A and Series 2015 B Revenue Bonds which are taxable) are tax-exempt and are secured by and payable from Atrium Health’s revenues, the money and securities held in certain funds and accounts created by the applicable bond agreements and held by the bond trustee, and in the case of the Combined Group, amounts payable by the other members of the Combined Group under their respective Member Guaranty Agreement or Member Security Agreement. The tax-exempt fixed rate revenue bonds are redeemable at the option of Atrium Health at par value upon the expiration of the 10-year no call period subsequent to their respective issuance date.

In December 2005, Atrium Health issued Series 2005 B, C and D Variable Rate Refunding Revenue Bonds which, together with $2,855 of Atrium Health funds, currently refunded $96,760 of Series 1996 A Revenue Bonds. Interest on the Series 2005 B, C and D Variable Rate Refunding Revenue Bonds is payable monthly in arrears and principal is payable on January 15 of each year. In February 2011, Atrium Health utilized a mandatory tender process to substitute new direct pay letters of credit on these bonds. As a result of this mandatory tender process, these bonds were deemed extinguished and the remarketed bonds were treated as a new issuance. In December 2016, Atrium Health utilized a mandatory tender process to convert Series 2005 B, C and D to direct purchase bonds. As a result of this mandatory tender process, these bonds were deemed extinguished and the remarketed bonds were treated as a new issuance.

In August 2007, Atrium Health issued Series 2007 A Revenue and Refunding Revenue Bonds, which currently refunded $114,030 of the outstanding Series 1997 A Revenue Bonds and advance refunded $26,445 of the outstanding Series 2001 A Revenue Bonds. Interest on the Series 2007 A Revenue Bonds is

41 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

payable semiannually on January 15 and July 15 of each year and principal is payable on January 15 of each year.

Also in August 2007, Atrium Health issued Series 2007 B and C Variable Rate Refunding Revenue Bonds, which advance refunded all $71,015 of the outstanding Series 2003 A Revenue Bonds and all $100,000 of the outstanding Series 2005 A Revenue Bonds. Interest on the Series 2007 B and C Variable Rate Refunding Revenue Bonds is payable monthly in arrears and principal is payable on January 15 of each year. In May 2017, Atrium Health utilized a mandatory tender process to convert Series 2007 C from the weekly interest rate mode to the daily interest rate mode. As a result of this mandatory tender process, these bonds were deemed extinguished and the remarketed bonds were treated as a new issuance.

In September 2007, Atrium Health issued Series 2007 D, E and F Variable Rate Revenue Bonds insured by Financial Security Assurance, Inc., now known as Assured Guaranty Municipal Corp. (AGMC). Interest on the Series 2007 D, E and F Variable Rate Revenue Bonds is payable monthly in arrears and principal is payable on January 15 of each year. In May 2013, Atrium Health utilized a mandatory tender process to convert Series 2007 D and F to direct purchase bonds and to substitute a new direct pay letter of credit on Series 2007 E. As a result of this mandatory tender process, these bonds were deemed extinguished and the remarketed bonds were treated as a new issuance. In November 2016, Atrium Health utilized a mandatory tender process to change the holder of the Series 2007 D direct purchase bonds. As a result of this mandatory tender process, these bonds were deemed extinguished and the remarketed bonds were treated as a new issuance. In May 2017, Atrium Health utilized a mandatory tender process to convert Series 2007 E from the weekly interest rate mode to the daily interest rate mode. As a result of this mandatory tender process, these bonds were deemed extinguished and the remarketed bonds were treated as a new issuance.

Also in September 2007, Atrium Health issued Series 2007 G Variable Rate Revenue Bonds insured by AGMC and Series 2007 H Variable Rate Revenue Bonds. The proceeds of the Series 2007 H Variable Rate Revenue Bonds were used to repay $159,930 of outstanding revenue bonds issued by the North Carolina Medical Care Commission (NCMCC) for the benefit of CHS NorthEast. Interest on the Series 2007 G Variable Rate Revenue Bonds and the Series 2007 H Variable Rate Revenue Bonds is payable monthly in arrears. Principal is payable on January 15 of each year. In May 2013, Atrium Health utilized a mandatory tender process to convert Series 2007 G to direct purchase bonds. As a result of this mandatory tender process, these bonds were deemed extinguished and the remarketed bonds were treated as a new issuance. In November 2016, Atrium Health utilized a mandatory tender process to convert Series 2007 H to direct purchase bonds. As a result of this mandatory tender process, these bonds were deemed extinguished and the remarketed bonds were treated as a new issuance.

In June 2008, Atrium Health issued Series 2008 A Refunding Revenue Bonds which currently refunded all $70,020 of the outstanding Series 1996 B, C and D Variable Rate Revenue Bonds, all $66,175 of the outstanding Series 2003 B Variable Rate Revenue Bonds, all $100,000 of the outstanding Series 2005 E Variable Rate Revenue Bonds and all $71,200 of the outstanding Series 2007 I Variable Rate Revenue Bonds. Interest on the Series 2008 A Revenue Bonds is payable semiannually on January 15 and July 15 of each year and principal is payable on January 15 of each year.

42 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

In August 2009, Atrium Health issued Series 2009 A Refunding Revenue Bonds which currently refunded all $7,810 of the outstanding Series 1997 A Revenue Bonds, all $76,075 of the outstanding Series 2007 J Variable Rate Revenue Bonds, all $78,225 of the outstanding Series 2007 K Variable Rate Revenue Bonds and all $50,365 of the outstanding Series 2007 L Variable Rate Revenue Bonds. Interest on the Series 2009 A Revenue Bonds is payable semiannually on January 15 and July 15 of each year and principal is payable on January 15 of each year.

In May 2011, Atrium Health issued Series 2011 A Revenue Bonds. Interest on the Series 2011 A Revenue Bonds is payable semiannually on January 15 and July 15 of each year and principal is payable on January 15 of each year.

In May 2012, Atrium Health issued Series 2012 A Revenue and Refunding Revenue Bonds which currently refunded all $88,535 of the outstanding Series 2001 A Revenue Bonds and $32,185 of outstanding revenue bonds issued by the NCMCC for the benefit of CHS Union. The Series 2012 A Revenue and Refunding Revenue Bonds also included $50,000 to finance a small portion of Atrium Health’s capital plan. Interest on the Series 2012 A Revenue Bonds is payable semiannually on January 15 and July 15 of each year and principal is payable on January 15 of each year.

In May 2013, Atrium Health issued Series 2013 A Revenue and Refunding Revenue Bonds which advance refunded $4,815 of the outstanding Series 2009 A Refunding Revenue Bonds and all $73,250 of outstanding revenue bonds issued by the NCMCC for the benefit of CHS Cleveland. The Series 2013 A Revenue and Refunding Revenue Bonds also included $50,000 to finance a small portion of Atrium Health’s capital plan. Interest on the Series 2013 A Revenue Bonds is payable semiannually on January 15 and July 15 of each year and principal is payable on January 15 of each year.

In January 2015, Atrium Health issued Series 2015 A Taxable Refunding Revenue Bonds which, together with funds held by CHS Stanly in Debt Service Reserve Funds, currently refunded all $16,030 of outstanding Series 1996 and Series 1999 Revenue Bonds issued by the NCMCC for the benefit of CHS Stanly. The Series 2015 A Revenue Bonds were purchased by a financial institution and will be held through their maturity on January 15, 2024 but Atrium Health may prepay the bonds at any time without penalty or premium except for any cost of prepayment (based upon U.S. Treasury obligations) that applies. Interest on the Series 2015 A Revenue Bonds is payable semiannually on January 15 and July 15 of each year and principal is payable on January 15 of each year.

In October 2015, Atrium Health established a taxable commercial paper program providing for the issuance of up to $200,000 in aggregate taxable commercial paper revenue bonds. The bonds issued under the commercial paper program currently carry short-term credit ratings of A-1+ from S&P Global Ratings and P-1 from Moody’s Investors Service. Proceeds from the sale of commercial paper will be used to pay for additional healthcare facilities or the costs of operating healthcare facilities, including general operating costs, routine capital expenditures and the acquisition and installation of healthcare equipment. Atrium Health has established a self-liquidity program that will be used to repurchase any commercial paper that is not remarketed. Commercial paper may be issued with maturity dates from one to 270 days from the date of issuance. While management may elect to continuously roll over all or portions of the commercial paper, the principal amount of all commercial paper must be repaid by October 2055. At December 31, 2017, commercial paper totaling $30,000, with a weighted average maturity and interest rate of 28 days and 1.37%, respectively, was outstanding and included within current portion of debt. In addition, in early 2018, Atrium Health sold $105,000 of new commercial paper under the program with various maturities through 2018.

43 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

In November 2016, Atrium Health issued Series 2016 A Refunding Revenue Bonds which currently refunded $121,240 of the outstanding Series 2007 A Revenue and Refunding Revenue Bonds and advance refunded $300,255 of the outstanding Series 2008 A Refunding Revenue Bonds. Interest on the Series 2016 A Refunding Revenue Bonds is payable semiannually on January 15 and July 15 of each year and principal is payable on January 15 of each year.

In the event bondholders elect to tender any or all of the Series 2007 B, C, and E Revenue Bonds for purchase and the bonds cannot be remarketed, liquidity facilities and a direct pay letter of credit provided by two financial institutions are utilized to purchase the unremarketed bonds. Bonds held by the liquidity facility and letter of credit providers generally require payment of a higher rate of interest. The terms of these liquidity facilities and direct pay letter of credit are described in the table below.

Expiration Repayment Series Facility type year period

2007 B Liquidity facility 2021 7 year 2007 C Liquidity facility 2021 7 year 2007 E Direct pay letter of credit 2020 5 year

Atrium Health’s Series 2005 B, C and D Variable Rate Refunding Revenue Bonds and Series 2007 D, F, G and H Revenue Bonds have been purchased by three financial institutions with holding periods noted in the table below that expire prior to the maturity of the respective bonds.

Series Facility type Expiration year

2005 BCD Direct purchase bonds 2026 2007 D Direct purchase bonds 2023 2007 F Direct purchase bonds 2023 2007 G Direct purchase bonds 2026 2007 H Direct purchase bonds 2022

Interest expense, exclusive of amounts capitalized, was $77,954 and $89,660 for the years ended December 31, 2017 and 2016, respectively. Interest paid to bond holders and other lenders totaled $80,901 and $103,747 for the years ended December 31, 2017 and 2016, respectively.

There are various financial covenants and restrictions contained in Atrium Health’s Bond Order, liquidity facilities, direct pay letter of credit and continuing covenant agreements for direct purchase bonds, including maintenance of a defined minimum level of annual long-term debt service coverage. As of December 31, 2017, Atrium Health was in compliance with these financial covenants.

In October 2014, Atrium Health became the sole member of Pineville LTACH/Rehab Hospital, LLC (the LLC), which owns and leases a facility to Atrium Health. Previously, the LLC was a joint venture between Atrium Health and an unaffiliated entity. The facility was constructed with the proceeds from a $30,101 loan to the LLC from a financial services company that is payable beginning September 2013 through August 2038 at an interest rate of 3.84%. The loan, which was not issued under Atrium Health’s Bond Order, is secured by

44 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

a leasehold deed of trust and assignment of facility leases and rents. The balance of $26,715 at December 31, 2017 is included in other long-term debt.

In March 2013, Atrium Health entered into an Amended and Restated Interlocal Agreement with Cleveland County, North Carolina for the purpose of more fully integrating CHS Cleveland with Atrium Health and enhancing Atrium Health’s ability to provide services to the residents of Cleveland County. Atrium Health’s payment to Cleveland County included an unsecured, noninterest bearing note in the original amount of $77,000 payable through 2038 which is recorded as long-term debt at its net present value of $41,848 at December 31, 2017.

Interest Rate Swaps Atrium Health has adopted an Interest Rate Exchange Agreement Policy (the Policy) that governs its use of derivative agreements and restricts the use of such agreements to achieving desired interest cost savings, hedging interest rate risk in financing transactions, adjusting the mix of variable and fixed rate debt exposure to appropriate levels, providing flexibility to meet financial objectives not available under then-existing market conditions and improving cash flows. The Policy does not allow Atrium Health to speculate using derivative agreements.

On January 15, 2006, Atrium Health entered into an uninsured floating-to-fixed interest rate swap agreement on its Series 2005 B, C and D Variable Rate Refunding Revenue Bonds.

In August 2007, Atrium Health entered into four floating-to-fixed interest rate swaps under separate agreements insured by Ambac Assurance Corporation (Ambac) with two counterparties, in connection with its Series 2007 B and C Variable Rate Refunding Revenue Bonds, with an aggregate initial notional amount of $177,835. These swaps were entered into in conjunction with the refunding of the Series 2003 A and 2005 A Revenue Bonds.

In September 2007, Atrium Health entered into five AGMC-insured floating-to-fixed interest rate swaps under separate agreements with three counterparties, in connection with its Series 2007 D, E and F Variable Rate Revenue Bonds, with an aggregate initial notional amount of $201,415.

Also in September 2007, Atrium Health entered into two Ambac and two AGMC-insured floating-to-fixed interest rate swaps under separate agreements with two counterparties, in connection with its Series 2007 G and H Variable Rate Revenue Bonds, with an aggregate initial notional amount of $279,875.

45 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

The significant terms and features of the above transactions as of and for the years ended December 31, 2017 and 2016, are summarized in the below table. The notional amounts of the swaps effectively match the principal amounts of the associated debt. The swaps contain scheduled reductions to outstanding notional amounts that are expected to follow scheduled or anticipated reductions in the associated bonds.

Associated bonds 2005 BCD 2007 B 2007 C 2007 D

Notional amount $ 56,300 $ 81,760 $ 87,635 $ 67,140 Swap type Floating-to-fixed Floating-to-fixed Floating-to-fixed Floating-to-fixed Origination date January 15, 2006 August 28, 2007 August 28, 2007 September 19, 2007 Final bond maturity January 15, 2026 January 15, 2038 January 15, 2037 January 15, 2043 Atrium Health pays 5.52 % 4.36 % 4.38 % 3.88 % Atrium Health receives 75% of LIBOR SIFMA SIFMA 62.97% of LIBOR plus 0.29% Fair value at December 31, 2017 $ (9,147) $ (24,474) $ (26,084) $ (24,382) Change in fair value during the year 2,505 (440) (259) 59 Fair value at December 31, 2016 (11,652) (24,034) (25,825) (24,441) Change in fair value during the year 3,052 4,212 4,529 3,931

Associated bonds 2007 E 2007 F 2007 G 2007 H

Notional amount $ 77,220 $ 57,055 $ 113,825 $ 166,050 Swap type Floating-to-fixed Floating-to-fixed Floating-to-fixed Floating-to-fixed Origination date September 19, 2007 September 19, 2007 September 19, 2007 September 19, 2007 Final bond maturity January 15, 2044 January 15, 2042 January 15, 2041 January 15, 2045 Atrium Health pays 3.89 % 3.90 % 3.90 % 3.88 % Atrium Health receives 62.97% of LIBOR 62.97% of LIBOR 62.97% of LIBOR 62.97% of LIBOR plus 0.29% plus 0.29% plus 0.29% if LIBOR is equal to or greater than 3.5%; 77.5% of LIBOR if LIBOR is less than 3.5% Fair value at December 31, 2017 $ (28,579) $ (20,192) $ (37,563) $ (49,420) Change in fair value during the year 17 120 498 2,194 Fair value at December 31, 2016 (28,596) (20,312) (38,061) (51,614) Change in fair value during the year 4,151 2,960 5,583 8,783

46 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

The swaps’ aggregate negative fair value of $219,841 and $224,535, as of December 31, 2017 and 2016, respectively, is reported as a long-term liability on the balance sheet. Certain of the mandatory tender processes discussed above resulted in the termination of the related hedging relationships. Although hedging relationships have been subsequently re-established, the swaps are considered off-market swaps because the fixed rates of the swaps differed from the market rates for similar swaps at the time the hedging relationship was re-established. The negative fair value of the off-market swaps are being amortized using straight-line amortization. As of December 31, 2017, Atrium Health has determined that its 14 interest rate swaps are effective hedging derivatives. Because the swaps are effective hedges, aggregate changes in their fair value, including $4,694 and $37,201 for the years ended December 31, 2017 and 2016, respectively, are deferred and are reported on the balance sheet as a deferred outflow of resources. See note 3 for further discussion of the measurement techniques and inputs utilized in the measurement of the swaps’ fair value. For the years ended December 31, 2017 and 2016, the swaps produced annual net cash outflows of approximately $22,961 and $26,178, respectively. Cash flows associated with the swaps are treated as interest expense.

As of December 31, 2017 and 2016, all swaps had a negative fair value. The negative fair value may be countered by a reduction in total interest payments required under Atrium Health’s associated variable rate revenue bonds, creating a lower synthetic interest rate. Because the coupons on the variable rate revenue bonds adjust to changing interest rates, the bonds do not have corresponding fair value increases.

As of December 31, 2017 and 2016, Atrium Health was not exposed to credit risk because the swaps had negative fair values. However, should interest rates change and the fair values of the swaps become positive, Atrium Health would be exposed to credit risk in the amount of the swaps’ fair value.

Atrium Health’s 14 interest rate swaps are executed under six swap agreements with various counterparties. Seven swaps, approximating 49% of the notional amount of swaps outstanding, are provided by one counterparty that was rated A+ and Aa3 by S&P Global Ratings and Moody’s Investors Service, respectively, as of December 31, 2017. Five additional swaps, approximating 39% of the outstanding notional value, are provided by another counterparty rated AA– and Aa1. The remaining two swaps are provided by a third counterparty rated A+ and A1 as of December 31, 2017.

In the event Atrium Health’s credit ratings, as determined by S&P Global Ratings and Moody’s Investors Service, fall below a level of A+ or A1, respectively, and the three uninsured swap agreements associated with Series 2005 B, C and D bonds and Series 2007 B, C and H bonds (with one counterparty) and with Series 2007 B and C bonds (with a different counterparty) each has a negative fair value of $25,000 or more, then Atrium Health must post collateral on these swap agreements equal to the amount of fair value in excess of $25,000. As of December 31, 2017, the fair values of these swap agreements were ($9,147), ($49,989) and ($25,279), respectively. As of December 31, 2016, the fair values of these swap agreements were $(11,652), $(50,737) and $(24,929), respectively. No collateral was required to be posted by Atrium Health for these swap agreements.

In the event Atrium Health’s credit ratings, as determined by S&P Global Ratings and Moody’s Investors Service, fall below a level of A+ or A1, respectively, and the uninsured swap agreement associated with Series 2007 H bonds has a negative fair value of $50,000 or more, then Atrium Health must post collateral on this swap agreement equal to the amount of fair value in excess of $50,000. As of December 31, 2017, the fair value of this swap agreement was ($24,710). As of December 31, 2016, the fair value of this swap agreement was $(25,807). No collateral was required to be posted by Atrium Health for this swap agreement.

47 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

With respect to the AGMC-insured swap agreement associated with Series 2007 E, F and G bonds, should the financial strength ratings of AGMC, as determined by S&P Global Ratings and Moody’s Investors Service, fall below A– or A3, respectively, upon the request of the counterparty, Atrium Health, at its option, must either procure replacement swap insurance policies from counterparties rated at least AAA by S&P Global Ratings and Aaa by Moody’s Investors Service, respectively, or agree to post collateral on those swap agreements equal to the amount of negative fair value in excess of $25,000 if Atrium Health’s credit ratings, as determined by S&P Global Ratings and Moody’s Investors Services, fall below a level of A+ or A1, respectively. As of December 31, 2017, the fair value of this swap agreement was ($43,165). As of December 31, 2016, the fair value of this swap agreement was $(43,482). No collateral was required to be posted by Atrium Health for this swap agreement given AGMC’s ratings of AA and A2.

With respect to the AGMC-insured swap agreement associated with Series 2007 D, E, F and G bonds, should the financial strength ratings of AGMC, as determined by S&P Global Ratings and Moody’s Investors Service, fall below A– or A3, respectively, upon the request of the counterparty Atrium Health, at its option, must either procure replacement swap insurance policies from counterparties rated at least AAA by S&P Global Ratings and Aaa by Moody’s Investors Service, respectively, or agree to post collateral on this swap agreement equal to the amount of negative fair value in excess of $50,000 if Atrium Health’s credit ratings, as determined by S&P Global Ratings and Moody’s Investors Service, fall below a level of A+ or A1, respectively. As of December 31, 2017, the fair value of this insured swap agreement was ($67,551). As of December 31, 2016, the fair value of this insured swap agreement was $(67,928). No collateral was required to be posted by Atrium Health for this swap agreement given AGMC’s ratings of AA and A2.

Atrium Health’s Series 2007 B, C and E bonds bear interest at a rate that is equivalent to the SIFMA rate while the Series 2005 B, C and D bonds and Series 2007 D, F, G and H bonds bear interest at LIBOR plus a spread. For those swaps on the SIFMA-based variable rate revenue bonds for which it receives a variable rate based on LIBOR, Atrium Health is exposed to basis risk depending upon the relationship between SIFMA and LIBOR. If that relationship changes, the effective synthetic rate on the SIFMA-based variable rate revenue bonds may be higher than the intended synthetic rate. As of December 31, 2017, the SIFMA rate was 1.71% and LIBOR was 1.56%, resulting in a SIFMA to LIBOR relationship of approximately 109%.

Atrium Health or the counterparty may terminate any of the swaps if either party fails to perform under the terms of the agreement. If any of the swaps are terminated, the associated variable rate revenue bonds would no longer carry synthetic interest rates. Also, if the swap has a negative fair value at the time of termination, Atrium Health would be liable to the counterparty for a payment equal to the swap’s fair value. Likewise, if the swap has a positive fair value at the time of termination, Atrium Health would be entitled to a payment equal to the swap’s fair value from the counterparty terminating the swap.

48 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

Debt service requirements of Atrium Health’s outstanding variable rate revenue bonds and net swap payments, assuming current interest rates and the SIFMA to LIBOR relationship remain the same, as of December 31, 2017, were as follows:

Variable rate bonds Interest rate Principal Interest swap – net Total

2018 $ 6,400 $ 11,942 $ 20,316 $ 38,658 2019 6,820 11,824 20,031 38,675 2020 7,255 11,698 19,728 38,681 2021 10,710 11,515 19,315 41,540 2022 625 11,497 19,279 31,401 2023–2027 49,645 55,193 90,925 195,763 2028–2032 70,270 50,445 81,786 202,501 2033–2037 153,235 40,395 63,777 257,407 2038–2042 259,000 22,926 34,504 316,430 2043–2047 143,025 1,476 2,303 146,804 $ 706,985 $ 228,911 $ 371,964 $ 1,307,860

(6) Net Patient Service Revenue Net patient service revenue is recorded when patient services are performed at the estimated net realizable amounts from patients, third-party payers and others for services rendered. The use of estimates is very common for health systems, since, with increasing frequency, even noncost-based governmental programs have become subject to retrospective adjustments. Often such adjustments are not known for a considerable period of time after the related services are rendered. The lengthy period of time between rendering services and reaching final settlement, compounded further by the complexities and ambiguities of governmental reimbursement regulations and the frequency of changes in payer guidelines, makes it difficult to estimate the net patient service revenue associated with these programs.

Under the Medicare and Medicaid programs, Atrium Health is entitled to reimbursements for certain patient charges at rates determined by federal and state governments. Differences between established billing rates and reimbursements from these programs are recorded as contractual adjustments to arrive at net patient service revenue. Final determination of amounts due from Medicare and Medicaid programs is subject to review by these programs. Changes resulting from final determination are reflected as changes in estimates, generally in the year of determination. In the opinion of management, adequate provision has been made for adjustments, if any, that may result from such reviews. Net patient service revenue increased approximately $21,000 and $44,000 for the years ended December 31, 2017 and 2016, respectively, due to removal of allowances previously estimated that are no longer necessary as a result of final settlements and years that are no longer subject to audits and reviews.

49 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

Net patient service revenue consisted of the following for the years ended December 31:

2017 2016

Gross patient charges at established rates, net of contractual adjustments – including charges forgone for patients qualifying for financial assistance $ 6,936,064 $ 6,578,423 Adjustments for uninsured and underinsured patients both qualifying and not qualifying for financial assistance (1,533,323) (1,441,593) Net patient service revenue $ 5,402,741 $ 5,136,830

The sources of Atrium Health’s gross patient revenue by type of payer, expressed as a percentage of total gross patient revenue, consisted of the following for the years ended December 31:

2017 2016

Medicare 39.2 % 38.1 % Commercial 34.6 36.0 Medicaid 16.7 16.9 Direct from patient/other 9.5 9.0 100.0 % 100.0 %

Atrium Health participates in the North Carolina Medicaid Supplemental Payment Program whereby, through intergovernmental transfers, certified public expenditures and assessments to the State, the State is able to increase payments to hospitals reducing the gap between Medicaid and uninsured costs and payments. Atrium Health reports assessments and receipts within other expenses and net patient service revenue, respectively, in the accompanying statements of revenues, expenses, and changes in net position. The following is a summary of the funds received and assessments paid under these programs for the years ended December 31:

2017 2016

Net funds received $ 234,266 $ 206,136 Less assessments paid (46,033) (31,807) Net amounts recognized $ 188,233 $ 174,329

50 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

(7) Other Revenue Other revenue is composed of the following amounts for the years ended December 31:

2017 2016

Medical education and research grants and contracts $ 63,797 $ 65,474 Reimbursed services provided to affiliates 136,937 117,952 Pharmacy sales 171,449 146,419 Rental and other revenue 190,649 190,726 $ 562,832 $ 520,571

(8) Benefit Plans Retirement benefits are provided to teammates using both defined contribution plans and defined benefit plans. Atrium Health offers several defined contribution plans with the largest plan being a Section 401(k) defined contribution plan (the DC Plan) which covers all full-time teammates of Atrium Health and is funded by voluntary teammate contributions and certain matching contributions by Atrium Health. Defined contribution plan assets are not recorded in Atrium Health’s balance sheet but are held in participant-directed individual accounts and were $2,852,999 and $2,298,342 at December 31, 2017 and 2016, respectively. Total matching contribution expense for the DC Plan was $94,104 and $84,050 for the years ended December 31, 2017 and 2016, respectively. In connection with changes to Atrium Health’s defined benefit plans as described below, the DC Plan has been enhanced for teammates hired after January 1, 2014 and will be further enhanced for all others effective January 1, 2018 with an increase in Atrium Health’s matching contribution.

Atrium Health also maintains three single employer defined benefit plans (the Atrium Health DB Plan, which is the largest plan, the CHS Cleveland DB Plan and the CHS Stanly DB Plan). Late in 2013, Atrium Health undertook certain steps to modernize its retirement benefits by closing the Atrium Health DB Plan to teammates hired after January 1, 2014. The Atrium Health DB Plan will be frozen for all teammates effective January 1, 2018, after which no additional benefits will accrue under the Atrium Health DB Plan. Similarly, the CHS Cleveland DB Plan and the CHS Stanly DB Plan have also been closed to teammates hired after January 1, 2015 and January 1, 2016, respectively, and will be frozen for all teammates effective January 1, 2018, after which no additional benefits will accrue under either Plan.

The following information pertains to the Atrium Health DB Plan. Separate financial statements for the Atrium Health DB Plan are not required to be issued.

Atrium Health DB Plan Description and Benefits Provided – The Atrium Health DB Plan provides pension benefits to all Atrium Health teammates hired before January 1, 2014 and who have attained five or more years of service. These benefits are based on years of service and the teammates’ compensation. Effective January 1, 2009, the Atrium Health DB Plan became a cash balance plan and a small group of teammates meeting specified employment, age, and service criteria are grandfathered and accrue benefits under the Atrium Health pre-cash balance formula. The Board of Commissioners of Atrium Health (the Board) or an authorized committee of the Board has the authority to amend benefit provisions.

51 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

The actuarial valuation establishing the net pension liability for the purposes of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, was based on the Atrium Health DB Plan membership data as of January 1, 2017 and 2016, respectively, and rolled forward to the measurement date of July 1, 2017 and 2016, respectively. The Atrium Health DB Plan participant data as of July 1, 2017 and 2016, respectively is as follows:

2017 2016

Retirees and beneficiaries receiving benefits 1,594 1,541 Previously employed plan members entitled to but not yet receiving benefits 6,136 5,419 Employed plan members 21,232 23,887 Total 28,962 30,847

Contributions to the Atrium Health DB Plan – Annual contributions to the Atrium Health DB Plan are based upon actuarial calculations. Beginning in 2015, the Atrium Health DB Plan utilizes the entry age normal method to determine annual contributions. There are no teammate contributions to the Atrium Health DB Plan.

Atrium Health’s funding policy is to contribute such actuarially determined amounts as are necessary to provide assets sufficient to meet the benefits to be paid to Atrium Health DB Plan participants. In addition, with the freezing of the Atrium Health DB Plan, Atrium Health has made and plans to make contributions to the Atrium Health DB Plan in addition to the annual actuarially determined amounts in an effort to reduce the unfunded actuarially accrued liability in a systematic manner. During 2017 and 2016, Atrium Health elected to contribute an additional $42,200 above the actuarially determined contributions. Atrium Health’s contribution rates for the years ended December 31, 2017 and December 31, 2016 equaled 6.91% and 6.78% of covered payroll, respectively. These contribution rates are determined based on a measurement date of January 1, 2017 and 2016, respectively.

Atrium Health DB Plan Actuarial Assumptions – The total Atrium Health DB Plan pension liability on the July 1, 2017 and 2016 respectively, measurement date was determined using the following actuarial assumptions:

2017 2016

Inflation rate 2.1 % 2.1 % Investment rate of return (net of investment expenses, including inflation) 7.5 7.5 Lump sum interest rate 5.0 5.0 Projected salary increases 3.0 3.0

Actuarial assumptions used in the July 1, 2017 valuation were based on the results of an actuarial experience study that is conducted every four years, most recently in 2016. Mortality rates were based on the RP-2014 table with MP-2016 Generational Projections. The long-term investment rate of return on pension assets was

52 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

determined using a combination of benchmark return information and a building-block method in which best-estimated expected real rates of return are developed for each major asset class. These expected real rates of return are weighted by the target asset allocation percentage to produce an overall expected real rate of return which is then increased by expected inflation to produce a long-term investment rate of return on pension assets of 7.5%.

The target allocation, expected nominal return (which includes inflation) and the best estimates of geometric or compounded real rates of return (which are net of inflation) for each major asset class were established as of July 1, 2016, the beginning of the measurement period, and are summarized in the following table:

Expected Expected Target nominal real rate Asset class allocation return of return Fixed income 15.0 % 3.8% 1.7% Long/short fixed income 10.0 6.6 4.4 Domestic equities 22.5 6.5–7.0 4.3–4.8 International equities 15.0 7.4 5.2 Global equities 15.0 7.3 5.1 Long/short equity 10.0 6.6 4.4 Commodity funds 2.5 4.7 2.6 Private equity funds 7.5 8.8 6.6 Real asset funds 2.5 7.0 4.8 Total target allocation 100.0 %

The target allocation, expected nominal return (which includes inflation) and the best estimates of geometric or compounded real rates of return (which are net of inflation) for each major asset class as of July 1, 2015, the beginning of the measurement period, and are summarized in the following table:

Expected Expected Target nominal real rate Asset class allocation return of return Fixed income 10.0 % 2.5%–3.5% 0.4%–1.4% Long/short fixed income 7.5 6.6 4.4 Multi-strategy hedge funds 7.5 6.6 4.4 Domestic equities 22.5 6.5–7.0 4.3–4.8 International equities 15.0 6.8 4.6 Global equities 15.0 6.9 4.7 Long/short equity 10.0 6.6 4.4 Commodity funds 2.5 4.5 2.4 Private equity funds 7.5 8.7 6.5 Real asset funds 2.5 7.3 5.1 Total target allocation 100.0 %

53 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

Rate of return – For the Atrium Health Plan fiscal year ended June 30, 2017 and June 30, 2016, the annual money-weighted rate of return on pension plan investments, net of pension plan investment expenses, was 15.0% and (4.8%), respectively. The money-weighted rate of return expresses investment performance, net of investment expenses, adjusted for the changing amounts actually invested.

Atrium Health DB Plan Discount rate – The discount rate used to measure the total Atrium Health DB Plan pension liability as of July 1, 2017 and 2016 was 7.5%. The projection of cash flows used to determine the discount rate assumed that employer contributions will be made in amounts equal to the actuarially determined contributions. Based on those assumptions, the Atrium Health DB Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive teammates. Therefore, the long-term expected rate of return on pension assets of 7.5% was applied to all periods of projected benefit payments to determine the total pension liability.

Changes in the Atrium Health DB Plan Net Pension Liability Changes in the Atrium Health DB Plan net pension liability for the year ended December 31, 2017, are as follows:

Increase (decrease) Total pension Plan fiduciary Net pension liability net position liability (a) (b) (a) – (b)

Balances at December 31, 2016 (based on July 1, 2016 measurement date) $ 1,349,108 $ 848,709 $ 500,399 Changes for the fiscal year: Service cost 46,519 — 46,519 Interest cost 100,609 — 100,609 Differences between expected and actual experience (23,718) — (23,718) Changes of assumptions (5,217) — (5,217) Contributions – employer — 124,181 (124,181) Investment gains and other, net — 118,972 (118,972) Benefit payments (108,339) (108,339) — Administrative expense — (217) 217

Net changes 9,854 134,597 (124,743) Balances at December 31, 2017 (based on July 1, 2017 measurement date) $ 1,358,962 $ 983,306 $ 375,656

CHS Cleveland DB Plan and CHS Stanly DB Plan combined 129,642 125,613 4,029

Combined balances at December 31, 2017 (based on July 1, 2017 measurement date) $ 1,488,604 $ 1,108,919 $ 379,685

54 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

Changes in the Atrium Health DB Plan net pension liability for the year ended December 31, 2016, are as follows:

Increase (decrease) Total pension Plan fiduciary Net pension liability net position liability (a) (b) (a) – (b)

Balances at December 31, 2015 (based on July 1, 2015 measurement date) $ 1,279,041 $ 859,518 $ 419,523 Changes for the fiscal year: Service cost 53,214 — 53,214 Interest cost 95,929 — 95,929 Differences between expected and actual experience 7,092 — 7,092 Changes of assumptions 20,252 — 20,252 Contributions – employer — 132,884 (132,884) Investment gains and other, net — (36,909) 36,909 Benefit payments (106,420) (106,420) — Administrative expense — (364) 364 Net changes 70,067 (10,809) 80,876 Balances at December 31, 2016 (based on July 1, 2016 measurement date) $ 1,349,108 $ 848,709 $ 500,399 CHS Cleveland DB Plan and CHS Stanly DB Plan combined 127,015 110,689 16,326 Combined balances at December 31, 2016 (based on July 1, 2016 measurement date) $ 1,476,123 $ 959,398 $ 516,725

Sensitivity of the Atrium Health DB Plan net pension liability to changes in the discount rate – The following table presents the net Atrium Health DB Plan pension liability as of July 1, 2017 and 2016, respectively, calculated using the discount rate of 7.5% and alternatively, as required by GASB 68, what the net pension liability would be under different scenarios assuming it were calculated using a discount rate that is 1% lower (6.5%) or 1% higher (8.5%):

1% Decrease Current rate 1% Increase 6.50% 7.50% 8.50%

Net pension liability at July 1, 2017 $ 479,179 $ 375,656 $ 286,405 Net pension liability at July 1, 2016 604,112 500,399 410,989

55 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

Atrium Health DB Plan Investments – Policies pertaining to the allocation of investments within the Atrium Health DB Plan are established and may be amended by the Investment Oversight Committee (IOC) of Atrium Health’s Board. It is the policy of the IOC to invest pension assets in a wide range of permitted securities that maintain a balance between current income needs and the growth of principal for the future.

Atrium Health, as plan sponsor, has fiduciary responsibility for the Atrium Health DB Plan assets on behalf of the plan participants and beneficiaries.

The Plan categorizes its fair value measurements within the fair value hierarchy established by GAAP. The methods for determining fair value are consistent with Atrium Health’s valuation techniques and presentation as detailed in note 3 above.

Atrium Health DB Plan assets were invested as follows as of July 1, 2017:

Quoted prices in active Significant Defined markets for other Significant benefit identical observable unobservable plan assets inputs inputs a sse ts (Level 1) (Level 2) (Level 3)

Cash and cash equivalents $ 94,320 $ 94,320 $ — $ — Fixed income: U.S. government treasuries and agencies 28,391 — 28,391 — Corporate bonds 33,101 — 33,101 — Municipal bonds 1,435 — 1,435 — Asset-backed securities 28,285 — 28,285 — Fixed income – other 63,212 63,212 — — Total fixed income 154,424 63,212 91,212 —

Equity: Domestic equities 271,020 271,020 — — International equities 160,489 160,489 — — Global equities 52,802 52,802 — —

Total equity 484,311 484,311 — — Real asset funds 29,835 29,835 — — Total investments by fair value level 762,890 $ 671,678 $ 91,212 $ —

56 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

Quoted prices in active Significant Defined markets for other Significant benefit identical observable unobservable plan assets inputs inputs a sse ts (Level 1) (Level 2) (Level 3)

Investments measured at the NAV: Global equities $ 44,886 Long/short fixed income 82,824 Long/short equity 18,641 Multi-strategy hedge funds 667 Commodity funds 25,255 Private equity funds 48,143 Total investments measured at the NAV 220,416 Total investments measured at fair value $ 983,306

Atrium Health DB Plan assets were invested as follows as of July 1, 2016:

Quoted prices in active Significant Defined markets for other Significant benefit identical observable unobservable plan assets inputs inputs a sse ts (Level 1) (Level 2) (Level 3)

Cash and cash equivalents $ 95,582 $ 95,582 $ — $ — Fixed income: U.S. government treasuries and agencies 13,343 — 13,343 — Corporate bonds 22,629 — 22,629 — Municipal bonds 2,354 — 2,354 — Asset-backed securities 17,766 — 17,766 — Fixed income – other 53,302 53,302 — — Total fixed income 109,394 53,302 56,092 —

57 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

Quoted prices in active Significant Defined markets for other Significant Benefit identical observable unobservable Plan assets inputs inputs Asse ts (Level 1) (Level 2) (Level 3)

Equity: Domestic equities $ 204,402 $ 204,402 $ — $ — International equities 114,381 114,381 — — Global equities 56,059 56,059 — — Total equity 374,842 374,842 — — Real asset funds 17,740 17,740 — — Total investments by fair value level 597,558 $ 541,466 $ 56,092 $ —

Investments measured at the NAV: Global equities 35,216 Long/short fixed income 46,421 Long/short equity 78,498 Multi-strategy hedge funds 33,970 Commodity funds 13,459 Private equity funds 43,587 Total investments measured at the NAV 251,151 Total investments measured at fair value $ 848,709

58 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

The table below discloses the unfunded commitments, redemption frequency and redemption notice period for investments measured at net asset value as July 1, 2017 and 2016:

Defined benefit plan assets Unfunded commitments Redemption as of July 1 Redemption notice 2017 2016 2017 frequency period Global equities $ 44,886 $ 35,216 $ — Monthly 6 days Long/short fixed income limited partnerships 82,824 46,421 — Quarterly 45–90 days Long/short equity limited partnerships 18,641 78,498 — Quarterly 60 days Multi-strategy hedge fund limited partnerships 667 33,970 — Annually 90 days Commodities fund of funds limited partnerships 25,255 13,459 — Daily 1 day Private equity fund of funds limited partnerships 48,143 43,587 20,079 n/a n/a Total $ 220,416 $ 251,151 $ 20,079

The Plan’s presentation of asset segments is consistent with Atrium Health’s presentation as detailed in note 3.

Pension expense and deferred outflows of resources and deferred inflows of resources related to the Atrium Health DB Plan – For the year ended December 31, 2017, Atrium Health recognized pension expense of $102,315 for the Atrium Health DB Plan. At December 31, 2017, Atrium Health reported net deferred outflows of resources as follows based on July 1, 2017 measurement date:

Deferred Deferred outflows of inflows of resources resources

Difference between expected and actual experience related to demographic factors $ 5,220 $ (22,687) Assumption changes 14,909 (4,445) Difference between expected and actual investment earnings 27,129 — Total $ 47,258 $ (27,132)

59 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

At December 31, 2016, Atrium Health recognized pension expense of $119,047 for the Atrium Health DB Plan and reported net deferred outflows of resources as follows based on July 1, 2016 measurement date:

Deferred Deferred outflows of inflows of resources resources

Difference between expected and actual experience related to demographic factors $ 6,156 $ (3,016) Assumption changes 17,580 — Difference between expected and actual investment earnings 102,282 — Total $ 126,018 $ (3,016)

Amounts reported above as deferred outflows of resources and deferred inflows of resources related to the Atrium Health DB Plan will be recognized in pension expense for the years ended December 31, as follows:

Amount

2018 $ 14,452 2019 14,452 2020 6,492 2021 (13,108) 2022 (1,001) Thereafter (1,161) $ 20,126

CHS Cleveland DB Plan and CHS Stanly DB Plan Actuarial Assumptions and Reporting – The actuarial assumptions used for the CHS Cleveland DB Plan and the CHS Stanly DB Plan are similar to assumptions used for the Atrium Health DB Plan described above. The CHS Cleveland DB Plan had a net pension liability of $11,709 and $17,709 and reported net deferred outflows of $1,089 and $8,578 at December 31, 2017 and 2016, respectively. The CHS Cleveland DB Plan had actuarially valued assets of $73,651 and $66,374 at December 31, 2017 and 2016, respectively. The CHS Stanly DB Plan had a net pension (asset) of $(7,680) and $(1,383) and reported net deferred outflows of $131 and $4,227 at December 31, 2017 and 2016, respectively. The CHS Stanly DB Plan had actuarially valued assets of $51,962 and $44,315 at December 31, 2017 and 2016, respectively. (9) Commitments and Contingencies Atrium Health is subject to legal proceedings and claims that arise in the course of providing healthcare services. Atrium Health has instituted a limited self insurance program for professional liability and general liability claims. Self-insurance is limited to $5 million per occurrence, with no aggregate limit. General liability and professional liability are also covered by umbrella liability insurance policies. In management’s opinion, adequate provision has been made for amounts expected to be paid under the policy’s deductible limits for asserted and unasserted claims not covered by the policy and any other uninsured liability.

60 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

The healthcare industry is subject to numerous laws and regulations of federal, state, and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. Violations of these laws and regulations could result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed.

In June 2016, the federal government and the State of North Carolina filed a civil antitrust lawsuit against Atrium Health alleging that Atrium Health violated Section 1 of the Sherman Act by imposing steering restrictions in negotiated agreements with four insurance companies in the Charlotte, North Carolina area. In August 2016, Atrium Health answered the complaint and moved that it be dismissed as a matter of law. In March 2017, a federal district court denied the Motion for Judgment on the Pleadings filed by Atrium Health. This civil antitrust lawsuit seeks injunctive relief only and no monetary damages are sought. In September 2016, an individual filed a proposed class action lawsuit making similar allegations against Atrium Health. This lawsuit seeks treble damages for an unspecified amount but no class has been certified. In February 2018, another individual filed a separate lawsuit in federal district court on behalf of an additional proposed class of plaintiffs. This second lawsuit makes similar allegations and seeks treble damages for an unspecified amount. Atrium Health intends to vigorously defend these lawsuits; however, Atrium Health cannot guarantee the outcome of the lawsuits. The ultimate resolution of these lawsuits could have a material adverse effect on Atrium Health’s condition (financial or otherwise) or operations. Given the very early stages of these cases, it is impossible to estimate the likelihood of an unfavorable outcome or the risk of exposure facing Atrium Health.

Obligations under noncancelable operating leases, principally real estate leases for medical office space, as of December 31, 2017, were as follows:

2018 $ 75,572 2019 60,807 2020 51,919 2021 44,399 2022 38,018 2023–2027 91,683 2028–2032 43,628 2033–2037 27,361 $ 433,387

Atrium Health has entered into contracts for various construction and capital projects, for which remaining commitments totaled approximately $251,515 at December 31, 2017.

In connection with the merger with Cabarrus Memorial Hospital d/b/a NorthEast Medical Center in 2007, Atrium Health has committed to invest $600,000 in healthcare facilities and services in Cabarrus County, North Carolina. As of December 31, 2017, Atrium Health has spent $562,000 and approved an additional $116,000 which is well in excess of the $38,000 needed to fulfill this commitment. Of the $116,000 in

61 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Notes to Basic Financial Statements December 31, 2017 and 2016 (Dollars in thousands)

approved expenditures, over $64,000 is included in the $251,515 of construction and capital commitments noted above.

Effective January 1, 2012, under the terms of a Lease Agreement between Atrium Health and Union County, Atrium Health leases hospital real estate from, and makes annual lease payments to, Union County. The initial term of the Lease Agreement remains in effect until December 31, 2061, unless earlier terminated, extended or renewed in accordance with the provisions of the Lease Agreement. Upon the expiration of the initial term, unless certain events of default exist, Atrium Health has the option to extend and renew the Lease Agreement for an initial renewal term of 25 years. During the term of the Lease Agreement, Union County has the right to require Atrium Health to purchase the hospital real estate at a stated price determined in accordance with the Lease Agreement. If Union County elects to require Atrium Health to purchase the hospital real estate, Atrium Health will have no further obligations under the Lease Agreement. As of December 31, 2017, the purchase price as stated in the Lease Agreement was $128,212. The present value of Atrium Health’s obligation for the annual lease payments, discounted using an effective interest rate of 4.34%, was $123,577 as of December 31, 2017, and is recorded on the balance sheet as a long-term liability. The liability and related interest are payable in annual installments of approximately $6,000 per year through 2061.

Additionally, as part of the Lease Agreement between Atrium Health and Union County, Atrium Health has committed to reinvest in healthcare related facilities and operations in Union County. As measured in 15-year increments commencing January 1, 2012, Atrium Health has committed to spending in Union County no less than 75% of the capital spending ratio of Atrium Health as a whole (defined as capital investments divided by net operating revenues), but limited to 75% of the operating income of the Union Healthcare Enterprise as defined in the Lease Agreement. Atrium Health has reinvested in excess of the commitment levels for the first five years of the 15-year period.

Atrium Health committed to invest $70,000 in CHS Stanly and its subsidiaries over a period of 12 years, which includes a five-year commitment of $48,830 before the end of 2018. Of those totals, Atrium Health committed to $22,600 of specifically identified projects by the end of 2016, which was met. As of December 31, 2017, Atrium Health has spent and/or approved $44,589 towards the full $70,000 commitment. (10) Subsequent Events In February 2018, Atrium Health signed a Letter of Intent with Navicent Health, headquartered in Macon, Georgia, to enter a strategic combination to enhance access, affordability, and equity of care for individuals and families in central and South Georgia. As of the date of issuance, an agreement had not been signed.

62 REQUIRED SUPPLEMENTARY INFORMATION THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios (in thousands) (Unaudited)

December 31,

2017 2016 2015 2014

Total pension liability: Service cost $ 46,519 $ 53,214 $ 55,197 $ NA Interest cost 100,609 95,929 93,442 NA Changes of benefit terms — — — NA Differences between expected and actual experiences (23,718) 7,092 (4,091) NA Changes of assumptions (5,217) 20,252 — NA Benefit payments (108,339) (106,420) (112,417) NA Net change in total pension liability 9,854 70,067 32,131 NA Total pension liability – beginning 1,349,108 1,279,041 1,246,910 NA Total pension liability – ending (a) 1,358,962 1,349,108 1,279,041 1,246,910 Plan fiduciary net position: Contributions – employer 124,181 132,884 92,405 NA Investment gains and other, net 118,972 (36,909) 20,481 NA Benefit payments (108,339) (106,420) (112,417) NA Administrative expense (217) (364) (696) NA Net change in plan fiduciary net position 134,597 (10,809) (227) NA Plan fiduciary net position – beginning 848,709 859,518 859,745 NA Plan fiduciary net position – ending (b) 983,306 848,709 859,518 859,745 Net pension liability – ending (a) – (b) $ 375,656 $ 500,399 $ 419,523 $ 387,165

Plan fiduciary net position as a percentage of the total pension liability 72.4 % 62.9 % 67.2 % 69.0 % Covered-employee payroll $ 1,796,876 $ 1,959,073 $ 1,995,117 $ 1,909,014 Net pension liability as a percentage of covered-employee payroll 20.9 % 25.5 % 21.0 % 20.3 % Note to schedule: Measurement date is July 1 of prior fiscal year. The schedules are intended to show information for 10 years. Additional years will be presented as the information becomes available.

See accompanying independent auditors’ report.

63 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Required Supplementary Information Schedule of Pension Contributions (in thousands) (Unaudited)

Contributions in relation to the Contributions as a Actuarially actuarially Contribution Percentage of Determined determined Deficiency Covered-Employee Covered-Employee December 31, Contribution contribution (Excess) Payroll Payroll

2017 $ 81,981 $ 124,181 $ (42,200) $ 1,796,876 6.9% 2016 90,684 132,884 (42,200) 1,959,073 6.8% 2015 92,405 92,405 — 1,995,117 4.6% 2014 79,015 79,015 — 1,909,014 4.1%

Notes to Schedule

Valuation Date Actuarially determined contribution rates are calculated as of January 1, one year prior to the end of the fiscal year in which contributions are reported.

Methods and assumptions used to determine contribution rate for 2017:

Actuarial cost method Entry Age Normal with 20-year closed amortization period for initial unfunded and subsequent actuarial gains/losses Asset valuation method 5-year smoothing Cash balance interest credits 5.00% Salary increases 3.00% Investment rate of return 7.50%, net of pension plan investment expense, including inflation Retirement age Varies by age, same as for GASB 68 Mortality RP-2014 with generational projection using scale MP-2016

The schedules are intended to show information for 10 years. Additional years will be presented as the information becomes available.

See accompanying independent auditors’ report.

64 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Required Supplementary Information Schedule of Pension Plan Investment Returns (Unaudited)

CHS Plan Annual money-weighted Measurement rate of return net Date of investment expenses

July 1, 2017 15.0% July 1, 2016 (4.8%) July 1, 2015 2.4% July 1, 2014 15.8%

Notes to Schedule The schedules are intended to show information for 10 years. Additional years will be presented as the information becomes available.

See accompanying independent auditors’ report.

65 OTHER FINANCIAL INFORMATION THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Combining Schedule of Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position – Combined Group December 31, 2017 and 2016 (Dollars in thousands)

2017 2016 The Carolinas The Carolinas HealthCare HealthCare Primary Foundation, Primary Foundation, Assets and Deferred Outflows of Resources Enterprise Inc. Eliminations Total Enterprise Inc. Eliminations Total

Current assets: Cash and cash equivalents $ 131,540 $ 4,659 $ — $ 136,199 $ 142,725 $ 4,686 $ — $ 147,411 Short-term investments 198 10,329 — 10,527 — 6,765 — 6,765 Patient accounts receivable – net 729,164 — — 729,164 732,526 — — 732,526 Other accounts receivable 94,331 11,659 (728) 105,262 115,661 8,563 (1,977) 122,247 Assets limited as to use – investments 32,820 — — 32,820 34,148 — — 34,148 Inventories 67,405 — — 67,405 63,325 — — 63,325 Prepaid expenses 68,645 488 — 69,133 72,158 320 — 72,478 Total current assets 1,124,103 27,135 (728) 1,150,510 1,160,543 20,334 (1,977) 1,178,900 Capital assets 5,825,529 11,572 — 5,837,101 5,556,647 11,504 — 5,568,151 Accumulated depreciation (2,775,903) (6,445) — (2,782,348) (2,509,561) (5,811) — (2,515,372) Total capital assets – net 3,049,626 5,127 — 3,054,753 3,047,086 5,693 — 3,052,779 Other noncurrent assets: Assets limited as to use: Investments designated for capital improvements 4,175,386 — — 4,175,386 3,478,928 — — 3,478,928 Other long-term investments 31,014 285,768 — 316,782 24,257 257,766 — 282,023 Other assets limited as to use – investments 109,954 — — 109,954 107,037 — — 107,037 Other assets 197,534 37,236 (1,899) 232,871 180,046 35,814 (1,698) 214,162 Total other noncurrent assets 4,513,888 323,004 (1,899) 4,834,993 3,790,268 293,580 (1,698) 4,082,150 Total assets 8,687,617 355,266 (2,627) 9,040,256 7,997,897 319,607 (3,675) 8,313,829 Deferred outflows of resources 277,277 — — 277,277 371,246 — — 371,246 Total assets and deferred outflows of resources $ 8,964,894 $ 355,266 $ (2,627) $ 9,317,533 $ 8,369,143 $ 319,607 $ (3,675) $ 8,685,075 Liabilities, Deferred Inflows of Resources and Net Position

Current liabilities: Accounts payable $ 261,025 $ 183 $ — $ 261,208 $ 265,272 $ 307 $ — $ 265,579 Salaries and benefits payable 323,837 — — 323,837 342,799 — — 342,799 Other liabilities and accruals 194,382 1,804 (728) 195,458 195,669 1,983 (1,977) 195,675 Estimated third-party payer settlements 176,647 — — 176,647 194,140 — — 194,140 Current portion of long-term debt 68,465 — — 68,465 65,849 — — 65,849 Total current liabilities 1,024,356 1,987 (728) 1,025,615 1,063,729 2,290 (1,977) 1,064,042 Long-term debt – less current portion 1,799,149 — — 1,799,149 1,838,134 — — 1,838,134 Interest rate swap liability 219,841 — — 219,841 224,535 — — 224,535 Pension liability 379,685 — — 379,685 516,725 — — 516,725 Other liabilities 329,690 3,310 (1,899) 331,101 326,968 2,942 (1,698) 328,212 Total liabilities 3,752,721 5,297 (2,627) 3,755,391 3,970,091 5,232 (3,675) 3,971,648 Commitments and contingencies Deferred inflows of resources 58,330 — — 58,330 39,530 — — 39,530 Net position: Net investment in capital assets 1,185,504 — — 1,185,504 1,147,721 5,693 — 1,153,414 Restricted – by donor 28,002 317,524 — 345,526 28,379 278,303 — 306,682 Unrestricted 3,940,337 32,445 — 3,972,782 3,183,422 30,379 — 3,213,801 Total net position 5,153,843 349,969 — 5,503,812 4,359,522 314,375 — 4,673,897 Total liabilities, deferred inflows of resources and net position $ 8,964,894 $ 355,266 $ (2,627) $ 9,317,533 $ 8,369,143 $ 319,607 $ (3,675) $ 8,685,075

The Total column presented above represents the Combined Group, which consists of the Obligated Group and its Designated Affiliates (including non-Obligated Group affiliates that at December 31, 2017 represent less than 1% of the total revenue and less than 1% of the total assets of the Combined Group; these same non-Obligated Group affiliates represent less than 1% of the total revenue and less than 1% of the total assets of the Primary Enterprise column), as such terms are defined in Section 101 of the Charlotte-Mecklenburg Hospital Authority’s Second Amended and Restated Bond Order adopted as of September 9, 1997, as amended. Because none of the members of the Obligated Group have Designated Affiliates at this time, the only members of the Combined Group are the members of the Obligated Group.

See accompanying independent auditors’ report.

66 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Combining Schedule of Revenues, Expenses and Changes in Net Position – Combined Group Years ended December 31, 2017 and 2016 (Dollars in thousands)

2017 2016 The Carolinas The Carolinas HealthCare HealthCare Primary Foundation, Primary Foundation, Enterprise Inc. Eliminations Total Enterprise Inc. Eliminations Total

Net patient service revenue $ 5,402,741 $ — $ — $ 5,402,741 $ 5,136,830 $ — $ — $ 5,136,830 Other revenue 562,832 25,861 (31,355) 557,338 520,571 18,772 (26,723) 512,620 Total revenue 5,965,573 25,861 (31,355) 5,960,079 5,657,401 18,772 (26,723) 5,649,450 Operating expenses: Personnel costs 3,461,411 2,986 — 3,464,397 3,305,457 2,145 — 3,307,602 Supplies 1,036,409 — — 1,036,409 975,673 — — 975,673 Purchased services 410,286 — — 410,286 377,429 — — 377,429 Other expenses 431,209 31,254 (29,555) 432,908 394,175 28,091 (25,673) 396,593 Depreciation and amortization 310,286 637 — 310,923 299,487 640 — 300,127 Interest expense 77,954 — — 77,954 89,660 — — 89,660 Total operating expenses 5,727,555 34,877 (29,555) 5,732,877 5,441,881 30,876 (25,673) 5,447,084 Operating income (loss) 238,018 (9,016) (1,800) 227,202 215,520 (12,104) (1,050) 202,366 Nonoperating income Interest and dividend income 55,849 2,517 — 58,366 46,957 2,639 — 49,596 Net increase in the fair value of investments 498,792 37,891 — 536,683 202,375 14,741 — 217,116 Other – net (5,901) — 1,800 (4,101) (1,277) — 1,050 (227) Total nonoperating income – net 548,740 40,408 1,800 590,948 248,055 17,380 1,050 266,485 Revenue over expenses before contributions 786,758 31,392 — 818,150 463,575 5,276 — 468,851 Capital contributions 7,651 2,204 — 9,855 5,945 17,468 — 23,413 Other contributions (88) 1,998 — 1,910 124 1,016 — 1,140 Increase in net position 794,321 35,594 — 829,915 469,644 23,760 — 493,404 Net position: Beginning of year 4,359,522 314,375 — 4,673,897 3,889,878 290,615 — 4,180,493 End of year $ 5,153,843 $ 349,969 $ — $ 5,503,812 $ 4,359,522 $ 314,375 $ — $ 4,673,897

See accompanying independent auditors’ report.

67 THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY (d/b/a Atrium Health) Combining Schedule of Cash Flows – Combined Group Years ended December 31, 2017 and 2016 (Dollars in thousands)

2017 2016 The Carolinas The Carolinas HealthCare HealthCare Primary Foundation, Primary Foundation, Enterprise Inc. Eliminations Total Enterprise Inc. Eliminations Total

Cash flows from operating activities: Receipts from third-party payers and patients $ 5,351,787 $ — $ — $ 5,351,787 $ 5,133,755 $ — $ — $ 5,133,755 Payments to suppliers (1,881,420) (13,650) (1,800) (1,896,870) (1,741,815) (12,983) (1,050) (1,755,848) Payments to employees (3,503,421) — — (3,503,421) (3,293,868) — — (3,293,868) Other receipts– net 586,321 729 — 587,050 470,978 870 — 471,848 Net cash provided by (used in) operating activities 553,267 (12,921) (1,800) 538,546 569,050 (12,113) (1,050) 555,887 Noncapital financing activities (3,052) — 1,800 (1,252) 3,723 — 1,050 4,773 Cash flows from capital and related financing activities: Purchase of capital assets (300,869) (70) — (300,939) (300,859) (617) — (301,476) Donated funds designated for building and equipment purchases 5,652 1,275 — 6,927 4,756 2,189 — 6,945 Acquisition of health related businesses (1,710) — — (1,710) (5,293) — — (5,293) Principal payments, refunding and retirements on short – and long-term debt (198,385) — — (198,385) (761,723) — — (761,723) Interest payments on short- and long-term debt (80,901) — — (80,901) (103,747) — — (103,747) Proceeds from issuance of long-term debt 164,855 — — 164,855 730,723 — — 730,723 Decrease (increase) in other assets affecting capital and related financing activities 23 648 — 671 (1,721) 116 — (1,605) Other contributions (88) 1,998 — 1,910 — 1,016 — 1,016 Net cash (used in) provided by capital and related financing activities (411,423) 3,851 — (407,572) (437,864) 2,704 — (435,160) Cash flows from investing activities: Withdrawal from investments limited as to use — 9,000 — 9,000 100,000 9,400 — 109,400 Contribution to investments limited as to use (152,500) — — (152,500) (276,000) — — (276,000) Investment earnings 4,676 43 — 4,719 2,732 11 — 2,743 Decrease in other trusteed assets 802 — — 802 7,675 — — 7,675 Purchase of investments (2,955) — — (2,955) (403) — — (403) Net cash (used in) provided by investing activities (149,977) 9,043 — (140,934) (165,996) 9,411 — (156,585) Net (decrease) increase in cash and cash equivalents (11,185) (27) — (11,212) (31,087) 2 — (31,085) Cash and cash equivalents: Beginning of year 142,725 4,686 — 147,411 173,812 4,684 — 178,496 End of year $ 131,540 $ 4,659 $ — $ 136,199 $ 142,725 $ 4,686 $ — $ 147,411

Reconciliation of operating income (loss) to net cash provided by (used in) operating activities: Operating income (loss) $ 238,018 $ (9,016) $ (1,800) $ 227,202 $ 215,520 $ (12,104) $ (1,050) $ 202,366 Interest expense considered capital financing activity 77,954 — — 77,954 89,660 — — 89,660 Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 310,286 637 — 310,923 299,487 640 — 300,127 Decrease (increase) in patient accounts receivable – net 3,362 — — 3,362 (28,792) — — (28,792) Decrease (increase) in inventories and other current assets 20,192 (4,257) (1,249) 14,686 (30,213) (675) (22) (30,910) Decrease (increase) in other assets affecting operating activities 3,608 (173) — 3,435 (9,534) 12 (191) (9,713) (Decrease) increase in accounts payable and other current liabilities (37,089) — 1,249 (35,840) 35,541 — 213 35,754 (Decrease) increase in other liabilities affecting operating activities (45,571) (112) — (45,683) (27,253) 14 — (27,239) (Decrease) increase in estimated third-party payer settlements (17,493) — — (17,493) 24,634 — — 24,634 Net cash provided by (used in) operating activities $ 553,267 $ (12,921) $ (1,800) $ 538,546 $ 569,050 $ (12,113) $ (1,050) $ 555,887

See accompanying independent auditors’ report.

APPENDIX C

DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF THE BOND ORDER AND THE SERIES RESOLUTION

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DEFINITIONS OF CERTAIN TERMS

The following is a summary of definitions of certain terms used in this Official Statement, the Bond Order or the Series Resolution. Any other capitalized terms used herein that are not defined herein are defined in the Bond Order or the Series Resolution.

“Accounts” means any right to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper, whether or not it has been earned by performance.

“Act” means The State and Local Government Revenue Bond Act, Article 5 of Chapter 159 of the General Statutes of North Carolina, as the same may be amended from time to time.

“Additional Bonds” means the bonds authorized to be issued under Section 206 of the Bond Order.

“Adverse Deviation” means a deviation from generally accepted accounting principles that causes (i) an increase in the Base Value of the property, plant and equipment of the Combined Group or the Base Value of the unrestricted net assets of the Combined Group or (ii) an increase in the Historic Long-Term Debt Service Coverage Ratio (A) for purposes of the rate covenant in the Bond Order described below under the caption “Rate Covenant,” from below 1.10 to 1.10 or above, and (B) for purposes of the provisions in the Bond Order described below under the captions “Disposition of Property, Plant and Equipment,” “Consolidation and Merger; Acquisitions,” “Transfer of Cash and Investments,” “Transfer of Accounts,” “Entry into and Withdrawal from Obligated Group” and “Designation as a Designated Affiliate; Removal of a Designated Affiliate” from below 2.0 to 2.0 or above, in each case when compared with the determination of such value or ratio under generally accepted accounting principles without giving effect to such deviation.

As provided in the Bond Order, for purposes of any calculation under the Bond Order, any Member of the Combined Group may deviate from generally accepted accounting principles if an Authority Representative delivers an Officer’s Certificate to the Trustee (A) determining that such deviation is in the best interest of each Member of the Combined Group affected, (B) setting forth the calculation with and without such deviation and (C) concluding that such deviation will not constitute an Adverse Deviation.

“Affiliate” means a corporation, partnership, limited liability company, joint venture, association, business trust or similar entity organized under the laws of the United States of America or any state thereof, whether for profit or not for profit, a majority of the members of the governing body of which are (i) the same as the Commissioners of the Authority or (ii) subject, directly or indirectly, to election or appointment by the Authority.

“Architect” means the architect or firm of architects, or engineers or firm of engineers, as the case may be, who shall be duly registered and licensed by the State and employed by the Authority or under the employment of the Authority.

“Audited Financial Statements” means the consolidated financial statements of the Authority and such other Persons includable therein, prepared in accordance with generally accepted accounting principles, for a 12-month period or for such other period for which an audit has been performed, which have been audited and reported upon by independent certified public accountants selected by the Authority. To the extent required, Audited Financial Statements shall also include, or be accompanied by, the Financial Statements.

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“Authorities Act” means the Hospital Authorities Act, Article 2, Part 2 of Chapter 131E of the General Statutes of North Carolina, as the same may be amended from time to time.

“Authority” means The Charlotte-Mecklenburg Hospital Authority, and any successor thereto.

“Authority Counsel” means any attorney or attorneys acting on behalf of the Authority.

“Authority Representative” means each of the Person(s) at the time designated by resolution of the Authority to act on behalf of the Combined Group, which Person(s) are named in a written certificate furnished to the Trustee, which certificate shall contain the specimen signature(s) of such Person(s) and shall be signed on behalf of the Combined Group by the Chairman or Vice Chairman of the Board.

“Balloon Long-Term Indebtedness” means (i) Long-Term Indebtedness 25% or more of the principal payments of which are due in a single period of 12 full consecutive calendar months, which portion of the principal is not required by the documents pursuant to which such Indebtedness is issued to be amortized by payment or redemption prior to such date. Balloon-Long Term Indebtedness does not include any Indebtedness that otherwise qualifies as Interim Indebtedness.

“Base Value” means, at the option of the Authority, which may be exercised either with respect to all or any one or more items of property, plant and equipment, (a) the cost basis of property, plant and equipment, net of accumulated depreciation, of the Combined Group as shown on the Financial Statements for the most recent period of 12 full consecutive calendar months or period for which Financial Statements are available, or (b) the appraised value of such property, plant and equipment as determined by an appraiser selected by the Authority and acceptable to the Trustee, such appraisal taking place within the 2-year period preceding the date such value is used in any computation or calculation pursuant to the Bond Order.

“Board” means the Board of Commissioners of the Authority, or any successor board or body in which the power to govern the Authority shall be vested and shall include any duly appointed committee authorized by law to act for the Board of Commissioners of the Authority or the Authority.

“Bond Counsel” means a nationally recognized firm of attorneys experienced in municipal bond financings selected by the Authority.

“Bond Fund” means The Charlotte-Mecklenburg Hospital Authority Revenue Bond Fund created by Section 501 of the Bond Order.

“Bond Order” means the Second Amended and Restated Bond Order adopted by the Authority as of September 9, 1997, as amended by a First Amendment thereto dated as of November 1, 2001, as further amended by a Second Amendment thereto dated as of June 1, 2002, as further amended by a Third Amendment thereto dated as of September 11, 2007, and as further amended by a Fourth Amendment thereto dated as of September 13, 2016, together with any supplemental bond order(s) adopted in accordance with the provisions thereof or any successor instrument arising out of or becoming effective pursuant to Section 732 thereof.

“Bonds” means all Bonds Outstanding from time to time under the Bond Order, currently those described in the forepart of this Official Statement under “INTRODUCTION AND SUMMARY—Our Outstanding Bonds; Additional Bonds”.

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“Bond Year” means, with respect to the Series 2018A Bonds, the period commencing on January 15 of any year and ending on January 14 of the following year and, with respect to any Additional Bonds, such period, if any, as may be specified in the series resolution authorizing such Additional Bonds.

“Business Day” means a day on which banks located in the city in which the principal office of the Trustee is located are not required or authorized to remain closed and on which The New York Stock Exchange is not closed.

“Combined Group” means the Members of the Obligated Group and all Designated Affiliates.

“Cost” as applied to any Improvements financed by Bonds, means, without intending thereby to limit or restrict any proper definition of such word under the Act and the Authorities Act, all items of cost set forth in Section 403 of the Bond Order, including, but not limited to, obligations incurred by any Member of the Combined Group in connection with the construction or acquisition of Improvements, obligations incurred by any Member of the Combined Group in connection with the acquisition of any tangible or intangible property or interest therein, including the equity interest(s) of any Person which, upon such acquisition, immediately becomes a Member of the Combined Group, the cost of preparing and acquiring interests in real property, the fees and expenses of the Trustee, attorneys and accountants, financing charges and the cost of insurance.

“Credit Facility” means a line of credit, letter of credit, standby bond purchase agreement, municipal bond insurance policy, surety bond or similar credit enhancement or liquidity facility established to provide credit or liquidity support for Indebtedness or in lieu of deposits to any debt service reserve fund created under any series resolution. The Authority may be the provider of its own Credit Facility; provided, however, that during any period in which any Bond Outstanding under the Bond Order is rated lower than AA - or its equivalent by any rating agency then rating any such Bonds, the Authority must first obtain Local Government Commission approval to serve as provider of its own Credit Facility during such period.

“Defeasance Obligations” means (i) noncallable Government Obligations, (ii) evidences of ownership of a proportionate interest in specified noncallable Government Obligations, which noncallable Government Obligations are held by a bank or trust company organized and existing under the laws of the United States of America or any state thereof in the capacity of custodian, (iii) to the extent then permitted by applicable law, including N.C.G.S. Section 159-30(b) and any successor statutory provision, noncallable obligations of any agency or instrumentality of the United States government, (iv) noncallable certificates of deposit issued by a bank or trust company located in the State of North Carolina, if such certificates shall be secured by a pledge of noncallable Government Obligations or obligations described in (ii) or (iii) above, or any combination thereof, and (v) obligations of state or local government municipal bond issuers, provisions for the payment of principal of and interest on which shall have been made by deposit with a trustee or escrow agent of noncallable Government Obligations or obligations described in (ii), (iii) or (iv) above, or any combination thereof, the maturing principal of an interest on which, when due and payable, will provide sufficient money to pay the principal of, premium, if any, and interest on such obligations of state or local government municipal bond issuers.

“Defeased Series 2018A Bonds” means the maturity or maturities and the amount of each maturity of the Series 2018A Bonds selected by the Authority for defeasance as provided in the Series Resolution.

“Derivative Indebtedness” means all or any portion of Indebtedness of any Member of the Combined Group with respect to which a Hedging Transaction has been entered into and which Indebtedness is expressly identified in such Hedging Transaction.

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“Designated Affiliate” means any Person constituting a Designated Affiliate from time to time pursuant to Section 731 of the Bond Order.

“Eminent Domain” means the eminent domain or condemnation power by which all or any part of the Obligated Health Care System may be taken for public use or any agreement that is reached in lieu of proceedings to exercise such power.

“Equipment” means those items constituting equipment, as that term is defined in the North Carolina Uniform Commercial Code, and all fixtures now owned or hereafter acquired by (i) any Member of the Obligated Group for use in the operation and maintenance of the Obligated Health Care System or (ii) Designated Affiliates.

“Event of Default” means each of the events set forth in Section 801 of the Bond Order and, with respect to the Series 2018A Bonds, each of the events set forth in Section 701 of the Series Resolution, all as described herein under “Events of Default and Remedies.”

“Existing Restrictions” means those covenants, limitations, restrictions or conditions included in any agreement enforceable against a Member of the Obligated Group, which agreement was in existence on the date such Person became a Member of the Obligated Group, which prohibits such Member of the Obligated Group from discharging a particular obligation or complying with a particular covenant or limitation in the Bond Order, or in a Member Guaranty Agreement or Member Security Agreement executed by such Member of the Obligated Group, or which would constitute an event of default or noncompliance under such agreement as a consequence of discharging a particular obligation or complying with a particular covenant or limitation in the Bond Order, or in a Member Guaranty Agreement or Member Security Agreement executed by such Member of the Obligated Group.

“Financial Statements” means generally the unaudited combined financial statements of the Combined Group derived from the Audited Financial Statements and prepared by the Authority, and which are included, as an additional information section, in the Audited Financial Statements, or which accompanies the Audited Financial Statements, and which covers the same 12-month or other period as the Audited Financial Statements, from which the revenues, assets, liabilities and expenses of any Person which is not a Member of the Obligated Group or a Designated Affiliate have been eliminated and to which the revenues, assets, liabilities and expenses of any Member of the Combined Group which is not included in the Audited Financial Statements have been added; provided, however, that for purposes of adding the revenues, assets, liabilities and expenses of a Member of the Combined Group which is not included in the Audited Financial Statements, the balances thereof shall be extracted from audited financial statements of such Member of the Obligated Group, Designated Affiliate and its affiliates (determined in the same manner as in the case of the Authority), if any. Notwithstanding the foregoing, if the net amount of revenues and assets that would be eliminated or added pursuant to the immediately preceding sentence is not greater than 5% of the amount of revenues and assets as shown on the Audited Financial Statements for the period which would be covered by the Financial Statements, then the Combined Group shall substitute the Audited Financial Statements in lieu of Financial Statements for the period covered by the Audited Financial Statement for all purposes of the Bond Order; provided, however, that in such event the Audited Financial Statements shall disclose by supplement or other appropriate means the aggregate amount of revenues and assets that would otherwise be excluded from or added to such Audited Financial Statements.

“Fiscal Year” means the period of 12 full consecutive calendar months or other period included in the Audited Financial Statements in accordance with generally accepted accounting principles, unless the Trustee is notified in writing by the Authority Representative of a change or difference in such period, in which case the Fiscal Year means the 12-month or other period set forth in such notice in accordance with

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generally accepted accounting principles; provided, however, that one or more Members of the Combined Group may have a fiscal year which does not coincide with the Fiscal Year of the Authority so long as the financial statements of such Member of the Obligated Group can be combined with that of the Authority in accordance with generally accepted accounting principles.

“Fitch” means Fitch, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, and, if it for any reason no longer performs the functions of a securities rating agency, “Fitch” will be deemed to refer to any other nationally recognized rating agency designated by the Authority by notice to the Trustee.

“Government Obligations” means direct obligations of, or obligations the timely payment of the principal of and interest on which are fully and unconditionally guaranteed by, the United States of America.

“Governmental Restrictions” means federal, state or other applicable governmental laws or regulations affecting any Member of the Combined Group and its facilities by placing restrictions and limitations on the (i) fees and charges to be fixed, charged and collected by any Member of the Combined Group or (ii) the amount or timing of the receipt of such revenues or expenses of operation.

“Guarantor” when used in a Member Guaranty Agreement means each Member of the Obligated Group that has entered into a Member Guaranty Agreement.

“Guaranty” means any obligation of any Member of the Combined Group guarantying in any manner, directly or indirectly, any obligation of any Person that is not a Member of the Combined Group, which obligation of such other Person would, if such obligation were the obligation of a Member of the Combined Group, constitute Indebtedness under the Bond Order. A Guaranty shall be valued for inclusion as Indebtedness as provided in the Bond Order.

“Health Care System” means, collectively, all facilities of the Authority and its Affiliates in existence upon the date of adoption of the Bond Order at which health care or medical services are provided and all Improvements, whether the same are now existing or hereinafter constructed, installed or acquired.

“Hedging Transaction” means an agreement, expressly identified in an Officer’s Certificate delivered to the Trustee as being entered into in order to hedge the interest payable on all or a portion of any Indebtedness, which agreement may include, without limitation, an interest rate swap, a forward or futures contract or an option (e.g., a call, put, cap, floor or collar) and which agreement does not constitute an obligation to repay money borrowed, credit extended or the equivalent thereof.

“Historic Long-Term Debt Service Coverage Ratio” means the Long-Term Debt Service Coverage Ratio of the Combined Group for the most recent period of 12 full consecutive calendar months or other period upon which Financial Statements are prepared for which Financial Statements are available.

“Holder” means the registered owner of any Parity Debt Outstanding.

“Improvements” means, generally, (i) any additions, enlargements, improvements, extensions, alterations, fixtures, equipment, land, appurtenances, and other facilities to or for the Health Care System and (ii) to the extent otherwise permitted by applicable law, any additions, enlargements, improvements, extensions, alterations, fixtures, equipment, land, appurtenances, and other facilities to or for any Designated Affiliate not a part of the Health Care System.

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“Income Available for Debt Service” means, with respect to the Combined Group, as to any period of 12 full consecutive calendar months or other period for which Financial Statements are available, the combined excess of revenues over expenses before depreciation, amortization and interest expense reflected on such Financial Statements, as determined in accordance with generally accepted accounting principles; provided, however, that no determination thereof shall take into account any gain or loss resulting from the extinguishment of Indebtedness, any unrealized gain or loss, including any unrealized change in the value of a Hedging Transaction, any realized gain or loss resulting from the sale, exchange or other disposition of capital assets other than in the ordinary course of business and provided, however, that revenues shall not include income from investments from funds held in a Qualified Escrow to the extent that such income is to be applied to the payment of principal, premium, if any, or interest on Long-Term Indebtedness which is excluded from the determination of Long-Term Debt Service Requirement. If a Member of the Combined Group has issued a Guaranty with respect to Indebtedness of a Non-Combined Person, which Indebtedness would constitute Long-Term Indebtedness if incurred directly by a Member of the Combined Group, then in any period of 12 full consecutive calendar months or other period upon which Financial Statements are prepared that any amount of such Guaranty is required to be taken into account in computing the Long-Term Debt Service Coverage Ratio of the Combined Group, the term Income Available for Debt Service shall also include the Percentage Interest in the excess of revenues over operating expenses and the debt service requirements of such Non- Combined Person for the same period included in such period.

“Indebtedness” means (i) all obligations of any Member of the Combined Group for borrowed money, (ii) all installment sales and capital lease obligations, incurred or assumed by any Member of the Combined Group and (iii) all Guaranties (to the extent required to be taken into account for purposes of the Bond Order), whether constituting Long-Term Indebtedness or Short-Term Indebtedness; provided, however that there shall be excluded Indebtedness of any Member of the Combined Group to any other Member of the Combined Group; provided, further, if any change in generally accepted accounting principles effective after September 13, 2016 would require transactions that would have been classified as “operating leases” before such date to be treated as Indebtedness (and, therefore, as either Long-Term Indebtedness or Short-Term Indebtedness) for purposes of any calculation under the Bond Order, the Authority at its option may continue to treat such transactions as not constituting Indebtedness for purposes of any calculation under the Bond Order.

“Interest Account” means the account in the Bond Fund created and so designated by Section 501 of the Bond Order.

“Interest Payment Date” means, with respect to the Series 2018A Bonds, January 15 or July 15, as the case may be (with the first Interest Payment Date on January 15, 2019), and, with respect to any other Additional Bonds, means such date or dates as shall be provided in the series resolution authorizing such Additional Bonds.

“Interested Beneficial Owner” means any Person who shall have established to the satisfaction of the Authority that he is a beneficial owner of at least $1,000,000 of Outstanding Series 2018A Bonds and who shall have filed with the Authority, within the period of twenty-four (24) months immediately prior to each quarterly period when such term has application, a request in writing setting forth his name and address and that he desires to receive a copy of the Quarterly Reports. An assertion of Interested Beneficial Ownership shall be filed, with such documentary support acceptable to the Authority, as shall be sufficient to establish such beneficial ownership as part of such request, and the Authority may conclusively rely, without making any investigation respecting any fact preparatory to taking any action in reliance thereon, upon the accuracy of the statements and the correctness of the matters stated in such request. Notwithstanding the foregoing, the Authority may require any Person to establish, in the manner described above and not later than 75 days after the end of the particular quarterly period, that he

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continued to be the beneficial owner of at least $1,000,000 of Outstanding Series 2018A Bonds as of the last day of a particular quarterly period as a condition precedent to providing the Quarterly Reports to such Person as an Interested Beneficial Owner pursuant to Section 1113 of the Series Resolution for such quarterly period and any subsequent quarterly period unless and until such Person reestablishes his status as an Interested Beneficial Owner.

“Interim Indebtedness” means Indebtedness having an original term (including therein optional renewals by a Member of the Combined Group) from the date incurred of at least one but not more than five years, with respect to which an Officer’s Certificate is delivered to the Trustee to the effect that permanent financing of the Improvements to be temporarily financed with such Interim Indebtedness is expected to be obtained within five years from the date of incurrence of such Interim Indebtedness.

“Investment Grade” means that rating of Moody’s, S & P, Fitch or any other rating agency of national recognition acceptable to the Local Government Commission with a rating then outstanding with respect to any Bond issued under the Bond Order which represents the lowest rating which Moody’s, S & P, Fitch or any such other rating agency then recognizes as being investment grade.

“Investment Obligations” means Government Obligations and, to the extent from time to time permitted by law, (a) obligations of (i) Federal National Mortgage Association, (ii) Federal Intermediate Credit Banks, (iii) Federal Banks for Cooperatives, (iv) Federal Land Banks, (v) Federal Home Loan Banks, (vi) Federal Financing Bank, (vii) Federal Farm Credit System, (viii) Federal Home Loan Mortgage Corporation, (ix) Government National Mortgage Association, (x) Federal Housing Administration, and (xi) Farmers Home Administration, (b) certificates of deposit or time deposits of any bank, any branch of any bank, trust company, national banking association (including the Trustee and its affiliates) or federally chartered savings and loan association; provided, however, that such certificates of deposit or time deposits shall be fully secured, to the extent not secured by the Federal Deposit Insurance Corporation by Government Obligations or by obligations described in clauses (i) to (xi), inclusive, of (a) above, (c) evidences of ownership of a proportionate interest in specified Government Obligations, which Government Obligations are held by a bank or trust company organized and existing under the laws of the United States of America or any state thereof in the capacity of custodian, (d) obligations of state or local government municipal bond issuers, provision for the payment of the principal of and interest on which shall have been made by deposit with a trustee or escrow agent of Government Obligations or obligations described in (c) above, the maturing principal of and interest on which, when due and payable, shall provide sufficient money to pay the principal of, premium, if any, and interest on such obligations of state or local government municipal bond issuers, (e) obligations of state or local government municipal bond issuers, the principal of and interest on which, when due and payable, have been insured by a bond insurance company which is rated in the highest rating category by Moody’s and S&P, (f) full faith and credit obligations of state or local government bond issuers which are rated in the highest rating category by both Moody’s and S&P, (g) any repurchase agreement by the Trustee that is with a bank or trust company (including the Trustee and its affiliates) or recognized securities dealer for Government Obligations in which the Trustee shall be given a first security interest and on which no third party shall have a lien and having on the date of the repurchase agreement a fair market value equal to at least 100% of the amount of the repurchase obligation of the bank, trust company or recognized securities dealer; provided, however, that such obligations purchased must be transferred to the Trustee or a third party agent by physical delivery or by an entry made on the records of the issuer of such obligations and (h) any other investment to the extent from time to time permitted by applicable law including, but not limited to, N.C.G.S. Section 159-30(b) and any successor statutory provision. Any investment in a repurchase agreement shall be considered to mature on the date the bank, trust company or recognized securities dealer providing the repurchase agreement is obligated to repurchase the Investment Obligations. Any investment in Government Obligations or in obligations described in (a), (c), (d) and (e) above may be made in the form of an entry made on the records of the issuer of the particular obligation.

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“Lien” means any mortgage, deed of trust or pledge of, security interest in or encumbrance on any property of any Member of the Combined Group which secures any Indebtedness or any other obligation of any Member of the Obligated Group, Designated Affiliate or any other Person, other than any Indebtedness or obligation payable to a Member of the Obligated Group or a Designated Affiliate.

“Local Government Commission” or “LGC” means the Local Government Commission of North Carolina, a division of the Department of State Treasurer, and any successor or successors thereto.

“Long-Term Debt Service Coverage Ratio” means for any period of calculation the ratio determined by dividing the Income Available for Debt Service by the Long-Term Debt Service Requirement for the period of calculation.

“Long-Term Debt Service Requirement” means (a) for purposes of determining the Historic Long-Term Debt Service Coverage Ratio, for the period of 12 full consecutive calendar months or other period upon which Financial Statements are prepared for which such determination is made, the principal of and interest due in such period on all Outstanding Long-Term Indebtedness of any Member of the Combined Group, taking into account (i) with respect to Balloon Long-Term Indebtedness or Interim Indebtedness, there shall be excluded from such calculation any principal installment of Balloon Long- Term Indebtedness or Interim Indebtedness due in such period, whether at maturity or pursuant to mandatory redemption, if the debtor has designated prior to the payment or redemption date available and unrestricted funds for such payment or redemption or has received a binding commitment from a recognized financial institution to refinance such principal on reasonable terms and (ii) with respect to Derivative Indebtedness, the interest on such Derivative Indebtedness may, at the option of the Authority, include payments made and received by the relevant Member of the Combined Group or to be made and received by the relevant Member of the Combined Group under the related Hedging Transaction; provided, however, that at the time such option is exercised, the Authority delivers to the Trustee an Officer’s Certificate to the effect that the institution which is a counterparty to such Hedging Transaction is obligated to make such payments thereunder for the period for which such payments are proposed to be taken into account, and (b) for purposes of any forecast of the Long-Term Debt Service Coverage Ratio, for the period of 12 full consecutive calendar months or other period upon which Financial Statements are prepared for which such determination is made, the principal of and interest which will be due in such period on all Outstanding Long-Term Indebtedness of any Member of the Combined Group, taking into account (i) with respect to Balloon Long-Term Indebtedness or Interim Indebtedness, there shall be excluded from such calculation any principal installment of Balloon Long-Term Indebtedness or Interim Indebtedness due in such period, whether at maturity or pursuant to mandatory redemption, if the debtor has designated prior to the payment or redemption date available and unrestricted funds for such payment or redemption or has received a binding commitment from a recognized financial institution to refinance such principal on reasonable terms, (ii) with respect to Derivative Indebtedness, the interest on such Derivative Indebtedness may, at the option of the Authority, include payments made and received by the relevant Member of the Combined Group or to be made and received by the relevant Member of the Combined Group under the related Hedging Transaction; provided, however, that at the time such option is exercised, the Authority delivers to the Trustee an Officer’s Certificate to the effect that the institution which is a counterparty to such Hedging Transaction is obligated to make such payments thereunder for the period for which such payments are proposed to be taken into account, (iii) with respect to any Credit Facility, to the extent that such Credit Facility has not been used or drawn upon, no principal and interest relating to such Credit Facility shall be included in the forecasted Long-Term Debt Service Requirement, (iv) with respect to a Guaranty of Long-Term Indebtedness, no amount of principal and interest of the guaranteed Indebtedness shall be included in the forecasted Long-Term Debt Service Requirement during any period of 12 consecutive calendar months for which such determination is made if the relevant Member of the Combined Group has not theretofore been required to make any payments in respect of principal or interest on the Indebtedness guaranteed and (v) with respect to Variable Rate Indebtedness

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that is Long-Term Indebtedness, the forecasted interest on such Variable Rate Indebtedness shall be equal to the 52-week running average of The Bond Market AssociationTM Municipal Swap Index for the most recent date available (or, if such index is no longer available, another index certified to be comparable by a commercial bank or investment banking firm experienced in municipal finance); provided, however, for purposes of both (a) and (b), that interest shall be excluded from the determination of the Long-Term Debt Service Requirement to the extent the same is provided from the proceeds of the Long-Term Indebtedness; and provided, further, that principal and interest shall be excluded from the determination of Long-Term Debt Service Requirement to the extent a Qualified Escrow has been established.

“Long-Term Indebtedness” means Indebtedness having a maturity of, or a term longer than, 12 months when initially incurred or assumed by any Member of the Combined Group, including Guaranties (to the extent required to be taken into account under the Bond Order), Short-Term Indebtedness if a commitment by an institutional lender exists to provide financing to retire such Short-Term Indebtedness and such commitment provides for the repayment of principal on terms which would, if such commitment were implemented, constitute Long-Term Indebtedness, and the current portion of Long-Term Indebtedness, for any of the following:

(i) money borrowed for an original term, or renewable at the option of any Member of the Combined Group for a period from the date originally incurred, longer than one year;

(ii) leases which are required to be capitalized in accordance with generally accepted accounting principles having an original term, or renewable at the option of any Member of the Combined Group for a period from the date originally incurred, longer than one year; and

(iii) installment sale or conditional sale contracts of any Member of the Combined Group having an original term in excess of one year; provided, however, that any Guaranty by any Member of the Combined Group of any obligation of any Person which obligation would, if it were a direct obligation of a Member of the Combined Group, constitute Short-Term Indebtedness shall be excluded.

“Management Consultant” means a firm of independent certified public accountants or a management consulting firm of favorable repute for skill and experience in performing the duties to be imposed upon the Management Consultant by the Bond Order.

“Member Guaranty Agreement” means that agreement by which a Person becomes a Member of the Obligated Group by delivering a guaranty to the Trustee, subject to Existing Restrictions, and thereby also becomes subject to the provisions of the Bond Order.

“Member of the Combined Group” means all Members of the Obligated Group and all Designated Affiliates.

“Member of the Obligated Group” means the Authority and any other Person then a Member of the Obligated Group pursuant to Sections 729 and 730 of the Bond Order.

“Member Security Agreement” means that agreement by which a Person becomes a Member of the Obligated Group by delivering a pledge of such Person’s Revenues to the Trustee, subject to Existing Restrictions, and thereby also becomes subject to the provisions of the Bond Order.

“Moody’s” means Moody’s Investor Services, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, and, if such corporation for any reason no

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longer performs the functions of a securities rating agency, “Moody’s” will be deemed to refer to any other nationally recognized rating agency designated by the Authority by notice to the Trustee.

“Net Proceeds” means the gross proceeds derived from insurance or any Eminent Domain award or agreement in lieu of an award in Eminent Domain proceedings, less payment of attorneys’ fees and expenses properly incurred in the collection of gross proceeds.

“Net Proceeds Account” means that account in the Project Fund authorized by Section 408 of the Bond Order.

“Non-Combined Person” means a Person which is not a Member of the Combined Group, but is a Person as to which a Member of the Combined Group either (a) owns all or a portion of such Person’s assets or ownership interest or (b) owns the right to receive a portion of such Person’s income or loss, or both.

“Nonparity Debt” means any indebtedness other than Parity Debt.

“Obligated Group” means, collectively, from time to time, the Authority and the then current Members of the Obligated Group; and initially shall mean the Authority and those Persons so listed in the Bond Order.

“Obligated Health Care System” means, collectively, such portion of the Health Care System that is directly owned by any Member of the Obligated Group, plus all facilities directly owned by any Member of the Obligated Group at which health care or medical services are provided which are not a part of the Health Care System. The term Obligated Health Care System shall specifically exclude any portion of the Health Care System that is not directly owned by any Member of the Obligated Group, and shall specifically exclude all facilities, property, plant and equipment of any Person that is not a Member of the Obligated Group, including all additions, improvements, extensions, alterations and appurtenances thereto, equipment used in connection therewith, and all real property upon which the same are located, whether the same are now existing or hereinafter constructed, installed or acquired.

“Officer’s Certificate” means a certificate signed by an Authority Representative.

“Operating Expenses” means the expenses of maintaining and operating the Obligated Health Care System, including, without limiting the generality of the foregoing, all administrative, general and commercial expenses, insurance and surety bond premiums, architectural expenses, legal expenses, refunds of overpayments on patient accounts, any taxes that may be lawfully imposed on the Obligated Health Care System or the income or operations thereof or the property forming a part thereof, rentals of equipment or other property, usual expenses of operations, maintenance, and repair, amounts owed to others and collected by any Member of the Obligated Group on their behalf, and any other current expenses required to be paid by any Member of the Obligated Group under the provisions of the Bond Order or by law, to the extent the same are properly attributable to the Obligated Health Care System, and all expenses, liabilities and compensation of the Trustee and paying agents required to be paid under the Bond Order. Operating Expenses shall be determined in accordance with generally accepted accounting principles, but shall not include any allowance for depreciation, amortization of financing expenses, or the principal of or interest on Indebtedness.

“Outstanding” when used with reference to Bonds means, as of a particular date, all Bonds theretofore issued under the Bond Order, except:

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(1) Bonds theretofore canceled by the Trustee or delivered to the Trustee for cancellation;

(2) Bonds for the payment of which money, Defeasance Obligations, or a combination of both, have been deposited with the Trustee in an amount sufficient to pay on the date when such Bonds are to be paid or redeemed the maturing principal or Redemption Price of, and the interest accruing to such date on, the Bonds to be paid or redeemed, provided that if any of such Bonds are to be redeemed prior to maturity, notice has been given in accordance with the Bond Order or arrangements for the giving of notice have been made; Defeasance Obligations shall be deemed to be sufficient to pay or redeem Bonds on a specified date if the principal of and the interest on such Defeasance Obligations, when due, will be sufficient to pay on such date the Redemption Price of, and the interest accruing on, such Bonds to such date;

(3) Bonds deemed to have been paid in accordance with Section 1201 of the Bond Order or the comparable section in any series resolution; and

(4) Bonds in exchange for or in lieu of which other Bonds have been issued pursuant to the Bond Order.

“Outstanding,” when used with reference to all Indebtedness other than Bonds means, as of any date of determination, all such Indebtedness theretofore issued or incurred and not paid and discharged other than Indebtedness deemed paid and no longer outstanding under the terms of the instrument by which such Indebtedness was created or incurred.

“Parity Debt” generally means all Bonds and Parity Obligations. However, for purposes of all provisions of the Bond Order requiring the delivery of an Officer’s Certificate to the effect that all “Parity Debt then Outstanding under the Bond Order would continue to be Investment Grade,” such references to Parity Debt do not include any Parity Debt that does not otherwise constitute Indebtedness.

“Parity Instrument” means an instrument pursuant to which any Member of the Obligated Group provides for the issuance of Parity Obligations. If issued by any Member of the Obligated Group other than the Authority, the Authority must either be a guarantor or a co-obligor thereof and secure its obligation by a pledge of Revenues.

“Parity Obligations” means all obligations authorized by Section 720 of the Bond Order.

“Percentage Interest” means, in the case of a Non-Combined Person, that portion of such Non- Combined Person’s net income or loss that is attributable to the ownership interest of the Combined Group or which a Member of the Combined Group has a right to receive.

“Permitted Encumbrances” means, with respect to the Obligated Health Care System and the property owned by a Designated Affiliate, determined on a noncumulative basis and to the extent permitted by law and subject to other applicable provisions of the Bond Order:

(a) the lien on Revenues created by Section 502(II) of the Bond Order or any Member Security Agreement;

(b) liens for taxes or other governmental charges or levies not delinquent or that are being contested in good faith by any Member of the Combined Group;

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(c) covenants, easements, encumbrances, defects of title, reservations, restrictions, and conditions none of which materially impairs the use of the property affected thereby for its intended purposes by any Member of the Combined Group;

(d) defects, irregularities, encumbrances, easements, including easements for roads and public utilities and similar easements, rights of way, mineral conveyances, mineral reservations, and clouds on title, none of which materially impairs the use of the property affected thereby for its intended purposes by any Member of the Combined Group;

(e) mechanics’, workers’, repairmen’s, architects’, engineers’, surveyors’, or carriers’ liens, or other similar liens with respect to the construction and equipping of any Improvements;

(f) other liens, charges, and encumbrances that do not prevent or materially impair the use of the property affected thereby for its intended purposes by any Member of the Combined Group (and the Trustee may rely upon a certificate of an Architect as to whether such liens, charges and encumbrances materially impair the use of the property affected thereby for its intended purposes) or value of the property affected;

(g) purchase money security interests and Liens securing purchase money indebtedness;

(h) any Lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation for any purpose at any time as required by law or governmental regulation as a condition to the transaction of any business or the exercise of any privilege or license, or to enable any Member of the Combined Group to maintain self-insurance or to participate in any funds established to cover any insurance risks or in connection with workers’ compensation, unemployment insurance, pension or profit sharing plans or other social security, or to share in the privileges or benefits required for companies participating in such arrangements;

(i) any judgment lien against any Member of the Combined Group so long as such judgment is being contested in good faith and execution thereon is stayed;

(j) any Lien on property of any Member of the Combined Group in an amount not exceeding the greater of (i) twenty-five percent (25%) of the Base Value of property, plant and equipment of the Combined Group or (ii) twenty-five percent (25%) of the Base Value of unrestricted net assets of the Combined Group; provided, however, that no such Lien may be granted during any period that an Event of Default exists under the Bond Order or any series resolution;

(k) any Lien on pledges, gifts or grants to be received in the future including any income derived from the investment thereof;

(l) any Lien on inventory which does not exceed twenty-five percent (25%) of the book value thereof;

(m) any Lien in favor of a trustee on the proceeds of Indebtedness prior to the application of such proceeds;

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(n) Liens on moneys deposited by patients or others with any Member of the Combined Group as security for or as prepayment for the cost of patient care;

(o) Liens on property received by any Member of the Combined Group through gifts, grants or bequests, such Liens being due to restrictions on such gifts, grants or bequests of property or the income thereon;

(p) Liens on property due to rights of third party payers for recoupment of amounts paid to any Member of the Combined Group;

(q) rights of the United States of America under Title 42 United States Code Section 291i;

(r) any Lien on Accounts that are sold pursuant to Section 728 of the Bond Order or that are pledged to secure Indebtedness;

(s) Liens or encumbrances securing indebtedness of any Person which is not a Member of the Combined Group that is assumed by a Member of the Combined Group in connection with the purchase or other acquisition of Improvements, whether by merger, consolidation or otherwise, which Improvements upon consummation of such transaction become a portion of the Obligated Health Care System; provided, however, that no such Lien may be granted during any period that an Event of Default exists under the Bond Order or any series resolution;

(t) Liens or encumbrances upon property or revenues of a Person in existence as of the date such Person becomes a Member of the Combined Group; provided, however, that such Liens or encumbrances may not be extended to secure any other obligations of such Person;

(u) Liens or encumbrances upon any amounts on deposit in any debt service reserve fund established pursuant to a series resolution providing for the issuance of Bonds under the Bond Order;

(v) Liens or encumbrances securing any repayment or reimbursement obligations or indebtedness of any Member of the Combined Group arising pursuant to or in connection with any Credit Facility established to provide credit or liquidity support for Parity Debt;

(w) Liens or encumbrances securing Nonparity Debt for money borrowed to pay a part of the Cost of any Improvements, but solely upon (1) grants, gifts, bequests, contributions, and other donations that do not constitute Revenues or (2) property owned by any Member of the Combined Group that is specifically pledged by such Member of the Combined Group for the payment of such Nonparity Debt or (3) the revenues to be derived from the operation of such property and that are specifically pledged by the Authority or any Member of the Combined Group for the payment of such Nonparity Debt; provided, however, that such property was not financed by proceeds of Parity Debt and that in the event any Member of the Combined Group shall default on any Nonparity Debt permitted by this paragraph (w), the sole recourse of the holder thereof shall be to the security pledged by the relevant Member of the Combined Group for such Nonparity Debt; and

(x) Any Lien securing the payment obligations of a Member of the Combined Group under a Hedging Transaction which, if required by the provider of such a Hedging Transaction, may be secured by the pledge of Revenues under the Bond Order on a parity with all other Parity

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Debt Outstanding under the Bond Order. The Trustee shall, upon written request of the Authority, execute any document, instrument or agreement necessary to cause the Lien permitted under this subparagraph (x) to be secured by the pledge of Revenues under the Bond Order on a parity with all other Parity Debt Outstanding under the Bond Order.

“Person” includes an individual, association, unincorporated organization, corporation, partnership, limited liability company, joint venture, joint stock company, business trust, government or an agency or a political subdivision thereof, or any other entity.

“Principal Account” means the account in the Bond Fund created and so designated by Section 501 of the Bond Order.

“Project Fund” means The Charlotte-Mecklenburg Hospital Authority Project Fund created by Section 401 of the Bond Order.

“Qualified Escrow” means a segregated escrow fund or other similar fund or account which (a) is irrevocably established as security for Long-Term Indebtedness previously incurred and then outstanding (herein referred to as “Prior Indebtedness”) or for Long-Term Indebtedness, if any, then to be incurred to refund Outstanding Prior Indebtedness (herein referred to as “Refunding Indebtedness”), (b) is held by the holder of the Prior Indebtedness or Refunding Indebtedness secured thereby or by a trustee or agent acting on behalf of such holder and is subject to a perfected security interest in favor of such holder, trustee or agent, (c) is held in cash or invested in Defeasance Obligations, as defined in the Bond Order or series resolution that secures such Prior Indebtedness or Refunding Indebtedness, and (d) is required by the documents establishing such fund or account to be applied toward the payment obligations of any Member of the Combined Group in respect of the Prior Indebtedness, provided that, if the fund or account is funded in whole or in part with the proceeds of Refunding Indebtedness, the documents establishing the same may require specified payments of principal or interest (or both) in respect of the Refunding Indebtedness to be made from the fund or account prior to the date on which the Prior Indebtedness is repaid in full.

“Quarterly Reports” means the unaudited consolidated balance sheet, unaudited consolidated statement of operations and unaudited consolidated statement of cash flows of the Authority, together with a financial highlights discussion on such unaudited consolidated financial statements of the Authority.

“Redemption Fund” means The Charlotte-Mecklenburg Hospital Authority Revenue Bond Redemption Fund established and so designated pursuant to Section 501 of the Bond Order.

“Redemption Price” means, with respect to any Bond or a portion thereof, the principal amount of such Bond or portion thereof plus the applicable premium, if any, payable upon redemption thereof in the manner contemplated in accordance with its terms and the series resolution providing for the issuance thereof.

“Related Bond Indenture” means any indenture, bond resolution, bond order, series resolution or other comparable instrument (including, without limitation, any lease or installment contract) pursuant to which a series of Related Bonds is issued or proceeds of Related Bonds are loaned or otherwise made available to any Member of the Obligated Group (or any property financed or refinanced thereby is the subject of a Transfer to a Member of the Obligated Group).

“Related Bond Issuer” means the issuer of any issue of Related Bonds.

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“Related Bonds” means the revenue bonds or other obligations (including, without limitation, any lease or installment contract) issued by any state, territory or possession of the United States or any municipal corporation or political subdivision formed under the laws thereof or any constituted authority or agency or instrumentality of any of the foregoing empowered to issue obligations on behalf thereof (a “governmental issuer”), pursuant to a single Related Bond Indenture, the proceeds of which are loaned or otherwise made available to (i) any Member of the Obligated Group in consideration of the execution, authentication and delivery of an obligation to or for the order of such governmental issuer, or (ii) any Person other than a Member of the Obligated Group in consideration of the issuance to such governmental issuer (A) by such Person of any indebtedness or other obligation of such Person, and (B) by any Member of the Obligated Group of a Guaranty in respect of such indebtedness or other obligation.

“Related Bond Trustee” means the trustee and its successors in the trusts created under any Related Bond Indenture.

“Resulting Base Value” means, at the time of determination, the Base Value as shown on the Financial Statements for the most recent period of 12 full consecutive calendar months or other period for which Financial Statements are available, as adjusted to give effect to a proposed disposition of Equipment or real property in accordance with the Bond Order.

“Revenues” means, with respect to the Authority, (a) all revenues, income, and other money earned and actually received by the Authority from or in connection with the Obligated Health Care System, including, but without limiting the generality thereof, income (1) from goods and properties sold or leased or services rendered, (2) from agreements and other arrangements with insurance companies, Medicare, Medicaid, Blue Cross, governmental units, agencies and instrumentalities, and prepaid health organizations, and (3) from any award or agreement in lieu of an award resulting from Eminent Domain proceedings, (b) investment income from and revenues realized upon the liquidation or sale of securities held by or on behalf of the Authority, including those held in any of the funds or accounts established pursuant to the Bond Order, (c) insurance proceeds received by the Authority, (d) all gifts, grants, bequests, contributions, and donations received by the Authority, including the unrestricted income and profits therefrom, exclusive of gifts, grants, bequests, contributions, and donations to the extent specifically restricted to a particular purpose inconsistent with their use as Revenues and (e) all payments received by the Authority from a Designated Affiliate to be used by the Authority for the payment of Parity Debt issued under the Bond Order or a Parity Instrument. Revenues in the case of any other Member of the Obligated Group who has executed a Member Security Agreement shall be determined in the same manner as with respect to the Authority. Except as provided in this paragraph, Revenues shall be determined in accordance with generally accepted accounting principles. There shall be specifically excluded from Revenues (i) the proceeds of any borrowings if and to the extent that the use of the same is restricted by the terms of such borrowings for uses inconsistent with the payment of Parity Debt and (ii) any unrealized gains or losses with respect to any property, plant or equipment and (iii) any revenues generated by any residential real property or medical office building.

“S & P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and assigns, and, if such corporation for any reason no longer performs the functions of a securities rating agency, “S & P” will be deemed to refer to any other nationally recognized rating agency designated by the Authority by notice to the Trustee.

“Series,” whenever used herein with respect to Bonds, means any series of Bonds issued under the Bond Order.

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“Series 2009A Bonds” means the Authority’s Health Care Refunding Revenue Bonds, Series 2009A.

“Series 2018A Bonds” means the Authority’s Health Care Refunding Revenue Bonds, Series 2018A, to be issued pursuant to the Bond Order and the Series Resolution.

“Series 2018A Improvements Account” means the account within the Project Fund established and so designated by Section 401 of the Series Resolution.

“Series 2018A Interest Account” means the subaccount within the Interest Account established and so designated by Section 501 of the Series Resolution.

“Series 2018A Principal Account” means the subaccount within the Principal Account established and so designated by Section 501 of the Series Resolution.

“Series 2018A Redemption Account” means the account within the Redemption Fund established and so designated by Section 501 of the Series Resolution.

“Series 2018A Serial Bonds” means the Series 2018A Bonds which are stated to mature on January 15 of each of the years designated for Serial Bonds on the inside cover page of this Official Statement.

“Series 2018A Sinking Fund Account” means the subaccount within the Sinking Fund Account established and so designated by Section 501 of the Series Resolution.

“Series 2018A Term Bonds” means the Series 2018A Bonds that mature in the years designated for Term Bonds on the inside cover page of this Official Statement.

“Series Resolution” means the series resolution adopted by the Authority on October 1, 2018, relating to the issuance of the Series 2018A Bonds.

“Short-Term Indebtedness” means all Indebtedness incurred or assumed by any Member of the Combined Group, other than the current portion of Long-Term Indebtedness, and including any Guaranty (to the extent required to be taken into account under the Bond Order), incurred or assumed by a Member of the Combined Group for any of the following:

(i) payments of principal and interest with respect to money borrowed for an original term, or renewable at the option of any Member of the Combined Group for a period from the date originally incurred, of one year or less;

(ii) payments under leases which are capitalized in accordance with generally accepted accounting principles having an original term, or renewable at the option of any Member of the Combined Group for a period from the date originally incurred, of one year or less; and

(iii) payments under installment purchase or conditional sale contracts having an original term of one year or less.

“Sinking Fund Account” means the account in the Bond Fund created and so designated by Section 501 of the Bond Order.

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“Sinking Fund Requirement” means, with respect to the Series 2018A Term Bonds, for any Bond Year, the principal amount fixed or computed in the Series Resolution for the retirement of such Series 2018A Term Bonds by purchase prior to, or redemption on, January 15 of the following Bond Year.

“State” means the State of North Carolina.

“State Treasurer” means the State Treasurer of the State of North Carolina.

“Supplemental Bond Order” means any supplement authorized in accordance with Article XI of the Bond Order that amends, modifies, or supplements the Bond Order.

“Total Operating Revenues” means the total operating revenues of the Combined Group less applicable deductions from operating revenues, all as determined in accordance with generally accepted accounting principles.

“Transfer” means any act or occurrence the result of which is to dispossess any Person of any asset or interest therein, including specifically, but without limitation, the forgiveness of any debt or the lease of any such asset.

“Trustee” means the Trustee at the time serving as such under the Bond Order whether the original or a successor trustee.

“Variable Rate Indebtedness” means any portion of Indebtedness the interest on which is not established at the time of incurrence at a fixed or constant rate.

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SUMMARY OF THE BOND ORDER AND THE SERIES RESOLUTION

The Bond Order and the Series Resolution specify the details and terms of the Series 2018A Bonds as set out in this Official Statement. See also the section in the forepart of this Official Statement entitled “DESCRIPTION OF THE 2018A BONDS.” The following is a summary of the Bond Order and the Series Resolution as they relate to the Series 2018A Bonds. This summary is not intended to be definitive and is qualified in its entirety by reference to each of the documents summarized for the complete terms thereof.

Various Funds and Accounts Created by the Bond Order and the Series Resolution

The following funds and accounts are created pursuant to the Bond Order:

1. the Bond Fund and three accounts therein:

Interest Account, Principal Account, and Sinking Fund Account,

2. the Redemption Fund, and

3. the Project Fund.

The following accounts and subaccounts are created pursuant to the Series Resolution within the funds and accounts created under the Bond Order:

1. three sub-accounts within the accounts of the Bond Fund:

Series 2018A Interest Account, Series 2018A Principal Account, and Series 2018A Sinking Fund Account,

2. the Series 2018A Redemption Account within the Redemption Fund, and

3. the Series 2018A Improvements Account within the Project Fund.

Payments by the Authority

The Authority covenants and agrees to deposit with the Trustee the following amounts as provided herein until there shall have been deposited with the Trustee sufficient monies for the payment in full of all the amounts due and payable under the Series Resolution:

(a) into the Series 2018A Interest Account, beginning on January 10, 2019, and continuing on the tenth day of each July and January thereafter while any Series 2018A Bonds remain Outstanding, an amount equal to the total amount of interest payable on the Series 2018A Bonds on the next ensuing Interest Payment Date, but not payable from the proceeds of the Series 2018A Bonds or other moneys theretofore deposited or retained in the Series 2018A Interest Account (including investment earnings, if any, retained therein);

(b) into the Series 2018A Principal Account, beginning on January 10 in the earliest calendar year in which Series 2018A Serial Bonds are stated to mature, and continuing on the

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10th day of each January thereafter, the amount required to retire the Series 2018A Serial Bonds to be paid at maturity on the next ensuing January 15;

(c) into the Series 2018A Sinking Fund Account, beginning on January 10 in the earliest calendar year in which Series 2018A Term Bonds of any maturity are stated to mature or are subject to mandatory redemption, and continuing on the tenth day of each January thereafter, the amount required to retire the Series 2018A Term Bonds to be called by mandatory redemption or to be paid at maturity on the next ensuing January 15, in accordance with the Sinking Fund Requirement therefor; and

(d) into the Series 2018A Interest Account or the Series 2018A Redemption Account, as applicable, any amounts that may from time to time be required to enable the Trustee to pay the interest on and the Redemption Price of Series 2018A Bonds as and when the Series 2018A Bonds are called for redemption (other than mandatory redemption in accordance with the Sinking Fund Requirement therefor.

If, on the second Business Day next preceding an Interest Payment Date or date upon which Series 2018A Bonds mature or are to be redeemed in accordance with any Sinking Fund Requirement therefor, there is not on deposit in the Series 2018A Interest Account, the Series 2018A Principal Account or the Series 2018A Sinking Fund Account the respective amount necessary for the payment of interest on, principal of or Sinking Fund Requirement for the Series 2018A Bonds on such date, the Trustee shall give notice to the Authority of the amount of such deficiency, and the Authority shall immediately deliver to the Trustee an amount sufficient to cure the same.

Under certain circumstances, a portion of the Net Proceeds of property insurance and condemnation awards will be deposited in an account in the Redemption Fund. Amounts received by the Trustee from the Authority as optional prepayments on the Series 2018A Bonds will also be deposited in the Redemption Fund. Money held in the Redemption Fund will be applied to the purchase or redemption of Series 2018A Bonds (other than redemption by operation of the Series 2018A Sinking Fund Account) as provided in the Series Resolution. In the event the balance in the Series 2018A Redemption Account at 10:00 a.m. on a date upon which Series 2018A Bonds are to be redeemed is insufficient for the payment of the Redemption Price becoming due on the Series 2018A Bonds on such date, the Trustee shall notify the Authority of the amount of the deficiency, and the Authority shall immediately deliver to the Trustee an amount sufficient to cure the same.

Series 2018A Improvements Account

Simultaneously with the delivery of the Series 2018A Bonds the proceeds of the Series 2018A Bonds, to the extent not applied to refund a portion of the Series 2009A Bonds, as described in the front part of this Official Statement, shall be deposited to the credit of the Series 2018A Improvements Account. All amounts deposited to the credit of the Series 2018A Improvements Account will be used to pay all or a portion of certain expenses incurred in connection with the issuance of the Series 2018A Bonds.

Investments

Moneys in all funds and accounts shall be continuously invested and reinvested by the Trustee in Investment Obligations to the extent practicable. Any such Investment Obligations shall mature not later than the respective dates when any amount held for the credit of such funds or accounts will be required for the purposes for which such funds and accounts are intended. No Investment Obligations in any fund or account for the Series 2018A Bonds may mature beyond the latest maturity date of any of the Series

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2018A Bonds Outstanding at the time such Investment Obligations are deposited. The maturity date of repurchase agreements for Government Obligations or other obligations is the maturity date of such repurchase agreement and not the maturity date of the underlying Government Obligation or other obligation.

Interest accruing on all Investment Obligations in any fund or account for the Series 2018A Bonds, and any profit realized or loss resulting from such investment, shall be credited to or charged against the respective fund or account, provided, however, that except to the extent directed in writing by the Authority, as to the Series 2018A Interest Account, the interest accruing thereon and any profit or any loss realized upon the maturity or disposition of such investments prior to the completion of the Improvements, shall be credited to, or charged against, the Series 2018A Improvements Account.

Valuation

For the purpose of determining the amount on deposit in any fund or account, Investment Obligations in which money in such fund or account is invested shall be valued (a) at face value if such Investment Obligations mature within six (6) months from the date of valuation thereof, and (b) if such Investment Obligations mature more than six (6) months after the date of valuation thereof, at the price at which such Investment Obligations are redeemable by the holder at his option if so redeemable, or, if not so redeemable, at the lesser of (i) the cost of such Investment Obligations minus the amortization of any premium or plus the amortization of any discount thereon and (ii) the market value of such obligations.

The Trustee shall value the Investment Obligations in the funds and accounts established under the Bond Order and the Series Resolution three (3) Business Days prior to each Interest Payment Date. In addition, the Investment Obligations shall be valued by the Trustee at any time requested by the Authority on reasonable notice to the Trustee (which period of notice may be waived or reduced by the Trustee); provided, however, that the Trustee shall not be required to value the Investment Obligations more than once in any calendar month.

Rate Covenant

The Authority has covenanted to fix, charge and collect, and to cause each other Member of the Obligated Group and each Designated Affiliate to fix, charge and collect rates, fees, and charges for use of, and for the goods, products and services furnished at, the Obligated Health Care System and the facilities of the Designated Affiliates and to revise such rates, fees, and charges as often as may be necessary or appropriate to produce a Long-Term Debt Service Coverage Ratio of the Combined Group of not less than 1.10 to 1.0 in each period upon which Financial Statements are based. If Long-Term Indebtedness is issued to pay the Cost of Improvements, the debt service thereon shall not be included in the computation of the Long-Term Debt Service Coverage Ratio until the first such period following the completion, occupation and utilization of such Improvements unless the Authority or other Member of the Combined Group is required to pay the principal thereof and interest thereon from sources other than the proceeds of such Long-Term Indebtedness prior to such period.

If the Historic Long-Term Debt Service Coverage Ratio of the Combined Group is less than that required above, within 30 days of the receipt of the audit report for such period the Authority shall employ a Management Consultant to review and analyze the financial status of the Combined Group and the administration and operations of the Obligated Health Care System and the facilities of the Designated Affiliates, to inspect the Obligated Health Care System and the facilities of the Designated Affiliates, and to submit, within 120 days thereafter, a written report to the Authority recommending revisions of the rates, fees, and charges of the Obligated Health Care System and the facilities of the Designated Affiliates and the methods of operation of the Obligated Health Care System and the facilities of the Designated

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Affiliates that will produce the Historic Long-Term Debt Service Coverage Ratio so required or, if in the opinion of the Management Consultant the attainment of such level is impracticable, to the highest level attainable, in the ensuing period upon which Financial Statements are prepared. Promptly upon its receipt of such recommendations, the Authority shall transmit copies thereof to the Trustee and the Local Government Commission. The Obligated Group shall, and shall cause each Designated Affiliate to, to the extent permitted by law, substantially follow the written recommendations of the Management Consultant. So long as the Combined Group substantially complies, to the extent permitted by law, with the written recommendations of the Management Consultant in respect to its rates, fees, charges and methods of operation, the failure of the Historic Long-Term Debt Service Coverage Ratio to meet the requirement of the first sentence of the preceding paragraph shall not constitute an Event of Default so long as the Total Operating Revenues of the Combined Group shall not be less than the amount required to pay when due the operating expenses of the Combined Group and to pay when due the debt service on all Indebtedness of the Combined Group for the following period upon which Financial Statements are based. If a report of a Management Consultant is delivered to the Trustee, which report shall state that Governmental Restrictions have been imposed which make it impossible for the coverage requirement described in the first sentence of the preceding paragraph to be satisfied, then such coverage requirement shall be reduced to the maximum coverage permitted by such Governmental Restrictions while such Governmental Restrictions are in effect, but in no event less than 1.00.

Parity Debt

The Authority and other Members of the Obligated Group may issue Additional Bonds and Parity Obligations (together, “Parity Debt”) which will share in the security for the Series 2018A Bonds equally and without preference with respect to the pledge of and security interest in Revenues.

Additional Bonds. Additional Bonds may be issued under the Bond Order to provide funds to (i) pay all or any part of the Cost of any Improvements, (ii) pay any debt obligations issued by any Member of the Combined Group to finance the Cost of any Improvements, (iii) repay any advances made from any source to temporarily finance the Cost of any Improvements, (iv) make a deposit to a debt service reserve fund, if any, created to secure such Additional Bonds, (v) pay interest on the Additional Bonds then being issued for such period as shall be specified in the applicable series resolution and is then permitted by law, (vi) pay expenses incurred in connection with the issuance of such Additional Bonds, and (vii) pay such other items as may be set forth in the applicable series resolution including the costs of issuance of such Additional Bonds.

Parity Obligations. Parity Obligations may be issued or incurred by the Authority and other Members of the Obligated Group in lieu of the issuance of Additional Bonds for the same purposes for which Additional Bonds may be issued, as described above, and upon satisfying certain terms and certain conditions set forth in the Bond Order. In addition, the Obligated Group shall also have the right, but is not required, to issue or incur Parity Obligations (i) in the form of or to evidence the repayment or reimbursement obligations or indebtedness of any Member of the Obligated Group arising pursuant to or in connection with any Credit Facility established to provide credit or liquidity support for Parity Debt and (ii) in the form of or to evidence payment obligations of any Member of the Obligated Group with respect to any Hedging Transaction. Holders of Parity Obligations shall enjoy the same security as holders of the Bonds with respect to the pledge of and security interest in Revenues. Parity Obligations will not be secured by or have the benefit of the pledge of moneys in any fund or account held by the Trustee under the Bond Order or any series resolution solely for the benefit of the holders of a particular Series of Bonds.

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Allocations if Parity Obligations Outstanding. Notwithstanding any other provision of the Bond Order, if at any time (a) there are both Bonds Outstanding under the terms of the Bond Order and Parity Obligations outstanding under the terms of one or more Parity Instruments and (b)(1) the Authority, any other Member of the Obligated Group or the Trustee receives Net Proceeds and the Authority elects or is required to redeem Bonds with the same pursuant to the provisions of the Bond Order, or (2) any Member of the Obligated Group receives proceeds from the sale or disposition of all or any portion of the Obligated Health Care System and elects to redeem Bonds with the same, or (3) the Authority and each Member of the Obligated Group which has executed a Member Security Agreement is required to deposit its Revenues with the Trustee daily pursuant to the provisions of the Bond Order and the Trustee is thereafter required to apply Revenues to pay necessary expenses of operating and maintaining the Obligated Health Care System, to make deposits to various funds and accounts in accordance with the various series resolutions and to pay Parity Obligations pursuant to the provisions of the Bond Order, or (4) the Bonds are accelerated in accordance with the provisions of the Bond Order after an Event of Default has occurred under the Bond Order or under the Series Resolution and the Trustee is required to apply Revenues or payments under Member Guaranty Agreements thereafter coming into its possession, then all such Net Proceeds, proceeds, Revenues or payments under Member Guaranty Agreements to be distributed under the terms of the Bond Order to Holders shall be allocated among and distributed by the Trustee to the Holders of Bonds and the Holders of Parity Obligations (or a trustee representing their interests) in the proportion that the principal of and interest on (or other types of payments with respect to) each type of Parity Debt then due (by its terms or by acceleration) bears to the total principal of and interest on (or other types of payments with respect to) all Parity Debt then due, unless such an allocation and distribution has been made prior to the receipt by the Trustee of such Net Proceeds, proceeds, Revenues or payments under Member Guaranty Agreements; provided, however, that the holders of Parity Obligations shall have no right in and to the moneys or Investment Obligations on deposit to the credit of any fund or account held by the Trustee under the Bond Order or any series resolution solely for the benefit of the holders of a particular series of Bonds.

The provisions of the Bond Order regarding pro rata application of funds after an Event of Default to pay Bonds (which provisions are described under the caption “Events of Default and Remedies—Pro Rata Application of Funds After Default”) will be applied after giving effect to the allocations and distributions among Bonds and Parity Obligations described in the immediately preceding paragraph.

Nonparity Debt

The Members of the Combined Group may incur, issue, assume or guarantee Nonparity Debt.

Maintenance and Operation of Health Care System and Obligated Health Care System

The Obligated Group shall keep and maintain the Obligated Health Care System at all times in a good state of repair and sound operating condition, ordinary wear and tear, obsolescence in spite of repair, and acts of God excepted; provided, however, that nothing contained in the Bond Order or the Series Resolution shall be construed to (i) prevent any Member of the Obligated Group from ceasing to operate any portion of its property, if in its judgment it is advisable not to operate the same, or if it intends to sell or otherwise dispose of the same and does so within a reasonable time, or (ii) obligate any Member of the Obligated Group to retain, preserve, repair or replace any property, leases, rights, privileges or licenses no longer used or, in its judgment, useful in the conduct of its business. The Obligated Group will not permit, commit or suffer any waste of the whole or any part of the Obligated Health Care System and shall not use or permit the use of the Obligated Health Care System, or any part thereof, for any unlawful purpose. Each Member of the Obligated Group shall make such repairs or replacements as are required or convenient for the proper operation, repair and maintenance of so much of the Obligated Health Care

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System as is owned by such Member of the Obligated Group in an economical and efficient manner, consistent with standards of health care facilities operation and administration generally required for licensure by the State in which the health care facilities are located and for accreditation or certification of health care facilities comparable to the Obligated Health Care System.

The Authority covenants that, with respect to the Health Care System it shall, and shall cause its Affiliates to, operate the Health Care System in accordance with all applicable laws, orders, rules, regulations and requirements. The Authority further covenants that it will not use the Health Care System or any part thereof, or permit any Person to use the Health Care System or any part thereof, in such a way as to affect adversely the tax-exempt status of the Authority or the excludability of the interest on any Bonds or Parity Obligations from gross income for federal income tax purposes.

Liens and Encumbrances

Except as otherwise provided in the Bond Order and other than Permitted Encumbrances, the Obligated Group shall not create or suffer to be created or permit the existence of any lien or charge upon the Obligated Health Care System or any part thereof or upon any property owned by Designated Affiliates, or on the Revenues now owned or hereafter acquired, and shall pay or cause to be discharged, or shall make adequate provision to satisfy and discharge, and shall cause the Designated Affiliates to pay or cause to be discharged, or make adequate provision to satisfy and discharge, within sixty (60) days after the same shall become due and payable, all lawful costs, expenses, liabilities and charges relating to the maintenance, repair, replacement, improvement and operation of the Obligated Health Care System and any property owned by Designated Affiliates and all lawful claims and demands for labor, materials, supplies or other objects that might by law become a lien upon the Obligated Health Care System, any property owned by Designated Affiliates or Revenues if unpaid.

Notwithstanding the preceding paragraph, the Members of the Combined Group are not required to satisfy or discharge any such lien, encumbrance, charge, claim or demand or make provision for the satisfaction and discharge so long as the validity thereof shall be contested in good faith and by appropriate legal proceedings. Prior to such contest the relevant Member of the Obligated Group shall prevent, or cause its Designated Affiliate to prevent, the foreclosure or enforcement of any lien, claim, encumbrance, charge or demand against any Member of the Combined Group by payment or order of court, by depositing with an escrow agent, or requesting the Trustee to set aside and segregate, an amount sufficient to satisfy or discharge such lien, claim, encumbrance, charge or demand, or by delivering to the Trustee a surety bond in an amount sufficient to satisfy the same.

So long as any Bonds are Outstanding, the Obligated Group may not at any time create, assume or suffer to exist any mortgage, pledge or other lien or encumbrance of or upon the Obligated Health Care System, or the Revenues, other than Permitted Encumbrances, and the Obligated Group will not permit any Designated Affiliate to create, assume or suffer to exist any mortgage, pledge or other lien or encumbrance of or upon any property owned by such Designated Affiliate, other than Permitted Encumbrances, unless the Combined Group secures Parity Debt equally and ratably with the indebtedness or obligations secured by such mortgage, pledge, lien or encumbrance for so long as such indebtedness or obligations are so secured.

After-Acquired Property; Alterations

All buildings, structures and Equipment that shall be constructed, placed or installed in or upon the Obligated Health Care System as an addition or improvement to, as a substitute for, or in renewal, replacement, or alteration of, any buildings, structures, and Equipment constituting part of the Obligated Health Care System and all real property acquired as an addition to, in replacement of, or as a substitute

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for real property constituting a part of the Obligated Health Care System shall thereupon become a part of the Obligated Health Care System.

Any Member of the Obligated Group, at its own cost and expense, may make such additions or improvements to or such replacements or alterations of the Obligated Health Care System as it may deem desirable to attain the purposes contemplated in the Bond Order; provided that any such additions, improvements, replacements or alterations shall not impair the structural soundness or the revenue- producing capacity of the Obligated Health Care System.

Disposition of Property, Plant and Equipment

So long as the Historic Long-Term Debt Service Coverage Ratio of the Combined Group was not less than 2.0, the Bond Order imposes no restrictions on the Transfer of property, plant and equipment of the Members of the Combined Group.

If the Historic Long-Term Debt Service Coverage Ratio of the Combined Group was less than 2.0, then the Authority will not, and will not permit any Member of the Combined Group to, during any period of 12 full consecutive calendar months or other period upon which Financial Statements are prepared until an Historic Long-Term Debt Service Coverage Ratio of the Combined Group of not less than 2.0 is restored, Transfer any property, plant and equipment, or Transfer any interest in any Member of the Combined Group which would have substantially the same effect as a Transfer of property, plant and equipment, except for Transfers:

(i) To a Member of the Combined Group without limit;

(ii) To any Person, provided that the total amount of property, plant and equipment so Transferred in any period upon which Financial Statements are prepared has a Base Value of not more than 5.0% of the Base Value of all such property, plant and equipment of the Combined Group;

(iii) To any Person if prior to the Transfer there is delivered to the Trustee a certificate of the Authority Representative to the effect that such property, plant and equipment have become inadequate, obsolete, worn out, unsuitable, unprofitable, undesirable or unnecessary and the disposition thereof will not impair the structural soundness, efficiency or economic value of the remaining property, plant and equipment or adversely affect the amount of Total Operating Revenues of the Combined Group; or

(iv) To any Person provided that either:

(A) had the Transfer occurred at the beginning of the most recent period for which Financial Statements are available, the Historic Long-Term Debt Service Coverage Ratio of the Combined Group for such period (I) would not be less than 1.30 taking such Transfer into account, or (II) if less than 1.30, would not be reduced to less than 1.10 and would not be less than 65% of what it would have been absent such Transfer as demonstrated in an Officer’s Certificate delivered to the Trustee; or

(B) the Long-Term Debt Service Coverage Ratio of the Combined Group, taking such Transfer into account, for the period upon which Financial Statements are based next succeeding the expected date of such Transfer, is forecast either (I) to be not less than 1.30, or (II) if less than 1.30, to not be less than 1.10 and not less than 65% of

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what it would have been absent such Transfer as demonstrated in the written report of a Management Consultant delivered to the Trustee.

Notwithstanding the foregoing provisions of clauses (A) and (B) of this subparagraph (iv), prior to consummating such Transfer there shall also be delivered to the LGC an Officer’s Certificate to the effect that all Parity Debt then Outstanding under the Bond Order would continue to be Investment Grade; provided, however, that no Officer’s Certificate need be delivered if the Local Government Commission has theretofore approved such Transfer.

The Authority covenants to maintain or cause to be maintained records adequate to enable the Trustee to ascertain that the provisions described under this caption have been complied with and to make such records available to the Trustee upon written request.

Transfer of Cash and Investments

So long as the Historic Long-Term Debt Service Coverage Ratio of the Combined Group was not less than 2.0, the Bond Order imposes no restrictions on the Transfer of cash and investments of the Members of the Combined Group.

(i) to any other Member of the Combined Group without restriction;

(ii) to any Person, without fair consideration, provided that if the net amount of cash or investments Transferred over cash or investments received in any period of 12 full consecutive calendar months or other period upon which Financial Statements are prepared, together with all other net cash or investment Transfers during said period, exceeds 7 1/2% of the total unrestricted funds of the Combined Group, as shown on the Financial Statements for the most recent period available, the Authority shall give written notice thereof to the Trustee, which notice shall specify the net amount of cash and investments proposed to be Transferred and shall be accompanied by a report of the Management Consultant to the effect that such proposed Transfer will not impair the ability of the Combined Group to comply with the rate covenant described above under the heading “Rate Covenant” during the period of 12 full consecutive months or other period upon which Financial Statements are based immediately following the period in which such Transfer is to occur;

(iii) to any Person, without fair consideration, provided that either:

(A) had the Transfer occurred at the beginning of the most recent period for which Financial Statements are available, the Historic Long-Term Debt Service Coverage Ratio for such period (I) would not be less than 1.30 taking such Transfer into account, or (II) if less than 1.30, would not be reduced to less than 1.10 and would not be less than 65% of what it would have been absent such Transfer as demonstrated in an Officer’s Certificate delivered to the Trustee; or

(B) the Long-Term Debt Service Coverage Ratio, taking such Transfer into account, for the period upon which the Financial Statements are based next succeeding

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the expected date of such Transfer, is forecast either (I) to be not less than 1.30, or (II) if less than 1.30, to not be less than 1.10 and not less than 65% of what it would have been absent such Transfer as demonstrated in the written report of a Management Consultant delivered to the Trustee; provided, however, that notwithstanding the foregoing provisions of (A) and (B) of this subparagraph (iii), prior to consummating such Transfer there shall also be delivered to the LGC an Officer’s Certificate to the effect that all Parity Debt then Outstanding under the Bond Order would continue to be Investment Grade; provided further, however, that no Officer’s Certificate need be delivered if the Local Government Commission has theretofore approved such Transfer; or

(iv) to any Person, provided that the Member of the Combined Group proposing to make such Transfer shall receive, and if requested by the Trustee can demonstrate in an Authority’s Certificate filed with the Trustee that such Member of the Combined Group shall receive, as consideration for such Transfer, property, cash, securities or services the fair market value of which is at least equal to the amount of the cash and other investments so transferred.

Nothing contained in the provisions described under this caption shall be construed as limiting the ability of any Member of the Obligated Group, Designated Affiliate or any other Affiliate to (i) Transfer cash or investments in connection with ordinary investment transactions where such Transfers are for substantially equivalent value or (ii) Transfer cash or investments to pay Operating Expenses or to make other payments arising in the ordinary and usual course of business. For purposes of the Bond Order, any Transfer of cash or investments to an Affiliate that is not a Member of the Combined Group shall only be taken into account in an amount equal to 50% of such Transfer.

Transfer of Accounts

So long as the Historic Long-Term Debt Service Coverage Ratio of the Combined Group was not less than 2.0, the Bond Order imposes no restrictions on the Transfer of Accounts of the Combined Group.

If the Historic Long-Term Debt Service Coverage Ratio of the Combined Group was less than 2.0 then, during any period of 12 full consecutive calendar months or other period upon which Financial Statements are prepared until an Historic Long-Term Debt Service Coverage Ratio of the Combined Group of 2.0 is restored, the Members of the Obligated Group shall not, and will not permit the Designated Affiliates to, Transfer Accounts, provided, however, that prior to an occurrence of an Event of Default, the Members of the Obligated Group shall have the right, and may permit the Designated Affiliates, to sell, in any period of 12 full consecutive calendar months or other period upon which the Financial Statements are based, their Accounts if the relevant Member of the Combined Group shall (i) receive as consideration for such sale cash, services or property equal to the fair market value of the Accounts so sold, with the fair market value thereof to be determined in the following manner: (1) as certified to the Trustee in an Officer’s Certificate that the cash, services or property received in exchange for the Accounts had a value at least equal to 80% of the net book value of such Accounts as reflected on the balance sheets of the Obligated Group or Designated Affiliate, or (2) if the value of the cash, services or property to be received in exchange for the Accounts has a value less than 80% of the net book value of such Accounts, then as certified in a report by a Management Consultant that the value of the cash, services or property to be received in exchange for the Accounts is the reasonable fair market value of such Accounts based on standards applicable to the health care industry and (ii) deliver to the Trustee a statement from the certified public accountants of the relevant Member of the Obligated Group or Designated Affiliate that such sale of Accounts constitutes a “sale” under generally accepted accounting principles.

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Consolidation and Merger; Acquisitions

The Authority shall not, and will not permit any Member of the Obligated Group to, (i) dissolve or otherwise Transfer all or substantially all of its assets to any Person not a Member of the Obligated Group, (ii) consolidate with or merge into any Person not a Member of the Obligated Group, or (iii) Transfer ownership or control of the Authority or any Member of the Obligated Group to any Person not a Member of the Obligated Group, unless the following conditions are satisfied:

(1) The successor (A) has the power to assume and shall assume in writing all of the obligations of the Obligated Group under the Bond Order and, if it is not a corporation incorporated in the State or a political subdivision of the State, qualifies to do business in the State, or (B) has the power to guarantee and shall guarantee in writing all of the obligations of the Obligated Group under the Bond Order;

(2) The Authority has received a written opinion of Bond Counsel to the effect that such merger, consolidation, Transfer or other transaction will not adversely affect the excludability of interest on any Bonds from gross income for federal income tax purposes; and

(3) The successor has met all applicable licensing requirements.

Neither the Authority nor any other Member of the Obligated Group shall (i) permit any Person not a Member of the Obligated Group to merge into or consolidate with the Authority or any other Member of the Obligated Group or (ii) acquire the ownership interest of any Person which upon consummation thereof will become a Member of the Obligated Group if, after giving effect to such merger, consolidation or acquisition and taking it into account as if it had occurred at the beginning of the most recent period preceding the date thereof for which Financial Statements are available, the Obligated Group would be in default under any provision of the Bond Order.

Notwithstanding the foregoing provisions described under this caption, if the Historic Long-Term Debt Service Coverage Ratio of the Combined Group was less than 2.0, then prior to consummating such transaction there shall also be delivered to the Local Government Commission an Officer’s Certificate to the effect that all Parity Debt then Outstanding under the Bond Order would continue to be Investment Grade; provided, however, that no Officer’s Certificate need be delivered if the Local Government Commission has theretofore approved such transaction.

Entry into and Withdrawal from Obligated Group

Entry into the Obligated Group. Persons who are not Members of the Obligated Group may, with the prior written consent of the Authority, become Members of the Obligated Group, if:

(a) The Person or successor which is becoming a Member of the Obligated Group shall execute and deliver to the Authority and the Trustee an appropriate instrument satisfactory to the Authority and the Trustee which may be, but is not required to be, substantially in the form of a Member Guaranty Agreement or Member Security Agreement, containing the agreement of such Person or successor (i) to become a Member of the Obligated Group under the Bond Order and any Supplemental Bond Orders and thereby become subject to compliance with all provisions of the Bond Order and any Supplemental Bond Orders pertaining to the Obligated Group and the performance and observance of all covenants and obligations of the Obligated Group under the Bond Order and (ii) either (A) guaranteeing to the Authority, the Trustee and each other Member of the Obligated Group that all Bonds and Parity Obligations issued and then outstanding or to be issued and outstanding under the Bond Order will be paid in accordance with the terms thereof

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and of the Bond Order when due, or (B) pledging the Revenues of such Member of the Obligated Group as security for the payment when due of all Bonds and Parity Obligations issued and then outstanding or to be issued and outstanding under the Bond Order, in either case subject to Existing Restrictions; and

(b) Each instrument executed and delivered to the Authority and the Trustee in accordance with paragraph (a) above shall be accompanied by an opinion of counsel, addressed to and satisfactory to the Authority and the Trustee, to the effect that such instrument has been duly authorized, executed and delivered by such Person or successor and constitutes a valid and binding obligation enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy laws, insolvency laws, other laws affecting creditors’ rights generally, equity principles and laws dealing with fraudulent conveyances; and

(c) If such Person is not wholly owned, directly or indirectly, by the Authority, the Authority Representative shall have delivered to the Trustee an opinion of counsel to the effect that the addition of such Person as a Member of the Obligated Group will not necessitate the registration of any Bonds or Parity Obligations issued under the Bond Order under the Securities Act of 1933, as amended, or cause the qualification of the Bond Order or any Supplemental Bond Order thereto under the Trust Indenture Act of 1939, as amended, to be required, or, if such registration or qualification is required that all applicable registration and qualification provisions of said acts have been complied with.

(d) Notwithstanding the foregoing, so long as the Historic Long-Term Debt Service Coverage Ratio of the Combined Group is less than 2.0, then prior to consummating such transaction there shall also be delivered to the LGC an Officer’s Certificate to the effect that all Parity Debt then Outstanding under the Bond Order would continue to be Investment Grade; provided, however, that no Officer’s Certificate need be delivered if the Local Government Commission has theretofore approved such transaction.

Withdrawal from the Obligated Group.

(a) Any Member of the Obligated Group, other than the Authority, may withdraw from membership in the Obligated Group with the prior written consent of the Authority.

(b) Upon the withdrawal of any Member of the Obligated Group pursuant to paragraph (a) above, any guaranty or pledge of Revenues by such Member of the Obligated Group pursuant to the Bond Order as described above under “Entry into the Obligated Group,” shall be released and discharged in full and all liability of such Member of the Obligated Group with respect to all Parity Debt outstanding under the Bond Order shall cease.

(c) Notwithstanding the foregoing, so long as the Historic Long-Term Debt Service Coverage Ratio for the Combined Group is less than 2.0, then prior to consummating such transaction there shall also be delivered to the Local Government Commission an Officer’s Certificate to the effect that all Parity Debt then Outstanding under the Bond Order would continue to be Investment Grade; provided, however, that no Officer’s Certificate need be delivered if the Local Government Commission has theretofore approved such transaction.

(d) Notwithstanding any other provision of the Bond Order, the withdrawal of a Person from membership in the Obligated Group shall not constitute a Transfer.

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Designation as a Designated Affiliate; Removal of a Designated Affiliate

Designation as a Designated Affiliate. Any Person which satisfies the following conditions may become a Designated Affiliate, thus obligating such Person to comply with the provisions of the Bond Order applicable to Designated Affiliates.

Either:

(1) such Person shall be an Affiliate of a Member of the Obligated Group; or

(2) such Person shall have entered into a written agreement, contract or written undertaking with a Member of the Obligated Group to comply with the covenants and obligations contained in Article VII of the Bond Order satisfactory to the Authority.

Such Person shall become a Designated Affiliate upon delivery to the Trustee of a written request of the Authority Representative that such Person be a Designated Affiliate, accompanied by a resolution of the governing body of such Person authorizing such Person to become a Designated Affiliate under the Bond Order and, in the case of paragraph (2) above, authorizing the instrument described in such paragraph.

The Authority Representative shall deliver to the Trustee upon request a list of all Persons designated as Designated Affiliates.

The Authority at all times shall either (i) maintain, directly or indirectly, control of each Designated Affiliate, including the power to direct the management, policies, disposition of assets and actions of such Designated Affiliate to the extent required to cause such Designated Affiliate to comply with the terms and conditions of the Bond Order applicable to Designated Affiliates, whether through the ownership of voting securities, by contract, partnership interests, membership, reserved powers, the power to nominate or appoint members, trustees or directors or otherwise, or (ii) execute and have in effect such contracts or other agreements that are, in the opinion of Authority Counsel, sufficient for the Authority to cause each such Designated Affiliate to comply with the terms and conditions of the Bond Order applicable to Designated Affiliates. A copy of each such opinion of Authority Counsel shall be delivered to the Trustee. The Authority has covenanted in the Bond Order that it will cause each Designated Affiliate to comply with the terms and conditions of the Bond Order which are applicable to Designated Affiliates.

Removal as a Designated Affiliate. Any Person will cease to be a Designated Affiliate and will thereupon cease to be subject to any of the provisions of the Bond Order upon the declaration of the Board (or the executive committee thereof) in a written resolution of the Board (or such executive committee), and upon such declaration such Person shall no longer be subject to any of the covenants applicable to a Designated Affiliate set forth in the Bond Order.

Notwithstanding the foregoing, so long as the Historic Long-Term Debt Service Coverage Ratio of the Combined Group is less than 2.0, then prior to any Person either becoming or ceasing to be a Designated Affiliate there shall also be delivered to the Local Government Commission an Officer’s Certificate to the effect that all Parity Debt then Outstanding under the Bond Order would continue to be Investment Grade; provided, however, that no Officer’s Certificate need be delivered if the Local Government Commission has theretofore approved such transaction.

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Insurance

The Obligated Group shall purchase and continuously maintain in effect, and shall cause the Designated Affiliates to purchase and continuously maintain in effect, insurance policies in such amounts and with such limits as, in the judgment of the Authority, are customarily maintained by health care facilities of like size and are adequate to protect the Obligated Group, the Obligated Health Care System and the facilities of the Designated Affiliates against loss or damage from such causes as are customarily insured against by such health care facilities of like size.

Any insurance required to be carried may be included as part of any blanket or other policy or policies of insurance covering not only the Obligated Health Care System but also other properties in which any Member of the Combined Group or an Affiliate thereof (determined in the same manner as with respect to the Authority) has an insurable interest in the case of property and, in the case of all policies, may include additional named insureds. Coverage may be provided by umbrella policies if such policies in the aggregate provide the same coverage required by this section.

The Combined Group shall be entitled to provide the required coverage through Qualified Self Insurance, provided that the requirements hereinafter set forth are satisfied. “Qualified Self Insurance” means insurance maintained through a program of self-insurance or insurance maintained with a fund, company or association in which any Member of the Combined Group has a material interest or of which any Member of the Combined Group has control, either singly or with others.

The Obligated Group shall, and shall cause the Designated Affiliates to, demand, collect, sue, and receipt for the insurance money that may become due and payable under any policies payable to them, respectively. Any appraisement or adjustment of any loss or damages and any settlement or payment of indemnity therefor that may be agreed upon shall be binding upon the Obligated Group, the Designated Affiliates and the Trustee.

The Net Proceeds of all property and casualty or business interruption insurance covering loss of anticipated Revenues carried or maintained with respect to the Obligated Health Care System shall be applied as provided in accordance with the provisions of the Bond Order described below under the heading entitled “Insurance and Eminent Domain Proceeds.”

Notice of Taking; Cooperation of Parties

If any public authority or entity attempts to take or damage the Obligated Health Care System or any part thereof through Eminent Domain proceedings, the Authority and any other relevant Member of the Obligated Group shall take prompt and appropriate measures to protect and enforce its rights and interests and those of the Trustee and the Holders in connection with such proceedings. Upon receiving notice of the institution of Eminent Domain proceedings by any public instrumentality, body, agency or officer, the Authority or such other relevant Member of the Obligated Group shall deliver written notice thereof to the Trustee.

The Net Proceeds of any award or compensation resulting from Eminent Domain shall be applied in accordance with the provisions of the Bond Order described in paragraph (a) below under the caption entitled “Insurance and Eminent Domain Proceeds.”

Insurance and Eminent Domain Proceeds

(a) The Net Proceeds of all property and casualty or business interruption insurance covering loss of anticipated Revenues carried or maintained with respect to the Obligated Health Care System as

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described above under the caption entitled “Insurance,” and the Net Proceeds resulting from Eminent Domain proceedings as described above under the caption entitled “Notice of Taking; Cooperation of Parties,” shall be paid to the Authority if the aggregate Net Proceeds in the relevant period upon which Financial Statements are based do not exceed 10% of Base Value. The Authority may use said Net Proceeds in such manner as it may determine.

All Net Proceeds described in the foregoing paragraph in excess of such 10% of Base Value shall be applied at the election of the Authority as follows:

(1) to the redemption of Bonds, provided that Bonds may be redeemed in part only if (A) the Authority delivers to the Trustee a certificate of an Architect stating that the Obligated Health Care System has been restored to substantially the same condition as prior to such damage or destruction, or (B) the Authority delivers to the Trustee and the Local Government Commission an Officer’s Certificate stating that the Board has determined that the portion of the Obligated Health Care System damaged or destroyed is not necessary to the operation of the same and that the failure of the Authority to repair or restore the same will not impair or otherwise adversely affect the structural soundness or the revenue-producing capacity of the Obligated Health Care System; or

(2) to not redeem Bonds if the Authority shall notify the Trustee and within 12 months after the adjustment deliver to the Trustee (A) an Officer’s Certificate certifying the expected Long-Term Debt Service Coverage Ratio for the period upon which Financial Statements are based following the date on which such proceeds or awards are expected to have been fully applied, which Long-Term Debt Service Coverage Ratio for such period is not less than 1.30, as shown by pro forma financial statements for each such period, accompanied by a statement of the relevant assumptions including assumptions as to the use of such proceeds or awards, upon which such pro forma statements are based, or (B) a written report of a Management Consultant stating the consultant’s recommendations, including recommendations as to the use of such proceeds or awards, to cause the Long-Term Debt Service Coverage Ratio for the period described in (A) of this paragraph (2) to be not less than 1.10, or, if in the opinion of the Management Consultant the attainment of such level is impracticable, at the highest practicable level.

If the Authority shall not apply Net Proceeds, or cause them to be applied, to the replacement, repair, rebuilding or restoration of the Obligated Health Care System, the Authority shall direct the Trustee to redeem Bonds in accordance with the Bond Order and the applicable series resolution and to transfer pro rata to the applicable redemption fund and any similar fund or account created under the applicable series resolution an amount sufficient to pay the Redemption Price of the Bonds to be redeemed on the earliest redemption date and pro rata to the applicable interest account and any similar fund or account created under the applicable series resolution an amount that, together with amounts on deposit therein, is sufficient to pay interest accruing on the Bonds to be redeemed to the date of redemption.

If the Authority shall apply Net Proceeds, or cause them to be applied, to the replacement, repair, rebuilding or restoration of the Obligated Health Care System, the Trustee shall create a Net Proceeds Account in the Project Fund, shall transfer such proceeds to the Net Proceeds Account, and shall make disbursements therefrom, to the extent practicable, in accordance with the procedures and requirements set forth in the Bond Order for requisitions from the Project Fund. In the event said Net Proceeds are not sufficient to pay in full the costs of such replacement, repair, rebuilding or restoration, the Authority shall complete the work thereof and pay the portion of the cost thereof in excess of the amount of said Net

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Proceeds. Any balance of Net Proceeds remaining after the payment of all costs of such replacement, repair, rebuilding or restoration shall be transferred to the Authority.

(b) The proceeds of business interruption insurance covering loss of anticipated Revenues carried or maintained with respect to the Obligated Health Care System as described under the caption above entitled “Insurance,” shall be payable to the Authority for application in accordance with the provisions of the Bond Order and comparable provisions of the applicable series resolution.

Supplements and Modifications to the Bond Order and the Series Resolution

The Authority, from time to time and at any time, may adopt such series resolutions supplemental to the Series Resolution and such bond orders supplemental to the Bond Order as shall be consistent with the terms and provisions of the Bond Order (which supplemental series resolution or supplemental bond order shall thereafter form a part of the Series Resolution or the Bond Order, respectively) without consent of or notice to any of the Holders:

(a) to cure any ambiguity or formal defect or omission, to correct or supplement any provision therein that may be inconsistent with any other provision therein, to make any other provision with respect to matters or questions arising thereunder, or, with the prior written consent of the Trustee, to modify, alter, amend, add to or rescind, in any particular, any of the terms or provisions contained therein which do not materially and adversely affect the interests of the Holders, or

(b) to grant to or confer upon the Trustee for the benefit of the Holders any additional rights, remedies, powers, authority, or security that may lawfully be granted to or conferred upon the Holders or the Trustee, or

(c) to add to the conditions, limitations and restrictions on the issuance of Bonds under the provisions therein or other conditions, limitations and restrictions thereafter to be observed, provided that such conditions, limitations, and restrictions do not impair the security for the Outstanding Bonds and do not materially and adversely affect the interests of the Holders, or

(d) to add to the covenants and agreements of the Authority and other Members of the Obligated Group therein, other covenants and agreements thereafter to be observed by the Obligated Group or the Combined Group or to surrender any right or power therein reserved to or conferred upon any Member of the Obligated Group or Combined Group which do not materially and adversely affect the interests of the Holders, or

(e) to permit the qualification thereof under any federal statute now or hereafter in effect or under any state Blue Sky law, and, in connection therewith, to add to the Bond Order or any supplemental bond order provisions as may be permitted or required by such federal statute or Blue Sky law, or

(f) to create and provide for the issuance of Bonds or Indebtedness to the extent permitted thereunder, or

(g) to provide for the issuance of Bonds in uncertificated form or bearer form, with or without coupons, to the extent permitted by law.

Other than supplements referred to in the preceding paragraph and subject to the terms and provisions described in this paragraph and further described in the Bond Order, and not otherwise, the Holders of not less than 51% in aggregate principal amount of the Bonds then Outstanding that will be affected by a proposed supplemental bond order or supplemental series resolution shall have the right,

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from time to time, anything contained in the Bond Order or the Series Resolution to the contrary notwithstanding, to consent to and approve the adoption by the Authority of any bond order supplemental to the Bond Order or any series resolution supplemental to the Series Resolution, as applicable, as shall be deemed necessary or desirable by the Authority for the purpose of modifying, altering, amending, adding to, or rescinding, in any particular, any of the terms or provisions contained in the Bond Order or in any supplemental bond order or the Series Resolution or any supplemental series resolution; provided that nothing in the Bond Order or the Series Resolution shall permit, or be construed as permitting (a) a change in the times, amounts or currency of payment of the principal of, premium, if any, or the interest on any Bond, or a reduction in the principal amount of any Bond or the redemption premium or the rate of interest thereon, without the consent of the Holder of such Bond, or (b) a preference or priority of any Bond or Bonds over any other Bond or Bonds without the consent of the Holders of all Bonds then Outstanding, or (c) a reduction in the aggregate principal amount of the Bonds required for consent to such supplemental bond order or supplemental series resolution without the consent of the Holders of all Bonds then Outstanding. Nothing described in this paragraph, however, shall be construed as making necessary the approval by the Holders of the adoption of any supplemental bond order or supplemental series resolution described in the preceding paragraph.

Notwithstanding the foregoing, so long as any Indebtedness the issuance of which was approved by the Local Government Commission is Outstanding certain provisions of the Bond Order described above which require that either the prior consent of the Local Government Commission be obtained or that an Officer’s Certificate to the effect that all Parity Debt then Outstanding under the Bond Order would continue to be Investment Grade be delivered to the Local Government Commission before a specified action may be taken may not be amended without the prior written consent of the Local Government Commission.

Events of Default and Remedies

Each of the following events is an Event of Default under the Bond Order and the Series Resolution:

(a) payment of the interest on any Bonds is not made when the same is due and payable;

(b) payment of the principal of, or the redemption premium, if any, on any Bonds is not made when due and payable, whether at maturity, by proceedings for redemption, or pursuant to a Sinking Fund Requirement or otherwise;

(c) failure of any Member of the Obligated Group to perform, observe or comply with any of the other covenants, agreements, conditions, or provisions in the Bond Order, the Series Resolution or in any other series resolution and the continuance thereof for a period of 30 days after receipt by the Authority of a written notice from the Trustee specifying such default and requesting that it be corrected; provided, however, that if prior to the expiration of such 30- day period any Member of the Obligated Group institutes action reasonably designed to cure such default, no Event of Default shall be deemed to have occurred upon the expiration of such 30-day period for so long as any Member of the Obligated Group pursues such curative action with reasonable diligence and provided that such curative action can be completed within a reasonable time;

(d) except as contemplated by any certificate of need issued in connection with any Improvements, all or a substantial portion of the Obligated Health Care System is abandoned or operations are discontinued therein for a period of 5 continuous days after receipt by the

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Authority of a written notice from the Trustee specifying such default and requesting that it be corrected, except as such abandonment or discontinuance is permitted by the Bond Order;

(e) any Member of the Obligated Group: (i) becomes insolvent or the subject of insolvency proceedings; or (ii) is unable or admits in writing its inability to pay its debts as they mature; or (iii) makes a general assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its property; or (iv) files a petition or other pleading seeking reorganization, composition, readjustment, or liquidation of assets, or requesting similar relief; or (v) applies to a court for the appointment of a receiver for any of its assets; or (vi) has a receiver or liquidator appointed for any of its assets (with or without the consent of the relevant Member of the Obligated Group) and such receiver is not discharged within 90 consecutive days after his appointment; or (vii) becomes the subject of an “order for relief” within the meaning of the United States Bankruptcy Code; or (viii) files an answer to a creditor’s petition admitting the material allegations thereof for liquidation, reorganization, readjustment or composition, or to effect a plan or other arrangement with creditors, or fails to have such petition dismissed within 60 consecutive days after the same is filed against the relevant Member of the Obligated Group;

(f) any court of competent jurisdiction assumes custody or control of any Member of the Obligated Group or of the whole or any substantial part of its property under the provisions of any other law for the relief or aid of debtors, and such custody or control is not terminated within ninety (90) days from the date of assumption of such custody or control;

(g) any Member of the Obligated Group shall fail to make any required payment with respect to any Indebtedness aggregating more than 5% of the Indebtedness of the Obligated Group (including all Bonds issued and Outstanding under the Bond Order), whether such Indebtedness now exists or shall hereafter be created, and any period of grace with respect thereto shall have expired, or an event of default as defined in any mortgage, indenture or instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness, whether such Indebtedness now exists or shall hereafter be created, shall occur, which event of default shall not have been waived by the holder of such mortgage, indenture or instrument, and as a result of such failure to pay or other event of default such Indebtedness shall have been accelerated; provided, however, that such default shall not constitute an Event of Default within the meaning of the Bond Order if within 30 days (i) written notice is delivered by the Authority to the Trustee, that a Member of the Obligated Group is contesting the payment of such Indebtedness and the amount of such Indebtedness is less than 1/2% of Income Available for Debt Service for the most recent period for which Financial Statements are available, or (ii) if such Indebtedness is equal to or greater than 1/2% of Income Available for Debt Service, within the time allowed for service of a responsive pleading if any proceeding to enforce payment of the Indebtedness is commenced, any Member of the Obligated Group in good faith shall commence proceedings to contest the obligation to pay or the existence or payment of such Indebtedness; and

(h) payment of any Parity Obligation is not made when the same is due and payable and any period of grace with respect thereto shall have expired, or an event of default as defined in any Parity Obligation issued or incurred to secure Indebtedness or related Parity Instrument shall occur, which event of default shall not have been waived by the Holders of such Parity Obligation (or a trustee representing their interests).

Acceleration. Upon the happening and continuance of any Event of Default under the Bond Order, the Trustee may, and upon the written request of the Holders of not less than 25% in aggregate principal amount of Bonds then Outstanding shall, declare the principal of all the Bonds then Outstanding

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to be due and payable. Such declaration may be rescinded under circumstances specified in the Bond Order.

Additional Remedies. In addition, upon the occurrence and continuance of an Event of Default the Trustee may, and upon the written request of the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds Outstanding, together with indemnification of the Trustee to its satisfaction therefor, shall, proceed to protect and enforce its rights and the rights of the Holders under the Bond Order by such suits, actions or proceedings as the Trustee, being advised by counsel, shall deem expedient, and may take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due or to enforce observance or performance of any covenant, condition or agreement of the Obligated Group under the Bond Order.

No Remedy Exclusive. No remedy conferred upon or reserved to the Trustee or to the Holders pursuant to the Bond Order is intended to be exclusive of any other remedy or remedies provided in the Bond Order, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Bond Order or now or hereafter existing at law or in equity.

Pro Rata Application of Funds After Default. Anything in the Bond Order to the contrary notwithstanding, if at any time the money in the applicable interest accounts, the principal accounts, and the sinking fund accounts created under any series resolution is not sufficient to pay the interest on or the principal of the Bonds as the same become due and payable (either by their terms or by acceleration of maturities as described above under the caption entitled “Acceleration”), such money, together with any money then available or thereafter becoming available for such purposes, whether through the exercise of the remedies provided for in the Bond Order or otherwise, shall be applied as follows:

first: if the principal of the Bonds has not become due and payable, to the payment of all installments of interest then due, in the order of the maturity of the installments of such interest;

second: if the principal of less than all of the Bonds has become due and payable, first to the payment of all installments of interest due on Bonds of which the principal is not overdue, in the order of the maturity of the installments thereof, and next to the payment of interest at the respective rates specified in such Bonds on overdue principal, and next to the payment of the principal of Bonds then due in order of their due dates;

third: if the principal of all Bonds has become due and payable by declaration, redemption, or otherwise, first to the payment of all interest due on Bonds of which the principal is not overdue, and next to the payment of interest at the respective rates specified in the Bonds on overdue principal, and next to the payment of the principal of the Bonds in order of their due dates;

fourth: if the principal of all Bonds has been declared due and payable and if such declaration thereafter has been rescinded and annulled in accordance with the Bond Order, then, subject to the provisions of the preceding paragraph third in the event that the principal of all Bonds later becomes due and payable or is declared due and payable, the money then remaining in and thereafter accruing to the interest accounts, the principal accounts, and the sinking fund accounts created under any series resolution shall be applied in accordance with the provisions of the preceding paragraphs first or second, whichever is then applicable.

All payments to be made to the Holders pursuant to the foregoing provisions shall be made ratably to the persons entitled thereto, without discrimination or preference, except that if there are insufficient funds to make any payment of interest or principal then due, the amount to be paid in respect of principal or

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interest, as the case may be, on each Bond shall be determined by multiplying the aggregate amount of the funds available for such payment by a fraction, the numerator of which shall be the amount then due as principal or interest, as the case may be, on each Bond and the denominator of which shall be the aggregate amount due in respect of all interest or all principal, as the case may be, on all Bonds.

Whenever all Bonds and interest thereon have been paid under the foregoing provisions and all expenses and charges of the Trustee have been paid, any balance remaining shall be paid to the Person entitled to receive the same; if no other Person shall be entitled thereto, then the balance shall be paid to the Authority, their respective successors, or as a court of competent jurisdiction may direct.

The provisions of the Bond Order described under this caption will be applied after giving effect to the allocations and distributions among Bonds and Parity Obligations described under the caption “Parity Debt—Allocations if Parity Obligations Outstanding.”

Control of Proceedings by Holders. Anything in the Bond Order to the contrary notwithstanding, the Holders of a majority in aggregate principal amount of Bonds at any time Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all remedial proceedings to be taken by the Trustee under the Bond Order, provided that such direction shall be in accordance with law and the provisions of the Bond Order.

Restrictions upon Acts by Individual Holders. Except as provided in the Bond Order, no Holder shall have any right to institute any suit, action, or proceeding in equity or at law on any Bond or for the execution of any trust under the Bond Order or for any other remedy under the Bond Order unless such Holder previously shall (a) have given to the Trustee written notice of the Event of Default on account of which such suit, action or proceeding is to be instituted, (b) have requested the Trustee to take action after the right to exercise such powers or right of action has accrued, (c) have afforded the Trustee a reasonable opportunity either to proceed to exercise the powers granted in the Bond Order or to institute such action, suit, or proceedings in its or their name, and (d) have offered to the Trustee reasonable security and indemnity against the costs, expenses, and liabilities to be incurred therein or thereby, and the Trustee shall have refused or neglected to comply with such request within a reasonable time. Such notification, request, and offer of indemnity, at the option of the Trustee, may be conditions precedent to the execution of the powers and trusts of the Bond Order or to any other remedy thereunder.

Notwithstanding the provisions of the preceding paragraph and without complying therewith, the Holders of not less than 25% in aggregate principal amount of Bonds then Outstanding may institute any such suit, action or proceeding in their own names for the benefit of all Holders. Except as otherwise provided in the Bond Order, no one or more Holders shall have any right in any manner whatsoever by his or their action to affect, disturb or prejudice the security of the Bond Order, or to enforce any right thereunder except in the manner provided, that all proceedings at law or in equity shall be instituted, had and maintained in the manner provided in the Bond Order and for the benefit of all Holders, and that any individual rights of action or other right given to one or more of such Holders by law are restricted by the Bond Order to the rights and remedies therein provided.

No Recourse Against Members, Officers or Employees of the Authority or the Local Government Commission

No recourse, under or upon, any statement, obligation, covenant or agreement contained in the Series Resolution, or in any Series 2018A Bond, or in any document or certification whatsoever, or under any judgment obtained against the Authority or by the enforcement of any assessment or by any legal or equitable proceeding by virtue of any constitution or statute or otherwise, or under any circumstances,

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shall be had against any member, officer or employee, as such, of the Authority or the Local Government Commission, either directly or through the Authority or the Local Government Commission, or otherwise, for the payment for or to the Authority or any receiver of the Authority, or for or to any Holder, or otherwise, of any sum that may be due and unpaid upon any such Series 2018A Bond.

Defeasance

The Authority may select all or any portion of the Series 2018A Bonds to be Defeased Series 2018A Bonds as provided in the Series Resolution. When (a) if the Defeased Series 2018A Bonds shall become due and payable in accordance with their terms or otherwise as provided in the Series Resolution and the Bond Order, the whole amount of the principal and the interest and premium, if any, so due and payable upon all such Defeased Series 2018A Bonds shall be paid, (b) if the Defeased Series 2018A Bonds shall not have become due and payable in accordance with their terms, the Trustee shall hold sufficient (i) money or (ii) Defeasance Obligations the principal of and the interest on which, when due and payable, in the opinion of a nationally recognized firm of certified public accountants or such other verification agent as shall be acceptable to the Authority and the Trustee, without further investment or reinvestment of either the principal amount thereof or the interest earnings thereon (said earnings also to be held in trust), will be sufficient, together with any other moneys, to pay the principal of, and the interest and redemption premium, if any, on all such Defeased Series 2018A Bonds then Outstanding to the maturity date or dates of such Defeased Series 2018A Bonds or to the date or dates specified for the redemption thereof, (c) if Defeased Series 2018A Bonds are to be called for redemption, irrevocable instructions to call the Defeased Series 2018A Bonds for redemption shall have been given by the Authority to the Trustee, and (d) sufficient funds shall also have been provided or provision made for paying all other obligations payable under the Bond Order or the Series Resolution by the Authority relating to and allocable to the Defeased Series 2018A Bonds, then and in that case the right, title and interest of the Trustee and Holders in the Revenues and the funds and accounts mentioned in the Series Resolution shall thereupon cease, determine and become void with respect to the Defeased Series 2018A Bonds and, upon being furnished with an opinion, in form and substance satisfactory to the Trustee, of counsel approved by the Trustee, to the effect that all conditions precedent to the repeal of the Series Resolution with respect to the Defeased Series 2018A Bonds have been satisfied, the Trustee shall repeal the Series Resolution with respect to the Defeased Series 2018A Bonds and shall transfer to the Authority any surplus in, and all balances remaining in, all funds and accounts allocable to the Defeased Series 2018A Bonds. Otherwise, the Series Resolution shall be, continue and remain in full force and effect; provided, that, in the event Defeasance Obligations shall be deposited with and held by the Trustee as hereinabove provided, (i) in addition to the requirements set forth in the Series Resolution, the Trustee, within thirty (30) days after such Defeasance Obligations shall have been deposited with it, shall cause a notice signed by the Trustee to be mailed, first class, postage prepaid, to all Holders, setting forth (A) the date or dates, if any, designated for the redemption of the Defeased Series 2018A Bonds, (B) a description of the Defeasance Obligations so held by it, and (C) that the Series Resolution has been repealed with respect to the Defeased Series 2018A Bonds in accordance with the provisions herein described, and (ii)(A) the Trustee shall nevertheless retain such rights, powers and privileges under the Series Resolution and the Bond Order as may be necessary and convenient in respect of the Defeased Series 2018A Bonds for the payment of the principal, interest and any premium for which such Defeasance Obligations have been deposited, and (B) the Trustee shall retain such rights, powers and privileges under the Series Resolution and the Bond Order as may be necessary and convenient for the registration, transfer and exchange of Defeased Series 2018A Bonds.

All money and Defeasance Obligations held by the Trustee for such purpose shall be held in trust and applied to the payment, when due, of the obligations payable therewith.

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The Authority may select all or any portion of the Series 2018A Bonds to be Defeased Series 2018A Bonds. The portion of the Series 2018A Bonds selected to be Defeased Series 2018A Bonds shall be only in whole multiples of $5,000 principal amount. The Authority shall select for defeasance the maturity or maturities and the amount of each maturity of the Series 2018A Bonds to be Defeased Series 2018A Bonds. If less than all of the Series 2018A Bonds of any maturity are defeased, the Series 2018A Bonds to be redeemed pursuant to defeasance shall be selected at or before the time of redemption in the manner provided in the Bond Order and the Series Resolution and, to the extent necessary, the Series 2018A Bonds to be paid at maturity pursuant to defeasance shall be selected at or before the time of payment in similar manner.

Additional Disclosure Requirements

The Authority, not later than 90 days after the end of each of the first three quarters of its Fiscal Year, will mail or otherwise make available to each Interested Beneficial Owner a copy of the Quarterly Reports for such fiscal quarter.

Member Guaranty Agreement

The following is a summary of the form of Member Guaranty Agreement that is an exhibit to the Bond Order.

Member of the Obligated Group. Each Person agrees by the execution and delivery of a Member Guaranty Agreement to become a Member of the Obligated Group and becomes subject to compliance with all provisions of the Bond Order and any Supplemental Bond Orders pertaining to the Obligated Group, subject to Existing Restrictions.

The Guaranty. Each Member of the Obligated Group executing a Member Guaranty Agreement thereby jointly and severally unconditionally guarantees to the Authority, the Trustee and the other Members of the Obligated Group the full and prompt payment and performance of all Parity Debt, subject only to Existing Restrictions. The Member Guaranty Agreement is a guaranty of payment and not of collection, and each of the Guarantors expressly waives any right to require that any action be brought against any other Member of the Obligated Group or to require that resort be had to any security. If any Member of the Obligated Group defaults in payment of any Parity Debt when due, the Guarantors, upon demand by the Trustee, will promptly and fully make such payments, subject only to Existing Restrictions. The Trustee, in its sole discretion, shall have the right to proceed first and directly against any Guarantor. Each Member Guaranty Agreement will remain in full force and effect until all Parity Debt is paid and satisfied in full, subject to the provisions of the Bond Order and the Member Guaranty Agreement regarding withdrawal from membership in the Obligated Group.

Subordination. Upon payment by any Member of the Obligated Group (other than the Authority) of any of the Obligated Group’s obligations under the Bond Order, all rights of each such Member of the Obligated Group against the Obligated Group arising as a result therefrom by way of right of subrogation or contribution or otherwise shall in all respects be subordinated and junior in right of payment to the prior indefeasible right of the Trustee to payment in full of all obligations under the Bond Order. The Authority shall not be entitled to any right of subrogation or contribution against the other Members of the Obligated Group.

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withdrawal of any Member of the Obligated Group, the guaranty by such Member of the Obligated Group pursuant to a Member Guaranty Agreement shall be released and discharged in full and all liability of such Member of the Obligated Group with respect to all Parity Debt Outstanding under the Bond Order shall cease.

Events of Default. The following shall constitute events of default under the Member Guaranty Agreement:

(a) any representation or warranty made by the Member of the Obligated Group in the Member Guaranty Agreement or in any related statement or certificate furnished to the Trustee is false, in any material respect, as of the date on which made or issued;

(b) failure by the Member of the Obligated Group to comply with any of the terms and conditions of the Member Guaranty Agreement; and

Remedies. Upon the occurrence and continuance of an event of default under the Member Guaranty Agreement, the Trustee will have those rights and remedies provided in the Member Guaranty Agreement, the Bond Order, any series resolution, any Parity Instrument or by law.

Member Security Agreement

The following is a summary of the form of Member Security Agreement that is an exhibit to the Bond Order.

Members of the Obligated Group. Each Person agrees by the execution and delivery of a Member Security Agreement to become a Member of the Obligated Group and becomes subject to compliance with all provisions of the Bond Order and any Supplemental Bond Orders pertaining to the Obligated Group, subject to Existing Restrictions.

Guaranty, Pledge and Grant of Security Interest in Revenues. Each Member of the Obligated Group executing a Member Security Agreement guarantees the full and prompt payment of all Parity Debt, but solely from and only to the extent of its Revenues, and pledges, assigns and grants to the Holders and to the Trustee, on behalf of the Holders, a security interest in such Revenues and its rights to receive the same as security for the payment of all Parity Debt, in each case subject to Existing Restrictions and the provisions of the Bond Order and Member Security Agreement regarding withdrawal from Membership in the Obligated Group.

General Representations, Warranties, Covenants and Agreements. So long as any Parity Debt remains Outstanding, each Member of the Obligated Group that has executed a Member Security Agreement represents, warrants, covenants and agrees that its Revenues are and will be free and clear of

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all pledges, security interests, liens, attachments, levies and encumbrances, except to the extent of any Existing Restrictions or as otherwise permitted by the Bond Order; that it will warrant and defend its Revenues against any claims and demands (other than Permitted Encumbrances); that the pledge of and security interest in its Revenues granted to the Trustee (i) when properly perfected by filing, will constitute a valid and perfected security interest in its Revenues and (ii) will not be subject to, and it will not grant or permit to exist, any other security interests, liens, encumbrances or claims on or against its Revenues, except for Existing Restrictions and as otherwise permitted by the Bond Order; and it agrees to cooperate with the Authority and the Trustee to make all filings and take such other action necessary or advisable in the Trustee’s reasonable discretion to perfect and maintain the security interest granted.

Withdrawal from Membership in the Obligated Group. Any Member of the Obligated Group, other than the Authority, may withdraw from membership in the Obligated Group with the prior written consent of the Authority upon compliance with the requirements set forth in the Bond Order and described above under the caption entitled “Entry into and Withdrawal from Obligated Group.” Upon the withdrawal of any Member of the Obligated Group, the guarantee of payment of all Parity Debt and the pledge of and grant of a security interest in Revenues by such Member of the Obligated Group that has executed a Member Security Agreement shall be released, discharged and terminated in full and all liability of such Member of the Obligated Group with respect to all Parity Debt Outstanding under the Bond Order shall cease.

Events of Default. The following shall constitute events of default under the Member Security Agreement:

(a) any representation or warranty made by the Member of the Obligated Group in the Member Security Agreement or in any related statement or certificate furnished to the Trustee is false, in any material respect, as of the date on which made or issued;

(b) failure by the Member of the Obligated Group to comply with any of the terms and conditions of the Member Security Agreement; and

Remedies. Upon the occurrence and continuance of an event of default under the Member Security Agreement, the Trustee will have in addition to the rights and remedies provided in the Member Security Agreement, the Bond Order, any series resolution, any Parity Instrument or by law, the rights and remedies of a secured party under the Uniform Commercial Code as enacted in North Carolina.

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APPENDIX D

FORM OF OPINION OF BOND COUNSEL

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November __, 2018

Board of Commissioners The Charlotte-Mecklenburg Hospital Authority Charlotte, North Carolina

Re: $______The Charlotte-Mecklenburg Hospital Authority Health Care Refunding Revenue Bonds, Series 2018A

Ladies and Gentlemen:

We have acted as bond counsel to The Charlotte-Mecklenburg Hospital Authority (the “Authority”) in connection with the issuance by the Authority of the referenced bonds (the “2018A Bonds”). In such capacity, we have examined such law and such certified proceedings and other documents as we have deemed necessary to render this opinion.

The 2018A Bonds are issued pursuant to the Hospital Authorities Act, Article 2, Part 2 of Chapter 131E of the General Statutes of North Carolina, as amended (the “Hospital Authorities Act”), The State and Local Government Revenue Bond Act, Article 5 of Chapter 159 of the General Statutes of North Carolina, as amended (the “Revenue Bond Act”), a Second Amended and Restated Bond Order adopted by the Board of Commissioners of the Authority (the “Board”) as of September 9, 1997, as amended by a First Amendment thereto dated as of November 1, 2001, a Second Amendment thereto dated as of June 1, 2002, a Third Amendment thereto dated as of September 11, 2007 and a Fourth Amendment thereto dated as of September 13, 2016 (as so amended, the “Bond Order”), and a Series Resolution authorizing the 2018A Bonds adopted by an authorized committee of the Board on October 1, 2018 (the “Series Resolution”). Any capitalized term used herein without definition has the meaning given to such term in the Bond Order or the Series Resolution.

As security for the prompt payment of the principal of, redemption premium, if any, and interest on the 2018A Bonds, the Authority (i) pursuant to the Bond Order has granted a security interest in the Authority’s Revenues and its rights to receive the same to U.S. Bank National Association, as trustee (the “Trustee”), on behalf of the Holders of the 2018A Bonds, and (ii) pursuant to the Bond Order and the Series Resolution has created liens in favor of the Holders of the 2018A Bonds on the money held by the Trustee in the accounts and subaccounts for the 2018A Bonds created and established under the Series Resolution.

The Bond Order provides for the creation of a Combined Group, which consists of the Members of the Obligated Group and all Designated Affiliates. Each Member of the Obligated Group (other than the Authority, which is directly obligated to pay the principal of, redemption premium, if any, and interest on the 2018A Bonds) has executed a Member Guaranty Agreement or a Member Security Agreement. Each Member of the Obligated Group that has executed a Member Guaranty Agreement has jointly and severally unconditionally guaranteed the prompt payment of the principal of, redemption premium, if any, and interest on the 2018A Bonds, subject to Existing Restrictions and the withdrawal of such Member of the Obligated Group from membership therein upon the terms and conditions set forth in the Bond Order. Each Member of the Obligated Group that has executed a Member Security Agreement has also

ROBINSON, BRADSHAW & HINSON, P.A. : robinsonbradshaw.com Charlotte Office : 101 N. Tryon St., Ste. 1900, Charlotte, NC 28246 : 704.377.2536 Board of Commissioners The Charlotte-Mecklenburg Hospital Authority November __, 2018 Page 2

guaranteed prompt payment of the principal of, redemption premium, if any, and interest on the 2018A Bonds, but solely from and only to the extent of its Revenues, and as security for such payment obligations has granted a security interest in its Revenues to the Trustee, on behalf of the Holders, subject to Existing Restrictions and the withdrawal of such Member of the Obligated Group from membership therein upon the terms and conditions set forth in the Bond Order. There are currently no Designated Affiliates.

All Outstanding Bonds issued by the Authority pursuant to the Bond Order prior to the date hereof, all Outstanding Parity Obligations issued or incurred by the Authority or other Members of the Obligated Group prior to the date hereof, and all Additional Bonds and Parity Obligations which may be issued or incurred by the Authority or other Members of the Obligated Group after the date hereof upon the terms specified in the Bond Order are and will be equally and ratably secured with the 2018A Bonds by (i) the pledge of the Authority’s Revenues and its rights to receive the same pursuant to the Bond Order, (ii) all Member Guaranty Agreements and (iii) all Member Security Agreements; however, money held by the Trustee in the accounts and subaccounts for the 2018A Bonds created and established under the Series Resolution is not and will not be security for the Holders of any other Bonds or any Parity Obligations.

As to questions of fact material to our opinion, we have relied upon representations of the Authority contained in various documents, certified proceedings and other certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation.

Based on the foregoing, we are of the opinion that, under existing law:

1. The Authority is validly existing as a public body and body corporate and politic under the Hospital Authorities Act with the power under the Hospital Authorities Act and the Revenue Bond Act to adopt the Bond Order and the Series Resolution, perform the agreements on its part contained therein, and issue the 2018A Bonds.

2. The Bond Order and the Series Resolution have been duly adopted by the Authority and constitute valid and binding obligations of the Authority enforceable against the Authority.

3. The Bond Order creates a valid lien on the Authority’s Revenues that equally and ratably secures all Bonds issued pursuant to the Bond Order, including the 2018A Bonds. The Bond Order and the Series Resolution create valid liens on the money held by the Trustee in the accounts and subaccounts for the 2018A Bonds created and established under the Series Resolution.

4. The 2018A Bonds have been duly authorized and executed by the Authority, and are valid and binding limited obligations of the Authority, payable solely from (i) the Revenues of the Authority, (ii) payments from each Member of the Obligated Group that has signed a Member Guaranty Agreement, (iii) the Revenues of each Member of the Obligated Group that has signed a Member Security Agreement, and (iv) money held by the Trustee in the accounts and subaccounts for the 2018A Bonds created and established under the Series Resolution.

5. Each Member Guaranty Agreement and Member Security Agreement that has been executed by a current Member of the Obligated Group has been duly authorized, executed and delivered

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Board of Commissioners The Charlotte-Mecklenburg Hospital Authority November __, 2018 Page 3

by such Member of the Obligated Group and constitutes a valid and binding obligation of such Member of the Obligated Group enforceable against such Member of the Obligated Group.

6. Interest on the 2018A Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax. The opinion set forth in the preceding sentence is subject to the condition that the Authority and any Member of the Combined Group benefiting from the proceeds of the 2018A Bonds comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the issuance of the 2018A Bonds in order that interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The Authority has covenanted to comply, and cause all other Members of the Combined Group to comply, with all such requirements. Failure to comply with certain of such requirements may cause interest on the 2018A Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the 2018A Bonds.

7. Interest on the 2018A Bonds is exempt from State of North Carolina income taxes.

The rights of the Holders of the 2018A Bonds and the enforceability of the 2018A Bonds, the Bond Order, the Series Resolution, each Member Guaranty Agreement and each Member Security Agreement are limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and other similar laws affecting creditors’ rights generally and by equitable principles, whether considered at law or in equity.

We express no opinion herein (a) regarding the accuracy, adequacy, or completeness of the Official Statement relating to the 2018A Bonds, or (b) except as stated above, regarding federal, state, or local tax consequences arising with respect to the 2018A Bonds.

In rendering this opinion, we have relied upon the opinion of Keith A. Smith, Esq., the Authority’s Executive Vice President and General Counsel, with respect to the due authorization, execution and delivery of each Member Guaranty Agreement and each Member Security Agreement that has been entered into by a current Member of the Obligated Group.

This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.

Respectfully submitted,

[To be signed “Robinson, Bradshaw & Hinson, P.A.”]

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APPENDIX E

BOOK-ENTRY ONLY SYSTEM

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BOOK-ENTRY ONLY SYSTEM

General. The information provided under this caption “General” is based on information provided by the Depository Trust Company (which we refer to as “DTC”). No representation is made by us, the trustee or the underwriters as to the accuracy or adequacy of such information provided by DTC or as to the absence of material adverse changes in such information subsequent to the date hereof.

DTC, New York, New York, will act as securities depository for the 2018A Bonds. The 2018A Bonds will be issued as fully registered securities registered in the name of Cede & Co., DTC’s partnership nominee. One fully registered 2018A Bond certificate will be issued for each maturity of the 2018A Bonds set forth on the cover page of this official statement, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

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 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC’s participants (which we refer to as “Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations.

DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation. The Depository Trust & Clearing Corporation is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. The Depository Trust & Clearing Corporation 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 (which we refer to as “Indirect Participants”). DTC has an S&P rating of AA+. The rules applicable to DTC and its Direct and Indirect Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of 2018A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2018A Bonds on DTC’s records. The ownership interest of each actual owner of a 2018A Bond (which we refer to as a “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 beneficial ownership interests in the 2018A 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 2018A Bonds, except in the event that use of the book-entry system for the 2018A Bonds is discontinued.

To facilitate subsequent transfers, all 2018A Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. (or such other nominee as

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requested by an authorized representative of DTC). The deposit of 2018A Bonds with DTC and their registration in the name of Cede & Co. (or such other nominee as requested by an authorized representative of DTC) effect no change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the 2018A Bonds. DTC’s records reflect only the identity of the Direct Participants to whose accounts such 2018A 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 2018A Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the 2018A Bonds, such as redemptions, defaults and proposed amendments to the security documents.

Redemption notices will be sent to DTC. If less than all of the 2018A Bonds are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2018A Bonds unless authorized by a Direct Participant in accordance with DTC’s procedures. Under its usual procedures, DTC mails an “Omnibus Proxy” to us 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 2018A Bonds are credited on the record date identified in a listing attached to the “Omnibus Proxy.”

Principal, premium and interest payments on the 2018A Bonds will be made to Cede & Co. (or such other nominee as 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 us or the trustee on each payable date in accordance with their respective holdings shown on DTC’s records. Payments by Direct and Indirect 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 Direct and Indirect Participant and not of us, DTC, its nominee or the trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium and interest to Cede & Co. (or such other nominee as requested by an authorized representative of DTC) is the responsibility of the trustee. Disbursement of such payments to Direct Participants will be the responsibility of DTC and disbursement of such payments to the beneficial owners will be the responsibility of the Direct Participants and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the 2018A Bonds at any time by giving reasonable notice to us. Under such circumstances, in the event that a successor depository is not obtained, 2018A Bond certificates are required to be printed and delivered. We may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, 2018A Bond certificates will be printed and delivered to DTC.

Limitation. For so long as the 2018A Bonds are registered in the name of DTC or its nominee, Cede & Co., we and the trustee will recognize only DTC or its nominee, Cede & Co., as the registered owner of the 2018A Bonds for all purposes, including payments, notices and voting. So long as Cede & Co. is the registered owner of the 2018A Bonds, references in this official

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statement to registered owners of the 2018A Bonds will mean Cede & Co. and will not mean the beneficial owners of the 2018A Bonds.

Because DTC is treated as the owner of the 2018A Bonds for substantially all purposes under our bond order and the series resolution, beneficial owners may have a restricted ability to influence in a timely fashion remedial action or the giving or withholding of requested consents or other directions. In addition, because the identity of beneficial owners is unknown to us, the trustee or to DTC, it may be difficult to transmit information of potential interest to beneficial owners in an effective and timely manner. Beneficial owners should make appropriate arrangements with their brokers or dealers regarding distribution of information regarding the 2018A Bonds that may be transmitted by or through DTC.

Under our bond order, payments made by the trustee to DTC or its nominee will satisfy our obligations under our bond order, the series resolution, member guaranty agreements and member security agreements to the extent of the payments so made.

We and the trustee do not have any responsibility or obligation with respect to:

• the accuracy of the records of DTC, its nominee or any Direct Participant or Indirect Participant with respect to any beneficial ownership interest in any 2018A Bonds;

• the delivery to any Direct Participant or Indirect Participant or any other person, other than a registered owner as shown in the bond register kept by the trustee, of any notice with respect to any 2018A Bond including, without limitation, any notice of redemption with respect to any 2018A Bond;

• the payment to any Direct Participant or Indirect Participant or any other person, other than a registered owner as shown in the bond register kept by the trustee, of any amount with respect to the principal of, premium, if any, or interest on, any 2018A Bond; or

• any consent given by DTC or its nominee as registered owner.

Prior to any discontinuation of the book-entry only system described above, we and the trustee may treat Cede & Co. (or such other nominee of DTC) as, and deem Cede & Co. (or such other nominee) to be, the absolute registered owner of the 2018A Bonds for all purposes whatsoever, including, without limitation:

• the payment of principal, premium, if any, and interest on the 2018A Bonds;

• giving notices of redemption and other matters with respect to the 2018A Bonds;

• registering transfers with respect to the 2018A Bonds; and

• the selection of 2018A Bonds for redemption.

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The Charlotte‑Mecklenburg Hospital Authority (North Carolina) Doing Business as Atrium Health • Health Care Refunding Revenue Bonds, Series 2018A