Exhibit 10.1

 

TERM LOAN AND SECURITY AGREEMENT

 

This TERM LOAN AND SECURITY AGREEMENT (this “Agreement”), dated as of March 30,
2018, is by and between CHP Friendswood snf, llc, a Delaware limited liability
company (the “Borrower”), and CIBC BANK USA (together with its successors and
assigns, the “Lender”).

 

RECITALS:

 

A.           The Borrower desires to repay the Debt to Be Repaid (as defined
below) and has requested that the Lender extend the Loan to allow Borrower to
repay such Debt to be Repaid.

 

B.           The Borrower desires to secure all of the Liabilities by granting
to the Lender, a security interest in and lien upon all of its tangible and
intangible assets, including, without limitation, the Real Property, the Lease
Deposit Account and the Cash Loan Guaranty Fund.

 

NOW THEREFORE, in consideration of the mutual agreements contained herein, and
of any loans or other financial accommodations now or hereafter made to or for
the benefit of the Borrower by the Lender, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto (intending to be legally bound) hereby agree as follows:

 

1.             DEFINITIONS.

 

1.1           General Terms. When used herein, the following terms shall have
the following meanings:

 

“Affiliate” means, with respect to any Person, any other Person (including,
without limitation, to the extent applicable, shareholders, members, directors,
partners, managers, and officers of such Person) directly or indirectly
controlling, controlled by, or under direct or indirect common control with,
such Person. A Person shall be deemed to control another Person if such first
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether through
ownership of voting securities, by contract or otherwise.

 

“Agreement” means this Term Loan and Security Agreement as the same may be
amended, restated, supplemented or otherwise modified from time to time.

 

“Applicable Libor Margin” means an amount equal to three hundred seventy-five
(375) basis points.

 

“Asset Disposition” shall mean the sale, lease, assignment or other transfer for
value (each a “Disposition”) by any Person of any asset or right of such Person
(including, the loss, destruction or damage of any thereof or any actual or
threatened (in writing to such Person) condemnation, confiscation, requisition,
seizure or taking thereof), other than (a) the Disposition of any asset which is
to be replaced, and is in fact replaced, within thirty (30) days with another
asset performing the same or a similar function and (b) the sale or lease of
inventory in the ordinary course of business.

 

 

 

 

“Assignment of Rents and Leases” means that certain Assignment of Rents and
Leases made by the Borrower, dated of even date herewith, as the same may be
amended, supplemented or modified from time to time.

 

“Bank Product Agreements” shall mean those certain agreements entered into from
time to time by the Borrower with the Lender or any Affiliate of the Lender
concerning Bank Products.

 

“Bank Product Obligations” shall mean all obligations, liabilities, contingent
reimbursement obligations, fees, and expenses owing by the Borrower to the
Lender or any Affiliate of the Lender pursuant to or evidenced by the Bank
Product Agreements and irrespective of whether for the payment of money, whether
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising.

 

“Bank Products” shall mean any service or facility extended to the Borrower by
the Lender or any Affiliate of the Lender including: (a) credit cards, (b)
credit card processing services, (c) debit cards, (d) purchase cards, (e)
automated clearing house or ACH transactions, (f) cash management, including
controlled disbursement, accounts or services or (g) Interest Rate Protection
Agreements.

 

“Base Rate” means the corporate base rate of interest per annum identified from
time to time by the Lender, as its base or prime rate, which rate shall not
necessarily be the lowest rate of interest which the Lender charges its
customers plus 150 basis points. Any change in the Base Rate shall be effective
as of the effective date of such change.

 

“Base Rate Loan” means a Loan that bears interest at an interest rate based on
the Base Rate.

 

“Borrower” has the meaning ascribed to such term in the introductory paragraph.

 

“Borrowing Notice” shall have the meaning ascribed to such term in Section 2.10
hereof.

 

“Business Day” means (a) with respect to any borrowing, payment or rate
selection of Libor Loans, a day other than Saturday or Sunday on which banks are
open for business in Chicago, Illinois and on which dealings in United States
dollars are carried on in the London interbank market and (b) for all other
purposes, a day other than Saturday or Sunday on which banks are open for
business in Chicago, Illinois.

 

“Capital Expenditures” means, as to any Person, any and all expenditures of such
Person for fixed or capital assets, including, without limitation, the
incurrence of Capitalized Lease Obligations, all as determined in accordance
with GAAP, except that Capital Expenditures shall not include expenditures for
fixed or capital assets to the extent such expenditures are paid for or
reimbursed from the proceeds of insurance or the sale of other fixed or capital
assets, to the extent permitted hereunder.

 

“Capital Securities” shall mean, as to any Person, all shares, interests,
participations or other equivalents (however designated, whether voting or
non-voting) of such Person’s capital, whether now outstanding or issued or
acquired after the date hereof, including common shares, preferred shares,
membership interests in a limited liability company, limited or general
partnership interests in a partnership or any other equivalent of such ownership
interest.

 

 - 2 - 

 

 

“Capitalized Lease Obligations” means any amount payable with respect to any
lease of any tangible or intangible property (whether real, personal or mixed),
however denoted, which either (i) is required by GAAP to be reflected as a
liability on the face of the balance sheet of the lessee thereunder or (ii)
based on actual circumstances existing and ascertainable, either at the
commencement of the term of such lease or at any subsequent time at which any
property becomes subject thereto, can reasonably be anticipated to impose on
such lessee substantially the same economic risks and burdens, having regard to
such lessee’s obligations and the lessor’s rights thereunder both during and at
the termination of such lease, as would be imposed on such lessee by any lease
which is required to be so reflected or by the ownership of the leased property.

 

“Cash Loan Guaranty Fund” means a reserve account maintained with the Lender
into which scheduled installments of principal paid by Borrower are deposited as
more fully described in Section 2.1 hereof.

 

“CERCLA” means the Comprehensive Environmental Response Compensation and
Liability Act of 1980, 42 U.S.C. § 9601 et seq., as amended.

 

“CHAMPUS” means the Civilian Health and Medical Program of the Uniformed
Service, a part of TRICARE, a medical benefits program supervised by the U.S.
Department of Defense.

 

“Change of Control” shall mean the occurrence of any of the following events:
(a) Summit or one of its Affiliates shall cease to control the Parent, (b)
Summit or its Affiliates shall cease to, directly or indirectly, own and control
90% of each class of the outstanding Capital Securities of Parent, (c) the
Parent shall cease to, directly or indirectly, own and control 100% of each
class of the outstanding Capital Securities of the Borrower or (d) there shall
be a change in ownership of the Operating Company. For the purpose hereof, the
terms “control” or “controlling” shall mean the possession of the power to
direct, or cause the direction of, the management and policies of the Borrower
by contract or voting of securities or ownership interests.

 

“Change in Law” means the occurrence, after the date of this Agreement, of any
of the following: (a) the adoption or taking effect of any law, rule,
regulation, policy, guideline, directive or treaty, (b) any change in any law,
rule, regulation, policy, guideline, directive or treaty or in the
administration, interpretation, implementation or application thereof by any
Governmental Authority or (c) the making or issuance of any request, rule,
guideline or directive (whether or not having the force of law) by any
Governmental Authority; provided that notwithstanding anything herein to the
contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and
all requests, rules, guidelines or directives thereunder or issued in connection
therewith and (y) all requests, rules, guidelines or directives promulgated by
the Bank for International Settlements, the Basel Committee on Banking
Supervision (or any successor or similar authority) or the United States or
foreign regulatory authorities, in each case pursuant to Basel III, shall in
each case be deemed to be a “Change in Law,” regardless of the date enacted,
adopted or issued.

 

 - 3 - 

 

 

“Closing Date” means March 30, 2018.

 

“Closing Date Distribution” means a distribution by Borrower to Parent to be
made on the Closing Date in an amount not to exceed One Million Seven Hundred
Seven Thousand Six Hundred Eighty-Four and 07/100 Dollars ($1,707,684.07) with
proceeds of the Initial Loan Advance.

 

“CMS” means the Centers for Medicare and Medicaid Services of HHS and any Person
succeeding to the functions thereof.

 

“Code” or “Uniform Commercial Code” or “UCC” means the Uniform Commercial Code
as adopted in the State of Illinois; provided, however, that if, by reason of
mandatory provisions of Law, any or all of the attachment, perfection or
priority of, or remedies with respect to, Lender’s Lien on the Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of Illinois, the term “Uniform Commercial Code” or “UCC” or
“Code” shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions of this Agreement or the other
Financing Agreements relating to such attachment, perfection, priority or
remedies and for purposes of definitions related to such provisions;
provided further that, to the extent that the Uniform Commercial Code of a
particular jurisdiction is used to define a term herein or in any Financing
Agreement and such term is defined differently in different Articles or
Divisions of such Uniform Commercial Code, then the definition of such term
contained in Article or Division 9 of such Uniform Commercial Code shall
control.

 

“Collateral” shall have the meaning ascribed to such term in Section 6.1 hereof.

 

“Collateral Assignment of Agreements” means that certain Collateral Assignment
of Material Agreements executed by Borrower in favor of Lender dated as of the
date hereof pursuant to which the Borrower collaterally assigns all of its
rights under certain agreements, including, without limitation, each QIPP
Agreement under which the Borrower has any rights.

 

“Commitment” shall have the meaning ascribed to such term in Section 2.1 hereof.

 

“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et
seq.), as amended from time to time, and any successor statute.

 

“Conversion Date” means a date on which any portion of the Loan is converted
from a Base Rate Loan to a Libor Loan.

 

“Credit Parties” means the Parent, the Borrower and any other Person that is
joined to this Agreement or provides a guaranty of the Liabilities.

 

“Debt to be Repaid” means the Indebtedness listed on Schedule 9.1.

 

“Default” means an event, circumstance or condition which through the passage of
time or the service of notice or both would (assuming no action is taken to cure
the same) mature into an Event of Default.

 

 - 4 - 

 

 

“Default Rate” shall have the meaning ascribed to such term in Section 2.5(a)
hereof.

 

“Deposit Accounts” means any deposit, securities, operating, lockbox, cash
collateral and blocked account, together with any funds, instruments or other
items credited to any such account from time to time, and all interest earned
thereon, including, without limitation, the Lease Deposit Account.

 

“Depreciation” shall mean the total amounts added to depreciation, amortization,
obsolescence, valuation and other proper reserves, as reflected on any Person’s
financial statements and determined in accordance with GAAP.

 

“Duly Authorized Person” means the manager of any Credit Party or any duly
authorized person of such Credit Party designated by such manager.

 

“EBITDA” means with respect to any Person, for any period of determination, the
sum for such period of: (i) Net Income for such period, plus (ii) Interest
Charges for such period, plus (iii) federal and state income taxes paid in cash
during such period, plus (iv) Depreciation, consistently applied.

 

“EBITDAR” means with respect to the Operating Company, but limited, however, to
the Operating Company’s operation of the Facility, for any period of
determination, the sum for such period of: (i) Net Income for such period, plus
(ii) Interest Charges for such period, plus (iii) federal and state income taxes
paid in cash during such period, plus (iv) Depreciation, consistently applied
plus (v) Rent Expense minus (vi) any QIPP Supplemental Payments; provided,
however, that for purposes of calculating EBITDAR of the Operating Company, the
aggregate expenses associated with management fees paid by the Operating Company
during any period of determination shall be deemed to be equal to the greater of
(y) five (5%) of the gross revenues of the Operating Company (excluding,
however, any revenue derived from QIPP Supplemental Payments) or (z) the actual
amount paid by the Operating Company in respect of management fees during such
period.

 

“Environmental Indemnity Agreement” means that certain Environmental Indemnity
Agreement of even date herewith made by the Borrower in favor of the Lender, in
form and substance acceptable to the Lender, as the same may be amended or
modified from time to time

 

“Environmental Laws” means all applicable federal, state, local and foreign
laws, statutes, ordinances, codes, rules, standards, regulations and common law,
now or hereafter in effect, and any applicable judicial or administrative
interpretation thereof, including any applicable judicial or administrative
order, consent decree, order or judgment, imposing liability or standards of
conduct for or relating to the regulation and protection of human health,
safety, the environment and natural resources (including ambient air, surface
water, groundwater, wetlands, land surface or subsurface strata, wildlife,
aquatic species and vegetation). Without limiting the generality of the
foregoing, Environmental Laws include CERCLA, the Hazardous Materials
Transportation Authorization Act of 1994 (49 U.S.C. §§ 5101 et seq.), the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. §§ 136 et seq.),
the Solid Waste Disposal Act (42 U.S.C. §§ 6901 et seq.), the Toxic Substance
Control Act (15 U.S.C. §§ 2601 et seq.), the Clean Air Act (42 U.S.C. §§ 7401 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. §§ 1251 et seq.), the
Occupational Safety and Health Act (29 U.S.C. §§ 651 et seq.), and the Safe
Drinking Water Act (42 U.S.C. §§ 300(f) et seq.), and any rules and regulations
promulgated thereunder, and all analogous state, local and foreign counterparts
or equivalents and any transfer of ownership notification or approval statutes,
and all common law relating to Hazardous Substances, or protection or
restoration of, or liability for damage to, human health, the environment or
natural resources.

 

 - 5 - 

 

 

“Environmental Notice” means any summons, citation, written directive, written
information request, written notice of potential responsibility, notice of
deficiency or violation, written order, written claim, written complaint,
investigation, proceeding, judgment, or letter to the Borrower or any officer
thereof from the United States Environmental Protection Agency or other federal,
state or local agency or authority, or any other Person concerning any
intentional or unintentional act or omission that involves Management of
Hazardous Substances on or off the Real Property that could reasonably be
expected to result in the Borrower incurring a material liability or that could
reasonably be expected to have a Material Adverse Effect, or the imposition of
any Lien on any property of Borrower, or any alleged violation of or
responsibility under Environmental Laws that is reasonably likely to result in
the Borrower incurring a material liability or that is reasonably likely to have
a Material Adverse Effect, and, after reasonable inquiry, any knowledge of any
facts that is reasonably likely to give rise to any of the foregoing.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
together with the regulations thereunder.

 

“ERISA Affiliate” means any corporation, trade or business, which together with
any Credit Party would be treated as a single employer under Section 4001 of
ERISA.

 

“Event of Default” shall have the meaning ascribed to such term in Section 10.1
hereof.

 

“Excluded Swap Obligation” means, with respect to any guarantor of all or any
part of the Liabilities, including the grant or pledge of a security interest to
secure such Liabilities, any Swap Obligation if, and to the extent that, the
applicable guaranty or grant, pledge or security interest provided by such
Person with respect to the Liabilities is or becomes illegal under the Commodity
Exchange Act or any rule, regulation or order of the Commodity Futures Trading
Commission (or the application or official interpretation of any thereof) by
virtue of such Person’s failure for any reason to constitute an “eligible
contract participant” as defined in the Commodity Exchange Act and the
regulations thereunder at the time such applicable guaranty or grant or pledge
of security interest becomes effective with respect to such Swap Obligation, but
such exclusion shall only be effective for so long as the applicable guaranty or
grant of security interest or pledge continues to be illegal.

 

“Facility” means the 150-licensed unit (currently designated for 137 units)
skilled nursing facility known as Friendship Haven Healthcare and Rehabilitation
Center located at 1500 Sunset Dr, Friendswood, TX 77546 operated by the
Operating Company.

 

 - 6 - 

 

 

“Financing Agreements” means, this Agreement, the Assignments of Rents and
Leases, the Collateral Assignment of Agreements, the Environmental Indemnity
Agreement, the Note, the Mortgages, the Pledge Agreement, any Interest Rate
Protection Agreement, any Bank Product Agreement, and any other instrument,
document or agreement executed or delivered in connection with this Agreement or
any of the foregoing, in each case evidencing, securing or relating to the Loans
and the Liabilities, whether heretofore, now, or hereafter executed by or on
behalf of any Credit Party, any Affiliate of the Credit Parties, or any other
Person, and delivered to or in favor of the Lender, together with all agreements
and documents referred to therein or contemplated thereby, as each may be
amended, modified, replaced, restated or supplemented from time to time.

 

“Fiscal Quarter” means the three (3) month period ending on each March 31, June
30, September 30 and December 31 of each calendar year.

 

“Fiscal Year” means the twelve (12) month period commencing on January 1 and
ending on December 31 of each calendar year.

 

“Fixed Charge Coverage Ratio” means, for any period of determination, on a
trailing twelve-month basis, the ratio of (a) EBITDA of the Borrower, to (b)
Fixed Charges; provided, however, that for purposes of (i) the Fiscal Quarter
ending June 30, 2018, the Fixed Charge Coverage Ratio shall be tested on a
trailing three month basis multiplied by 4, (ii) the Fiscal Quarter ending
September 30, 2018, the Fixed Charge Coverage Ratio shall be tested on a
trailing six month basis multiplied by 2, (iii) the Fiscal Quarter ending
December 31, 2018, the Fixed Charge Coverage Ratio shall be tested on a trailing
nine month basis multiplied by 1.33 and (iv) the Fiscal Quarter ending March 31,
2019 and each Fiscal Quarter thereafter, the Fixed Charge Coverage Ratio shall
be tested on a trailing twelve month basis.

 

“Fixed Charges” means, for any period of determination, the sum of, without
duplication, (a) the aggregate amount of any and all advances and distributions
made by Borrower or to any Person, including, without limitation, to any
Affiliate of the Borrower during such period, (b) Interest Charges of the
Borrower for Indebtedness that is paid or becomes due during such period, (c)
regularly scheduled principal payments made by the Borrower for Indebtedness
during such period, (d) unfinanced Capital Expenditures of the Borrower made
during such period and (e) payments made by Borrower in respect of federal,
state and local taxes during such period, including taxes assessed in connection
with Real Property.

 

“GAAP” means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board (or any successor authority) that are
applicable to the circumstances as of the date of determination.

 

 - 7 - 

 

 

“General Intangibles” means “general intangibles” as defined in the Code,
including, without limitation, any and all general intangibles, choses in
action, causes of action, rights to the payment of money (other than accounts
receivable), and all other intangible personal property of the Borrower of every
kind and nature wherever located and whether currently owned or hereafter
acquired by the Borrower (other than accounts receivable), including, without
limitation, corporate or other business records, inventions, designs, patents,
patent applications, service marks, service mark applications, trademark
applications, brand names, tradenames, trademarks and all goodwill symbolized
thereby and relating thereto, tradestyles, trade secrets, registrations,
computer software, advertising materials, distributions on certificated and
uncertificated securities, investment property, securities entitlements,
goodwill, operational manuals, product formulas for industrial processes,
blueprints, drawings, copyrights, copyright applications, rights and benefits
under contracts, licenses, license agreements, permits, approvals,
authorizations which are associated with the operation of the Borrower’s
business and granted by any Person, franchises, customer lists, deposit
accounts, tax refunds, tax refund claims, and any letters of credit, guarantee
claims, security interests or other security held by or granted to the Borrower
to secure payment by an account debtor of any of Borrower’s accounts receivable,
and, to the maximum extent permitted by applicable law, any recoveries or
amounts received in connection with any litigation or settlement of any
litigation.

 

“Hazardous Substances” means any substance, material or waste that is regulated
by, or forms the basis of liability now or hereafter under, any Environmental
Laws, including any material or substance that is (a) defined as a “solid
waste,” “hazardous waste,” “hazardous material,” “hazardous substance,”
“extremely hazardous waste,” “restricted hazardous waste,” “pollutant,”
“contaminant,” “hazardous constituent,” “special waste,” “toxic substance,”
“medical wastes” or other similar term or phrase under any Environmental Laws,
or (b) petroleum or any fraction or by-product thereof, asbestos,
polychlorinated biphenyls (PCB’s), or any radioactive substance.

 

“Healthcare Laws” means all applicable laws relating to the possession, control,
warehousing, marketing, sale and distribution of pharmaceuticals, the operation
of medical or senior housing facilities (such as, but not limited to, nursing
homes, skilled nursing facilities, rehabilitation hospitals, intermediate care
facilities, assisted living and adult care facilities and other long-term care
facilities), patient healthcare, patient healthcare information, patient abuse,
the quality and adequacy of medical care, rate setting, equipment, personnel,
operating policies, fee splitting, including, without limitation, (a) all
federal and state fraud and abuse laws, including, but not limited to the
federal Anti-Kickback Statute (42 U.S.C. §1320a-7b(6)), the Stark Law (42 U.S.C.
§1395nn), the civil False Claims Act (31 U.S.C. §3729 et seq.); (b) HIPAA, (c)
Medicare; (d) Medicaid; (e) TRICARE and CHAMPUS; (f) QIPP, (g) quality, safety
and accreditation standards and requirements of all applicable state laws or
regulatory bodies; (h) all laws, policies, procedures, requirements and
regulations pursuant to which licenses, approvals and accreditation certificates
are issued in order to operate medical or senior housing facilities; and (i) any
and all other applicable health care laws (whether federal, state/commonwealth,
or otherwise), regulations, manual provisions, policies and administrative
guidance, as each of the foregoing may be amended from time to time.

 

“HHS” means the United States Department of Health and Human Services and any
Person succeeding to the functions thereof.

 

“HHSC” means the Texas Health and Human Services Commission.

 

“HIPAA” means the Health Insurance Portability and Accountability Act of 1996,
as the same may be amended, modified or supplemented from time to time, and any
successor statute thereto, and any and all rules or regulations promulgated from
time to time thereunder.

 

 - 8 - 

 

 

“Hospital District” means Winnie-Stowell Hospital District, a political
subdivision of the State of Texas organized pursuant to Tex. Const. Art. IX,
Section 9 and Chapter 286 of the Texas Health and Safety Code, as amended.

 

“Indebtedness” with respect to any Person means, as of the date of determination
thereof, (a) all of such Person’s indebtedness for borrowed money, (b) all
indebtedness of such Person or any other Person secured by any Lien with respect
to any property or asset owned or held by such Person, regardless whether the
indebtedness secured thereby shall have been assumed by such Person or such
Person has become liable for the payment thereof, (c) all Capitalized Lease
Obligations, or conditional sale or other title retention agreement with respect
to property used and/or acquired by such Person even though the rights and
remedies of the lessor, seller and/or lender thereunder are limited to
repossession of such property, (d) all unfunded pension fund obligations and
liabilities, (e) all obligations of such Person evidenced by bonds, debentures,
notes or similar instruments, (f) all obligations in respect of letters of
credit, whether or not drawn, and bankers’ acceptances issued for the account of
such Person, (g) deferred and/or accrued taxes, (h) all guarantees by such
Person, or any undertaking by such Person to be liable for, the debts or
obligations of any other Person and (i) all other indebtedness of such Person,
now or hereafter owing, due or payable, however evidenced, created, incurred or
owing and however arising, which is customarily identified as indebtedness on a
balance sheet or financial statement.

 

“Indemnified Parties” shall have the meaning ascribed to such term in Section
11.16 hereof.

 

“Initial Loan Advance” has the meaning ascribed to such term in Section 2.1
hereof.

 

“Interest Charges” shall mean, as to any Person, for any period, the sum of: (a)
all interest, charges and related expenses payable with respect to that fiscal
period to a lender in connection with borrowed money or the deferred purchase
price of assets that are treated as interest in accordance with GAAP, plus (b)
the portion of Capitalized Lease Obligations with respect to that fiscal period
that should be treated as interest in accordance with GAAP, plus (c) all charges
paid or payable (without duplication) during that period with respect to, in the
case of the Borrower or the Operating Company, any Interest Rate Protection
Agreements.

 

“Interest Rate Protection Agreement” means any interest rate, currency or
commodity swap agreement, cap agreement or collar agreement or any other
so-called “swap” agreement, or similar arrangement entered into at any time with
the intent of protecting against fluctuations in interest rates, between any
Credit Party and the Lender (or any Affiliate of the Lender) relating to any of
the Liabilities, as the same may be amended, restated, supplemented or otherwise
modified from time to time.

 

“Lease Deposit Account” has the meaning set forth in Section 8.9 of this
Agreement.

 

 - 9 - 

 

 

“Liabilities” means any and all of any Credit Party’s liabilities, obligations
and Indebtedness to the Lender of any and every kind and nature, whether
heretofore, now or hereafter owing, arising, due or payable and howsoever
evidenced, created, incurred, acquired, or owing, whether primary, secondary,
direct, indirect, contingent, absolute, fixed or otherwise (including, without
limitation, payments of or for principal, interest, default interest, fees,
costs, expenses, and/or indemnification, and obligations of performance, and any
interest that accrues after commencement of any insolvency or bankruptcy
proceeding regardless of whether allowed or allowable in whole or in part as a
claim in any such insolvency or bankruptcy proceeding), under, evidenced by or
relating to this Agreement (including, without limitation, the Loan) or the
other Financing Agreements to which any Credit Party is a party (including,
without limitation, any Interest Rate Protection Agreement), all Bank Product
Obligations, and any refinancings, substitutions, extensions, renewals,
replacements and modifications for or of any or all of the foregoing; provided,
however, that with respect to any guarantor of the Liabilities, the Liabilities
shall not include any Excluded Swap Obligation in respect of such Person.

 

“Libor Base Rate” means a rate of interest equal to (a) the per annum rate of
interest at which United States dollar deposits for a period equal to the
relevant Libor Interest Period are offered in the London Interbank Eurodollar
market at 11:00 a.m. (London time) two Business Days prior to the commencement
of such Libor Interest Period (or three Business Days prior to the commencement
of such Libor Interest Period if banks in London, England were not open and
dealing in offshore United States dollars on such second preceding Business
Day), as displayed in the Bloomberg Financial Markets system (or other
authoritative source selected by the Lender in its sole discretion), divided by
(b) a number determined by subtracting 1.00 from the then stated maximum reserve
percentage for determining reserves to be maintained by member banks of the
Federal Reserve System for Eurocurrency funding or liabilities as defined in
Regulation D (or any successor category of liabilities under Regulation D) such
rate to remain fixed for such Libor Interest Period. The Lender’s determination
of the Libor Base Rate shall be conclusive, absent manifest error.

 

“Libor Interest Period” means, with respect to a Libor Loan, (i) for the initial
Libor Interest Period, the period commencing on the Closing Date and ending
April 5, 2018 and (ii) for each Libor Interest Period thereafter, successive one
(1) month periods; provided, however, that:  (a) each Libor Interest Period
occurring after the initial Libor Interest Period of any Libor Loan shall
commence on the day on which the preceding Libor Interest Period for such Libor
Loan expires, with interest for such day to be calculated at the Libor Rate in
effect for the new Libor Interest Period; (b) whenever the last day of any Libor
Interest Period would otherwise occur on a day other than a Business Day, the
last day of such Libor Interest Period shall be extended to occur on the next
succeeding Business Day; (c) whenever the first day of any Libor Interest Period
occurs on a date for which there is no numerically corresponding date in the
month in which such Libor Interest Period terminates, such Libor Interest Period
shall end on the last day of such month, unless such day is not a Business Day,
in which case the Libor Interest Period shall terminate on the first Business
Day of the following month; and (D) if at any time the Libor Interest Period for
a Libor Loan expires less than one month before the Maturity Date, such Libor
Loan shall automatically renew at the then current Libor Rate for a Libor
Interest Period terminating on the Maturity Date.

 

“Libor Loan” means a Loan which bears interest at a Libor Rate.

 

“Libor Rate” means, with respect to a Libor Loan for the relevant Libor Interest
Period, the sum of the Libor Base Rate applicable to that Libor Interest Period,
plus the Applicable Libor Margin.

 

 - 10 - 

 

 

“Lien” means any lien, security interest, mortgage, pledge, hypothecation,
collateral assignment, or other charge, encumbrance or preferential arrangement,
including, without limitation, the retained security title of a conditional
vendor or lessor.

 

“Loan” shall have the meaning ascribed to such term in Section 2.1 hereof.

 

“Loan Account” shall have the meaning ascribed to such term in Section 2.3
hereof.

 

“Manage” or “Management” means to generate, handle, manufacture, process, treat,
store, use, re-use, refine, recycle, reclaim, blend or burn for energy recovery,
incinerate, accumulate speculatively, transport, transfer, dispose of, release,
threaten to release or abandon Hazardous Substances.

 

“Management Agreement” means the Management Agreement dated as of December 1,
2016 by and between the Operating Company and the Management Company, with
respect to the provision of certain services for the Facility.

 

“Management Company” means HMG Services, L.L.C., a Texas limited liability
company.

 

“Material Adverse Change” or “Material Adverse Effect” means either (a) the
termination of the Operating Company’s continued participation in Medicare or
Medicaid reimbursement program for any reason, or (b) any other change, event,
action, condition or effect which, individually or in the aggregate, either (i)
impairs the legality, validity or enforceability of this Agreement or any
Financing Agreement, (ii) impairs the fully perfected first priority status of
the Liens granted hereunder and under the Financing Agreements in favor of the
Lender in the Collateral or any other assets pledged in favor of Lender to
secure the Liabilities or any portion thereof (subject only to the Permitted
Liens) or (iii) materially and adversely affects the business, property or
assets (whether real or personal), operations, performance, or condition
(financial or otherwise) of the Borrower or any or all of the Collateral, or the
ability of the Borrower to repay the Liabilities when due or declared due or the
ability of any Credit Party’s ability to perform the obligations under this
Agreement and the Financing Agreements to which it is a party.

 

“Maturity Date” means, the earlier of (i) March 30, 2021, (ii) such other date
on which the Commitment shall terminate pursuant to Section 10.2 hereof, or
(iii) such other date as is mutually agreed in writing between the Borrower and
the Lender.

 

“Maximum Facility” means, an amount equal to the lesser of (i) Ten Million Seven
Hundred Twenty-Five Thousand and No/100 Dollars ($10,725,000.00), (ii) 75% of
the loan-to-value ratio using an income approach of the Real Property as set
forth on the most recent appraisal prepared and delivered to Lender in
accordance with the terms hereof.

 

“Medicaid” means the medical assistance programs administered by state agencies
and approved by CMS pursuant to the terms of Title XIX of the Social Security
Act, codified at 42 U.S.C. 1396 et seq.

 

 - 11 - 

 

 

“Medicare” means the program of health benefits for the aged and disabled
administered by CMS pursuant to the terms of Title XVIII of the Social Security
Act, codified at 42 U.S.C. 1395 et seq.

 

“Mortgage” means that certain Deed of Trust, Security Agreement, Assignment of
Rents and Fixture Filing made by the Borrower, dated of even date herewith,
granting and conveying to the Lender a first mortgage Lien on that certain Real
Property commonly identified as the Friendship Haven Healthcare and
Rehabilitation Center located at 1500 Sunset Dr, Friendswood, TX 77546, as the
same may be amended, restated, supplemented or otherwise modified from time to
time.

 

“Multiemployer Plan” shall have the meaning ascribed to such term in Section
7.19 hereof.

 

“Net Income” shall mean, with respect to any Person for any period, the net
income (or loss) of such Person for such period as determined in accordance with
GAAP, excluding any gains from Asset Dispositions, any extraordinary gains and
any gains from discontinued operations.

 

“Note” shall have the meaning ascribed to such term in Section 2.1 hereof.

 

“OFAC Lists” means, collectively, the Specially Designated Nationals and Blocked
Persons List maintained by the Office of Foreign Asset Control, the Department
of the Treasury pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept.
2001) and/or any other list of terrorists or terrorist organizations maintained
pursuant to any of the rules and regulations of or by the Office of Foreign
Asset Control, the Department of the Treasury or pursuant to any other
applicable Executive Orders, as such lists may be amended or supplemented from
time to time

 

“Operating Company” means Friendswood TRS, LLC, a Delaware limited liability
company.

 

“Parent” means collectively, Cornerstone Healthcare Holdings 1, LLC, a Delaware
limited liability company and Healthcare Real Estate Holdings, LLC, a Delaware
limited liability company.

 

“PBGC” shall have the meaning ascribed to such term in Section 7.19 hereof.

 

“Permitted Liens” shall have the meaning ascribed to such term in Section 9.1
hereof.

 

“Permitted Prepayment” means the refinancing of the Liabilities in full in cash
through the U.S. Department of Housing and Urban Development.

 

“Person” means any individual, sole proprietorship, partnership, joint venture,
trust, limited liability company, unincorporated organization, association,
corporation, institution, entity, party, or government (whether national,
federal, state, provincial, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).

 

 - 12 - 

 

 

“Plan” shall have the meaning ascribed to such term in Section 7.19 hereof.

 

“Pledge Agreement” means the Pledge Agreement dated as of the Closing Date
executed by Parent in favor of the Lender, pursuant to which Parent has pledged
all of the Capital Securities of the Borrower to Lender as security for the
Liabilities, as the same may be amended, restated, supplemented or otherwise
modified from time to time.

 

“Prepayment Premium” means, with respect to prepayment of the Loan: (i) two
percent (2%) of the amount of the outstanding principal balance of the Loan
prepaid if such prepayment occurs on or prior to the first (1st) year
anniversary of the Closing Date; and (ii) one percent (1%) of the amount of the
outstanding principal balance of the Loan prepaid if such prepayment occurs
thereafter and prior to the third (3rd) year anniversary of the Closing Date;
provided, however, that, to the extent any prepayment of the Loan occurs in
connection with the Permitted Prepayment, the Prepayment Premium shall be 0%.

 

“Prohibited Transaction” shall have the meaning ascribed to such term in ERISA.

 

“Property” means, as applicable, any and all real property owned, leased,
sub-leased or used at any time by Borrower, including, without limitation, the
Real Property.

 

“QIPP” means the Texas Quality Incentive Payment Program adopted by HHSC as
described in the regulation proposed in the January 20, 2017, Texas Register to
be codified at 1 Tex. Admin. Code §353.1303, as finally adopted by HHSC, and as
amended from time to time.

 

“QIPP Agreement” means, collectively, (i) the Operations Transfer Agreement by
and between the Operating Company and the Hospital District dated on or around
April 1, 2018, (ii) the Management Agreement between the Hospital District and
the Operating Company dated on or around April 1, 2018, (iii) the Agreement and
Consent to Sublease among the Borrower, the Operating Company and the Hospital
District dated on or around April 1, 2018 together with each document delivered
in connection therewith, including, without limitation, the Security Agreement
and the Sublandlord Collateral Assignment (in each case, as defined therein) and
(iv) any other documents entered into in connection with the Facility’s
inclusion in the QIPP.

 

“QIPP Supplemental Payments” shall mean any payment received by Hospital
District (which are subsequently paid to the Operating Company) from CMS, the
State of Texas, HHSC, or any of their respective intermediaries or contractors,
including Managed Care Organizations, for participation in QIPP, relating to
services provided to Medicaid residents of the Facility that are in excess of
the Medicaid reimbursement rates.

 

“Real Estate Lease” means that certain Amended and Restated Lease dated as of
January 1, 2018 by and between the Borrower and the Operating Company regarding
the Facility, pursuant to which the Borrower leases the Real Property to the
Operating Company and the related Sublease Agreement dated on or around April 1,
2018 by and between the Operating Company and the Hospital District, pursuant to
which the Operating Company subleases the Real Property to the Hospital
District.

 

“Real Property” means the real estate on which the Facility is located.

 

 - 13 - 

 

 

“Release” means any actual or threatened spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing of Hazardous Substances into the environment, as “environment” is
defined in CERCLA.

 

“Rent Expense” shall mean all rental or lease expense of the Operating Company
in connection with the Facility leased by the Borrower to the Operating Company.

 

“Respond” or “Response” means any action taken pursuant to Environmental Laws to
correct, remove, remediate, cleanup, prevent, mitigate, monitor, evaluate,
investigate or assess the Release of a Hazardous Substance.

 

“Subordinated Debt” means any and all Indebtedness owing by the Borrower to a
third party that has been subordinated to the Liabilities in writing on terms
and conditions satisfactory to the Lender in its sole and absolute
determination.

 

“Subsequent Draw” means an advance of the Loan equal to the amount of the
Maximum Facility minus all amounts of the Loan advanced on the Closing Date.

 

“Subsequent Draw Availability Period” means the period commencing on the date
that each of the Subsequent Draw Conditions have been satisfied as determined by
the Lender in its sole discretion and continuing for thirty (30) days
thereafter.

 

“Subsequent Draw Conditions” means the following conditions

 

(i)          the Lender shall have received financial statements of the
Operating Company (showing results of the operation of the Facility) for the
Fiscal Year ended December 31, 2017, reviewed by an independent certified public
accountants reasonably acceptable to the Lender, together with, at least,
balance sheets and statements of income and cash flow for such period, prepared
in conformity with GAAP and otherwise in in form and substance reasonably
acceptable to the Lender;

 

(ii)         the financial statements referenced in above do not differ in any
material respect with the company prepared financial statements of the Operating
Company delivered to the Lender prior to the Closing Date for the Fiscal Year
ended December 31, 2017, as determined by the Lender in its sole discretion; and

 

(iii)        the Lender shall have received a request from the Borrower in form
and substance acceptable to the Lender requesting that the Lender make the
Subsequent Draw and certifying that, to the knowledge of the Borrower, all
Subsequent Draw Conditions have been satisfied;

 

(iv)        no Material Adverse Change shall have occurred since the Closing
Date; and

 

(v)         immediately before and after giving pro forma effect to the
Subsequent Draw Distribution to be made with the proceeds of the Subsequent Draw
(1) no Default or Event of Default has occurred and is continuing and (2) the
Borrower shall have delivered to Lender financial statements necessary to
determine current compliance with the financial covenants set forth in Section
9.12 of this Agreement along with a true, correct and complete copy of the
Compliance Certificate showing pro forma effect to the Subsequent Draw and
Subsequent Draw Distribution to be made in connection therewith.

 

 - 14 - 

 

 

“Subsequent Draw Distribution” means a distribution to be made concurrently with
and to the extent the Subsequent Draw is advanced hereunder, such distribution
to be made with the proceeds of the Subsequent Draw by Borrower to Parent and in
an amount not to exceed the amount advanced as the Subsequent Draw.

 

“Summit” means Summit Healthcare REIT, Inc., a Maryland corporation.

 

“Summit Note” means that certain Amended and Restated Promissory Note dated as
of January 1, 2018 made by the Operating Company in favor of Summit Healthcare
Operating Partnership, L.P. in the original principal amount of $1,067,874.00
and only accruing interest upon a default thereunder at a rate equal to ten
percent (10%) per annum, with respect to which $1,001,131.88 remains outstanding
as of the Closing Date.

 

“Summit Note Subordination Agreement” means that certain Debt Subordination
Agreement dated as of the date hereof by and among the Borrower, Lender,
Operating Company and Summit Healthcare Operating Partnership, L.P. pursuant to
which the obligations owing under the Summit Note are subordinated to the
obligations of the Operating Company owing to the Borrower under the Real Estate
Lease and the Liabilities, as the same may be amended, restated, supplemented or
otherwise modified from time to time.

 

“Swap Obligation” means any obligation under or pursuant to any Hedging
Agreement or any other agreement, contract or transaction that constitutes a
“swap” within the meaning of section 1a(47) of the Commodity Exchange Act.

 

“Tax Code” shall have the meaning ascribed to such term in Section 7.19 hereof.

 

“Tax Liability Amount” shall have the meaning ascribed to such term in Section
9.9 hereof.

 

“Taxes” shall have the meaning ascribed to such term in Section 3.3 hereof.

 

“TRICARE” means the medical program for active duty members, qualified family
members, CHAMPUS eligible retirees and their family members and survivors, of
all uniformed services.

 

1.2           Accounting Terms. Any accounting terms used in this Agreement
which are not specifically defined herein shall have the meanings customarily
given to such terms in accordance with GAAP. If changes in GAAP shall be
mandated by the Financial Accounting Standards Board or shall be recommended by
the Borrower’s certified public accountants, and such changes would materially
modify the interpretation or computation of the financial covenants set forth in
Section 9.12 hereof at the time of execution hereof, then in such event such
changes shall not be followed in calculating such financial covenants.

 

 - 15 - 

 

 

1.3           Others Defined in Code. All terms contained in this Agreement (and
which are not otherwise specifically defined herein) shall have the meanings
provided by the Code to the extent the same are used or defined therein.

 

1.4           Other Interpretive Provisions.

 

(a)          The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms. Whenever the context so
requires, the neuter gender includes the masculine and feminine, the single
number includes the plural, and vice versa.

 

(b)          Section and Schedule references are to this Agreement unless
otherwise specified. The words “hereof”, “herein” and “hereunder” and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement.

 

(c)          The term “including” is not limiting, and means “including, without
limitation”.

 

(d)          In the computation of periods of time from a specified date to a
later specified date, the word “from” means “from and including”; the words “to”
and “until” each mean “to but excluding”, and the word “through” means “to and
including”.

 

(e)          Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement and the other Financing Agreements) and
other contractual instruments shall be deemed to include all subsequent
amendments, restatements, supplements and other modifications thereto, but only
to the extent such amendments, restatements, supplements and other modifications
are not prohibited by the terms of this Agreement or any Financing Agreement,
and (ii) references to any statute or regulation shall be construed as including
all statutory and regulatory provisions amending, replacing, supplementing or
interpreting such statute or regulation.

 

2.          COMMITMENT; INTEREST; FEES.

 

2.1           Loan. On the terms and subject to the conditions set forth in this
Agreement, and provided there does not then exist an Event of Default and all
other conditions have been satisfied (including, without limitation, all
conditions set forth in Section 5 and, with respect to the Subsequent Draw, if
any, the Subsequent Draw Conditions), the Lender shall, (i) following the
execution of this Agreement by the Borrower and the Lender, extend in one (1)
advance on the Closing Date a term loan (the “Initial Loan Advance”) to the
Borrower in an aggregate principal amount equal to the lesser of (y) Nine
Million Seventeen Thousand Three Hundred Fifteen and 94/100 Dollars
($9,017,315.94) or (z) the Maximum Facility and (ii) at any time requested by
the Borrower during the Subsequent Draw Availability Period, the Subsequent Draw
to be extended in one (1) advance (any advance of the Subsequent Draw, together
with the Initial Loan Advance is herein referred to collectively as the “Loan”).
The outstanding principal balance of the Loan shall be repaid by Borrower in
principal installments based on a twenty-five (25) year amortization schedule in
consecutive monthly installments as set forth below, provided, however, that
unless an Event of Default is in existence or Borrower otherwise direct Lender
in writing, each scheduled installment of principal paid by Borrower following
the expiration of the interest only period shall be deposited into the Cash Loan
Guaranty Fund in lieu of releasing such installment to Lender for application to
the outstanding principal balance of the Loan. If the Liabilities are repaid in
full on or before the Maturity Date, the funds contained in the Cash Loan
Guaranty Fund shall be released to Borrower in connection with such repayment. 
If the Liabilities are not repaid in full on or before the Maturity Date, or at
any time during the existence of an Event of Default, the funds then contained
in the Cash Loan Guaranty Fund shall be released to Lender for application to
the outstanding principal balance of the Liabilities.  For avoidance of doubt,
the outstanding principal balance of the Loan, unreduced by the funds contained
in Cash Loan Guaranty Fund, shall bear interest in accordance with Section 2.5.

 

 - 16 - 

 

 

Closing Date through the   First anniversary of the Closing Date: $220,000,
annually ($18,334/month)     First Anniversary of the   Closing Date through the
Second   Anniversary of the Closing Date: $230,000, annually ($19,167/month)    
Second Anniversary of the Closing Date and thereafter: $240,000 annually
($20,000/month)

 

Each of the foregoing payments shall be paid together with interest accrued on
the Loan, each payable on or before the fifth (5th) day of each calendar month,
commencing on May 5, 2018, and otherwise in accordance with Section 2.5 hereof,
with a final installment of the aggregate unpaid principal balance of the Loan,
together with interest accrued thereon, payable on the Maturity Date. Monthly
interest payments on the Loan shall be computed using the interest rate then in
effect and based on the outstanding principal balance of the Loan. Any amounts
paid or applied to the principal balance of the Loan (whether by mandatory
prepayment or otherwise) may not be reborrowed hereunder. The Lender's
commitment hereunder to make the Loan is hereinafter called the “Commitment”. At
the Maturity Date, the outstanding principal balance of the Loan shall be
immediately due and payable, together with any remaining accrued interest
thereon, to Lender by Borrower. The Loan shall be evidenced by a promissory note
(hereinafter, as the same may be amended, modified or supplemented from time to
time, and together with any renewals or extensions thereof or exchanges or
substitutions therefor, called the “Note”), duly executed and delivered by the
Borrower, in form and substance reasonably satisfactory to the Lender, with
appropriate insertions, dated the Closing Date, payable to the order of the
Lender in the principal amount of Ten Million Seven Hundred Twenty-Five Thousand
and No/100 Dollars ($10,725,000.00). THE PROVISIONS OF THE NOTE NOTWITHSTANDING,
THE LOAN SHALL BECOME IMMEDIATELY DUE AND PAYABLE UPON THE EARLIEST TO OCCUR OF
(X) THE MATURITY DATE; (Y) THE ACCELERATION OF THE LIABILITIES PURSUANT TO
SECTION 10.2 HEREOF; AND (Z) THE TERMINATION OF THIS AGREEMENT (WHETHER BY
PREPAYMENT OR OTHERWISE) IN ACCORDANCE WITH ITS TERMS.

 

 - 17 - 

 

  

2.2           Reserved.

 

2.3           The Borrower’s Loan Account. The Lender shall maintain a loan
account (the “Loan Account”) on its books for the Borrower in which shall be
recorded (a) all advances of the Loan made by the Lender to the Borrower
pursuant to this Agreement, (b) all payments made by the Borrower on or with
respect to such Loan, and (c) all other appropriate debits and credits as
provided in this Agreement, including, without limitation, all fees, charges,
expenses and interest. All entries in the Loan Account shall be made in
accordance with the Lender’s customary accounting practices as in effect from
time to time. The Borrower promises to pay the amount reflected as owing by
Borrower under its Loan Account and all of its other obligations hereunder as
such amounts become due or are declared due pursuant to the terms of this
Agreement. Notwithstanding the foregoing, the failure so to record any such
amount or any error in so recording any such amount shall not limit or otherwise
affect the Borrower’s obligations under this Agreement or under the Note to
repay the outstanding principal amount of the Loan together with all interest
accruing thereon.

 

2.4           Statements. The Loan to the Borrower, and all other debits and
credits provided for in this Agreement, shall be evidenced by entries made by
the Lender in its internal data control systems showing the date, amount and
reason for each such debit or credit. Until such time as the Lender shall have
rendered to the Borrower written statements of account as provided herein, the
balance in the Loan Account, as set forth on the Lender’s most recent computer
printout, shall be rebuttably presumptive evidence of the amounts due and owing
the Lender by the Borrower. From time to time the Lender shall render to the
Borrower a statement setting forth the balance of the Loan Account, including
principal, interest, expenses and fees. Each such statement shall be subject to
subsequent adjustment by the Lender but shall, absent manifest errors or
omissions, be presumed correct and binding upon the Borrower.

 

2.5           Interest. (a) The Borrower agrees to pay to the Lender interest on
the daily outstanding principal balance of the Loan at the Libor Rate; provided,
however, that if Libor Loans are unavailable pursuant to the terms of this
Agreement, then at the Base Rate; provided, however, that immediately following
the occurrence and during the continuance of an Event of Default, and
notwithstanding any other provisions of this Agreement to the contrary, the
Borrower agrees to pay to the Lender interest on the outstanding principal
balance of the Loans at the per annum rate of three percent (3%) plus the rate
otherwise payable hereunder with respect to such Loans (the “Default Rate”).

 

(b)          Accrued interest on each Base Rate Loan (to the extent Libor Loans
are unavailable under applicable law or pursuant to the terms of this Agreement)
shall be payable in arrears on or before the fifth (5th) calendar day of each
month and at maturity, such payments to commence on May 5, 2018; provided,
however, accrued interest on each Libor Loan shall be payable on the last day of
the Libor Interest Period relating to such Libor Loan and at maturity,
commencing with the first such last day of the initial Libor Interest Period.
Monthly interest payments on the Loans shall be computed using the interest rate
then in effect and based on the outstanding principal balance of the Loans. At
the Maturity Date, the outstanding principal balance of the Loan shall be
immediately due and payable, together with any remaining accrued interest
thereon. Interest shall be computed on the basis of a year of three hundred
sixty (360) days for the actual number of days elapsed. If any payment of
principal of, or interest on, the Note falls due on a day that is not a Business
Day, then such due date shall be extended to the next following Business Day,
and additional interest shall accrue and be payable for the period of such
extension.

 

 - 18 - 

 

 

2.6           Method for Making Payments; Authorization to Debit Lease Deposit
Account. All payments that the Borrower is required to make to the Lender under
this Agreement or under any of the other Financing Agreements shall be made in
immediately available funds not later than 1:00 p.m. (Chicago time) on the date
of payment at the Lender’s office at 120 S. LaSalle St., Chicago, Illinois
60603, or at such other place as the Lender directs in writing from time to
time, or, in the Lender’s sole and absolute discretion, by appropriate debits to
the Lease Deposit Account or other operating accounts of the Borrower. Borrower
hereby irrevocably authorizes and instructs Lender to direct debit any of
Borrower’s operating accounts with Lender, including, without limitation, the
Lease Deposit Account, for all principal, interest, fees and expenses due
hereunder with respect to the Loan and the Liabilities or as otherwise is
required to be deposited into the Cash Loan Guaranty Fund. Payments made after
1:00 p.m. (Chicago time) shall be deemed to have been made on the next
succeeding Business Day.

 

2.7           Term of this Agreement. The Borrower shall have the right to
terminate this Agreement following prepayment of all of the Liabilities as
provided under Section 2.8 hereof; provided, however, that all of the Lender’s
rights and remedies under this Agreement and the Liens created under Section 6.1
hereof and under any of the other Financing Agreements, shall survive such
termination until all of the Liabilities have been indefeasibly paid in full
(including, without limitation, all default interest and all interest accrued
after commencement of any insolvency or bankruptcy proceeding, whether or not
the foregoing would be or is allowed or disallowed in whole or in part in any
such insolvency or bankruptcy proceeding), and termination of the Lender’s
Commitment hereunder. In addition, the Liabilities may be accelerated as set
forth in Section 10.2 hereof. Upon the effective date of termination, all of the
Liabilities shall become immediately due and payable without notice or demand.
Notwithstanding any termination, until all of the Liabilities shall have been
indefeasibly paid and satisfied, the Lender shall be entitled to retain its
Liens in and to all existing and future Collateral.

 

2.8           Optional Prepayment of Loan. The Borrower may, at its option,
permanently prepay, at any time during the term of this Agreement all of the
Loan or any portion thereof but in minimum amounts of no less than Fifty
Thousand Dollars ($50,000) or higher increments of Fifteen Thousand Dollars
($15,000) in excess of such minimum, subject to the following conditions: (i)
not less than ten (10) days prior to the date upon which the Borrower desires to
make any such prepayment, Borrower shall deliver to the Lender a written notice
of its intention to prepay all or such portion of the Loan, which notice shall
be irrevocable and state the type of Loan to be prepaid, the amount of the
prepayment and the prepayment date, and (ii) the Borrower shall pay (A) the
Prepayment Premium, if applicable, (in view of the impracticality and extreme
difficulty of ascertaining actual damages and by mutual agreement of the parties
as to a reasonable calculation of Lender's lost profits as a result of such
prepayment), (B) any amount due pursuant to Section 3.4 hereof, and (C) any
amounts due in connection with such prepayment or due under any Interest Rate
Protection Agreement. Any such Prepayment Premium shall constitute a part of the
Liabilities and be secured by the Collateral. Prepayments of the Loan shall be
applied against installments payable under such applicable Note in the inverse
order of maturity. Amounts prepaid on account of any of the Loan may not be
reborrowed. The parties agree that the Prepayment Premium is not a penalty.

 

 - 19 - 

 

 

2.9           Limitation on Charges. It being the intent of the parties that the
rate of interest and all other charges to the Borrower be lawful, if for any
reason the payment of a portion of the interest or other charges otherwise
required to be paid under this Agreement would exceed the limit which the Lender
may lawfully charge the Borrower, then the obligation to pay interest or other
charges shall automatically be reduced to such limit and, if any amounts in
excess of such limit shall have been paid, then such amounts shall at the sole
option of the Lender either be refunded to the Borrower or credited to the
principal amount of the Liabilities (or any combination of the foregoing) so
that under no circumstances shall the interest or other charges required to be
paid by the Borrower hereunder exceed the maximum rate allowed by applicable
law, and Borrower shall not have any action against Lender for any damages
arising out of the payment or collection of any such excess interest.

 

2.10         Method of Selecting Rate Options; Additional Provisions Regarding
Libor Loans. At all times during the term of this Agreement that Libor Loans are
available under applicable law and the terms of this Agreement, the Borrower
hereby selects the Libor Rate with respect to all, but not less than all, of the
amount of the Loan from time to time outstanding. Notwithstanding anything
contained herein to the contrary, the Loan shall not bear interest at the Base
Rate unless Libor Loans are unavailable as determined by Lender. Subject to
Section 3 of this Agreement, in the event the Lender determines that Libor Loans
are unavailable for any reason, the Loan shall automatically convert to a Base
Rate Loan. In such event, the Borrower hereby agrees that, as soon as Lender has
notified Borrower that Libor Loans have become available, the Borrower shall
have automatically be deemed to have selected the Libor Rate with respect to
all, but not less than all, of the amount of the Loan outstanding at such time
with a Conversion Date as selected by the Lender. Each Libor Loan shall bear
interest from and including the first day of the Libor Interest Period
applicable thereto to (but not including) the last day of such Libor Interest
Period at the interest rate applicable to such Libor Loan. At the end of a Libor
Interest Period for an outstanding Libor Loan, as long as no Default or Event of
Default exists at any time, such Loan will automatically be continued for
successive Libor Interest Periods subject to the first proviso in Section 2.5(a)
hereof. An outstanding Base Rate Loan may be converted to a Libor Loan as set
forth in this Section 2.10. Unless otherwise agreed to by Lender, the Borrower
may not select a Libor Rate for a Loan if there exists a Default or Event of
Default and in such event, Lender may elect to indicate that Libor Loans shall
be deemed “unavailable” for purposes of this Agreement. No Libor Interest
Periods may expire after the end of the Maturity Date and, in such case, the
Loan will bear interest at the Base Rate during such period.

 

2.11         Setoff. (a) Borrower agrees that Lender has all rights of setoff
and banker’s liens provided by applicable law. The Borrower agrees that, if at
any time (i) any amount owing by it under this Agreement or any Financing
Agreement is then due and payable to the Lender or (ii) an Event of Default
shall have occurred and be continuing, then the Lender or the holder of the Note
issued hereunder, in its sole discretion, may set off against and apply to the
payment of any and all Liabilities, any and all balances, credits, deposits,
accounts or moneys of the Borrower then or thereafter with the Lender or such
holder.

 

 - 20 - 

 

 

(b)          Without limitation of Section 2.11(a) hereof, the Borrower agrees
that, upon and after the occurrence and during the continuance of any Event of
Default, the Lender is hereby authorized, at any time and from time to time,
without prior notice to the Borrower, (i) to set off against and to appropriate
and apply to the payment of any and all Liabilities any and all amounts which
the Lender is obligated to pay over to the Borrower (whether matured or
unmatured, and, in the case of deposits, whether general or special, time or
demand and however evidenced), and (ii) pending any such action, to the extent
necessary, to deposit such amounts with the Lender as Collateral to secure such
Liabilities and to dishonor any and all checks and other items drawn against any
deposits so held as the Lender in its sole discretion may elect.

 

(c)          The rights of the Lender under this Section 2.11 are in addition to
all other rights and remedies which the Lender may otherwise have in equity or
at law.

 

2.12         Termination of Commitment by the Lender. On the date on which the
Commitment terminates pursuant to Section 10.2 hereof, the Loan and other
Liabilities shall become immediately due and payable, without presentment,
demand or notice of any kind.

 

2.13         Commitment Fee. On the Closing Date, the Borrower shall pay to the
Lender a one-time commitment fee in the amount of One Hundred Seven Thousand Two
Hundred Fifty and 00/100 ($107,250.00), which shall be deemed fully earned as of
the Closing Date.

 

2.14         Late Charge. If any installment of principal or interest due
hereunder shall become overdue for five (5) days after the date when due, the
Borrower shall pay to the Lender on demand a “late charge” of five cents ($.05)
for each dollar so overdue in order to defray part of the increased cost of
collection occasioned by any such late payment, as liquidated damages and not as
a penalty.

 

3.            CHANGE IN CIRCUMSTANCES.

 

3.1           Yield Protection. If, after the date of this Agreement, a Change
in Law,

 

(a)          subjects the Lender to any tax, duty, charge or withholding on or
from payments due from the Borrower (excluding taxation of the overall net
income of the Lender), or changes the basis of taxation of payments to the
Lender in respect of the Loan or other amounts due it hereunder, or

 

(b)          imposes, modifies, or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by, the
Lender (other than reserves and assessments taken into account in determining
the interest rate applicable to Libor Loans), or

 

(c)          imposes any other condition the result of which is to increase the
cost to the Lender of making, funding or maintaining advances or reduces any
amount receivable by the Lender in connection with advances, or requires the
Lender to make any payment calculated by reference to the amount of advances
held or interest received by it, by an amount deemed material by the Lender, or

 

(d)          affects the amount of capital required or expected to be maintained
by the Lender or any corporation controlling the Lender and the Lender
determines the amount of capital required is increased by or based upon the
existence of this Agreement or its obligation to make the Loan hereunder or of
commitments of this type,

 

 - 21 - 

 

 

then, within three (3) Business Days of demand by the Lender, the Borrower
agrees to pay the Lender that portion of such increased expense incurred
(including, in the case of clause (d), any reduction in the rate of return on
capital to an amount below that which it could have achieved but for such law,
rule, regulation, policy, guideline or directive and after taking into account
the Lender’s policies as to capital adequacy) or reduction in an amount received
which the Lender determines is attributable to making, funding and maintaining
the Loan.

 

3.2           Availability of Rate Options. If the Lender determines that
maintenance of any of its Libor Loans would violate any applicable law, rule,
regulation or directive of any government or any division, agency, body or
department thereof, whether or not having the force of law, the Lender shall
suspend the availability of the Libor Rate option and require any Libor Loans
outstanding to be promptly converted to a Base Rate Loan subject to the
Borrower’s compliance with Section 3.4 hereof; or if the Lender determines that
(i) deposits of a type or maturity appropriate to match fund Libor Loans are not
available, the Lender shall suspend the availability of the Libor Rate after the
date of any such determination, or (ii) the Libor Rate does not accurately
reflect the cost of making a Libor Loan, then, if for any reason whatsoever the
provisions of Section 3.1 hereof are inapplicable, the Lender shall, at its
option, suspend the availability of the Libor Rate after the date of any such
determination or permit (solely in the case of clause (ii)) the Borrower to pay
the Lender for any increased cost it may incur.

 

3.3           Taxes. All payments by the Borrower under this Agreement shall be
made free and clear of, and without deduction for, any present or future income,
excise, stamp or other taxes, fees, levies, duties, withholdings or other
charges of any nature whatsoever, now or hereafter imposed by any taxing
authority, other than franchise taxes and taxes imposed on or measured by the
Lender’s net income or receipts (such non-excluded items being called “Taxes”).
If any withholding or deduction from any payment to be made by the Borrower
hereunder is required in respect of any Taxes pursuant to any applicable law,
rule or regulation, then the Borrower shall:

 

(a)          pay directly to the relevant authority the full amount required to
be so withheld or deducted;

 

(b)          promptly forward to the Lender an official receipt or other
documentation satisfactory to the Lender evidencing such payment to such
authority; and

 

(c)          pay to the Lender such additional amount or amounts as is necessary
to ensure that the net amount actually received by the Lender will equal the
full amount the Lender would have received had no such withholding or deduction
been required.

 

Moreover, if any Taxes are directly asserted against the Lender with respect to
any payment received by the Lender hereunder, the Lender may pay such Taxes and
the Borrower agrees to promptly pay such additional amounts (including, without
limitation, any penalties, interest or expenses) as is necessary in order that
the net amount received by the Lender after the payment of such Taxes
(including, without limitation, any Taxes on such additional amount) shall equal
the amount the Lender would have received had not such Taxes been asserted.
Notwithstanding the foregoing, if the Lender fails to timely pay any such Taxes
after the Lender receives prior written notice of such Taxes being due prior to
the date such Taxes are due, then any penalty directly resulting from the
failure to timely pay such Taxes shall not be borne by the Borrower.

 

 - 22 - 

 

 

3.4           Funding Indemnification. If any payment of a Libor Loan occurs on
a date that is not the last day of the applicable Libor Interest Period, whether
because of acceleration, prepayment or otherwise, or a Libor Loan is not made on
the date specified by the Borrower, the Borrower shall indemnify the Lender for
any loss or cost incurred by it resulting therefrom, including, without
limitation, any loss or cost in liquidating or employing deposits acquired to
fund or maintain the Libor Loan.

 

3.5           Lender Statements. The Lender shall deliver a written statement to
the Borrower as to the amount due, if any, under Sections 3.1, 3.3 or 3.4
hereof. Such written statement shall set forth in reasonable detail the
calculations upon which the Lender determined such amount and shall be final,
conclusive and binding on the Borrower in the absence of manifest error. Unless
otherwise provided herein, the amount specified in the written statement shall
be payable within five (5) days after receipt by the Borrower of the written
statement.

 

3.6           Basis for Determining Interest Rate Inadequate or Unfair. If with
respect to any Libor Interest Period: (a) Lender determines (which determination
shall be binding and conclusive on the Borrower) that by reason of circumstances
affecting the interlender Libor Base market adequate and reasonable means do not
exist for ascertaining the applicable Libor Base Rate; or (b) Lender determines
that the Libor Base Rate will not adequately and fairly reflect the cost to
Lender of maintaining or funding the Loan for such Libor Interest Period, or
that the making or funding of Libor Loans has become impracticable as a result
of an event occurring after the date of this Agreement which in the opinion of
Lender adversely affects such Libor Loans, then, in either case, so long as such
circumstances shall continue: (i) Lender shall not be under any obligation to
make, convert into or continue Libor Loans and (ii) on the last day of the then
current Libor Interest Period for each Libor Loan, each such Loan shall, unless
then repaid in full, automatically convert to a Base Rate Loan. Lender shall
promptly give the Borrower written notice of any determination made by it under
this Section accompanied by a statement setting forth in reasonable detail the
basis of such determination.

 

3.7           Illegality. If any applicable law or regulation, or any
interpretation thereof by any court or any governmental or other regulatory body
charged with the administration thereof, should make it unlawful for Lender or
its lending office to make, maintain or fund any Libor Loan, then the obligation
of Lender to make, convert into or continue such Libor Loan shall, upon the
effectiveness of such event, be suspended for the duration of such unlawfulness,
and on the last day of the current Libor Interest Period for such Libor Loan
(or, in any event, if Lender so requests, on such earlier date as may be
required by the relevant law, regulation or interpretation), the Libor Loans
shall, unless then repaid in full, automatically convert to Base Rate Loans.

 

 - 23 - 

 

  

4.            ATTORNEY-IN-FACT.

 

4.1           Appointment of the Lender as the Borrower’s Attorney-in-Fact. The
Borrower hereby irrevocably designates, makes, constitutes and appoints the
Lender (and all Persons designated by the Lender in writing to the Borrower) as
the Borrower’s true and lawful attorney-in-fact, and authorizes the Lender, in
the Borrower’s or the Lender’s name to do all acts and things which are
necessary, in the Lender’s reasonable discretion, to fulfill the Borrower’s
obligations under this Agreement. The Borrower hereby ratifies and approves all
acts under such power of attorney and neither Lender nor any other Person acting
as Borrower’s attorney hereunder will be liable for any acts or omissions or for
any error of judgment or mistake of fact or law made in good faith. The
appointment of Lender (and any of the Lender’s officers, employees or agents
designated by the Lender) as Borrower’s attorney, and each and every one of
Lender’s rights and powers, being coupled with an interest, are irrevocable
until all of the Liabilities have been fully repaid and this Agreement shall
have expired or been terminated in accordance with the terms hereunder.

 

5.            CONDITIONS OF THE LOAN.

 

The Lender’s obligation to make all or any part of the Loan hereunder is subject
to the satisfaction of each of the following conditions precedent:

 

(a)          Fees and Expenses. The Borrower shall have paid all fees owed to
the Lender and reimbursed the Lender for all reasonable costs, disbursements,
fees and expenses due and payable hereunder on or before the Closing Date,
including, without limitation, the Lender’s counsel fees provided for in Section
11.2(a) hereof.

 

(b)          Documents. The Lender shall have received all of the following,
each duly executed and delivered and dated the Closing Date, or such earlier
date as shall be satisfactory to the Lender, each in form and substance
reasonably satisfactory to the Lender in its sole determination:

 

(1)         Financing Agreements. This Agreement, the Note, the Mortgage, the
Assignment of Rents and Leases, the Collateral Assignment of Agreements, the
Environmental Indemnity Agreement, the Pledge Agreement and such other Financing
Agreements as the Lender may reasonably require.

 

(2)         Resolutions; Incumbency and Signatures. Copies of the resolutions or
written consent of the manager of each Credit Party authorizing or ratifying the
execution, delivery and performance by such Credit Party of this Agreement, the
Financing Agreements to which such Credit Party is a party and any other
document provided for herein or therein to be executed by such Credit Party,
certified by a Duly Authorized Person of such Credit Party and, in each case, to
the extent applicable. A certificate of a Duly Authorized Person certifying the
names of the officers of the Borrower authorized to make a borrowing request on
behalf of the Borrower and sign this Agreement and the Financing Agreements to
which the Borrower is a party, together with a sample of the true signature of
each such officer; the Lender may conclusively rely on each such certificate
until formally advised by a like certificate of any changes therein.

 

(3)         Consents. Certified copies of all documents evidencing any necessary
consents and governmental approvals, if any, with respect to this Agreement, the
Financing Agreements, and any other documents provided for herein or therein to
be executed by Borrower.

 

 - 24 - 

 

 

(4)         Opinion of Counsel. An opinion of Hanson Bridgett, LLP and Macdonald
Resnevic, PLLC, the legal counsel to the Credit Parties, in form and substance
reasonably satisfactory to Lender.

 

(5)         Constitutive Documents. A copy (certified by a Duly Authorized
Person) of each Credit Party’s (i) Certificate of Formation, certified by the
Secretary of State of the State of Delaware as of a date acceptable to the
Lender, together with a good standing certificate from such governmental entity
or department and, if and to the extent applicable, a good standing certificate
(or the equivalent thereof) from the Secretaries of State (or the equivalent
thereof) of each other State in which any Credit Party is required to be
qualified to transact business and (ii) a true, correct and complete copy of the
Limited Liability Company Agreement of the Borrower and the Parent.

 

(6)         UCC Financing Statements; Termination Statements; UCC Searches. UCC
Financing Statements, as requested by the Lender, naming each Credit Party as
debtor and the Lender as secured party with respect to the Collateral, together
with such UCC termination statements necessary to release all Liens (other than
Permitted Liens but, for the avoidance of doubt, including any Liens securing
the Debt to be Repaid) and other rights in favor of any Person in any of the
Collateral except the Lender, and other documents as the Lender deems necessary
or appropriate, shall have been filed in all jurisdictions that the Lender deems
necessary or advisable. UCC tax, lien, pending suit and judgment searches for
the Borrower (and, if and to the extent applicable, under any of its trade or
assumed names, if any), each dated a date reasonably near to the Closing Date in
all jurisdictions reasonably deemed necessary by the Lender, the results of
which shall be satisfactory to the Lender in its sole and absolute
determination.

 

(7)         Insurance Certificates. Certificates from the Borrower’s insurance
carriers evidencing that all insurance coverage required hereunder and under the
Mortgage and other Financing Agreements is in effect, which designate the Lender
as “Lender’s Loss Payee” under the personal property insurance, additional
insured under the liability insurance and mortgagee, as applicable.

 

(8)         Real Estate Lease. A true, correct and complete copy of the
fully-executed Real Estate Lease, and all amendments, assignments, modifications
and other supplements in connection therewith, together with a Subordination,
Non-Disturbance and Attornment Agreement with respect to the Facility, in each
case, in a form and substance acceptable to Lender, including, without
limitation, evidence that the Rent Expense associated with the Real Estate Lease
on an annual basis is not less than One Million Three Hundred Thousand and
00/100 Dollars ($1,300,000) in the aggregate

 

(9)         Debt to be Repaid. All Debt to be Repaid has been (or concurrently
with the initial borrowing of the Loan will be) paid in full, and all agreements
and instruments governing the Debt to be Repaid and all Liens securing such Debt
to be Repaid have been (or concurrently with the initial borrowing of the Loan
will be) terminated.

 

 - 25 - 

 

 

(10)        Property Condition Report. A Property Condition Report for the Real
Property on which the Facility is located, the form, substance and results of
which shall be satisfactory to Lender in its sole and absolute determination,
unless waived in writing by Lender.

 

(11)        Environmental Assessment. Phase I environmental report of the Real
Property on which the Facility is located prepared by an environmental audit
firm reasonably acceptable to the Lender, the results of which shall be
satisfactory to the Lender in its sole and absolute determination.

 

(12)        Title Insurance. A title insurance policy in the form of ALTA Form
Mortgagee Title Insurance Policy shall be issued by an insurer (acceptable to
the Lender) in favor of the Lender for the Real Property, together with copies
of all documents of record concerning the Real Property as identified on the
commitment thereof. Each title insurance policy shall contain such endorsements
as deemed appropriate by the Lender.

 

(13)        Survey. An ALTA plat of survey shall be prepared on the Real
Property (with current ALTA/ACSM land survey standards and reasonably
satisfactory to the Lender), unless waived in writing by the Lender.

 

(14)        Appraisal. An appraisal prepared by an independent appraiser of the
Real Property, which appraisal shall satisfy the requirements of the Financial
Institutions Reform, Recovery and Enforcement Act, if applicable, and shall
evidence compliance with the supervisory loan-to-value limits set forth in the
Federal Deposit Insurance Corporation Improvement Act of 1991 (including a
loan-to-value ratio using an income-approach basis not to exceed 75%). Such
appraisal (and the results thereof) shall be satisfactory to the Lender in its
sole and reasonable determination.

 

(15)        Flood Insurance. A flood insurance policy, if applicable, concerning
the Real Property, reasonably satisfactory to the Lender, if required by the
Flood Disaster Protection Act of 1973.

 

(16)        Permits. Certified copies of all licenses, permits and governmental
approvals necessary for the use or operation of the Facility, together with a
certificate of occupancy with respect to the Facility issued in the name of the
Operating Company or, as applicable as the same relates to participation in the
QIPP, the Hospital District.

 

(17)        Management Agreement. True, correct and complete copies of the
fully-executed Management Agreement in form and substance satisfactory to the
Lender in its sole discretion.

 

(18)        Summit Note Subordination Agreement. The Summit Note Subordination
Agreement in form and substance satisfactory to the Lender in its sole
discretion.

 

(19)        QIPP Agreements. A true, correct and complete copy of each
fully-executed QIPP Agreement in form and substance satisfactory to the Lender
in its sole discretion.

 

(20)        Other. Such other documents, certificates and instruments as the
Lender may reasonably request.

 

 - 26 - 

 

 

(c)          Field Examination; Site Visit. The Lender shall have completed its
site visit and field examinations of the Borrower’s books and records, assets,
and operations which examinations will be satisfactory to the Lender in its sole
and absolute discretion.

 

(d)          No Material Adverse Change. Since December 31, 2016, there shall be
no material adverse change in the business, assets, liabilities, properties,
condition (financial or otherwise) or results of operations of the Borrower or
Operating Company.

 

(e)          Representations and Warranties. All representations or warranties
of the Credit Parties contained herein or in any Financing Agreement shall be
true and correct as of the Closing Date.

 

(f)          Acknowledgement of Operating Company. Evidence reasonably
acceptable to the Lender that the Operating Company has acknowledged the
obligations of Borrower under Section 8.9 hereof and that the Borrower has
notified the Operating Company that all amounts payable to the Borrower under
the Real Estate Lease shall be paid directly to the Lease Deposit Account and
that the Operating Company has agreed to comply with such arrangement.

 

(g)          Financial Statements. The Lender shall have received financial
statements of the Operating Company (showing results of the operation of the
Facility) for the fiscal year ended December 31, 2016 and such financial
statements shall be in form and substance reasonably acceptable to the Lender.
The Lender shall have received (i) company prepared financial statements for the
Operating Company and Borrower for each of the fiscal years ended December 31,
2015 and December 31, 2016 and (ii) company prepared financial statements of the
operations of the Facility for the 12-month period ending December 31, 2017 and
such financial statements, in each case, shall be in form and substance
reasonably acceptable to the Lender.

 

(h)          Commitment Fee. The Borrower shall have paid to Lender (i) the
commitment fee referenced in Section 2.13 hereof (ii) and such other fees
incurred by the Lender in connection with its due diligence process.

 

(i)          Capital Structure. The capital and organizational structure of
Summit, Parent, the Borrower and their Subsidiaries shall be satisfactory to the
Lender.

 

 - 27 - 

 

  

6.            COLLATERAL.

 

6.1           Security Interest. As security for the prompt and complete payment
and performance of all of the Liabilities when due or declared due in accordance
with the terms hereof, the Borrower hereby grants, pledges, conveys and
transfers to the Lender (in addition to the security interests, assignments and
mortgages on the Real Property as contemplated by the Mortgage and the other
Financing Agreements) a continuing security interest in and to any and all
assets and personal property of the Borrower, of any kind or description,
tangible or intangible, wheresoever located and whether now existing or
hereafter arising or acquired, including the following (all of which property,
along with the products and proceeds therefrom, are individually and
collectively referred to as the “Collateral”): (a) all of Borrower’s accounts
receivable, including, without limitation, Accounts and Health-Care-Insurance
Receivables (each as defined in the Code), (b) all of the Borrower’s General
Intangibles, including, without limitation General Intangibles related to
accounts receivable and money; (c) all of Borrower’s Deposit Accounts and other
deposit accounts (general or special) with, and credits and other claims
against, the Lender, or any other financial institution with which the Borrower
maintains deposits; (d) all of the Borrower’s contracts (including any QIPP
Agreement in which the Borrower has rights), licenses, chattel paper,
instruments, notes, letters of credit, bills of lading, warehouse receipts,
shipping documents, contracts, tax refunds, documents and documents of title,
and all of the Borrower’s Tangible Chattel Paper, Documents, Electronic Chattel
Paper, Letter-of-Credit Rights, letters of credit, Software, Supporting
Obligations, Payment Intangibles, and Goods (each as defined in the Code); (e)
all of the Borrower’s Inventory and Equipment (each as defined in the Code) and
motor vehicles and trucks; (f) all of the Borrower’s monies, and any and all
other property and interests in property of the Borrower, including, without
limitation, Investment Property, Instruments, Security Entitlements,
Uncertificated Securities, Certificated Securities, Chattel Paper, and Financial
Assets (each as defined in the Code), now or hereafter coming into the actual
possession, custody or control of the Lender or any agent or Affiliate of the
Lender in any way or for any purpose (whether for safekeeping, deposit, custody,
pledge, transmission, collection or otherwise), and, independent of and in
addition to the Lender’s rights of setoff, the balance of any account or any
amount that may be owing from time to time by the Lender to the Borrower; (g)
all insurance proceeds of or relating to any of the foregoing property and
interests in property, and any key man life insurance policy covering the life
of any officer or employee of Borrower; (h) all proceeds and profits derived
from the operation of the Borrower’s business; (i) all of the other assets and
personal property of the Borrower; (j) the Lease Deposit Accounts, the Cash Loan
Guaranty Fund and, in each case, the funds relating thereto; (k) all of the
Borrower’s books and records, computer printouts, manuals and correspondence
relating to any of the foregoing and to such Borrower’s business; (k) all cash
of the Borrower; and (l) all accessions, improvements and additions to,
substitutions for, and replacements, products, profits and proceeds of any of
the foregoing.

 

6.2           Preservation of Collateral and Perfection of Security Interests
Therein. The Borrower agrees that it shall execute and deliver to the Lender,
concurrently with the execution of this Agreement, and at any time or times
hereafter at the request of the Lender, all financing statements (and the
Borrower shall pay the cost of filing or recording the same in all public
offices deemed necessary by the Lender) or other instruments and documents as
the Lender may reasonably request, in a form satisfactory to the Lender, to
perfect and keep perfected the Liens in the Collateral or to otherwise protect
and preserve the Collateral and the Lender’s Liens therein. If the Borrower
fails to do so, the Lender is authorized to sign any such financing statements
(or, if no signature is required in the filing jurisdiction, file such financing
statements without the Borrower’s signature) as the Borrower’s agent. The
Borrower further agrees that a carbon, photographic, photostatic or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement.

 

6.3           Loss of Value of Collateral. The Borrower agrees to immediately
notify the Lender of any material loss or depreciation of over $100,000 in the
value of the Collateral or any portion thereof.

 

 - 28 - 

 

 

6.4           Right to File Financing Statements. Notwithstanding anything to
the contrary contained herein, the Lender may at any time and from time to time
file financing statements, continuation statements and amendments thereto that
describe the Collateral in particular, and which contain any other information
required by the Code for the sufficiency or filing office acceptance of any
financing statement, continuation statement or amendment, including whether the
Borrower is an organization, the type of organization and any organization
identification number issued to the Borrower. The Borrower agrees to furnish any
such information to the Lender promptly upon request. Any such financing
statements, continuation statements or amendments may be signed by the Lender on
behalf of the Borrower and may be filed at any time with or without signature
and in any jurisdiction as reasonably determined by the Lender.

 

6.5           Third Party Agreements. The Borrower shall at any time and from
time to time take such steps as the Lender may reasonably require for the
Lender: (i) to obtain an acknowledgment, in form and substance reasonably
satisfactory to the Lender, of any third party having possession of any of the
Collateral that the third party holds for the benefit of the Lender, (ii) to
obtain “control” (as defined in the Code) of any Deposit Accounts, with any
agreements establishing control to be in form and substance reasonably
satisfactory to the Lender, and (iii) otherwise to ensure the continued
perfection and priority of the Lender’s security interest in any of the
Collateral and of the preservation of its rights therein.

 

6.6           All Advances One Obligation. Payment of all Liabilities shall be
secured by the Collateral and pursuant to certain of the terms of this Agreement
and the Financing Agreements. All loans or advances made to Borrower under this
Agreement shall constitute one Loan, and all of Borrower’s Liabilities shall
constitute one general obligation secured by Lender’s Lien on all of the
Collateral and by all other Liens heretofore, now, or at any time or times
granted to Lender to secure the Liabilities. Borrower agrees that all of the
rights of Lender set forth in this Agreement shall apply to any amendment,
restatement or modification of, or supplement to, this Agreement, any
supplements or exhibits hereto and the Financing Agreements, unless otherwise
agreed in writing by the Lender.

 

6.7           Commercial Tort Claims. If the Borrower shall at any time
hereafter acquire a Commercial Tort Claim (as defined in the Code), the Borrower
shall promptly notify the Lender of same in a writing signed by the Borrower
(describing such claim in reasonable detail) and grant to the Lender in such
writing (at the sole cost and expense of the Borrower) a continuing,
first-priority security interest therein and in the proceeds thereof, with such
writing to be in form and substance satisfactory to the Lender in its sole and
absolute determination.         

 

6.8           Cash Loan Guaranty Fund. Prior to the funding of the Loan on the
Closing Date, the Borrower agrees to establish and hereby grants the Lender a
security interest in a restricted account set up for the purpose of depositing
the Cash Loan Guaranty Fund reserve held by the Lender. The Cash Loan Guaranty
Fund established with the Lender shall be invested in such a manner as shall be
mutually agreed upon among the Lender and the Borrower; and, in the event there
shall be no agreement, then as shall be determined by the Lender in its sole
discretion. The Lender shall have sole access to the Cash Loan Guaranty Fund,
provided, however, that the Lender may use such funds solely to repay amounts
owed under the Loan upon maturity of the Loan or while any Event of Default
exists and to apply such funds to other Liabilities as and when the same become
due and payable. Any and all interest on the Cash Loan Guaranty Fund shall be
added to the Cash Loan Guaranty Fund and shall be property of the Borrower
subject to the security interests granted herein and, upon repayment in full of
the Liabilities and the termination of this Agreement, such interest shall be
paid to the Borrower; provided, however, that at any time an Event of Default
has occurred and continuing, the Borrower acknowledges and agrees that such
interest may be applied to the Liabilities by the Lender. The failure of
Borrower to comply with the provisions of this paragraph shall be considered an
Event of Default and immediately entitle the Lender to any of the remedies
provided in this Agreement. Nothing in this Section shall mitigate, limit or
otherwise affect any of the Borrower’s obligations under this Agreement.

 

 - 29 - 

 

 

7.            REPRESENTATIONS AND WARRANTIES.

 

The Borrower represents and warrants that as of the date of this Agreement, and
continuing as long as any Liabilities remain outstanding, and (even if there
shall be no such Liabilities outstanding) as long as this Agreement remains in
effect:

 

7.1           Existence. The Borrower is a limited liability company duly
formed, validly existing and in good standing under the laws of the State of
Delaware. The Borrower is duly qualified and in good standing as a foreign
limited liability company authorized to do business in the State of Texas and
each jurisdiction where such qualification is required because of the nature of
its activities or properties. The Borrower has all requisite limited liability
company power to carry on its business as now being conducted and as proposed to
be conducted.

 

7.2           Authority. The execution and delivery by the Borrower of this
Agreement and all of the other Financing Agreements to which Borrower is a party
and the performance of its obligations hereunder and thereunder: (i) are within
its limited liability company powers; (ii) are duly authorized by the manager of
the Borrower and, if applicable, the member of the Borrower; and (iii) are not
in contravention of the terms of its limited liability company agreement, or of
any indenture, agreement or undertaking to which it is a party or by which it or
any of its property is bound. The execution and delivery by the Borrower of this
Agreement and all of the other Financing Agreements to which it is a party and
the performance of its obligations hereunder and thereunder: (i) do not require
any governmental consent, registration or approval; (ii) do not contravene any
contractual or governmental restriction binding upon it; and (iii) will not,
except in favor of Lender, result in the imposition of any Lien upon any
property of Borrower under any existing indenture, mortgage, deed of trust, loan
or credit agreement or other material agreement or instrument to which it is a
party or by which it or any of its property may be bound or affected.

 

7.3           Binding Effect. This Agreement and all of the other Financing
Agreements to which any Credit Party is a party are the legal, valid and binding
obligations of such Credit Party and are enforceable against such Credit Party
in accordance with their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditor’s rights and remedies generally.

 

 - 30 - 

 

  

7.4           Financial Data.

 

(a)          All income statements, balance sheets, cash flow statements,
statements of operations, financial statements, and other financial data which
have been or shall hereafter be furnished to the Lender for the purposes of or
in connection with this Agreement do and will present fairly in all material
respects in accordance with GAAP, consistently applied, the financial condition
of the Credit Parties and the Operating Company, as applicable, as of the dates
thereof and the results of its operations for the period(s) covered thereby.

 

(b)          Since December 31, 2016, there has been no Material Adverse Change
with respect to any Credit Party or the Operating Company.

 

7.5           Collateral. Except for the Permitted Liens, all of the Borrower’s
assets and property (including, without limitation, the Collateral and the Real
Property) are and will continue to be owned by Borrower (except for items of
inventory disposed of in the ordinary course of business), have been or will be
fully paid for, and are free and clear of all Liens. No financing statement or
other document similar in effect covering all or any part of the Collateral is
on file in any recording or filing office, other than those identifying the
Lender as the secured creditor. The organizational number assigned by the State
of Delaware upon Borrower’s formation is 5200025.

 

7.6           Solvency. Each Credit Party is solvent, is able to pay such Credit
Party’s debts as they mature or become due, has capital sufficient to carry on
its business and all businesses in which it is about to engage, and now owns
assets and property having a value both at fair valuation and at present fair
saleable value on a going concern basis (as determined in a manner and based
upon assumptions satisfactory to the Lender in its reasonable determination)
greater than the amount required to pay all of its debts and liabilities,
including, without limitation, all of the Liabilities. No Credit Party will be
rendered insolvent by the execution and delivery of this Agreement or any
Financing Agreement, or by completion of the transactions contemplated hereunder
or thereunder.

 

7.7           Principal Place of Business; State of Formation. The principal
place of business and chief executive office of Borrower is located at 2 South
Pointe Drive, Suite 100, Lake Forrest, California 92630. The books and records
of the Borrower and all records of account are located at the principal place of
business and chief executive office of the Borrower. The Borrower’s state of
formation is the State of Delaware.

 

7.8           Other Names. The Borrower has not used, and shall not hereafter
use, any name (including, without limitation, any tradename, tradestyle, assumed
name, division name or any similar name) other than the name set forth in the
introductory paragraph of this Agreement.

 

7.9           Tax Liabilities. Each of each Credit Party and, to the Borrower’s
knowledge, the Operating Company has filed all federal, state and local tax
reports and returns required by any law or regulation to be filed by it, except
for extensions duly obtained or except as permitted under Section 8.4, and has
either duly paid all taxes, duties and charges indicated due on the basis of
such returns and reports, or made adequate provision for the payment thereof,
and the assessment of any material amount of additional taxes in excess of those
paid and reported is not reasonably expected.

 

7.10         Loans. Except as otherwise permitted by Section 9.2 hereof,
Borrower is not obligated on any loans or other Indebtedness.

 

 - 31 - 

 

 

7.11         Margin Securities. The use of the proceeds of the Loan and
Borrower’s issuance of the Note will not directly or indirectly violate or
result in a violation of the Securities Act of 1933 or the Securities Exchange
Act of 1934, as amended, or any regulations issued pursuant thereto, including,
without limitation, Regulations U, T or X of the Board of Governors of the
Federal Reserve System. No Credit Party owns any margin securities and none of
the Loan advanced hereunder will be used for the purpose of purchasing or
carrying any margin securities or for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase any margin securities or
for any other purpose not permitted by Regulation U of the Board of Governors of
the Federal Reserve System.

 

7.12         Subsidiaries. The Borrower has no subsidiaries.

 

7.13         Litigation and Proceedings. No judgments are outstanding against
any Credit Party or, to the knowledge of Borrower, the Operating Company, nor is
there as of any such date pending or, to the Borrower’s knowledge, threatened,
any litigation, suit, action, contested claim, or federal, state or municipal
governmental proceeding by or against any Credit Party or the Operating Company
or any of its property, in each case, involving an aggregate amount of One
Hundred Thousand Dollars ($100,000) or more.

 

7.14         Other Agreements. Neither any Credit Party, nor, to the Borrower’s
knowledge, the Operating Company is in material default under or in breach of
any material agreement, contract, lease, or commitment to which it is a party or
by which it is bound. The Borrower does not know of any dispute regarding any
agreement, contract, instrument, lease or commitment which could reasonably be
expected to have a Material Adverse Effect.

 

7.15         Compliance with Laws and Regulations. The execution and delivery by
Borrower of this Agreement and by each Credit Party of all of the other
Financing Agreements to which any Credit Party is a party and the performance of
its obligations hereunder and thereunder are not in contravention of any
material law, rule or regulation, including, without limitation, Healthcare
Laws. Each Credit Party and, to the Borrower’s knowledge, the Operating Company
and Hospital District, as applicable, has all licenses, authorizations,
approvals and permits necessary in connection with the operation of its business
(including, without limitation, all certificates needed for the Operating
Company or the Hospital District, as applicable, to participate in the Medicare
and Medicaid programs). The Facility is operated as a skilled nursing facility
and its licensed unit capacity is as set forth on Schedule 7.15. The licenses,
authorizations, permits and other approvals listed on Schedule 7.15 constitute
all the licenses, authorizations, permits and other approvals required by the
Operating Company or the Hospital District, as applicable, to operate the
Facility at such licensed bed capacities. Each Credit Party and, to the
Borrower’s knowledge, the Operating Company and Hospital District, as
applicable, has obtained all licenses, authorizations, approvals, licenses and
permits necessary in connection with the operation of its business, including,
without limitation, licenses with respect to the Facility issued by the Texas
Department of Aging and Disability Services and designated as “Skilled Nursing
Facility” and any additional designations required to operate the Facility in
the manner and for the purposes currently operated. All such licenses,
authorizations, approvals and permits are in full force and effect and each
Credit Party shall keep such items in full force and effect during the term of
this Agreement. The Real Estate Lease shall at all times during the term of this
Agreement require that the Operating Company or the Hospital District, as
applicable, keep such licenses, authorizations, approval and permits in full
force and effect. Each Credit Party is in compliance with all laws, orders,
rules, regulations and ordinances of all federal, foreign, state and local
governmental authorities applicable to it and its business, operations,
property, and assets, except to the extent any such non-compliance could not
reasonably be expected to result in a Material Adverse Effect. The Facility is
not subject to any proceeding for revocation, suspension or issuance of a
probationary license or any certificate of need issued by any governmental
authority and any Person succeeding to the functions thereof, and there has not
been instituted any Medicare or Medicaid termination action by such commission.
Neither any Credit Party nor, to the Borrower’s knowledge, the Operating Company
has received any notice from any governmental authority that such governmental
authority has imposed or intends to impose any enforcement actions, fines or
penalties for any failure or alleged failure to comply with HIPAA.

 

 - 32 - 

 

 

7.16         Intellectual Property. No Credit Party owns or otherwise possess
any registered patents, patent applications, copyrights, trademarks, trademark
applications, trade names, or service marks. To the Borrower’s knowledge, none
of any Credit Party’s intellectual property infringes on the rights of any other
Person.

 

7.17         Environmental Matters. Except as otherwise disclosed in the
Environmental Reports (as defined in the Environmental Indemnity Agreement),
neither any Credit Party nor, to the knowledge of the Borrower, the Operating
Company, has Managed Hazardous Substances on or off its Property other than in
compliance with Environmental Laws, except to the extent any such non-compliance
could not reasonably be expected to result in a Material Adverse Effect. Each
Credit Party and, to the knowledge of Borrower, the Operating Company, has
complied in all material respects with Environmental Laws regarding transfer,
construction on and operation of its business at the Property, including, but
not limited to, notifying authorities, observing restrictions on use,
transferring, modifying or obtaining permits, licenses, approvals and
registrations, making required notices, certifications and submissions,
complying with financial liability requirements, Managing Hazardous Substances
and Responding to the presence or Release of Hazardous Substances connected with
operation of its business or Property. Neither any Credit Party nor, to the
knowledge of the Borrower, the Operating Company, has any contingent liability
with respect to the Management of any Hazardous Substance that could reasonably
be expected to result in a Material Adverse Effect. During the term of this
Agreement, the Borrower shall not permit (and shall cause the Operating Company
not to permit) others to, Manage, whether on or off Borrower’s Property,
Hazardous Substances. The Borrower shall take prompt action in material
compliance with Environmental Laws to Respond to the on-site or off-site Release
of Hazardous Substances connected with operation of its business or Property.
Neither any Credit Party nor, to the knowledge of the Borrower, the Operating
Company, has received any Environmental Notice.

 

7.18         Disclosure. None of the representations or warranties made by any
Credit Party herein or in any Financing Agreement to which such Credit Party is
a party and no other written information provided by the Credit Parties or their
respective representatives to the Lender contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Borrower has disclosed to the Lender all facts of which the
Borrower has knowledge which at any time hereafter might result in a Material
Adverse Effect.

 

 - 33 - 

 

 

7.19         Pension Related Matters. If applicable, each employee pension plan
(other than a multiemployer plan within the meaning of Section 3(37) of ERISA
and to which any Credit Party or any ERISA Affiliate has or had any obligation
to contribute (a “Multiemployer Plan”)) maintained by any Credit Party or any of
their respective ERISA Affiliates to which Title IV of ERISA applies, if any,
and (a) which is maintained for employees of any Credit Party or any of their
respective ERISA Affiliates or (b) to which any Credit Party or any of their
ERISA Affiliates made, or was required to make, contributions at any time within
the preceding five (5) years (a “Plan”), complies, and is administered in
accordance, with its terms and all material applicable requirements of ERISA and
of the Internal Revenue Code of 1986, as amended, and any successor statute
thereto (the “Tax Code”), and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Tax Code setting forth
those requirements. No “Reportable Event” or “Prohibited Transaction” (as each
is defined in ERISA) or withdrawal from a Multiemployer Plan caused by any
Credit Party has occurred and no funding deficiency described in Section 302 of
ERISA caused by any Credit Party exists with respect to any Plan or
Multiemployer Plan which could have a Material Adverse Effect. If and to the
extent applicable, the Credit Parties and each ERISA Affiliate have satisfied
all of their respective funding standards applicable to such Plans and
Multiemployer Plans under Section 302 of ERISA and Section 412 of the Tax Code
and the Pension Benefit Guaranty Corporation and any entity succeeding to any or
all of its functions under ERISA (“PBGC”) has not instituted any proceedings,
and there exists no event or condition caused by any Credit Party which would
constitute grounds for the institution of proceedings by PBGC, to terminate any
Plan or Multiemployer Plan under Section 4042 of ERISA which could have a
Material Adverse Effect.

 

7.20         Perfected Security Interests. The Lien in favor of the Lender
provided pursuant to Section 6.1 hereof is a valid and, when properly perfected
by the timely filings, deliveries, notations and other actions contemplated by
the Financing Agreements in the appropriate jurisdictions, will constitute the
first priority security interest in the Collateral (subject only to the
Permitted Liens).

 

7.21         Real Estate. As of the Closing Date, the Borrower owns or leases no
Property other than the Real Property. The Borrower owns good and marketable fee
simple title to all of the Real Property. The Borrower has delivered true,
correct and complete copies of the fully-executed Real Estate Lease and all
material instruments, agreements and documents entered into in connection
therewith (including all Exhibits and Schedules thereto) to the Lender on the
Closing Date.

 

7.22         Ownership; Consideration. Schedule 7.22 sets forth the correct
legal name, jurisdiction of organization and, if applicable, the organizational
identification number assigned by the applicable jurisdiction of organization of
the Credit Parties. The authorized Capital Securities of each of the Credit
Parties is as set forth on Schedule 7.22. All issued and outstanding Capital
Securities of each of the Credit Parties is duly authorized and validly issued,
and if the Capital Securities of a corporate entity, fully paid, nonassessable,
and in each case is free and clear of all Liens other than those in favor of the
Lender, and such Capital Securities were issued in compliance with all
applicable laws. The identity of the holders of the Capital Securities of each
of the Credit Parties and the percentage of their fully diluted ownership of the
Capital Securities of each of the Credit Parties as of the Closing Date is set
forth on Schedule 7.22. As of the Closing Date there are no preemptive or other
outstanding rights, options, warrants, conversion rights or similar agreements
or understandings for the purchase or acquisition from any Credit Party of any
Capital Securities of any such entity.

 

 - 34 - 

 

 

7.23         Broker’s Fees. No Credit Party has any obligation to any Person in
respect of any finder’s, brokers or similar fee in connection with the Loan or
this Agreement.

 

7.24         Investment Company Act. No Credit Party is an “investment company”
or a company “controlled” by an “investment company”, within the meaning of the
Investment Company Act of 1940, as amended.

 

7.25         Business of Borrower. The sole business of the Borrower is to own
the Real Property leased to the Operating Company and sub-leased to the Hospital
District while the Facility is subject to QIPP. The Borrower is not a party to
any management agreement or similar type of management contract, other than the
Real Estate Lease.

 

7.26         Offenses and Penalties Under the Medicare or Medicaid Program.
Neither any Credit Party nor, to the Borrower’s knowledge, the Operating Company
and/or officers of such Credit Party or, to the Borrower’s knowledge, the
Operating Company is currently under investigation or prosecution for, nor has
any Credit Party, or to the Borrower’s knowledge, the Operating Company or any
Affiliate or officer of such Person been convicted of: (a) any offense related
to the delivery of an item or service under the Medicare or Medicaid programs;
(b) a criminal offense related to neglect or abuse of patients in connection
with the delivery of a health care item or service; (c) fraud, theft,
embezzlement or other financial misconduct; (d) the obstruction of an
investigation of any crime referred to in subsections (a) through (c) of this
Section; or (e) unlawful manufacture, distribution, prescription, or dispensing
of a controlled substance. Neither any Credit Party nor, to the Borrower’s
knowledge, the Operating Company and/or officers of such Credit Party or
Operating Company have been required to pay any civil money penalty under
applicable laws regarding false, fraudulent or impermissible claims or payments
to induce a reduction or limitation of health care services to beneficiaries of
any state or federal health care program, nor, is any such Credit Party,
Operating Company or and/or officer of such Person currently the subject of any
investigation or proceeding that may result in such payment. Neither any Credit
Party nor the Operating Company and/or officers of such Credit Party or
Operating Company have been excluded from participation in the Medicare or
Medicaid programs or any program funded under the “Block grants” to States for
Social Services (Title XX) Program.

 

7.27         Medicaid/Medicare. Neither any Credit Party nor, to the Borrower’s
knowledge, the Operating Company nor any officer or director of such Person has
engaged in any of the following: (a) knowingly and willfully making or causing
to be made a false statement or representation of a material fact in any
application for any benefit or payment under Medicare or Medicaid; (b) knowingly
and willfully making or causing to be made any false statement or representation
of a material fact for use in determining rights to any benefit or payment under
Medicare or Medicaid; (c) failing to disclose knowledge by a claimant of the
occurrence of any event affecting the initial or continued right to any benefit
or payment under Medicare or Medicaid on its own behalf or on behalf of another,
with intent to secure such benefit or payment fraudulently; (d) knowingly and
willfully soliciting or receiving any remuneration (including any kickback,
bribe or rebate), directly or indirectly, overtly or covertly, in cash or in
kind or offering to pay such remuneration: (i) in return for referring any
individual to a Person for the furnishing or arranging for the furnishing of any
item or service for which payment may be made in whole or in part by Medicaid;
or (ii) in return for purchasing, leasing or ordering or arranging for or
recommending the purchasing, leasing or ordering of any good, facility, service
or item for which payment may be made in whole in part by Medicare or Medicaid.

 

 - 35 - 

 

 

7.28         Labor Matters. There are no strikes or other labor disputes pending
or, to the knowledge of Borrower, threatened against any Credit Party. All
payments due from any Credit Party on account of wages and employee and retiree
health and welfare insurance and other benefits have been paid or accrued as a
liability on its books.

 

7.29         USA Patriot Act; Absence of Foreign or Enemy Status. Neither any
Credit Party nor any of its Affiliates is identified in any OFAC List. Each
Credit Party, and their respective Subsidiaries and Affiliates are in compliance
with (a) the Trading with the Enemy Act, and each of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B
Chapter V, as amended) and any other enabling legislation or executive order
relating thereto, (b) the Patriot Act and (c) other federal or state laws
relating to “know your customer” and anti-money laundering rules and
regulations. No part of the proceeds of any Loan will be used directly or
indirectly for any payments to any government official or employee, political
party, official of a political party, candidate for political office, or anyone
else acting in an official capacity, in order to obtain, retain or direct
business or obtain any improper advantage, in violation of the United States
Foreign Corrupt Practices Act of 1977, as amended. Neither any Credit Party nor
any Affiliate of such Credit Party is an “enemy” or an “ally of the enemy”
within the meaning of Section 2 of the Trading with the Enemy Act (50 U.S.C.
App. §§ 1 et seq.), as amended. Neither any Credit Party nor any Affiliate of
such Credit Party is in violation of, nor will the use of the Loan violate, the
Trading with the Enemy Act, as amended, or any executive orders, proclamations
or regulations issued pursuant thereto, including, without limitation,
regulations administered by the Office of Foreign Asset Control of the
Department of the Treasury (31 C.F.R. Subtitle B, Chapter V).

 

8.             AFFIRMATIVE COVENANTS.

 

The Borrower covenants and agrees that, as long as any Liabilities remain
outstanding, and (even if there shall be no such Liabilities outstanding) as
long as this Agreement remains in effect:

 

8.1           Reports, Certificates and Other Information. The Borrower shall
deliver or cause to be delivered to the Lender:

 

(a)          Monthly Borrower and Operating Company Internally Prepared
Financial Statements. On or before the thirtieth (30th) day after the end of
each month during the term of this Agreement (1) a copy of internally prepared
financial statements of the Borrower prepared in accordance with GAAP consisting
of, at least, an income statement and a balance sheet for such month and for the
period from the beginning of such Fiscal Year to the close of such month and (2)
a copy of internally prepared financial statements of the Operating Company
prepared in accordance with GAAP consisting of, at least, an income statement
and a balance sheet as at the close of such month and for the period from the
beginning of such Fiscal Year to the close of such month.

 

 - 36 - 

 

 

(b)          Operating Company Annual Financial Statements. On or before the one
hundred twentieth (120th) day after (i) the Fiscal Year ending December 31,
2017, financial statements of the operations of the Facility for such Fiscal
Year, with a report of agreed upon procedures delivered by independent certified
public accountants selected reasonably acceptable by the Lender, together with,
at least, balance sheets and statements of income and cash flow for such period,
prepared in conformity with GAAP and (ii) each Fiscal Year ended thereafter, a
copy of the annual audited financial statements for the Operating Company,
prepared by independent certified public accountants selected by the Borrower
(and reasonably approved by the Lender), together with, at least, balance sheets
and statements of income and cash flow for such period, prepared in conformity
with GAAP.

 

(c)          Reserved.

 

(d)          Monthly Reports. On or before the thirtieth (30th) day after the
end of each month, and without duplication of any reports delivered pursuant to
Section 8.1(a) above, copies of all financial statements for the Facility for
the preceding calendar month specific to the operations of Operating Company at
the Facility as such financial statements are required under to be prepared and
delivered pursuant to the Real Estate Lease.1

 

(e)          Certificates. Contemporaneously with the furnishing of each annual
financial statement and within forty-five (45) calendar days of each Fiscal
Quarter commencing with the Fiscal Quarter ending June 30, 2018, a duly
completed compliance certificate with appropriate insertions, in form and
substance reasonably satisfactory to the Lender (a “Compliance Certificate”),
dated the date of such annual financial statement or such Fiscal Quarter and
signed on behalf of the Borrower by a Duly Authorized Person, which Compliance
Certificate shall state that no Default or Event of Default has occurred and is
continuing, or, if there is any such event, describes it and the steps, if any,
being taken to cure it. In addition, each Compliance Certificate shall contain a
computation of, and show compliance with, the financial ratios and restrictions
set forth in Section 9.12 hereof including, without limitation, financial
statements of the Facility necessary to determine compliance with Section
9.12(c) with respect thereto. The computation and calculation of the financial
ratios in each Compliance Certificate shall be in form and substance reasonably
acceptable to the Lender.

 

(f)          Real Estate Taxes. As paid, evidence of timely payment of real
estate taxes owed on the Real Property.

 

(g)          Tax Returns. Promptly, and in any event no later than 10 days
following the filing thereof, copies of all tax returns filed by the Borrower.

 

 

1 NTD: To be retained to pick up any financial information delivered to Borrower
under Section 5.3(a)(v).

 

 - 37 - 

 

 

(h)          Notice of Default, Regulatory Matters, Litigation Matters or
Adverse Change in Business. Promptly upon learning of the occurrence of any of
the following, written notice thereof which describes the same and the steps
being taken by the Borrower with respect thereto: (i) the occurrence of a
Default or an Event of Default; (ii) except for actions described in clause (iv)
below, the institution or threatened institution of, or any adverse
determination in, any litigation, arbitration proceeding or governmental
proceeding in which any injunctive relief is sought or in which money damages in
excess of One Hundred Thousand Dollars ($100,000) in the aggregate are sought;
(iii) the receipt of any written notice from any governmental agency concerning
any material violation or potential material violation of any regulations, rules
or laws applicable to Borrower; (iv) the occurrence of any personal injury or
other action that is not covered by insurance (or if presumably covered by
insurance, the applicable insurance company has not confirmed coverage or
liability for payment in writing) that could reasonably be expected to give rise
to a tort claim against the Borrower for an amount equal to or in excess of One
Hundred Thousand Dollars ($100,000); or (v) any Material Adverse Change.

 

(i)          Insurance Reports. (i) At any time after a Default and upon the
request of the Lender, a certificate signed by a Duly Authorized Person that
summarizes the property, casualty, liability and malpractice insurance policies
carried by the Borrower and that certifies that the Lender is the named
additional insured, lender’s loss payee and mortgagee, as applicable, with
respect to all property and casualty insurance policies (such certificate to be
in form and substance satisfactory to the Lender), and (ii) written notification
of any material change in any such insurance by the Borrower within five (5)
Business Days after receipt of any notice (whether formal or informal) of such
change by any of its insurers.

 

(j)          Interim Reports. Promptly upon receipt thereof, copies of any
management letters and interim and supplemental reports submitted to any Credit
Party by the independent accountants in connection with any interim audit of the
books of Borrower and copies of each management control letter provided to
Borrower by independent accountants.

 

(k)          Affiliate Transactions. Upon the Lender’s request from time to
time, a reasonably detailed description of each of the transactions between the
Borrower and any of its Affiliates during the time period requested by the
Lender, which shall include, without limitation, the amount of money either paid
or received, as applicable, by the Borrower in such transactions.

 

(l)          Annual Budgets. As soon as available following the end of each
Fiscal Year, but in any event not later than forty-five (45) days after the end
of each such Fiscal Year, an annual operating plan for the Facility for the
following Fiscal Year, which (i) includes a statement of all of the material
assumptions on which such plan is based, (ii) includes monthly balance sheets,
income statements and statements of cash flows for the following year, (iii)
integrates sales, gross profits, operating expenses, operating profit and cash
flow projections, and (iv) includes a description of estimated restructuring
expenses to be incurred for the following year, all prepared on the same basis
and in similar detail as that on which operating results are reported (and in
the case of cash flow projections, representing management’s good faith
estimates of future financial performance based on historical performance), and
including plans for Capital Expenditures.

 

(m)          Lease Reports. Promptly upon receipt, copies of any material
reports or notifications required to be delivered by the Operating Company to
the Borrower pursuant to the terms of the Real Estate Lease, including, without
limitation, annual financial statements of the Operating Company, quarterly
financial statements of the Operating Company and the other reports required
under Section 5.3 of the Real Estate Lease (and any other successor provisions).

 

 - 38 - 

 

 

(n)          Health Care Reporting. Furnish to the Lender each of the following,
to the extent applicable to the Operating Company or Facility: (i) within three
(3) Business Days of receipt by the Operating Company of Form 2567 from any
Government Authority or any other copy of any healthcare related licensure and
annual or biannual certification survey report and any statement of deficiencies
and any survey (other than the annual or biannual survey) indicating a violation
or deficiency with a scope and severity that could be reasonably expected to
adversely affect either the right to continue participation in Medicare,
Medicaid or other reimbursement programs for existing patients or the right to
admit new Medicare patients, Medicaid patients or other reimbursement program
patients or result in the loss or suspension of the Operating Company’s licenses
and permits to operate the Facility or the placement of any Facility on the
Special Focus Facility list of CMS, a copy of such certification survey report,
statement of deficiency or other survey, and within the time period required by
the particular agency for submission, a copy of the plan of correction with
respect thereof if such plan of correction is required by such agency issuing
the statement of deficiency or notice of violation, and correct or cause to be
corrected any such deficiency or violation within the time period required for
cure by such agency; (ii) to the extent not required in clause (i) above, within
seven (7) Business Days of receipt by any Operating Company of Form 2567 from
any Government Authority or any other healthcare related licensure and annual or
biannual certification survey report and any statement of deficiencies and any
survey (other than the annual or biannual survey) indicating a violation or
deficiency with a scope and severity above “G”, a copy of such certification
survey report, statement of deficiency or other survey, and within the time
period required by the particular agency for submission, a copy of the plan of
correction with respect thereof if such plan of correction is required by such
agency issuing the statement of deficiency or notice of violation, and correct
or cause to be corrected any such deficiency or violation within the time period
required for cure by such agency, subject to such agency’s normal appeal
process, (1) within five (5) Business Days of the receipt by the Borrower, any
and all notices disclosing an adverse finding from any licensing, certifying
and/or reimbursement agencies that the Operating Company’s license, Medicare or
Medicaid certification or entitlement to payments pursuant to any program of
such Operating Company is being downgraded to a substandard category, revoked,
or suspended, or that action is pending or being considered to downgrade to a
substandard category, revoke, or suspend any rights pursuant to the Borrower’s
license, certification or program; and (iv) within ten (10) days of the date of
the required filing of cost reports of the Operating Company with Medicaid,
Medicare or other applicable agency or pursuant to any program, or the date of
actual filing of such cost report of such Operating Company, whichever is
earlier, a complete and accurate copy of the annual Medicaid, Medicare and other
cost reports for such Operating Company, which will be prepared by an
independent certified public accountant or by an experienced cost report
preparer reasonably acceptable to Lender, and promptly furnish to Lender any
amendments filed with respect to such reports and all responses, audit reports
or inquiries with respect to such reports.

 

(o)          Other Information. Such other information, certificates, schedules,
exhibits or documents (financial or otherwise) concerning the Facility, the
Credit Parties, the Operating Company and their respective operations, business,
properties, condition or otherwise as the Lender may reasonably request from
time to time.

 

 - 39 - 

 

 

8.2           Inspection; Audit Fees. Borrower will keep proper books of record
and account in accordance with GAAP in which full, true and correct entries
shall be made of all dealings and transactions in relation to its business and
activities. The Lender, or any Person designated by the Lender in writing from
time to time, shall have the right: (a) from time to time hereafter (but no more
than two (2) times per calendar year prior to an Event of Default), to call and
visit at the Borrower's place or places of business (or any other place where
the Collateral or any information relating thereto is kept or located) during
ordinary business hours and, prior to any Event of Default, upon reasonable
advance notice (and after any Event of Default, at any time during normal
business hours without the requirement of any advance notice), (i) to inspect,
audit, check and make copies of and extracts from the Borrower's books, records,
journals, orders, receipts and any correspondence and other data relating to its
business or to any transactions between the parties hereto, and (ii) to discuss
the affairs, finances and business of the Credit Parties with any of the Duly
Authorized Persons, and (b) to make such verification concerning the Collateral
as the Lender may consider reasonable under the circumstances. The Borrower
agrees to pay on demand all costs, expenses and reasonable fees incurred by
Lender in connection with any inspections or audits of the Borrower performed by
the Lender under this Section. All such amounts incurred by the Lender hereunder
shall bear interest hereunder and shall be additional Liabilities of the
Borrower to the Lender, secured by the Collateral, if not promptly paid upon the
request of the Lender.

 

8.3           Conduct of Business. The Borrower shall maintain its limited
liability company existence, shall maintain in full force and effect all
licenses, permits, authorizations, bonds, franchises, leases, patents,
trademarks and other intellectual property, contracts and other rights necessary
to the conduct of its business, shall continue in, and limit its operations to,
the same general line of business as that currently conducted and shall comply
with all applicable laws, orders, regulations and ordinances of all federal,
foreign, state and local governmental authorities, including, without
limitation, Healthcare Laws, except to the extent any such non-compliance could
reasonably be expected to result in a Material Adverse Effect. The Borrower
shall keep proper books of record and account in which full and true entries
will be made of all dealings or transactions of or in relation to the business
and affairs of the Borrower, in accordance with GAAP, consistently applied.

 

8.4           Claims and Taxes. The Borrower agrees to indemnify and hold the
Lender harmless from and against any and all claims, demands, liabilities,
losses, damages, penalties, costs and expenses (including, without limitation,
reasonable attorneys’ fees) relating to or in any way arising out of the
possession, use, operation or control of the Borrower’s property and assets,
including, without limitation, the Collateral. The Borrower agrees to pay or
cause to be paid all license fees, bonding premiums and related taxes and
charges and shall pay or cause to be paid all of the Borrower’s real and
personal property taxes, including taxes with respect to the Real Property,
assessments and charges and all of the Borrower’s franchise, income,
unemployment, use, excise, old age benefit, withholding, sales and other taxes
and other governmental charges assessed against the Borrower, or payable by the
Borrower, at such times and in such manner as to prevent any penalty from
accruing or any Lien from attaching to its property, provided that the Borrower
shall have the right to contest in good faith, by an appropriate proceeding
promptly initiated and diligently conducted, the validity, amount or imposition
of any such tax, assessment or charge, and upon such good faith contest to delay
or refuse payment thereof, if (a) the Borrower establishes adequate reserves to
cover such contested taxes, assessments or charges, and (b) such contest could
not be expected to result in a Material Adverse Effect.

 

 - 40 - 

 

 

8.5           State of Formation. The State of Delaware shall remain the
Borrower’s State of formation, unless: (a) the Borrower provides the Lender with
at least thirty (30) days prior written notice of any proposed change, (b) no
Event of Default then exists or will exist immediately after such proposed
change, and (c) the Borrower provides the Lender with, at Borrower’s sole cost
and expense, such financing statements, and if applicable, landlord waivers,
bailee letters and processor letters, and such other agreements and documents as
the Lender shall reasonably request in connection therewith.

 

8.6           Liability Insurance. The Borrower shall maintain or cause the
Operating Company to maintain, at its expense, general liability insurance and
environmental liability insurance in such amounts and with such deductibles as
are acceptable to the Lender in its reasonable determination and shall deliver
to the Lender the original (or a certified) copy of each policy of insurance and
evidence of the payment of all premiums therefor. In addition, the Borrower
shall maintain, or cause the Operating Company to maintain, at its expense,
business interruption insurance in such amounts and with such deductibles as are
acceptable to the Lender in its reasonable determination and shall deliver to
the Lender the original (or a certified) copy of each policy of insurance and
evidence of the payment of all premiums therefor. Such policies of insurance
shall contain an endorsement showing the Lender as additional insured thereunder
and providing that the insurance company will give the Lender at least thirty
(30) days prior written notice before any such policy or policies of insurance
shall be altered or canceled.

 

8.7           Property Insurance. The Borrower shall, or shall cause the
Operating Company, at its expense, to keep and maintain its assets insured
against loss or damage by fire, theft, explosion, spoilage, and all other
hazards and risks ordinarily insured against by other owners or users of such
properties in similar businesses in an amount at least equal to the full
insurable value of all such property. All such policies of insurance shall be in
form and substance reasonably satisfactory to the Lender. The Borrower shall
deliver to the Lender the original (or a certified) copy of each policy of
insurance and evidence of payment of all premiums therefor. Such policies of
insurance shall contain an endorsement, in form and substance satisfactory to
the Lender, showing the Lender as “Lender’s Loss Payee” and all loss payable to
the Lender, as its interests may appear, as provided in this Section 8.7. Such
endorsement shall provide that such insurance company will give the Lender at
least thirty (30) days prior written notice before any such policy or policies
of insurance shall be altered or canceled and that no act or default of the
Borrower or any other Person shall affect the right of the Lender to recover
under such policy or policies of insurance in case of loss or damage. The
Borrower hereby directs all insurers under such policies of insurance to pay all
proceeds of insurance policies directly to the Lender and the Lender shall
absent an Event of Default permit the Borrower to use such proceeds to restore
or rebuild the damaged property as the Borrower shall determine in its
reasonable and good faith determination. Upon the occurrence and during the
continuance of an Event of Default, the Borrower irrevocably makes, constitutes
and appoints the Lender (and all officers, employees or agents designated by the
Lender in writing to the Borrower) as the Borrower’s true and lawful
attorney-in-fact for the purpose of making, settling and adjusting claims under
all such policies of insurance, endorsing the name of the Borrower on any check,
draft, instrument or other item of payment received by the Borrower or the
Lender pursuant to any such policies of insurance and for making all
determinations and decisions with respect to such policies of insurance.

 

 - 41 - 

 

 

UNLESS THE BORROWER PROVIDES THE LENDER WITH EVIDENCE OF THE INSURANCE COVERAGE
REQUIRED BY THIS AGREEMENT WITHIN FIVE BUSINESS DAYS FOLLOWING LENDER’S WRITTEN
REQUEST, THE LENDER MAY PURCHASE INSURANCE AT THE BORROWER’S EXPENSE TO PROTECT
THE LENDER’S INTERESTS IN THE COLLATERAL. THIS INSURANCE MAY, BUT NEED NOT,
PROTECT THE INTERESTS IN THE COLLATERAL. THE COVERAGE PURCHASED BY THE LENDER
MAY NOT PAY ANY CLAIMS THAT THE BORROWER MAKES OR ANY CLAIM THAT IS MADE AGAINST
THE BORROWER IN CONNECTION WITH THE COLLATERAL. THE BORROWER MAY LATER CANCEL
ANY SUCH INSURANCE PURCHASED BY THE LENDER, BUT ONLY AFTER PROVIDING THE LENDER
WITH EVIDENCE THAT THE BORROWER HAS OBTAINED INSURANCE AS REQUIRED BY THIS
AGREEMENT. IF THE LENDER PURCHASES INSURANCE FOR THE COLLATERAL, THE BORROWER
WILL BE RESPONSIBLE FOR THE COSTS OF THAT INSURANCE, INCLUDING INTEREST AND ANY
OTHER CHARGES THAT THE LENDER MAY IMPOSE IN CONNECTION WITH THE PLACEMENT OF THE
INSURANCE, UNTIL THE EFFECTIVE DATE OF THE CANCELLATION OR EXPIRATION OF THE
INSURANCE. THE COSTS OF THE INSURANCE MAY BE ADDED TO THE OBLIGATIONS SECURED
HEREBY. THE COSTS OF THE INSURANCE MAY BE MORE THAN THE COST OF INSURANCE THE
BORROWER MAY BE ABLE TO OBTAIN ON ITS OWN.

 

8.8           Environmental. The Borrower shall promptly notify and furnish
Lender with a copy of any and all Environmental Notices which are received by it
or any Credit Party in connection with the Property. The Borrower shall or shall
cause the Operating Company to take prompt and appropriate action in response to
any and all such Environmental Notices and shall promptly furnish Lender with a
description of the Borrower’s or such Credit Party’s Response thereto. The
Borrower shall (a) obtain and maintain all permits required under all applicable
federal, state, and local Environmental Laws, except as to which the failure to
obtain or maintain would not have a Material Adverse Effect; and (b) keep and
maintain the Property and each portion thereof in compliance with, and not cause
or permit the Property or any portion thereof to be in violation of, any
Environmental Law, except as to which the failure to comply with or the
violation of which, would not have a Material Adverse Effect.

 

8.9           Banking Relationship Generally; Rent Deposits. The Borrower shall
at all times maintain all of its primary deposit and operating accounts (other
than payroll, tax and trust accounts) with the Lender and the Borrower shall
cause all rent and other payments owed to it by the Operating Company under the
Real Estate Lease to be paid by the Operating Company directly into a designated
lease deposit account maintained with the Lender (the “Lease Deposit Account”).
The Borrower shall use the Lender as the primary cash management bank for all of
its cash management activities (other than payroll, tax and trust accounts),
including, without limitation, the Lender acting as the principal depository and
remittance agent for the Borrower.

 

 - 42 - 

 

 

8.10         Intellectual Property. If after the Closing Date the Borrower shall
own or otherwise possess any registered patents, copyrights, trademarks, trade
names, or service marks (or file an application to attempt to register any of
the foregoing), the Borrower shall promptly notify the Lender in writing of same
and execute and deliver any documents or instruments (at the Borrower’s sole
cost and expense) reasonably required by Lender to perfect a security interest
in and lien on any such federally registered intellectual property in favor of
the Lender and assist in the filing of such documents or instruments with the
United States Patent and Trademark Office and/or United States Copyright
Office/Library of Congress or other applicable registrar.

 

8.11         Change of Location; Etc. No Collateral may be moved to another
location within the continental United States unless: (a) the Borrower provides
the Lender with at least thirty (30) days prior written notice, (b) no Event of
Default then exists, and (c) the Borrower provides the Lender with, at
Borrower’s sole cost and expense, such financing statements, landlord waivers,
bailee and processor letters and other such agreements and documents as the
Lender shall reasonably request. The Borrower shall or shall cause the Operating
Company to defend and protect the Collateral against and from all claims and
demands of all Persons (other than the holders of Permitted Liens) at any time
claiming any interest therein adverse to the Lender. If the Borrower desires to
change its principal place of business and chief executive office, the Borrower
shall notify the Lender thereof in writing no later than thirty (30) days prior
to such change and the Borrower shall provide the Lender with, at Borrower’s
sole cost and expense, such financing statements and other documents as the
Lender shall reasonably request in connection with such change. If the Borrower
shall decide to change the location where its books and records are maintained,
the Borrower shall notify the Lender thereof in writing no later than thirty
(30) days prior to such change.

 

8.12         Health Care Related Matters. The Operating Company shall continue
to be duly licensed by the State of Texas to operate the Facility and shall
otherwise maintain Medicare and Medicaid provider status. The Borrower shall
cause the Operating Company to maintain all licenses, permits, certificates of
need, reimbursement contracts and programs, and any other agreements necessary
for the use and operation of the Facility or as may be necessary for
participation of the Operating Company in Medicare and Medicaid and other
applicable reimbursement programs, to remain in full force and effect at all
times. The Operating Company shall at all times maintain in full force and
effect a Medicare and Medicaid certification and a Medicare and Medicaid
provider agreement. Each Credit Party and the Operating Company shall at all
times be in material compliance with all rules and regulations of the CMS and
shall take all necessary steps to protect personally identifiable health
information for each patient substantially in accordance with the CMS laws and
regulations.

 

8.13         US Patriot Act. Borrower covenants to Lender that if Borrower
becomes aware that any Credit Party or their respective Affiliates is identified
on any Blocked Persons List (as identified in Section 7.29 hereof), Borrower
shall immediately notify Lender in writing of such information. Borrower further
agrees that in the event that it or any Affiliate is at any time identified on
any Blocked Persons List, such event shall be an Event of Default, and shall
entitle Lender to exercise any and all remedies provided in any Financing
Agreements or otherwise permitted by law. In addition, in response to any such
notice Lender may immediately contact the Office of Foreign Assets Control and
any other government agency Lender deems appropriate in order to comply with its
obligations under any law, regulation, order or decree regulating or relating to
terrorism and international money laundering.

 

 - 43 - 

 

 

8.14         Further Assurances. The Borrower will, at its own cost and expense,
cause to be promptly and duly taken, executed, acknowledged and delivered all
such further acts, documents and assurances as may from time to time be
necessary or as the Lender may from time to time reasonably request in order to
carry out the intent and purposes of this Agreement and the other the Financing
Agreements and the transactions contemplated thereby, including all such actions
to establish, create, preserve, protect and perfect a first-priority Lien in
favor of the Lender on the Collateral (including Collateral acquired after the
date hereof), subject to Permitted Liens, including, as set forth in Section
8.16 of this Agreement.

 

8.15         Single Purpose Entity Provisions. The business and purposes of the
Borrower is and will continue to be limited to the following:

 

(i)             to acquire, own, hold, lease, operate, manage, maintain, develop
and/or improve the Real Property;

 

(ii)           to enter into and perform its obligations under the Financing
Agreements;

 

(iii)          to sell, transfer, service, convey, dispose of, pledge, assign,
borrow money against, finance or otherwise deal with the Real Property to the
extent permitted hereunder and under the Financing Agreements;

 

(iv)          to lease the Real Property to the Operating Company; and

 

(v)           to engage in any lawful act or activity and to exercise any powers
permitted to entities of its type pursuant to the laws of its state of
organization that are related or incidental to and necessary, convenient or
advisable for the accomplishment of the above mentioned purposes.

 

The Borrower agrees and covenants that it shall:

 

(i)            not own any asset or property other than (A) a fee interest in
the Real Property, and (B) incidental personal property necessary for the
ownership or operation of the Property;

 

(ii)           remain solvent and pay its debts and liabilities (including, as
applicable, shared personnel and overhead expenses) from its assets, to the
extent of its assets, as the same shall become due;

 

(iii)          do or cause to be done all things necessary or desirable to
observe organizational formalities of the Borrower and preserve its existence;
and

 

(iv)          to the extent of cash flow available from operations, maintain
adequate capital for the normal obligations reasonably foreseeable in a business
of its size and character and in light of its contemplated business operations.

 

9.             NEGATIVE COVENANTS.

 

The Borrower covenants and agrees that as long as any (other than contingent
indemnification obligations) remain outstanding, and (even if there shall be no
such Liabilities outstanding) as long as this Agreement remains in effect
(unless the Lender shall give its prior written consent thereto):

 

 - 44 - 

 

  

9.1           Encumbrances. The Borrower shall not create, incur, assume or
suffer to exist any Lien of any nature whatsoever on any of its assets or
property, including, without limitation, the Collateral, other than the
following (“Permitted Liens”): (a) Liens securing the payment of taxes, either
not yet due or the validity of which is being contested in good faith by
appropriate proceedings, and as to which the Borrower shall, if appropriate
under GAAP, has set aside on its books and records adequate reserves, provided,
that such contest does not have a Material Adverse Effect; (b) deposits under
workmen’s compensation, unemployment insurance, social security and other
similar laws; (c) Liens in favor of the Lender; (d) liens imposed by law, such
as mechanics’, materialmen’s, landlord’s, warehousemen’s, carriers’ and other
similar liens, securing obligations incurred in the ordinary course of business
that are not past due for more than ten (10) Business Days or that are being
contested in good faith by appropriate proceedings and for which appropriate
reserves have been established or that are not yet due and payable; and (e)
purchase money security interests upon or in any property acquired or held by
the Borrower in the ordinary course of business to secure the purchase price of
such property so long as: (i) the aggregate indebtedness relating to such
purchase money security interests and Capitalized Lease Obligations does not at
any time exceed Fifty Thousand Dollars ($50,000) in the aggregate at any time,
(ii) each such lien shall only attach to the property to be acquired; and (iii)
the indebtedness incurred shall not exceed one hundred percent (100%) of the
purchase price of the item or items purchased.

 

9.2           Indebtedness. Borrower shall not incur, create, assume, become or
be liable in any manner with respect to, or permit to exist, any Indebtedness,
except (a) the Liabilities, (b) the indebtedness not to at any time exceed Fifty
Thousand Dollars ($50,000) relating to the purchase money security interests and
Capitalized Lease Obligations permitted pursuant to Section 9.1(e) hereof and
(c) the Debt to be Repaid (so long as such Indebtedness is repaid on the Closing
Date with the proceeds of the initial Loans hereunder).

 

9.3           Consolidations, Mergers or Acquisitions. Without the prior written
consent of the Lender, the Borrower shall not be a party to any merger,
consolidation, or exchange of stock or other equity, or purchase or otherwise
acquire all or substantially all of the assets or stock of any class of, or any
other evidence of an equity interest in, or any partnership, limited liability
company, or joint venture interest in, any other Person, or sell, transfer,
convey or lease all or any substantial part of its assets or property, or sell
or assign, with or without recourse, any receivables. The Borrower shall not
form or establish any subsidiary without the Lender’s prior written consent.

 

9.4           Investments or Loans. The Borrower shall not make, incur, assume
or permit to exist any loans or advances, or any investments in or to any other
Person, except (a) investments in short-term direct obligations of the United
States Government, (b) investments in negotiable certificates of deposit issued
by the Lender or by any other bank satisfactory to the Lender, payable to the
order of the Borrower or to bearer and (c) investments in commercial paper rated
at least A-1 by Standard & Poor’s Corporation or P-1 by Moody’s Investors
Service, Inc., or carrying an equivalent rating by a nationally recognized
rating agency if both of the two named rating agencies cease publishing ratings
of investments.

 

 - 45 - 

 

 

9.5           Guarantees. The Borrower shall not guarantee, endorse or otherwise
in any way become or be responsible for obligations of any other Person, whether
by agreement to purchase the Indebtedness of any other Person or through the
purchase of goods, supplies or services, or maintenance of working capital or
other balance sheet covenants or conditions, or by way of stock purchase,
capital contribution, advance or loan for the purpose of paying or discharging
any Indebtedness or obligation of such other Person or otherwise, except
endorsements of negotiable instruments for collection in the ordinary course of
business.

 

9.6           Disposal of Property. The Borrower shall not sell, assign, lease,
transfer or otherwise dispose of any of its properties, assets and rights to any
Person except (i) sales of Inventory in the ordinary course of business, and
(ii) sales of obsolete Equipment being replaced in the ordinary course of
business with other Equipment with a fair market value and orderly liquidation
value equal to or greater than the Equipment being replaced.

 

9.7           Use of Proceeds. The Borrower shall not use the proceeds of the
Loan and the Loan for any purpose other than (i) first, to repay in full the
Debt to be Repaid, and thereafter, (ii) to pay costs, fees, and expenses in
connection with this Agreement, (iii) to make the Closing Date Distribution and
(iv) to the extent the Subsequent Draw is advanced pursuant to Section 2.1, to
make the Subsequent Draw Distribution.

 

9.8           Loans to Officers; No Consulting and Management Fees. The Borrower
shall not make any loans to its members, managers, officers, employees,
Affiliates, or to any other Person, and the Borrower shall not declare, make or
pay any consulting, management fees, investment banking fees, or similar fees or
payments to its members, managers, officers, employees, agents, or Affiliates or
any other Person, whether for services rendered to the Borrower or otherwise.

 

9.9           Distributions and Equity Redemptions. The Borrower shall not (i)
declare, make or pay any dividend or other distribution (whether in cash,
property or rights or obligations) to or for the benefit of any officer,
manager, member, Affiliate or any other Person or (ii) purchase or redeem any of
the membership interests or units of the Borrower or any options or warrants
with respect thereto, or set aside any funds for any such purpose; provided,
however, that the Borrower may make (w) the Closing Date Distribution, (x) to
the extent the Subsequent Draw is made available pursuant to the terms hereof,
the Subsequent Draw Distribution, (y) during each Fiscal Quarter, distributions
in cash to Parent in an amount estimated by the manager of the Borrower to equal
the amount necessary for the respective members of Parent to pay their actual
state and United States federal income tax liabilities in respect of income
earned by the Borrower (the “Tax Liability Amount”); provided, however, that any
such distributions shall be net of any prior year loss carry-forward; provided,
further that any distributions made to Parent as permitted under this Section
9.9(y) during any Fiscal Year which exceed the actual Tax Liability Amount of
the members of Parent as calculated at the end of such Fiscal Year shall be
contributed back to the Borrower by the Parent promptly, but in any event,
within thirty (30) days after the end of such Fiscal Year; and (z) distributions
to Parent (and subsequent to Parent’s members) within forty-five (45) days after
the end of each Fiscal Quarter; provided that immediately before and after
giving effect to any such distributions (1) no Default or Event of Default has
occurred and is continuing and (2) financial statements necessary to determine
current compliance with the financial covenants set forth in Section 9.12 of
this Agreement have been delivered to Lender along with a true, correct and
complete copy of the Compliance Certificate required to be delivered for such
Fiscal Quarter not less than ten (10) days prior to any such distributions.

 

 - 46 - 

 

 

9.10         Payments in Respect of Subordinated Debt. The Borrower shall not
(i) make any payment in respect of any Indebtedness for borrowed money that is
subordinated to the Liabilities (including, without limitation, the Subordinated
Debt, unless otherwise permitted expressly under the terms of a subordination
agreement in form and substance acceptable to the Lender) or (ii) permit Summit
to accept any payment in respect of the Summit Note unless and to the extent
such payment is permitted under the terms of the Summit Note Subordination
Agreement.

 

9.11         Transactions with Affiliates. Subject to the proviso contained in
Sections 9.8 and 9.9 hereof, the Borrower shall not transfer any cash or
property to any Affiliate or enter into any transaction, including, without
limitation, the purchase, lease, sale or exchange of property or the rendering
of any service to any Affiliate; provided, however, that the Borrower may enter
into transactions with Affiliates for fair value in the ordinary course of
business pursuant to terms that are no less favorable to the Borrower than the
terms upon which such transfers or transactions would have been made had such
transfers or transactions been made to or with a Person that is not an
Affiliate.

 

9.12         Financial Ratios.

 

(a)          Minimum EBITDAR. The Borrower shall not permit EBITDAR with respect
to the Facility, measured on the last day of each Fiscal Quarter for the
trailing twelve (12) month period then ended, to be less than $1,750,000;
provided, however, that for purposes of (i) the Fiscal Quarter ending June 30,
2018, consolidated EBITDAR shall be tested on a trailing three month basis
multiplied by 4, (ii) the Fiscal Quarter ending September 30, 2018, consolidated
EBITDAR shall be tested on a trailing six month basis multiplied by 2, (iii) the
Fiscal Quarter ending December 31, 2018, consolidated EBITDAR shall be tested on
a trailing nine month basis multiplied by 1.33 and (iv) the Fiscal Quarter
ending March 31, 2019 and each Fiscal Quarter thereafter, consolidated EBITDAR
shall be tested on a trailing twelve month basis.

 

(b)          Minimum Fixed Charge Coverage Ratio. The Borrower shall not permit
the Fixed Charge Coverage Ratio to be less than 1.05 to 1.00, measured as of the
last day of each Fiscal Quarter for the prior four fiscal quarters subject to
adjustments to such measurement period as set forth in the definition of Fixed
Charge Coverage Ratio.

 

(c)          Acknowledgement. The Borrower acknowledges and agrees that the
calculation and computation of the foregoing financial ratios and covenants
shall be pursuant to and in accordance with Section 8.1 hereof and shall
commence with the Fiscal Quarter ending June 30, 2018 and continue on each
Fiscal Quarter ending thereafter.

 

9.13         Change in Nature of Business. The Borrower shall not make any
change in the nature of Borrower’s business carried on as of the Closing Date.
Without the prior written consent of the Lender, which may be granted or
withheld in the Lender’ sole discretion, the Borrower shall not permit any
Person other than the Operating Company and the Management Company to operate or
control the Facility, whether by management agreement, joint venture agreement
or otherwise.

 

 - 47 - 

 

 

9.14         Other Agreements. The Borrower shall not enter into any agreement
containing any provision which would be violated or breached by the performance
of its obligations hereunder or under any Financing Agreement to which Borrower
is a party or which would violate or breach any provision hereof or thereof, or
that would or could reasonably be expected to adversely affect the Lender’s
interests or rights under this Agreement and the other Financing Agreements to
which Borrower is a party or the likelihood that the Liabilities will be paid in
full when due, nor shall the Borrower’s limited liability company agreement be
amended or modified in any way that would violate or breach any provision hereof
or of any Financing Agreement, or that would or could reasonably be expected to
adversely affect the Lender’s interests or rights under this Agreement and the
other Financing Agreements or the likelihood that the Liabilities will be paid
in full when due; provided, prior to any amendment or modification of the
Borrower’s limited liability company agreement, the Borrower shall furnish a
true, correct and complete copy of any such proposed amendment or modification
to the Lender.

 

9.15         Lock Box Accounts. The Borrower shall not establish or open any
lockbox or blocked account with any Person (other than the Lender) after the
Closing Date.

 

9.16         State of Formation and Name. Except in accordance with Section 8.5
hereof, the Borrower shall not change its state of formation from that of the
State of Delaware or its name as identified in the Recitals hereto.

 

9.17         Environmental. The Borrower shall not permit, or shall cause the
Operating Company not to permit, any Property (including the Real Property) or
any portion thereof to be involved in the use, generation, manufacture, storage,
disposal or transportation of Hazardous Substances except in compliance with all
Environmental Laws.

 

9.18         Real Estate Lease and Management Agreement. The Borrower shall not
amend, modify or supplement the Real Estate Lease or amend, modify or
supplement, or permit the Operating Company or Hospital District, as applicable,
to amend, modify or supplement (i) the Management Agreement or (ii) any QIPP
Agreement, in each case in any manner that would or could be expected to
adversely affect the Lender’s interests under this Agreement or the other
Financing Agreements, or the likelihood that the Liabilities will be paid in
full when due, without the Lender’s prior written consent. In any event, the
Borrower shall provide the Lender with fifteen (15) days’ written notice prior
to entering into any non-adverse amendment, modification or supplement to the
Real Estate Lease, the Management Agreement or any QIPP Agreement allowed under
this Section 9.18, which such notice shall indicate a reasonably detailed
description of such non-adverse amendment, modification or supplement.

 

9.19         Fiscal Year. The Borrower shall not change its Fiscal Year.

 

9.20         Tax Election. The Borrower shall not change its tax election with
the Internal Revenue Service without the prior written consent of the Lender.

 

 - 48 - 

 

 

9.21         Amendments or Waivers. Without the prior written consent of the
Lender, Borrower shall not permit (i) its organizational documents (e.g.,
charter, certificate or limited partnership agreement, or other similar
organizational documents) or (ii) the Summit Note to be amended or any provision
thereof waived, the effect of which amendment or waiver could reasonably be
expected to have a Material Adverse Effect or otherwise be materially adverse to
the to the rights and interests of the Lender.

 

10.         DEFAULT, RIGHTS AND REMEDIES OF THE LENDER.

 

10.1         Event of Default. Any one or more of the following shall constitute
an “Event of Default” under this Agreement:

 

(a)          the Borrower fails to pay (i) any principal or interest payable
hereunder or under the Note on the date due, declared due or demanded in
accordance with the terms hereof, or (ii) any other cost, expense, fee or other
amount payable to the Lender under this Agreement or under any other Financing
Agreement (including, without limitation, the Note) within three (3) calendar
days after the date when any such payment is due, declared due or demanded in
accordance with the terms hereof;

 

(b)          the Borrower fails or neglects to perform, keep or observe any of
the covenants, conditions or agreements set forth in Sections 2.2, 8.1, 8.5,
8.6, 8.7, 8.9, 8.11, 8.12 or 8.l5 hereof, or any of the Sections of Article 9
hereof;

 

(c)          any Credit Party fails or neglects to perform, keep or observe any
of the covenants, conditions, promises or agreements contained in this Agreement
(other than those specified in Section 10.1(b) hereof) or in any Financing
Agreement to which it is a party and such failure or neglect shall continue for
a period of twenty (20) calendar days;

 

(d)          any representation or warranty heretofore, now or hereafter made by
any Credit Party in this Agreement or any of the other Financing Agreements is
untrue, misleading or incorrect in any material respect, or any schedule,
certificate, statement, report, financial data, notice, or writing furnished at
any time by any Credit Party to the Lender is untrue, misleading or incorrect in
any material respect, on the date as of which the facts set forth therein are
stated or certified;

 

(e)          a judgment, decree or order requiring payment in excess of One
Hundred Thousand Dollars ($100,000) shall be rendered against any Credit Party
and such judgment or order shall remain unsatisfied or undischarged and in
effect for thirty (30) consecutive days without a stay of enforcement or
execution, provided that this clause (e) shall not apply to any judgment for
which such Credit Party is fully insured and with respect to which the insurer
has admitted liability;

 

(f)          a notice of Lien, levy or assessment is filed or recorded with
respect to any of the assets of any Credit Party (including, without limitation,
the Collateral), by the United States, or any department, agency or
instrumentality thereof, or by any state, county, municipality or other
governmental agency or any taxes or debts owing at any time or times hereafter
to any one or more of them become a Lien, upon any of the assets of any Credit
Party (including, without limitation, the Collateral), provided that this clause
(f) shall not apply to any Liens, levies, or assessments which a Credit Party is
contesting in good faith (provided the Borrower has complied with the provisions
of clauses (a) and (b) of Section 8.4 hereof) or which relate to current taxes
not yet due and payable;

 

 - 49 - 

 

 

(g)          any material portion of the Collateral or any portion of the Real
Property is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes within the possession of any receiver, trustee, custodian
or assignee for the benefit of creditors;

 

(h)          a proceeding under any bankruptcy, reorganization, arrangement of
debt, insolvency, readjustment of debt or receivership law or statute is filed
against any Credit Party, and any such proceeding is not dismissed within
forty-five (45) days of the date of its filing, or a proceeding under any
bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of
debt or receivership law or statute is filed by any Credit Party, or any Credit
Party makes an assignment for the benefit of creditors, or any Credit Party
takes any action to authorize any of the foregoing;

 

(i)          any Credit Party voluntarily or involuntarily dissolves or is
dissolved, or its existence terminates or is terminated;

 

(j)          any Credit Party becomes insolvent or fails generally to pay its
debts as they become due;

 

(k)          any Credit Party is enjoined, restrained, or in any way prevented
by the order of any court or any administrative or regulatory agency from
conducting all or any material part of its business affairs;

 

(l)          a breach by any Credit Party shall occur under any material
agreement, document or instrument (other than an agreement, document or
instrument evidencing the lending of money), whether heretofore, now or
hereafter existing between the Borrower and any other Person and the effect of
such breach will or is could reasonably be expected to have or create a Material
Adverse Effect;

 

(m)          any Credit Party shall fail to make any payment due on any other
obligation for borrowed money or shall be in breach of any agreement evidencing
the lending of money and the effect of such failure or breach would result in
the acceleration of any obligation, liability or indebtedness in excess of Fifty
Thousand Dollars ($50,000); provided that the Credit Parties shall have fifteen
(15) days to contest in good faith such breach or purported breach as long as
the Credit Parties have established an adequate reserve to cover such amount and
such contest is not reasonably likely to have or cause a Material Adverse
Effect;

 

(n)          there shall be instituted in any court criminal proceedings against
any Credit Party, the Operating Company or their respective Affiliates, or any
Credit Party, the Operating Company or their respective Affiliates shall be
indicted for any crime, in either case for which forfeiture of a material amount
of its property is a potential penalty, or any governmental enforcement action
involving any criminal penalties or exclusion from any federal or state health
care program shall have been imposed against any such Persons;

 

 - 50 - 

 

 

(o)          a Change of Control shall occur other than a Change of Control with
respect to which the Lender has provided prior written consent, such consent to
be provided in the Lender’s sole discretion;

 

(p)          any Lien securing the Liabilities shall, in whole or in part, cease
to be a perfected first priority Lien (subject only to the Permitted Liens);
this Agreement, any of the Financing Agreements, shall (except in accordance
with its terms), in whole or in part, terminate, cease to be effective or cease
to be the legally valid, binding and enforceable obligations of any Credit Party
party thereto; or any Credit Party shall directly or indirectly, contest in any
manner such effectiveness, validity, binding nature or enforceability;

 

(q)          any material breach of, noncompliance with or default under any
Financing Agreement by any party thereto (other than by the Lender) after
expiration of any applicable notice and cure period;

 

(r)          institution by the PBGC, a Credit Party or any ERISA Affiliate of
steps to terminate any Plan or to organize, withdraw from or terminate a
Multiemployer Plan if as a result of such reorganization, withdrawal or
termination, any Credit Party or any ERISA Affiliate could be required to make a
contribution to such Plan or Multiemployer Plan, or could incur a liability or
obligation to such Plan or Multiemployer Plan, in excess of One Hundred Thousand
Dollars ($100,000), or (ii) a contribution failure occurs with respect to any
Plan sufficient to give rise to a lien under ERISA;

 

(s)          an “event of default” or “default” shall occur under the Real
Estate Lease, the Management Agreement or any QIPP Agreement after the
expiration of any applicable notice and cure period therein, if any, or the Real
Estate Lease or the Management Agreement shall terminate, or the Borrower shall
cease to own the Real Property owned by the Borrower as of the Closing Date, or
a state or federal regulatory agency shall have revoked a Medicaid or Medicare
qualification or any other license, permit or certificate that is material to
the operation of the Facility or any portion of the Real Property as currently
conducted, regardless of whether such license, permit, certificate or
qualification was held by or originally issued for the benefit of the Borrower,
a lessor or any other Person, including the Operating Company;

 

(t)          except as may be permitted under Section 9.13 hereof, the
Management Agreement shall be terminated or assigned by the Management Company
or the Management Company (or its subsidiaries or affiliates) shall cease to
actively manage the Facility;

 

(u)          a Material Adverse Change shall occur;

 

(v)         (1) there shall occur with respect to the Facility any Medicare or
Medicaid survey deficiencies at Level I, J, K, L or worse (i) which deficiencies
are not cured within the amount of time permitted by the applicable reviewing
agency; (ii) which result in the imposition by any Government Authority or the
applicable state survey agency of sanctions in the form of either a program
termination, temporary management, “Denial of Payment” (or similar denial) for
new admission or otherwise (which continues for thirty (30) days or more) and/or
closure of the Facility and (iii) which sanctions could have a Material Adverse
Effect as determined by Lender in its reasonable discretion or (2) the Facility
is otherwise placed on the “Special Focus Facility” list by CMS or any other
Government Authority; and/or

 

 - 51 - 

 

 

(w)          any subordination provision in the Summit Note Subordination
Agreement shall cease to be in full force and effect, or any Person (including
the holder of the Summit Note) shall contest in any manner the validity, binding
nature or enforceability of any such provision.

 

10.2         Acceleration. Upon the occurrence of any Event of Default described
in Sections 10.1(h), (i), or (j), the Commitment (if they have not theretofore
terminated) shall automatically and immediately terminate and all of the
Liabilities shall immediately and automatically, without presentment, demand,
protest or notice of any kind (all of which are hereby expressly waived), be
immediately due and payable; and upon the occurrence and during the continuance
of any other Event of Default, the Lender may at its sole option declare the
Commitment (if they have not theretofore terminated) to be terminated and any or
all of the Liabilities may, at the sole option of the Lender, and without
presentment, demand, protest or notice of any kind (all of which are hereby
expressly waived), be declared, and thereupon shall become, immediately due and
payable, whereupon the Commitment shall immediately terminate.

 

10.3         Rights and Remedies Generally. Upon the occurrence and during the
continuance of any Event of Default, the Lender shall have, in addition to any
other rights and remedies contained in this Agreement and in any of the other
Financing Agreements, all of the rights and remedies of a secured party under
the Code or other applicable laws, all of which rights and remedies shall be
cumulative, and non-exclusive, to the extent permitted by law, including,
without limitation, the right of Lender to sell, assign, or lease any or all of
the Collateral or the Real Property. Upon notice to Borrower after an Event of
Default and during the continuance thereof, Borrower at its own expense shall
assemble all or any part of the Collateral as determined by Lender and make it
available to Lender at any location designated by Lender. In such event,
Borrower shall, at its sole cost and expense, store and keep any Collateral so
assembled at such location pending further action by Lender and provide such
security guards and maintenance services as shall be necessary to protect and
preserve such Collateral. In addition to all such rights and remedies, the sale,
lease or other disposition of the Collateral, or any part thereof, by the Lender
after an Event of Default and during the continuance thereof may be for cash,
credit or any combination thereof, and the Lender may purchase all or any part
of the Collateral at public or, if permitted by law, private sale, and in lieu
of actual payment of such purchase price, may set-off the amount of such
purchase price against the Liabilities of the Borrower then owing. Any sales of
such Collateral may be adjourned from time to time with or without notice. The
Lender may, in its sole discretion, cause the Collateral to remain on the
Borrower’s premises, at the Borrower’s expense, pending sale or other
disposition of such Collateral. The Lender shall have the right after an Event
of Default and during the continuance thereof to conduct such sales on the
Borrower’s premises, at the Borrower’s expense, or elsewhere, on such occasion
or occasions as the Lender may see fit.

 

 - 52 - 

 

 

10.4         Entry Upon Premises and Access to Information. Upon the occurrence
and during the continuance of any Event of Default, the Lender shall have the
right to enter upon the premises of the Borrower where the Collateral is located
without any obligation to pay rent to the Borrower, or any other place or places
where such Collateral is believed to be located and kept, and remove such
Collateral therefrom to the premises of the Lender or any agent of the Lender,
for such time as the Lender may desire, in order to effectively collect or
liquidate such Collateral. Upon the occurrence and during the continuance of any
Event of Default, the Lender shall have the right to obtain access to the
Borrower’s data processing equipment, computer hardware and software relating to
the Collateral and to use all of the foregoing and the information contained
therein in any manner the Lender deems appropriate. Upon the occurrence and
during the continuance of any Event of Default, the Lender shall have the right
to notify post office authorities to change the address for delivery of the
Borrower’s mail to an address designated by the Lender and to receive, open and
process all mail addressed to the Borrower to the extent such mail is in
connection with accounts receivable collections provided that such action does
not violate any of the Operating Company’s residents’ rights to privacy under
applicable law.

 

10.5         Sale or Other Disposition of Collateral by the Lender. Any notice
required to be given by the Lender of a sale, lease or other disposition or
other intended action by the Lender, with respect to any of the Collateral or
the Real Property, which is deposited in the United States mails, postage
prepaid and duly addressed to the Borrower at the address specified in Section
11.12 hereof, at least ten (10) calendar days prior to such proposed action
shall constitute fair and reasonable notice to the Borrower of any such action.
The net proceeds realized by the Lender upon any such sale or other disposition,
after deduction for the expense of retaking, holding, preparing for sale,
selling or the like and the attorneys’ and paralegal’ fees and legal expenses
incurred by the Lender in connection therewith, shall be applied as provided
herein toward satisfaction of the Liabilities, including, without limitation,
such Liabilities described in Sections 8.2 and 11.2 hereof. The Lender shall
account to the Borrower for any surplus realized upon such sale or other
disposition, and the Borrower shall remain liable for any deficiency. The
commencement of any action, legal or equitable, or the rendering of any judgment
or decree for any deficiency shall not affect the Lender’s Liens in the
Collateral until the Liabilities are fully paid. The Borrower agrees that the
Lender has no obligation to preserve rights to the Collateral against any other
Person. If and to the extent applicable, the Lender is hereby granted a license
or other right to use, without charge, the Borrower’s labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, tradestyles,
trademarks, service marks and advertising matter or any property of a similar
nature, as it pertains to the Collateral, in completing production of,
advertising for sale and selling any such Collateral or the Real Property, and
the Borrower’s rights and benefits under all licenses and franchise agreements,
if any, shall inure to the Lender’s benefit until the Liabilities of the
Borrower are paid in full.

 

10.6         Waiver of Demand. Demand, presentment, protest and notice of
nonpayment are hereby waived by the Borrower. The Borrower also waives the
benefit of all valuation, appraisal and exemption laws.

 

10.7         Waiver of Notice. TO THE FULLEST EXTENT PERMITTED BY LAW, UPON THE
OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, THE BORROWER
HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE
BY THE LENDER OF ITS RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT JUDICIAL PROCESS
OR TO REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR
HEARING.

 

 - 53 - 

 

  

11.          MISCELLANEOUS.

 

11.1         Waiver. The Lender’s failure, at any time or times hereafter, to
require strict performance by any Credit Party of any provision of this
Agreement or the Financing Agreements shall not waive, affect or diminish any
right of the Lender thereafter to demand strict compliance and performance
therewith. Any suspension or waiver by the Lender of an Event of Default under
this Agreement or a default under any of the other Financing Agreements shall
not suspend, waive or affect any other Event of Default under this Agreement or
any other default under any of the other Financing Agreements, whether the same
is prior or subsequent thereto and whether of the same or of a different kind or
character. None of the undertakings, agreements, warranties, covenants and
representations of the Credit Parties contained in this Agreement or any of the
other Financing Agreements and no Event of Default under this Agreement or
default under any of the other Financing Agreements shall be deemed to have been
suspended or waived by the Lender unless such suspension or waiver is in writing
signed by an officer of the Lender, and directed to the Borrower specifying such
suspension or waiver.

 

11.2         Costs and Attorneys’ Fees.

 

(a)          The Borrower agrees to pay on demand all of the costs and expenses
of the Lender (including, without limitation, the reasonable fees and expenses
of the Lender’s counsel, and all UCC filing and lien search fees, and, if
applicable, real estate appraisal fees, survey fees, recording, field
examination (with such field examination being subject to Section 8.2) and title
insurance costs, and any environmental report or analysis) in connection with
the structuring, preparation, negotiation, execution, and delivery of: (i) this
Agreement, the Financing Agreements and all other instruments, agreements,
certificates or documents provided for herein or delivered or to be delivered
hereunder, and (ii) any and all amendments, modifications, supplements and
waivers executed and delivered pursuant hereto or any Financing Agreement or in
connection herewith or therewith. The Borrower further agrees that the Lender,
in its sole discretion, may deduct all such unpaid amounts from the aggregate
proceeds of the Loan or debit such amounts from the operating accounts of the
Borrower maintained with the Lender.

 

(b)          The costs and expenses that the Lender incurs in any manner or way
with respect to the following shall be part of the Liabilities, payable by the
Borrower on demand if at any time after the date of this Agreement the Lender:
(i) employs counsel in good faith for advice or other representation (A) with
respect to the amendment, modification or enforcement of this Agreement or the
Financing Agreements, or with respect to any Collateral securing the Liabilities
hereunder, (B) to represent the Lender in any work-out or any type of
restructuring of the Liabilities, or any litigation, contest, dispute, suit or
proceeding or to commence, defend or intervene or to take any other action in or
with respect to any litigation, contest, dispute, suit or proceeding (whether
instituted by the Lender, the Borrower or any other Person) in any way or
respect relating to this Agreement, the Financing Agreements, the Borrower’s
affairs or any Collateral hereunder or (C) to enforce any of the rights of the
Lender with respect to the Borrower provided in this Agreement, under any of the
Financing Agreements, or otherwise (whether at law or in equity); (ii) takes any
action to protect, preserve, store, ship, appraise, prepare for sale, collect,
sell, liquidate or otherwise dispose of any Collateral in accordance with the
terms hereunder; and/or (iii) seeks to enforce or enforces any of the rights and
remedies of the Lender with respect to the Borrower or any guarantor of the
Liabilities. Without limiting the generality of the foregoing, such expenses,
costs, charges and fees include: reasonable fees, costs and expenses of
attorneys, accountants and consultants; court costs and expenses; court reporter
fees, costs and expenses; long distance telephone charges; reasonable travel
costs; and courier and telecopier charges.

 

 - 54 - 

 

 

(c)          The Borrower further agrees to pay, and to save the Lender harmless
from all liability for, any documentary stamp tax, intangible tax, or other
stamp tax or taxes of any kind which may be payable in connection with or
related to the execution or delivery of this Agreement, the Financing
Agreements, the borrowings hereunder, the issuance of the Note or of any other
instruments, agreements, certificates or documents provided for herein or
delivered or to be delivered hereunder or in connection herewith, provided that
the Borrower shall not be liable for Lender’s income tax liabilities.

 

(d)          All of the Borrower’s obligations provided for in this Section 11.2
shall be Liabilities secured by the Collateral and the Real Property and shall
survive repayment of the Loan or any termination of this Agreement or any
Financing Agreements.

 

11.3         Expenditures by the Lender. In the event the Borrower shall fail to
pay taxes, insurance, audit fees and expenses, filing, recording and search
fees, assessments, fees, costs or expenses which the Borrower is, under any of
the terms hereof or of any of the other Financing Agreements, required to pay,
or fails to keep the Collateral free from other Liens, except as permitted
herein, the Lender may, in its sole discretion, pay or make expenditures for any
or all of such purposes, and the amounts so expended, together with interest
thereon at the Default Rate (from the date the obligation or liability of
Borrower is charged or incurred until actually paid in full to Lender) and shall
be part of the Liabilities of the Borrower, payable on demand and secured by the
Collateral.

 

11.4         Custody and Preservation of Collateral. The Lender shall be deemed
to have exercised reasonable care in the custody and preservation of any of the
Collateral in its possession if it takes such action for that purpose as the
Borrower shall request in writing, but failure by the Lender to comply with any
such request shall not of itself be deemed a failure to exercise reasonable
care, and no failure by the Lender to preserve or protect any right with respect
to such Collateral against prior parties, or to do any act with respect to the
preservation of such Collateral not so requested by a Borrower, shall of itself
be deemed a failure to exercise reasonable care in the custody or preservation
of such Collateral.

 

11.5         Reliance by the Lender. The Borrower acknowledges that the Lender,
in entering into this Agreement and agreeing to make the Loan and otherwise
extend credit to the Borrower hereunder, has relied upon the accuracy of the
covenants, agreements, representations and warranties made herein by the
Borrower and the information delivered by the Borrower to the Lender in
connection herewith (including, without limitation, all financial information
and data).

 

11.6         Assignability; Parties. This Agreement (including, without
limitation, any and all of the Borrower’s rights, obligations and liabilities
hereunder) may not be assigned by the Borrower without the prior written consent
of the Lender. Whenever in this Agreement there is reference made to any of the
parties hereto, such reference shall be deemed to include, wherever applicable,
a reference to the successors and permitted assigns of the Borrower and the
successors and assigns of the Lender.

 

 - 55 - 

 

 

11.7         Severability; Construction. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Agreement. The parties
hereto have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
hereto, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.

 

11.8         Application of Payments. Notwithstanding any contrary provision
contained in this Agreement or in any of the other Financing Agreements, after
the occurrence and during the continuance of an Event of Default the Borrower
irrevocably waives the right to direct the application of any and all payments
at any time or times hereafter received by the Lender from the Borrower or with
respect to any of the Collateral, and the Borrower does hereby irrevocably agree
that the Lender shall have the continuing exclusive right to apply and reapply
any and all payments received at any time or times hereafter, whether with
respect to the Collateral or otherwise: (i) first, to the payment and
satisfaction of all sums paid and costs and expenses incurred by the Lender
hereunder or otherwise in connection herewith, including such monies paid or
incurred in connection with protecting, preserving or realizing upon the
Collateral or enforcing any of the terms hereof, including reasonable attorneys’
fees and court costs, together with any interest thereon (but without preference
or priority of principal over interest or of interest over principal); (ii)
second, to the payment and satisfaction of the remaining Liabilities, whether or
not then due (in whatever order the Lender elects), both for interest and
principal; and (iii) last, the balance, if any, after all of the Liabilities
have been indefeasibly paid in full, to the Borrower or as otherwise required by
applicable law.

 

11.9         Marshalling; Payments Set Aside. The Lender shall be under no
obligation to marshall any assets in favor of the Borrower or any other Person
or against or in payment of any or all of the Liabilities. To the extent that
the Borrower makes a payment or payments to the Lender or the Lender enforces
its Liens or exercises its rights of setoff, and such payment or payments or the
proceeds of such enforcement or setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied shall automatically be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.

 

11.10       Sections and Titles; UCC Termination Statements. The sections and
titles contained in this Agreement shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto. At such time as all of the Liabilities shall have been
indefeasibly paid in full and this Agreement shall terminate in accordance with
its terms, the Lender will, upon Borrower’s written request and at the
Borrower’s cost and expense, authorize the filing of all UCC termination
statements required by the Borrower to evidence the termination of the Liens in
the Collateral in favor of the Lender and the Lender will sign a customary
payoff letter that evidences the termination of the grant of the security
interest in its favor by the Borrower as provided pursuant to Section 6.1
hereof.

 

 - 56 - 

 

 

11.11        Continuing Effect; Inconsistency. This Agreement, the Lender’s
Liens in the Collateral, and all of the other Financing Agreements shall
continue in full force and effect so long as any Liabilities shall be owed to
the Lender, and (even if there shall be no such Liabilities outstanding) so long
as this Agreement has not been terminated as provided in Section 2.8 hereof. To
the extent any terms or provisions contained in any Financing Agreement are
inconsistent or conflict with the terms and provisions of this Agreement, the
terms and provisions of this Agreement shall control and govern.

 

11.12        Notices. Except as otherwise expressly provided herein, any notice
required or desired to be served, given or delivered hereunder shall be in
writing, and shall be deemed to have been validly served, given or delivered
upon the earlier of (a) personal delivery to the address set forth below, (b) in
the case of facsimile transmission, when transmitted and (c) in the case of
mailed notice, five (5) days after deposit in the United States mails, with
proper postage for certified mail, return receipt requested, prepaid, or in the
case of notice by Federal Express or other reputable overnight courier service,
one (1) Business Day after delivery to such courier service; provided, however,
that if any notice is tendered to an addressee and delivery thereof is refused
by such addressee, such notice shall be effective upon such tender unless
expressly set forth in such notice. Notices to be provided pursuant to this
Agreement shall be as follows: (i) If to the Lender at: CIBC Bank USA, 120 S.
LaSalle St., Chicago, Illinois 60603; Attention: Adam D. Panos; Telephone No.
(312) 564-1278; Facsimile No. (312) 564-6889; with a copy to: c/o Nixon Peabody
LLP, 70 W. Madison, Suite 3500, Chicago, Illinois, 60602; Attention: Daniel P.
Strzalka, Esq.; Telephone No. (312) 977-4341; Facsimile No. (312) 977-4405; (ii)
If to any Borrower at: c/o Summit Healthcare REIT, Inc., a Maryland corporation,
2 South Pointe Drive, Suite 100, Lake Forrest, CA 92630.  Telephone: (949)
535-1923, Facsimile: (949) 812-8173; with a copy to: Hanson Bridgett, LLP, 425
Market Street, 26th Floor, San Francisco, California, 94105, Attention: Jennifer
Berland, Telephone No. (415) 995-5837; Facsimile No. (415) 995-3409; or to such
other address as each party designates to the other in the manner herein
prescribed.

 

11.13        Equitable Relief. The Borrower recognizes that, in the event the
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to the Lender; therefore, the Borrower agrees that the Lender, if the
Lender so requests, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.

 

11.14        Entire Agreement. This Agreement, together with the Financing
Agreements executed in connection herewith, constitutes the entire agreement
among the parties with respect to the subject matter hereof, and supersedes all
prior written or oral understandings, discussions and agreements with respect
thereto (including, without limitation, any term sheet or commitment letter).
This Agreement may be amended or modified only by mutual agreement of the
parties evidenced in writing and signed by the party to be charged therewith.
Time is of the essence hereof with respect to the Borrower’s obligations
hereunder. The Recitals hereto are hereby incorporated into this Agreement by
this reference thereto.

 

 - 57 - 

 

 

11.15        Participations and Assignments. The Lender shall have the right,
without the consent of the Borrower, to sell participations in, or assignments
of, all or any portion of its rights and interest under this Agreement, the
Liabilities and any of the Financing Agreements. The Lender may furnish any
information concerning the Borrower in the possession of the Lender from time to
time to participants (including prospective participants) provided that such
Person agrees to comply with Section 11.21. In addition and without limiting the
foregoing, Lender may at any time pledge or assign a security interest in all or
any portion of its rights under this Agreement to secure obligations of Lender,
including any pledge or assignment to secure obligations to a Federal Reserve
Bank, and this Section shall not apply to any such pledge or assignment of a
security interest.

 

11.16        Indemnity. The Borrower agrees to defend, protect, indemnify and
hold harmless the Lender and each and all of its officers, directors, employees,
attorneys, affiliates, and agents (“Indemnified Parties”) from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for the Indemnified Parties in connection with any
investigative, administrative or judicial proceeding, whether or not the
Indemnified Parties shall be designated by a party thereto, or otherwise), which
may be imposed on, incurred by, or asserted against any Indemnified Party
(whether direct, indirect or consequential, and whether based on any federal or
state laws or other statutory regulations, including, without limitation,
securities, environmental and commercial laws and regulations, under common law
or at equitable cause, or on contract or otherwise) in any manner relating to or
arising out of this Agreement or the other Financing Agreements, or any act,
event or transaction related or attendant thereto, the making and the management
of the Loan (including, without limitation, any liability under federal, state
or local environmental laws or regulations) or the use or intended use of the
proceeds of the Loan hereunder; provided, that the Borrower shall not have any
obligation to any Indemnified Party hereunder with respect to matters caused by
or resulting from the willful misconduct or gross negligence of such Indemnified
Party. To the extent that the undertaking to indemnify, pay and hold harmless
set forth in the preceding sentence may be unenforceable because it is violative
of any law or public policy, the Borrower shall contribute the maximum portion
which it is permitted to pay and satisfy under applicable law, to the payment
and satisfaction of all matters incurred by the Indemnified Parties. Any
liability, obligation, loss, damage, penalty, cost or expense incurred by the
Indemnified Parties shall be paid to the Indemnified Parties on demand, together
with interest thereon at the Default Rate from the date incurred by the
Indemnified Parties until paid by the Borrower, be added to the Liabilities, and
be secured by the Collateral and the Real Property. The provisions of and
undertakings and indemnifications set out in this Section 11.16 shall survive
the satisfaction and payment of the Liabilities of the Borrower and the
termination of this Agreement.

 

11.17       Representations and Warranties. Notwithstanding anything to the
contrary contained herein, each representation or warranty contained in this
Agreement or any of the other Financing Agreements shall survive the execution
and delivery of this Agreement and the other Financing Agreements and the making
of the Loan and the repayment of the Liabilities hereunder.

 

 - 58 - 

 

 

11.18       Counterparts; Faxes. This Agreement and any amendment or supplement
hereto or any waiver granted in connection herewith may be executed in any
number of counterparts and by the different parties on separate counterparts and
each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Agreement. A
signature hereto sent or delivered by facsimile or other electronic transmission
shall be as legally binding and enforceable as a signed original for all
purposes.

 

11.19       Limitation of Liability of Lender. It is hereby expressly agreed
that:

 

(a)          Lender may conclusively rely and shall be protected in acting or
refraining from acting upon any document, instrument, certificate, instruction
or signature believed to be genuine and may assume and shall be protected in
assuming that any Person purporting to give any notice or instructions in
connection with any transaction to which this Agreement relates has been duly
authorized to do so. Lender shall not be obligated to make any inquiry as to the
authority, capacity, existence or identity of any Person purporting to have
executed any such document or instrument or have made any such signature or
purporting to give any such notice or instructions;

 

(b)          Lender shall not be liable for any acts, omissions, errors of
judgment or mistakes of fact or law, including, without limitation, acts,
omissions, errors or mistakes with respect to the Collateral, except for those
arising out of or in connection with Lender’s gross negligence or willful
misconduct. Without limiting the generality of the foregoing, except as required
by applicable law, Lender shall be under no obligation to take any steps
necessary to preserve rights in the Collateral against any other parties, but
may do so at its option, and all expenses incurred in connection therewith shall
be payable by Borrower; and

 

(c)          Lender shall not be liable for any action taken in good faith and
believed to be authorized or within the rights or powers conferred by this
Agreement and the other Financing Agreements.

 

11.20        Borrower Authorizing Accounting Firm. Borrower shall authorize its
accounting firm and/or service bureaus to provide Lender with such information
as is requested by Lender in accordance with this Agreement. Borrower authorizes
Lender upon prior written notice to the Borrower to, at any time while a Default
or Event of Default exists or, if a Default or Event of Default does not exist,
upon prior written consent of the Borrower, contact directly any such accounting
firm and/or service bureaus to obtain such information.

 

11.21        Confidentiality. Lender shall hold all non-public information
regarding the Borrower and obtained by Lender pursuant hereto confidential and
shall not disclose any such information, except that disclosure of such
information may be made (i) to Lender’s agents, employees, subsidiaries,
Affiliates, attorneys, auditors, professional consultants, rating agencies,
insurance industry associations and portfolio management services, (ii) to
prospective transferees or purchasers of any interest in the Loan or
Liabilities, and to prospective contractual counterparties (or the professional
advisors thereto) in any Interest Rate Protection Agreement permitted hereby,
provided that any such Persons shall have agreed to be bound by the provisions
of this Section 11.21, (iii) as required by law, subpoena, judicial order or
similar order and in connection with any litigation, investigation or
proceeding, (iv) as may be required in connection with the examination, audit or
similar investigation of such Person and (v) to a Person that is a trustee,
investment advisor, collateral manager, servicer, noteholder or secured party in
a Securitization (as hereinafter defined) in connection with the administration,
servicing and reporting on the assets serving as collateral for such
Securitization. For the purposes of this Section, “Securitization” shall mean a
public or private offering by Lender or any of its Affiliates or their
respective successors and assigns, of securities which represent an interest in,
or which are collateralized, in whole or in party, by the Loan. Confidential
information shall not include information that either: (i) is in the public
domain, or becomes part of the public domain after disclosure to such Person
through no fault of such Person, or (ii) is disclosed to such Person by a Person
other than the Borrower or an Affiliate of Borrower (or Borrower’s accountants,
attorneys or other advisors or agents), provided Lender does not have actual
knowledge that such Person is prohibited from disclosing such information. The
obligations of Lender under this Section 11.21 shall supersede and replace the
obligations of Lender under any confidentiality agreement in respect of this
financing executed and delivered by Lender prior to the date hereof.

 

 - 59 - 

 

  

11.22      Customer Identification - USA Patriot Act Notice; Compliance with
Anti-Terrorism Orders. The Lender hereby notifies the Borrower that pursuant to
the requirements of the USA Patriot Act (Title III of Pub. L. 107-56, signed
into law October 26, 2001) (the “Patriot Act”), and the Lender’s policies and
practices, the Lender is required to obtain, verify and record certain
information and documentation that identifies the Borrower, which information
includes the name and address of the Borrower and such other information that
will allow the Lender to identify the Borrower in accordance with the Patriot
Act. In addition, Borrower shall (a) ensure that no Person who owns a
controlling interest in or otherwise controls Borrower is or shall be listed on
the OFAC Lists, (b) not use or permit the use of the proceeds of the Loan to
violate any of the foreign asset control regulations of OFAC or any enabling
statute or Executive Order relating thereto, and (c) comply with all applicable
Bank Secrecy Act laws and regulations, as amended. Borrower shall not permit the
transfer of any interest in Borrower to any Person (or any beneficial owner of
such entity) who is listed on the OFAC Lists. Borrower shall not knowingly enter
into a lease with any party who is listed on the OFAC Lists. Borrower shall
immediately notify the Lender if Borrower has knowledge that any other Credit
Party, manager or any member or beneficial owner of a Credit Party is listed on
the OFAC Lists or (i) is indicted on or (ii) arraigned and held over on charges
involving money laundering or predicate crimes to money laundering. Borrower
shall immediately notify the Lender if Borrower knows that any of their
Affiliates is listed on the OFAC Lists or (A) is convicted on, (B) pleads nolo
contendere to, (C) is indicted on or (D) is arraigned and held over on charges
involving money laundering or predicate crimes to money laundering. Lender may
immediately contact the Office of Foreign Assets Control and any other
government agency that the Lender deems appropriate in order to comply with its
obligations under any law, regulation, order or decree regulating or relating to
terrorism and international money laundering.

 

11.23       SUBMISSION TO JURISDICTION; WAIVER OF VENUE. THE BORROWER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:

 

(a)          SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER FINANCING AGREEMENTS TO
WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE
STATE OF ILLINOIS, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE NORTHERN
DISTRICT OF ILLINOIS AND APPELLATE COURTS FROM ANY THEREOF;

 

 - 60 - 

 

 

(b)          CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW IN CONNECTION WITH ANY
SUCH ACTION OR PROCEEDING (i) ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION
OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR
CLAIM THE SAME; AND

 

(c)          AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY
BE EFFECTED BY MAILING A COPY THEREOF BY CERTIFIED MAIL (OR ANY SUBSTANTIALLY
SIMILAR FORM OF MAIL), POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO THE
BORROWER AT ITS ADDRESS SET FORTH ABOVE OR AT SUCH OTHER ADDRESS OF WHICH THE
LENDER SHALL HAVE BEEN NOTIFIED PURSUANT THERETO. THE BORROWER AGREES THAT SUCH
SERVICE, TO THE FULLEST EXTENT PERMITTED BY LAW (i) SHALL BE DEEMED IN EVERY
RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE BORROWER IN ANY SUIT, ACTION OR
PROCEEDING, AND (ii) SHALL BE TAKEN AND HELD TO BE VALID PERSONAL SERVICE UPON
AND PERSONAL DELIVERY TO THE BORROWER. SOLELY TO THE EXTENT PROVIDED BY
APPLICABLE LAW, SHOULD THE BORROWER, AFTER BEING SERVED, FAIL TO APPEAR OR
ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER
OF DAYS PRESCRIBED BY LAW AFTER THE DELIVERY OR MAILING THEREOF, THE BORROWER
SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY THE
COURT AGAINST THE BORROWER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT,
PROCESS OR PAPERS. NOTHING HEREIN SHALL AFFECT THE LENDER’S RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR LIMIT THE LENDER’S RIGHT TO
BRING PROCEEDINGS AGAINST THE BORROWER OR ITS PROPERTY IN ANY COURT OR ANY OTHER
JURISDICTION.

 

11.24       GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ALL RESPECTS IN
ACCORDANCE WITH, AND ENFORCED AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.

 

11.25       JURY TRIAL. THE BORROWER AND THE LENDER HEREBY IRREVOCABLY AND
KNOWINGLY WAIVE (TO THE FULLEST EXTENT PERMITTED BY LAW) ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING (INCLUDING, WITHOUT LIMITATION, ANY
COUNTERCLAIM) ARISING OUT OF THIS AGREEMENT, THE FINANCING AGREEMENTS OR ANY
OTHER AGREEMENTS OR TRANSACTIONS RELATED HERETO OR THERETO, INCLUDING, WITHOUT
LIMITATION, ANY ACTION OR PROCEEDING (A) TO ENFORCE OR DEFEND ANY RIGHTS UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR ANY INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, OR (B)
ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS
AGREEMENT AND THE FINANCING AGREEMENTS. THE LENDER AND THE BORROWER AGREE THAT
ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY.

 

[Signature Page Follows]

 

 - 61 - 

 

 

IN WITNESS WHEREOF, this Term Loan and Security Agreement has been duly executed
as of the day and year first above written.

 

  BORROWER:       CHP Friendswood snf LLC       By:  Summit Healthcare REIT,
Inc., a Maryland corporation, its Manager             By: /s/ Elizabeth
Pagliarini     Name: Elizabeth Pagliarini     Title:  Chief Financial Officer  
        LENDER:           CIBC BANK USA           By: /s/ Adam Panos   Name:
Adam Panos   Title:  Managing Director

 

Term Loan and Security Agreement

 

 

 

 

Schedule 7.15

 

Licensed Unit Capacity; Licenses

 

License No. 142584 issued to Friendswood TRS LLC – Friendship Haven Healthcare
and Rehabilitation Center (Facility ID 004286) issued by the Texas Department of
Aging and Disability Services effective as of May 1, 2015 for the operation of a
150-bed Nursing Facility.

 

 

 

 

Schedule 7.22

 

Capitalization

  

Entity  Jurisdiction  Organizational
Identification
Number  Holder of Capital
Securities  Percentage of
Outstanding
Interests                 CHP Friendswood SNF, LLC  Delaware  5200025 
Cornerstone Healthcare Holdings 1, LLC   54%                 CHP Friendswood
SNF, LLC  Delaware  5200025  Healthcare Real Estate Holdings, LLC   46%         
       Cornerstone Healthcare Holdings 1, LLC  Delaware  5165903  Cornerstone
Healthcare Partners LLC   100%                 Healthcare Real Estate Holdings,
LLC  Delaware  5306027  Cornerstone Healthcare Holdings 1, LLC   88%            
    Healthcare Real Estate Holdings, LLC  Delaware  5306027  Summit Healthcare
Operating Partnership, L.P.   12%

 

 

 

 

Schedule 9.1

 

Debt to Be Repaid

 

Indebtedness of the Borrower to Oxford Finance LLC consisting of $6,860,696.40
of outstanding principal and $46,710.31 of accrued and unpaid interest, and
certain other fees, costs and expenses due and owing by the Borrower in
connection therewith.