Exhibit 10.3 EXECUTION COPY

 

THIS NOTE AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY
STATE AND, EXCEPT AS PROVIDED HEREIN, MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFER, SALE, TRANSFER, PLEDGE OR
HYPOTHECATION IS PERMITTED UNDER RULE 144 OF THE ACT OR IS OTHERWISE EXEMPT FROM
SUCH REGISTRATION.

 

APOLLO MEDICAL HOLDINGS, INC.

 

Convertible Note

 

$2,000,000 March 28, 2014

 

Apollo Medical Holdings, Inc., a Delaware corporation (“Company”), for value
received, hereby promises to pay to NNA of Nevada, Inc., or its successors and
permitted assigns (“Holder”), the principal amount of Two Million Dollars
($2,000,000) with interest on the unpaid principal balance hereof, all as
hereinafter further provided.

 

ARTICLE I

 

INVESTMENT AGREEMENT

 

1.1           Agreement; Definitions. This Convertible Note (this “Note”) has
been issued by Company pursuant to an Investment Agreement, dated as of March
28, 2014, between Company and Holder (such agreement, as amended, restated,
refinanced, extended, renewed, supplemented or otherwise modified from time to
time, the “Investment Agreement” ). Capitalized terms used herein shall have the
meanings given thereto in Schedule I and in the Investment Agreement.

 

1.2           Accounting Terms. Except as specifically provided otherwise in
this Note, all accounting terms used herein that are not specifically defined
shall have the meanings customarily given them in accordance with GAAP.
Notwithstanding anything to the contrary in this Note, for purposes of
calculation of the financial covenants set forth in Article VI, all accounting
determinations and computations hereunder shall be made in accordance with GAAP
as in effect as of the date of this Note applied on a basis consistent with the
application used in preparing Company’s financial statements for the nine-month
period ended October 31, 2013. In the event that any changes in GAAP after such
date are required to be applied to Company and would affect the computation of
the financial covenants contained in Article VI, such changes shall be followed
only from and after the date this Note shall have been amended to take into
account any such changes.

 

 

 

 

ARTICLE II

 

Borrowing/PAYMENTS

 

2.1           Borrowing. Subject to the terms and conditions of this Note,
Company may borrow a term loan from Holder in the amount of $2,000,000.00 at any
time on or before December 15, 2014. If Company elects to make the borrowing
hereunder, Company shall provide written notice to Holder at least 3 Business
Days prior to the date of such borrowing. The obligation of Holder to make the
term loan pursuant to this Section 2.1 shall be subject to the following:

 

(i) each of the representations and warranties made by Company in Article III of
the Investment Agreement shall be true and correct in all material respects
(except to the extent any such representation or warranty is qualified as to
materiality or by Material Adverse Effect, in which case such representation or
warranty shall be true in all respects) on and as of such date with the same
effect as if made on and as of such date (except to the extent any such
representation or warranty related to a specific date, in which case such
representation or warranty shall be true and correct in all material respects as
of such date (except to the extent any such representation or warranty is
qualified as to materiality or Material Adverse Effect, in which case such
representation or warranty shall be true in all respects as of such date));

 

(ii) no Default or Event of Default shall have occurred and be continuing on
such date or after giving effect to the borrowing;

 

(iii) the borrowing hereunder shall be deemed to be a representation and
warranty by Company on the date of the borrowing as to the truth and accuracy of
the facts specified in clauses (i) and (ii) above;

 

(iv) only one term loan under this Section 2.1 may be made, and Holder shall not
fund a partial term loan or fund the term loan in multiple installments; and

 

(v) to the extent repaid, the term loan hereunder may not be reborrowed.

 

2.2           Termination; Maturity.

 

(a)          If Company does not borrow the term loan pursuant to Section 2.1 by
December 15, 2014 and except with respect to any provisions which by their terms
survive termination, this Note and the related Guaranty shall be deemed to be
terminated without any further action by the parties hereto.

 

(b)          If Company does borrow the term loan pursuant to Section 2.1 and
this Note has not previously been converted in accordance with Article III or
redeemed in accordance with Section 2.5 or Section 2.6, then the entire
outstanding principal of, and any accrued and unpaid interest on, this Note
shall be due and payable in full on March 28, 2019 (the “Maturity Date”).

 

2.3           Interest. Interest on the outstanding principal amount of this
Note shall accrue from the date hereof until this Note is paid in full at the
rate of 8.00% per annum, and shall be payable semi-annually in arrears on June
30 and December 31 of each calendar year, beginning on June 30, 2014, and, if
this Note has not been fully converted in accordance with the terms of Article
III or redeemed in accordance with Sections 2.5 or 2.6, on the Maturity Date or
any other date on which such unpaid principal balance shall become due and
payable in full. Interest on this Note shall be computed on the basis of a
360-day year and for the actual number of days elapsed.

 

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2.4           No Prepayment. Except as provided in Section 2.5, Company may not
prepay all or any part of the principal of, or accrued and unpaid interest on,
this Note without the prior written consent of Holder.

 

2.5           Option to Request Redemption. At any time prior to the Maturity
Date, subject to compliance with this Section 2.5, Company may request to redeem
this Note for cash in an amount equal to the outstanding principal amount of,
and any accrued and unpaid interest on, this Note accrued to, but excluding, the
date on which such redemption is to occur (the “Optional Redemption Date”).
Company shall provide written notice to Holder at least sixty (60) days prior to
the Optional Redemption Date, and Company’s right to redeem all or any portion
of this Note pursuant to this Section 2.5 shall be subject in all respects to
the right of Holder under Article III to convert, at any time prior to the
Optional Redemption Date, any or all of any Conversion Amount (as hereinafter
defined) into Conversion Shares as provided in Article III.

 

2.6          Mandatory Redemption at Election of Holder.

 

(a)          Subject to the rights of the lender under the Credit Agreement, not
later than 90 days after receipt by any Company Party of any proceeds of
insurance, condemnation award or other compensation in respect of any Casualty
Event (or, if earlier, upon its determination not to repair or replace any
property subject to such Casualty Event or to acquire assets used or useable in
the business of the Company Parties), Company will (i) prepay the outstanding
principal amount of this Note in an amount equal to 100% of the Net Cash
Proceeds from such Casualty Event (less any amounts theretofore applied (or
contractually committed to be applied) (A) to the repair or replacement of
property subject to such Casualty Event or to acquire assets used or useable in
the business of the Company Parties and (B) to repay Company’s obligations under
the Credit Agreement) and will deliver to Holder, concurrently with such
prepayment, a certificate signed by a Financial Officer of Company in form and
substance satisfactory to Holder and setting forth the calculation of such Net
Cash Proceeds. Notwithstanding the foregoing, nothing in this Section 2.6(a)
shall be deemed to permit any Asset Disposition not expressly permitted under
Section 7.4.

 

(b)          Subject to the rights of the lender under the Credit Agreement, not
later than 90 days after receipt by any Company Party of proceeds in respect of
any Asset Disposition other than an Excluded Asset Disposition (or, if earlier,
upon its determination not to apply such proceeds to the acquisition of assets
used or useable in the business of the Company Parties), Company will (i) prepay
the outstanding principal amount of this Note in an amount equal to 100% of the
Net Cash Proceeds from such Asset Disposition (less any amounts theretofore
applied (or contractually committed to be applied) (A) to acquire assets used or
useable in the business of the Company Parties and (B) to repay Company’s
obligations under the Credit Agreement) and will deliver to Holder, concurrently
with such prepayment, a certificate signed by a Financial Officer of Company in
form and substance satisfactory to Holder and setting forth the calculation of
such Net Cash Proceeds. Notwithstanding the foregoing, nothing in this
Section 2.6(b) shall be deemed to permit any Asset Disposition not expressly
permitted under Section 7.4.

 

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2.7           Manner of Payment. Payments of principal and interest on this Note
shall be made by wire transfer of immediately available funds to a bank account
designated by Holder for such purpose from time to time by written notice to
Company, in such currency of the United States as at the time of payment shall
be legal tender.

 

2.8           Obligations to Pay Unconditional. The obligations to make the
payments provided for in this Note are absolute and unconditional and not
subject to any defense, setoff, counterclaim, rescission, recoupment or
adjustment whatsoever. Company hereby expressly waives demand and presentment
for payment, notice of nonpayment, notice of dishonor, protest, notice of
protest, bringing of suit and diligence in taking any action to collect any
amount called for hereunder, and shall be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission with respect to the collection of any amount
called for hereunder.

 

2.9           Proceeds. The proceeds of this Note shall be used by Company
solely (i) to pay fees and expenses in connection with the transactions
contemplated by the Credit Agreement, (ii) to provide working capital for
Company, and (iii) to finance acquisitions and joint ventures as permitted by
the Credit Agreement and this Note.

 

2.10         Application and Allocation of Payments.

 

(a)          Payments made by Company hereunder shall be applied (a) first, as
specifically required hereby; (b) second, to Obligations then due and owing in
the same order of priority as set forth in Section 2.10(b); (b) third, so long
as no Default or Event of Default then exists or would result therefrom, to
other Obligations specified by Company; and (c) fourth, as determined by the
Holder in its discretion.

 

(b)          Notwithstanding anything in this Note to the contrary, during an
Event of Default, monies to be applied to the Obligations, whether arising from
payments by Company, realization on collateral, setoff or otherwise, shall be
allocated as follows:

 

(i)          first, to all costs and expenses owing to Holder;

 

(ii)         second, to all Obligations constituting fees;

 

(iii)        third, to all Obligations constituting interest;

 

(iv)        fourth, to all loans hereunder; and

 

(v)         last, to all remaining Obligations.

 

Amounts shall be applied to payment of each category of Obligations only after
payment in full of all preceding categories.

 

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ARTICLE III

 

CONVERSION

 

Upon Company borrowing the term loan pursuant to Section 2.1, this Note shall be
convertible into shares of Company’s common stock, par value $0.001 per share
(the “Common Stock”), on the terms and conditions set forth in this Article III.

 

3.1           Conversion Right. At any time, and from time to time, on or after
the date that Company borrows the term loan, Holder shall be entitled to convert
any portion of the outstanding and unpaid Conversion Amount (as hereinafter
defined) into fully paid and non-assessable Conversion Shares, at the Conversion
Rate (as hereinafter defined). No fractional shares shall be issued upon
conversion of this Note, and any portion of the Conversion Amount that otherwise
would be convertible into a fractional share shall be paid in cash in an amount
based on the Conversion Price. Company shall pay any and all stock transfer,
stamp, documentary and similar taxes (excluding any taxes on the income or gain
of Holder) that may be payable with respect to the issuance and delivery of the
Conversion Shares to Holder upon conversion of any Conversion Amount.

 

3.2           Conversion Rate. The number of Conversion Shares issuable upon
conversion of any Conversion Amount pursuant to Section 3.1 (the “Conversion
Rate”) shall be determined by dividing (x) the Conversion Amount by (y) the
Conversion Price.

 

(a)          “Conversion Amount” means the sum of (i) the portion of the
principal to be converted and (ii) accrued and unpaid interest with respect to
such principal to, but excluding, the Conversion Date.

 

(b)          “Conversion Price” means $1.00 per Share, subject to adjustment as
provided herein.

 

3.3           Procedure for Conversion. To convert any Conversion Amount into
Conversion Shares on any date (a “Conversion Date”), Holder shall (a) transmit
by facsimile or otherwise in accordance with Section 11.2, for receipt on or
prior to 4:00 p.m., New York City time, on such date, a copy of an executed
notice of conversion in the form attached hereto as Appendix I (the “Conversion
Notice”) to Company and (b) cause this Note to be delivered to Company as soon
as reasonably practicable on or following such date (but no later than within
two Business Days following the date on which the Conversion Notice is given).
On or before 4:00 p.m., New York City time, on the first Business Day following
the date of receipt of a Conversion Notice, Company shall transmit by facsimile
or otherwise in accordance with Section 11.2 a confirmation of receipt of such
Conversion Notice to Holder (at the facsimile number provided in the Conversion
Notice) and Company’s transfer agent, if any. On or before 4:00 p.m., New York
City time, on the third Business Day following the date of receipt of a
Conversion Notice, Company shall issue and deliver to the address as specified
in the Conversion Notice, a certificate (or if consistent with Company’s
customary practice for issuing Conversion Shares, non-certificated Conversion
Shares represented by book-entry on the records of Company or Company’s transfer
agent (the “Book-Entry Shares”)), registered in the name of Holder or its
designee, for the number of Conversion Shares to which Holder shall be entitled.
Company shall, as soon as reasonably practicable and in no event later than
three Business Days after receipt of this Note and at its own expense, issue and
deliver to Holder a new Note representing the outstanding principal not
converted. The Person(s) entitled to receive the Conversion Shares issuable upon
a conversion of this Note shall be treated for all purposes as the record holder
or holders of such Conversion Shares on the Conversion Date. Any Conversion
Amount converted into Conversion Shares pursuant to this Section 3.3 shall be
deemed to be satisfied in full as of the Conversion Date, and thereafter shall
no longer accrue interest, regardless of whether and when this Note is
surrendered and regardless of when Conversion Shares are issued.

 

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ARTICLE IV

 

Anti-Dilution Provisions; ADJUSTMENT in CONVERSION Amount and Conversion Price

 

The Conversion Price and the Conversion Amount shall be subject to adjustment
from time to time as provided in this Article IV.

 

4.1           Dividends, Subdivisions and Combinations. If Company, at any time
and from time to time, (i) takes a record of the holders of its Common Stock for
the purpose of entitling them to receive, or otherwise declares or distributes,
a dividend payable in, or other distribution of, additional Conversion Shares or
Common Stock Equivalents, (ii) splits or subdivides its outstanding Conversion
Shares into a greater number of Conversion Shares or Common Stock Equivalents,
or (iii) combines its outstanding Conversion Shares into a smaller number of
Conversion Shares or Common Stock Equivalents, then, in each such case, the
Conversion Amount shall be adjusted to equal the product of the Conversion
Amount in effect immediately prior to the adjustment multiplied by a fraction
the numerator of which is equal to the number of Conversion Shares outstanding
immediately after such adjustment and the denominator of which is equal to the
number of Conversion Shares outstanding immediately prior to the adjustment, and
the Conversion Price shall be adjusted pursuant to Section 4.6.

 

4.2           Distributions Payable Other than in Common Stock or Common Stock
Equivalents. If Company declares or pays any dividend or makes any distribution
with respect to shares of its Common Stock other than any dividend or
distribution paid or payable in Conversion Shares or Common Stock Equivalents or
if Company or any Affiliate thereof makes any redemptions, purchases or other
acquisitions of Common Stock or Common Stock Equivalents, Holder shall, upon
conversion of this Note, promptly receive the cash, stock, securities or
property to which Holder would have been entitled by way of (i) dividends and
distributions if Holder had converted this Note immediately prior to the
declaration of such dividend or the making of such distribution so as to be
entitled thereto and (ii) redemption, purchase or other acquisition if Holder
had converted this Note in full immediately prior to such redemption, purchase
or other acquisition and such redemption, purchase or other acquisition had been
consummated on a pro rata basis among all holders of Common Stock (after giving
effect to such conversion of the Note).

 

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4.3           Reorganization, Reclassification, Merger, Consolidation, or
Disposition of Assets. If Company (a) reorganizes its capital, (b) reclassifies
its Capital Stock, (c) merges or consolidates with or into another Person (where
Company is not the surviving Person or where there is any change in, or
distribution with respect to, the outstanding Capital Stock of Company) (a
“Merger”), or (d) sells, transfers or otherwise disposes of all or substantially
all of the assets of Company and its Subsidiaries, on a consolidated basis, to
another Person (a “Disposition of Assets”) and, pursuant to the terms of such
reorganization, reclassification, Merger or Disposition of Assets, cash,
securities or property are to be received by or distributed to the holders of
Common Stock of Company who are holders immediately prior to such transaction,
then Holder shall have the right thereafter to receive, upon conversion of this
Note, the cash, securities or property receivable by a holder of the number of
Conversion Shares for which this Note is convertible immediately prior to such
event. In the case of any such reorganization, reclassification, Merger or
Disposition of Assets, any successor or acquiring Person (other than Company)
shall expressly assume the due and punctual observance and performance of each
and every covenant and condition of this Note and the Shareholders Agreement to
be performed and observed by Company and all the obligations and liabilities of
Company hereunder and thereunder and, upon Holder tendering this Note for
cancellation, shall issue a replacement Note containing substantially the same
provisions as this Note, but containing appropriate changes due to such event
(such as changes to the name of the issuing company and equitable changes to
this Note due to the occurrence of such event). The foregoing provisions of this
Section 4.3 shall similarly apply to successive reorganizations,
reclassifications, Mergers or Dispositions of Assets.

 

4.4           Dissolution, Liquidation and Winding Up. In case Company, at any
time prior to the conversion in full of this Note, dissolves, liquidates or
winds up its affairs, Holder shall have the right to receive upon conversion of
this Note, in lieu of the Common Stock that such Holder would have been entitled
to receive, the same kind and amount of assets as would have been issued,
distributed or paid to such Holder upon any such dissolution, liquidation or
winding up with respect to such Conversion Shares had such Holder been the
holder of record of such Conversion Shares receivable upon the conversion of
this Note on the record date for the determination of those Persons entitled to
receive any such liquidating distribution, provided, however, that Holder shall
not in any case be required to assume or be obligated in respect of any
liabilities of Company.

 

4.5          Dilutive Issuances.

 

(a)          If Company shall at any time after the Closing Date and until and
including the earlier of (i) the second anniversary of the Closing Date and (ii)
Company’s Next Financing issue or sell any Common Stock or Common Stock
Equivalents in a Subsequent Issuance (other than an Exempt Issuance) for a
consideration per share less than $0.90 (subject to adjustment pursuant to this
Article IV) (a “Dilutive Issuance”), then the Conversion Amount shall be
adjusted by multiplying the Conversion Amount immediately prior thereto by a
fraction, the numerator of which shall be the Conversion Price then in effect
and the denominator of which shall be the per share consideration received or to
be received by Company in such Dilutive Issuance; provided that the Conversion
Shares issued upon any prior conversion of this Note shall be disregarded (as if
the conversion of this Note and the issuance of such Conversion Shares as a
result thereof had never happened) to the extent necessary to achieve the same
readjustment to the Note under this Section 4.5(a) as if there had been no prior
conversion of this Note. If Company shall sell or issue Conversion Shares for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent, then in determining the fair market value per share and the
consideration received or receivable by or payable to Company for purposes of
this Section 4.5, the fair value of such property shall be determined reasonably
and in good faith by the Company Board. As used herein, “Company’s Next
Financing” means the closing of a Subsequent Issuance yielding gross cash
proceeds in an aggregate amount of at least $2,000,000.

 

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(b)          In the event that Company at any time issues, sells or grants any
Common Stock Equivalents in a Dilutive Issuance (other than an Exempt
Issuance),  then, for purposes of this Section 4.5, Company shall be deemed to
have issued at that time, pursuant to Section 4.5(a), a number of Conversion
Shares equal to the maximum number of Conversion Shares that are or shall become
issuable upon the exercise of the purchase, conversion or exchange rights
associated with such Common Stock Equivalents for consideration per share equal
to the sum of (i) the aggregate consideration per share received by Company in
connection with the issuance, sale or grant of such Common Stock Equivalents,
plus (ii) the minimum amount of consideration per share receivable by Company in
connection with the exercise of such Common Stock Equivalents. If, at any time
after any adjustment of the Conversion Amount shall have been made pursuant to
Section 4.5(a) as the result of any issuance, sale or grant of any Common Stock
Equivalents, any of such Common Stock Equivalents or the rights of purchase,
conversion or exchange associated therewith shall expire, the Conversion Amount
then in effect shall be decreased to the Conversion Amount that would have been
in effect if such expiring Common Stock Equivalents or rights of purchase,
conversion or exchange had never been issued. Similarly, if, at any time after
any such adjustment of the Conversion Amount shall have been made pursuant to
Section 4.5(a), there is a change in (x) the consideration received or to be
received by Company in connection with the issuance or exercise of such Common
Stock Equivalents, or (y) the conversion ratio applicable to such Common Stock
Equivalents so that a different number Conversion Shares shall be issuable upon
the conversion or exchange thereof, the Conversion Amount then in effect shall
be readjusted to the Conversion Amount that would have been in effect had such
changes taken place at the time that such Common Stock Equivalents were
initially issued, granted or sold. In no event shall any readjustment under this
Section 4.5(b) affect the validity of any Conversion Shares issued upon any
conversion of this Note prior to such readjustment; provided that the Conversion
Shares issued upon any such prior conversion of this Note shall be disregarded
(as if the conversion of this Note and the issuance of such Conversion Shares as
a result thereof had never happened) to the extent necessary to achieve the same
readjustment to the Conversion Shares under this Section 4.5(b) as if there had
been no such prior conversion of this Note. To the extent that an adjustment to
the Conversion Amount is made pursuant to Section 4.5(a), upon the issuance of
Common Stock Equivalents, no further adjustment shall be made pursuant to
Section 4.5(a) upon the issuance of Common Stock upon exercise or conversion of
such Common Stock Equivalents.

 

(c)          To the extent that any Equity-Based Payments are made by Company,
Company shall pay to Holder in cash, simultaneously with and as a condition to
making such Equity-Based Payments, an amount equal to Holder’s pro rata share of
the sum of (i) the amount of such Equity-Based Payments and (ii) the payments
made to Holder of this Note under this paragraph with respect to such
Equity-Based Payments. Holder’s pro rata share, for purposes of this Section
4.5(c), is the ratio of the number of shares of Common Stock, Conversion Shares
and Warrant Shares owned by Holder immediately prior to the Equity-Based Payment
to the total number of shares of Common Stock outstanding, without giving effect
to Common Stock Equivalents, immediately prior to the Equity-Based Payment.

 

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4.6           Adjustment of Conversion Price. Upon any adjustment of the
Conversion Amount as provided in Sections 4.1 or 4.5, the Conversion Price shall
be adjusted to be equal to the product of (i) the Conversion Price in effect
immediately prior to such adjustment multiplied by (ii) the quotient of the
Conversion Amount in effect immediately prior to such adjustment divided by the
Conversion Amount in effect immediately after such adjustment.

 

4.7          Determination of Adjustments.

 

(a)          Upon any event that shall require an adjustment pursuant to this
Article IV, Company shall promptly calculate such adjustment in accordance with
the terms of this Note and prepare a certificate setting forth, in reasonable
detail, such adjustment, the method of calculation thereof and the facts upon
which such adjustment is based, including a statement of (i) the number of
Conversion Shares then outstanding on a Fully Diluted Basis and (ii) the
Conversion Amount, both as in effect immediately prior to such adjustment and as
adjusted on account thereof. Company shall promptly mail a copy of each such
certificate to Holder. In the event that Holder objects to the computation of
such adjustment prepared by Company within 30 Business Days after receipt
thereof, Company shall promptly cause a firm of independent certified public
accountants of nationally recognized standing reasonably acceptable to Holder to
calculate such adjustment and mail a copy of such computation to Holder, and the
computation of such accountants shall be conclusive. Company shall keep at its
principal office copies of all such certificates and cause the same to be
available for inspection at such office during normal business hours by Holder.

 

(b)          For purposes of this Article IV, the consideration received or
receivable by Company in connection with the issuance, sale, grant or exercise
of additional Conversion Shares or Common Stock Equivalents, irrespective of the
accounting treatment of such consideration, shall be valued as follows:

 

(i)          Cash Payment. In the case of cash, the amount received by Company
for such issuance, sale, grant or exercise.

 

(ii)         Securities or Other Property. In the case of securities or other
property, the fair market value thereof as of the date immediately preceding
such issuance, sale, grant or exercise as determined in good faith by the
Company Board.

 

(iii)        Allocation Related to Common Stock. In the event Conversion Shares
are issued or sold together with other securities or other assets of Company for
a consideration that covers both, the consideration received (calculated as
provided in (i) and (ii) above) shall be allocable to such Conversion Shares as
determined in good faith by the Company Board.

 

(iv)        Allocation Related to Common Stock Equivalents. In case any Common
Stock Equivalents shall be issued or sold together with other securities or
other assets of Company, together constituting one integral transaction in which
no specific consideration is allocated to the Common Stock Equivalents, the
consideration allocable to such Common Stock Equivalents shall be determined in
good faith by the Company Board.

 

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(v)         Merger or Consolidation. In case any Conversion Shares or Common
Stock Equivalents shall be issued or granted in connection with any merger or
combination in which Company is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such portion of
the assets and business of the nonsurviving corporation attributable to such
Common Stock or Common Stock Equivalents, as determined in good faith by the
Company Board.

 

(c)          The following additional provisions shall be applicable to the
adjustments provided for pursuant to this Article IV:

 

(i)          When Adjustments to be Made. The adjustments required by this
Article IV shall be made whenever and as often as any specified event requiring
such an adjustment shall occur and shall be effective (A) in the case of any
dividend or distribution of Common Stock to the holders of Common Stock,
immediately after the close of business on the record date for the determination
of holders of Common Stock entitled to receive such dividend or distribution,
and (B) in the case of any other specified event, at the close of business on
the date of such specified event.

 

(ii)         Record Date. In case Company shall take a record of the holders of
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock or other securities or (B) to
subscribe for or purchase Common Stock or other securities, then all references
in this Article IV to the date of the issuance or sale of such Conversion Shares
or other securities shall be deemed to be references to such record date;
provided, however, that in the event Company legally abandons such action before
its occurrence, then no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.

 

(iii)        Fractional Interests. In computing adjustments under this
Article IV, fractional interests in Common Stock shall be taken into account to
the nearest 1/100th of a share; provided, however, that any resulting fractional
share interests shall be settled upon conversion of this Note in accordance with
Section 3.1.

 

(iv)        Maximum Conversion Price. At no time shall the Conversion Price
exceed the amount set forth in Section 3.2(b) of this Note except as the proper
result of an adjustment pursuant to this Article IV.

 

(v)         Certain Limitations. Notwithstanding anything herein to the
contrary, Company agrees not to enter into any transaction that, by reason of
any adjustment hereunder, would cause the Conversion Price to be less than the
par value per share of its Common Stock.

 

(vi)        Independent Application. Except as otherwise provided herein, all
sections and subsections of this Article IV are intended to operate
independently of one another (but without duplication). If an event occurs that
requires the application of more than one section or subsection, all applicable
sections and subsections shall be given independent effect.

 

10

 

 

4.8          Breach of Representation and Warranty.

 

(a)          Without limitation of all other remedies available to Holder in
this Note or otherwise, in the event that any representation and warranty set
forth in Section 3.6 of the Investment Agreement was not true when made, Company
shall, at no cost to Holder, increase the number of Conversion Shares issuable
upon conversion of this Note such that, if such additional Conversion Shares had
been issuable on the Closing Date, the representation and warranty in the last
sentence of Section 3.6(b) of the Investment Agreement would have been true and
accurate in all respects when made.

 

(b)          Any additional Conversion Shares issuable to Holder pursuant to
this Section shall be treated as if they were issued on the Closing Date and
shall reflect any dividends or other distributions that would have been accrued
or have been payable with respect to, and the application of any antidilution,
ratable treatment or similar provisions (as set forth herein, in applicable law
or otherwise) that would have been applicable to, such Conversion Shares had
such additional Conversion Shares been issuable on the Closing Date.

 

(c)          In connection with the issuance of any additional Conversion Shares
under this Section, Company shall reserve a sufficient number of Conversion
Shares for issuance to Holder upon conversion of the Note.

 

ARTICLE V

 

AFFIRMATIVE COVENANTS

 

Until payment in full in cash of all principal and interest with respect to this
Note, together with all fees, expenses and other amounts then due and owing
hereunder:

 

5.1          Financial Statements. Company will deliver to Holder:

 

(a)          As soon as available and in any event within 50 days (or, if
earlier or up to five Business Days later, if applicable to Company at the time
of delivery, the quarterly report deadline as extended by Rule 12b-25 under the
Exchange Act rules and regulations and, if such day is not a Business Day, then
on the next succeeding Business Day) after the end of each fiscal quarter of
each fiscal year (excluding the fourth fiscal quarter of each fiscal year),
beginning with the first fiscal quarter for which such financial statements were
not delivered as of the Closing Date, unaudited consolidated and consolidating
balance sheets of Company and its Subsidiaries as of the end of such fiscal
quarter and unaudited consolidated and consolidating statements of income, cash
flows and stockholders’ equity for Company and its Subsidiaries for the fiscal
quarter then ended and for that portion of the fiscal year then ended, in each
case setting forth comparative consolidated figures as of the end of and for the
corresponding period in the preceding fiscal year together with comparative
budgeted figures for the fiscal period then ended, all in reasonable detail and
prepared in accordance with GAAP (subject to the absence of notes required by
GAAP and subject to normal year-end adjustments) applied on a basis consistent
with that of the preceding quarter or containing disclosure of the effect on the
financial condition or results of operations of any change in the application of
accounting principles and practices during such quarter;

 

11

 

 

(b)          As soon as available and in any event within 105 days (or, if
earlier or up to 15 Business Days later, if applicable to Company at the time of
delivery, the annual report deadline as extended by Rule 12b-25 under the
Exchange Act rules and regulations and, if such day is not a Business Day, then
on the next succeeding Business Day) after the end of each fiscal year,
beginning with fiscal year 2014, an audited consolidated and unaudited
consolidating balance sheet of Company and its Subsidiaries as of the end of
such fiscal year and the related audited consolidated and unaudited
consolidating statements of income, cash flows and stockholders’ equity for
Company and its Subsidiaries for the fiscal year then ended, including the notes
thereto, in each case setting forth comparative consolidated figures as of the
end of and for the preceding fiscal year together with comparative budgeted
figures for the fiscal year then ended, all in reasonable detail and (with
respect to the audited statements) certified by the independent certified public
accounting firm regularly retained by Company or another independent certified
public accounting firm of recognized national standing reasonably satisfactory
to Holder, together with (y) a report thereon by such accountants that is not
qualified as to scope of audit and to the effect that such financial statements
present fairly in all material respects the consolidated financial condition and
results of operations of Company and its Subsidiaries as of the dates and for
the periods indicated in accordance with GAAP applied on a basis consistent with
that of the preceding year or containing disclosure of the effect on the
financial condition or results of operations of any change in the application of
accounting principles and practices during such year, and (z) a letter from such
accountants to the effect that, based on and in connection with their
examination of the financial statements of Company and its Subsidiaries, they
obtained no knowledge of the occurrence or existence of any Default or Event of
Default relating to accounting or financial reporting matters (which certificate
may be limited to the extent required by accounting rules or guidelines), or a
statement specifying the nature and period of existence of any such Default or
Event of Default disclosed by their audit; and

 

(c)          Concurrently with each delivery of the financial statements
described in Sections 5.1(a) and 5.1(b), a report in form and method of analysis
similar to the Management’s Discussion and Analysis found in an annual report,
Form 10-K or Form 10-Q of a publicly registered company, or in such other form
as may be satisfactory to Holder, regarding such topics as Company’s financial
condition and results of operations, Company’s business and corresponding
industry and Company’s management.

 

Documents required to be delivered pursuant to Sections 5.1 or 5.2(c) (to the
extent such documents are included in materials otherwise filed with the U.S.
Securities Exchange Commission) may be delivered electronically and if so
delivered, will be deemed to have been delivered on the date on which such
documents are posted to EDGAR.

 

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5.2          Other Business and Financial Information. Company will deliver to
Holder:

 

(a)          Concurrently with each delivery of the financial statements
described in Sections 5.1(a) (including with respect to financial statements as
of the end of and for the fourth fiscal quarter of each fiscal year) and 5.1(b),
a Compliance Certificate with respect to the period covered by the financial
statements being delivered thereunder, executed by a Financial Officer of
Company, together with a Covenant Compliance Worksheet reflecting the
computation of the financial covenants set forth in Article VI as of the last
day of the period covered by such financial statements;

 

(b)          Promptly upon receipt thereof, copies of any “management letter”
submitted to any Company Party by its certified public accountants in connection
with each annual, interim or special audit, and promptly upon completion
thereof, any response reports from such Company Party in respect thereof;

 

(c)          Promptly upon the sending, filing or receipt thereof, copies of
(i) all financial statements, reports, notices and proxy statements that any
Company Party shall send or make available generally to its shareholders,
(ii) all regular, periodic and special reports, registration statements and
prospectuses (other than on Form S-8) that any Company Party shall render to or
file with the SEC, the National Association of Securities Dealers, Inc. or any
national securities exchange, and (iii) all press releases and other statements
made available generally by any Company Party to the public concerning material
developments in the business of the Company Parties;

 

(d)          Promptly upon (and in any event within five Business Days after)
any Responsible Officer of any Company Party obtaining knowledge thereof,
written notice of any of the following:

 

(i)          the occurrence of any Default or Event of Default, together with a
written statement of a Responsible Officer of Company specifying the nature of
such Default or Event of Default, the period of existence thereof and the action
that Company has taken and proposes to take with respect thereto;

 

(ii)         the institution or threatened institution of any action, suit,
investigation or proceeding against or affecting any Company Party, including
any such investigation or proceeding by any Governmental Authority (other than
routine periodic inquiries, investigations or reviews), that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect, and any material development in any litigation
or other proceeding previously reported pursuant to this Section;

 

(iii)        the receipt by any Company Party from any Governmental Authority of
(A) any notice asserting any failure by any Company Party to be in compliance
with applicable Requirements of Law or that threatens the taking of any action
against any Company Party or sets forth circumstances that, if taken or
adversely determined, could reasonably be expected to have a Material Adverse
Effect, or (B) any notice of any actual or threatened suspension, limitation or
revocation of, failure to renew, or imposition of any restraining order, escrow
or impoundment of funds in connection with, any license, permit, accreditation
or authorization of any Company Party, where such action could reasonably be
expected to have a Material Adverse Effect;

 

13

 

 

(iv)        the occurrence of any ERISA Event, together with (x) a written
statement of a Responsible Officer of Company specifying the details of such
ERISA Event and the action that the applicable Company Party has taken and
proposes to take with respect thereto, (y) a copy of any notice with respect to
such ERISA Event that may be required to be filed with the PBGC and (z) a copy
of any notice delivered by the PBGC to any Company Party or an ERISA Affiliate
with respect to such ERISA Event;

 

(v)         the occurrence of any material default under, or any proposed or
threatened termination or cancellation of, any Material Contract or other
material contract or agreement to which any Company Party is a party, in any
such case the default under or termination or cancellation of which could
reasonably be expected to have a Material Adverse Effect;

 

(vi)        the occurrence of any of the following: (x) the assertion of any
Environmental Claim against or affecting any Company Party or any real property
leased, operated or owned by any Company Party, or any Company Party’s discovery
of a basis for any such Environmental Claim; (y) the receipt by any Company
Party of notice of any alleged violation of or noncompliance with any
Environmental Laws or release of any Hazardous Substance; or (z) the taking of
any investigation, remediation or other responsive action by any Company Party
or any other Person in response to the actual or alleged violation of any
Environmental Law by any Company Party or generation, storage, transport,
release, disposal or discharge of any Hazardous Substances on, to, upon or from
any real property leased, operated or owned by any Company Party; but in each
case under clauses (x), (y) and (z) above, only to the extent the same could
reasonably be expected to have a Material Adverse Effect;

 

(vii)       if Company has not already provided notice to Holder pursuant to
Section 5.8, the occurrence of a Permitted Acquisition together with a
reasonably detailed description of the material terms of such Permitted
Acquisition (including, without limitation, the Acquisition Amount and method
and structure of payment) and of each Target that is the subject of such
Permitted Acquisition; and

 

(viii)      any other matter or event that has, or could reasonably be expected
to have, a Material Adverse Effect, together with a written statement of a
Responsible Officer of Company setting forth the nature and period of existence
thereof and the action that the affected Company Parties have taken and propose
to take with respect thereto;

 

(e)          Concurrently with each delivery of the financial statements
described in Section 5.1(b), commencing with respect to the financial statements
for fiscal year ended 2015, calculations reflecting the computation of
Consolidated EBITDA for the Immaterial Subsidiaries as of the last day of the
period covered by such financial statements;

 

14

 

 

(f)          As promptly as reasonably possible, such other information about
the business, condition (financial or otherwise), operations or properties of
any Company Party as Holder may from time to time reasonably request.

 

5.3         Existence; Franchises; Maintenance of Properties. Company will, and
will cause each of the Subsidiary Guarantors to, (i) maintain and preserve in
full force and effect its existence, except as expressly permitted otherwise by
Section 7.1, (ii) obtain, maintain and preserve in full force and effect all
other rights, franchises, licenses, permits, certifications, approvals and
authorizations required by Governmental Authorities and necessary to the
ownership, occupation or use of its properties or the conduct of its business,
except to the extent the failure to do so could not reasonably be expected to
have a Material Adverse Effect, and (iii) keep all material properties in good
working order and condition (normal wear and tear and damage by casualty
excepted) and from time to time make all necessary repairs to and renewals and
replacements of such properties, except to the extent that any of such
properties are obsolete or are being replaced or, in the good faith judgment of
Company, are no longer useful or desirable in the conduct of the business of the
Company Parties.

 

5.4         Compliance with Laws. Company will, and will cause each of the
Subsidiary Guarantors to, comply in all respects with all Requirements of Law
applicable in respect of the conduct of its business and the ownership and
operation of its properties, except to the extent the failure so to comply could
not reasonably be expected to have a Material Adverse Effect.

 

5.5         Payment of Obligations. Company will, and will cause each of the
Subsidiary Guarantors to, (i) pay, discharge or otherwise satisfy at or before
maturity all liabilities and obligations as and when due (subject to any
applicable subordination, grace and notice provisions), except to the extent
failure to do so would not cause an Event of Default pursuant to Section 8.1(e),
and (ii) pay and discharge all taxes, assessments and governmental charges or
levies imposed upon it, upon its income or profits or upon any of its
properties, prior to the date on which penalties would attach thereto, and all
lawful claims that, if unpaid, would become a Lien (other than a Permitted Lien)
upon any of the properties of any Company Party; provided, however, that no
Company Party shall be required to pay any such obligation, tax, assessment,
charge, levy or claim that is being contested in good faith and, if applicable,
by proper proceedings and, if applicable, as to which such Company Party is
maintaining adequate reserves with respect thereto in accordance with GAAP.

 

5.6         Insurance. Company will, and will cause each of the Subsidiary
Guarantors to, maintain with financially sound and reputable insurance companies
insurance with respect to its assets, properties and business, against such
hazards and liabilities, of such types and in such amounts, as is customarily
maintained by companies in the same or similar businesses similarly situated.
Each such policy of insurance shall contain a clause requiring the insurer to
give not less than 30 days’ prior written notice to Holder before any
cancellation of the policies for any reason whatsoever and shall provide that
any loss shall be payable in accordance with the terms thereof notwithstanding
any act of any Company Party that might result in the forfeiture of such
insurance.

 

15

 

 

5.7         Maintenance of Books and Records; Inspection. Company will, and will
cause each of the Subsidiary Guarantors to, (i) maintain adequate books,
accounts and records, in which full, true and correct entries shall be made of
all financial transactions in relation to its business and properties, and
prepare all financial statements required under this Note, in each case in
accordance with GAAP and in compliance with the requirements of any Governmental
Authority having jurisdiction over it, and (ii) permit employees or agents of
Holder to visit and inspect its properties and examine or audit its books,
records, working papers and accounts and make copies and memoranda of them, and
to discuss its affairs, finances and accounts with its officers and employees
and, upon notice to Company, the independent public accountants of Company and
the Subsidiary Guarantors (and by this provision Company authorizes such
accountants to discuss the finances and affairs of Company and the Subsidiary
Guarantors), all at such times and from time to time, upon reasonable notice and
during business hours, as may be reasonably requested.

 

5.8         Permitted Acquisitions. In addition to the requirements contained in
the definition of Permitted Acquisition and in the other applicable terms and
conditions of this Note, Company shall, with respect to any Permitted
Acquisition in which the corresponding Acquisition Amount exceeds $500,000,
comply with, and cause each other applicable Company Party to comply with, the
following covenants:

 

(a)          Not less than ten Business Days prior to the consummation of any
Permitted Acquisition, Company shall have delivered to Holder the following:

 

(i)          a reasonably detailed description of the material terms of such
Permitted Acquisition (including, without limitation, the Acquisition Amount and
method and structure of payment) and of each Person or business that is the
subject of such Permitted Acquisition (each, a “Target”);

 

(ii)         audited historical financial statements of the Target (or, if there
are two or more Targets that are the subject of such Permitted Acquisition and
that are part of the same consolidated group, consolidated historical financial
statements for all such Targets) for the two most recent fiscal years available,
prepared by a firm of independent certified public accountants reasonably
satisfactory to Holder (or, if audited financial statements are not available,
unaudited financial statements for such periods), and (if available) unaudited
financial statements for any interim periods since the most recent fiscal
year-end;

 

(iii)        consolidated projected income statements of Company and its
Subsidiaries (giving effect to such Permitted Acquisition and the consolidation
with Company of each relevant Target) for the three-year period following the
consummation of such Permitted Acquisition, in reasonable detail, together with
any appropriate statement of assumptions and pro forma adjustments;

 

(iv)        with respect to any such Permitted Acquisition in which any
Contingent Purchase Price Obligations shall be incurred by Company or any other
Company Party, a copy of the most recent draft of the acquisition agreement
(including schedules and exhibits thereto, to the extent available) and other
material documents (including the documentation evidencing such Contingent
Purchase Price Obligations);

 

16

 

 

(v)         a certificate, in form and substance reasonably satisfactory to
Holder, executed by a Financial Officer of Company setting forth the Acquisition
Amount (including a good faith calculation of any Contingent Purchase Price
Obligations) and further to the effect that, to the best of such Financial
Officer’s knowledge, (w) the consummation of such Permitted Acquisition will not
result in a violation of any provision of this Section 5.8 or any other
provision of this Note, (x) Company shall show pro forma compliance with the
financial covenants set forth in Article VI (with such covenant calculations to
be attached to the certificate using the Covenant Compliance Worksheet),
(y) Company believes in good faith that it will continue to comply with such
financial covenants for a period of one year following the date of the
consummation of such Permitted Acquisition, and (z) after giving effect to such
Permitted Acquisition and any borrowings in connection therewith, Company
believes in good faith that it will have sufficient availability hereunder to
meet its ongoing working capital requirements; and

 

(vi)        true and correct copies of the final execution copy of the
acquisition agreement (including schedules and exhibits thereto) and other
material documents and closing papers delivered in connection therewith.

 

(b)          The consummation of each Permitted Acquisition shall be deemed to
be a representation and warranty by Company that (except as shall have been
approved in writing by Holder) all conditions thereto set forth in this Section
5.8 and in the description furnished under Section 5.8(a)(i) have been
satisfied, that the same is permitted in accordance with the terms of this Note,
and that the matters certified to by the Financial Officer of Company in the
certificate referred to in Section 5.8(a)(v) are, to the best of such Financial
Officer’s knowledge, true and correct in all material respects as of the date
such certificate is given, which representation and warranty shall be deemed to
be a representation and warranty as of the date thereof for all purposes
hereunder.

 

5.9           Creation or Acquisition of Subsidiaries. Subject to the provisions
of Section 5.8, Company may from time to time create or acquire new physician
practices that will be Subsidiaries hereunder and other new Subsidiaries in
connection with Permitted Acquisitions or otherwise, and Subsidiary Guarantors
of Company may create or acquire new Subsidiaries; provided that:

 

(a)          Concurrently with (and in any event within ten Business Days after)
the creation or direct or indirect acquisition by Company thereof, each such new
Subsidiary other than if such new Subsidiary constitutes an Immaterial
Subsidiary will execute and deliver to Holder a joinder to the Guaranty,
pursuant to which such new Subsidiary shall become a guarantor thereunder and
shall guarantee the payment in full of the Obligations of Company under this
Note;

 

(b)          Concurrently with (and in any event within 10 Business Days after)
the creation or acquisition of any new Subsidiary, Company will deliver to
Holder:

 

17

 

 

(i)          (A) a copy of the certificate of incorporation (or other charter
documents) of such Subsidiary, certified as of a date that is satisfactory to
Holder by the applicable Governmental Authority of the jurisdiction of
incorporation or organization of such Subsidiary, (B) a copy of the bylaws or
similar organizational document of such Subsidiary, certified on behalf of such
Subsidiary as of a date that is satisfactory to Holder by the corporate
secretary or assistant secretary of such Subsidiary, (C) an original certificate
of good standing for such Subsidiary issued by the applicable Governmental
Authority of the jurisdiction of incorporation or organization of such
Subsidiary and, (D) other than if such new Subsidiary constitutes an Immaterial
Subsidiary, copies of the resolutions of the board of directors and, if
required, stockholders or other equity owners of such Subsidiary authorizing the
execution, delivery and performance of the agreements, documents and instruments
executed pursuant to Section 5.9(a), certified on behalf of such Subsidiary by
an Authorized Officer of such Subsidiary, all in form and substance reasonably
satisfactory to Holder;

 

(ii)         other than if such new Subsidiary constitutes an Immaterial
Subsidiary, a report of Uniform Commercial Code financing statement, tax and
judgment lien searches performed against such Subsidiary in each jurisdiction in
which such Subsidiary is incorporated or organized, has a place of business or
maintains any assets, which report shall show no Liens on its assets (other than
Permitted Liens);

 

(iii)        other than if such new Subsidiary constitutes an Immaterial
Subsidiary, a certificate of the secretary or an assistant secretary of such
Subsidiary as to the incumbency and signature of the officers executing
agreements, documents and instruments executed pursuant to Section 5.9(a);

 

(iv)        other than if such new Subsidiary constitutes an Immaterial
Subsidiary, a certificate as to the solvency of such Subsidiary, addressed to
Holder, dated as of the date of creation or acquisition of such Subsidiary and
in form and substance reasonably satisfactory to Holder;

 

(v)         other than if such new Subsidiary constitutes an Immaterial
Subsidiary, evidence satisfactory to Holder that no Default or Event of Default
shall exist immediately before or after the creation or acquisition of such
Subsidiary or be caused thereby; and

 

(vi)        a certificate executed by an Authorized Officer of Company and, if
such Subsidiary does not constitute an Immaterial Subsidiary, such Subsidiary,
which shall constitute a representation and warranty by Company and such
Subsidiary as of the date of the creation or acquisition of such Subsidiary that
all conditions contained in this Note to such creation or acquisition have been
satisfied, in form and substance reasonably satisfactory to Holder; and

 

(c)          If the Acquisition involves a physician practice that will be
treated as a Subsidiary of Company, other than if such new Subsidiary
constitutes an Immaterial Subsidiary, concurrently with the creation or direct
or indirect acquisition by Company thereof, each such physician practice and the
owner of all the Capital Stock issued by such physician practice (or, if there
is more than one owner, owners of at least seventy-five percent (75%) of the
Capital Stock issued by such physician practice) within ten (10) Business Days
after the Acquisition shall enter into a Physician Shareholder Agreement and a
Physician Practice Management Agreement, in each case on terms and conditions
satisfactory to Holder.

 

18

 

 

(d)          If for any reason and at any time a Subsidiary previously
qualifying as an Immaterial Subsidiary no longer qualifies as an Immaterial
Subsidiary and such Subsidiary involves a physician practice, such Subsidiary
and the owner of all the Capital Stock issued by such Subsidiary (or, if there
is more than one owner, owners of at least seventy five percent (75%) of the
Capital Stock issued by such Subsidiary) within ten (10) Business Days after the
first date such Subsidiary no longer qualifies as an Immaterial Subsidiary shall
enter into a Physician Shareholder Agreement and a Physician Practice Management
Agreement, in each case on terms and conditions satisfactory to Holder.

 

(e)          Other than with respect to a new Subsidiary that constitutes an
Immaterial Subsidiary, as promptly as reasonably possible, Company and the
Subsidiary Guarantors will deliver any such other documents, certificates and
opinions, in form and substance reasonably satisfactory to Holder, as Holder may
reasonably request in connection therewith.

 

5.10         Guaranties. If for any reason and at any time a Subsidiary
previously qualifying as an Immaterial Subsidiary no longer qualifies as an
Immaterial Subsidiary, such Subsidiary will execute and deliver to the Lender
within ten (10) Business Days after the first date such Subsidiary no longer
qualifies as an Immaterial Subsidiary a joinder to the Guaranty pursuant to
which such Subsidiary shall become a guarantor thereunder and shall guarantee
the payment in full of the Obligations of Company under this Agreement and the
other Credit Documents.

 

5.11         Environmental Laws. Company will, and will cause each of the
Subsidiary Guarantors to, (i) comply in all material respects with, and use
commercially reasonable efforts to ensure compliance in all material respects by
all tenants and subtenants, if any, with, all applicable Environmental Laws and
obtain and comply in all material respects with and maintain, and use
commercially reasonable efforts to ensure that all tenants and subtenants obtain
and comply in all material respects with and maintain, any and all licenses,
approvals, notifications, registrations or permits required by applicable
Environmental Laws, except to the extent that the failure to do so could not
reasonably be expected to have a Material Adverse Effect, and (ii) conduct and
complete all investigations, studies, sampling and testing, and all remedial,
removal and other actions, required under Environmental Laws and promptly comply
in all material respects with all lawful orders and directives of all
Governmental Authorities regarding Environmental Laws, except to the extent that
the same are being contested in good faith by appropriate proceedings or to the
extent the failure to conduct or complete any of the foregoing could not
reasonably be expected to have a Material Adverse Effect.

 

5.12         PATRIOT Act Compliance. Company will, and will cause each of the
Subsidiary Guarantors to,  provide, to the extent commercially reasonable, such
information and take such actions as are reasonably requested by Holder in order
to assist Holder in maintaining compliance with the PATRIOT Act.

 

5.13         Securities Filings. Each regular, periodic and special report,
registration statement and prospectus that any Company Party shall render to or
file with the SEC, the National Association of Securities Dealers, Inc. or any
national securities exchange shall satisfy all Requirements of Law when such
report, registration statement and prospectus is so rendered or filed.

 

19

 

 

5.14         Further Assurances. Company will, and will cause each of the
Subsidiary Guarantors to, make, execute, endorse, acknowledge and deliver any
amendments, modifications or supplements hereto and restatements hereof and any
other agreements, instruments or documents, and take any and all such other
actions, as may from time to time be reasonably requested by Holder to effect,
confirm or further assure or protect and preserve the interests, rights and
remedies of Holder under this Note.

 

5.15         Board Rights. Holder shall have the rights of the Purchaser set
forth in Sections 6.1 and 6.2 of the Investment Agreement and such rights hereby
are incorporated herein, mutatis mutandis, for the benefit of Holder as if
Holder is the Purchaser under the Investment Agreement.

 

5.16         Immaterial Subsidiaries. Concurrently with the delivery of the
calculations required by Section 5.2(e), and if necessary in order to avoid
Immaterial Subsidiaries designated pursuant to clause (ii)(B) of the definition
thereof from exceeding an aggregate of 5% of Consolidated EBITDA for the fiscal
year of Company most recently ended prior to such date of determination, Company
shall remove one or more Subsidiaries from such designation and cause any such
Subsidiary to comply with Sections 5.9(d) and 5.10, as applicable.

 

ARTICLE VI

 

FINANCIAL COVENANTS

 

Until payment in full in cash of all principal and interest with respect to this
Note, together with all fees, expenses and other amounts then due and owing
hereunder, Company will not:

 

6.1           Consolidated EBITDA. Permit Consolidated EBITDA as of the last day
of each fiscal quarter shown below, calculated on a year-to-date basis for the
fiscal year ended March 2016, to be less than the amount corresponding to such
fiscal quarter:

 

Period  Minimum Consolidated
EBITDA  2nd fiscal quarter ended September 2015  $1,000,000  3rd fiscal quarter
ended December 2015  $1,500,000  4th fiscal quarter ended March 2016 
$2,000,000 

 

6.2           Leverage Ratio. Commencing with Company’s fiscal quarter ended
March 2016 and for each fiscal quarter thereafter, permit Leverage Ratio as of
the last day of the fiscal quarter then ended, to be greater than 4.0 to 1.0.

 

20

 

 

6.3           Fixed Charge Coverage Ratio. Commencing with Company’s fiscal
quarter ended September 2015 and for each fiscal quarter thereafter, permit the
Fixed Charge Coverage Ratio as of the last day of the fiscal quarter then ended,
to be less than 1.25 to 1.0.

 

6.4           Consolidated Tangible Net Worth. Permit Consolidated Tangible Net
Worth as of the last day of each fiscal quarter shown below to be less than the
amount corresponding to such fiscal quarter:

 

Period  Consolidated Tangible
Net Worth  1st fiscal quarter ended June 2014  $(3,700,000) 2nd fiscal quarter
ended September 2014  $(3,700,000) 3rd fiscal quarter ended December 2014 
$(3,700,000) 4th fiscal quarter ended March 2015  $(3,700,000) 1st fiscal
quarter ended June 2015  $(3,700,000) 2nd fiscal quarter ended September 2015 
$(3,700,000) 3rd fiscal quarter ended December 2015  $0  4th fiscal quarter
ended March 2016 and for each fiscal quarter thereafter  $2,000,000 

 

ARTICLE VII

 

NEGATIVE COVENANTS

 

Until payment in full in cash of all principal and interest with respect to this
Note, together with all fees, expenses and other amounts then due and owing
hereunder:

 

7.1           Merger; Consolidation. Company will not, and will not permit or
cause any of the Subsidiary Guarantors to liquidate, wind up or dissolve, or
enter into any consolidation, merger or other combination, or agree to do any of
the foregoing; provided, however, that:

 

(i)          any Wholly Owned Subsidiary of Company may merge or consolidate
with, or be liquidated into, (x) Company (so long as Company is the surviving or
continuing entity) or (y) any other Wholly Owned Subsidiary (so long as, if
either constituent entity is a Subsidiary Guarantor, the surviving or continuing
entity is a Subsidiary Guarantor), and in each case so long as no Default or
Event of Default has occurred and is continuing or would result therefrom;

 

21

 

 

(ii)         any Wholly Owned Subsidiary of Company may merge or consolidate
with another Person (other than another Company Party), so long as (x) the
surviving entity is a Subsidiary Guarantor, (y) such merger or consolidation
constitutes a Permitted Acquisition and the applicable conditions and
requirements of Sections 5.8 and 5.9 are satisfied, and (z) no Default or Event
of Default has occurred and is continuing or would result therefrom; and

 

(iii)        Company may merge or consolidate with another Person (other than
another Company Party), so long as (x) Company is the surviving entity, (y) such
merger or consolidation constitutes a Permitted Acquisition and the applicable
conditions and requirements of Sections 5.8 and 5.9 are satisfied, and (z) no
Default or Event of Default has occurred and is continuing or would result
therefrom.

 

7.2           Indebtedness. Company will not, and will not permit or cause any
of the Subsidiary Guarantors to, create, incur, assume or suffer to exist any
Indebtedness other than (without duplication):

 

(i)          Indebtedness of the Company Parties incurred under the Credit
Agreement and the other Credit Documents, and renewals, refinancings,
restatements, replacements or extensions of the foregoing in a principal amount
not in excess of that outstanding as of the date of such renewal, refinancing or
extension (plus the amount of reasonable fees and expenses relating thereto,
including, without limitation, contractual or market rate call or tender
premiums) and on terms substantially similar to this Note or no less favorable
in any material respect, or with respect to any subordinated terms, in any
respect, to Company or Holder;

 

(ii)         purchase money Indebtedness of Company and the Subsidiary
Guarantors incurred solely to finance the acquisition, construction or
improvement of any equipment, real property or other fixed assets in the
ordinary course of business (or assumed or acquired by Company and the
Subsidiary Guarantors in connection with a Permitted Acquisition or other
transaction permitted under this Note), including Capitalized Lease Obligations,
and any renewals, replacements, refinancings or extensions thereof; provided
that all such Indebtedness shall not exceed $55,000 in aggregate principal
amount outstanding at any one time;

 

(iii)        unsecured loans and advances (A) by Company or any Subsidiary
Guarantors to any Subsidiary Guarantor or (B) by any Subsidiary Guarantor to
Company, provided, in each case that any such loan or advance is subordinated in
right and time of payment to the Obligations and is evidenced by an Intercompany
Note, in form and substance reasonably satisfactory to Holder;

 

(iv)        loans and advances by Company or any Subsidiary Guarantor to an
Affiliated Physician Practice Entity that is also a Subsidiary Guarantor so long
as (A) such Affiliated Physician Practice Entity is consolidated with Company in
accordance with GAAP, (B) such Affiliated Physician Practice Entity is party to
a Physician Practice Management Agreement with Company or any Subsidiary and (C)
the owner(s) of at least seventy five percent (75%) of the Capital Stock of such
Affiliated Physician Practice Entity have entered into a Physician Shareholder
Agreement, in each case referred to in clauses (B) and (C) on terms and
conditions satisfactory to the Lender, provided that, any such loan or advance
is (i) not subordinated in right and time of payment to any other obligations of
such Affiliated Physician Practice Entity and (ii) made in the ordinary course
of business and pursuant to the terms of the Intercompany Loan Agreements and in
conjunction with the applicable Physician Practice Management Agreement as then
in effect;

 

22

 

 

(v)         loans and advances by Company or any Subsidiary Guarantor to any
Immaterial Subsidiary in an aggregate amount not exceeding $50,000 at any one
time outstanding; provided, that any such loan or advance is evidenced by an
Intercompany Note, in form and substance reasonably satisfactory to Holder and
pledged to Holder pursuant to the Security Documents.

 

(vi)        Hedge Agreements entered into in the ordinary course of business to
manage existing or anticipated interest rate, foreign currency or commodity
risks and not for speculative purposes;

 

(vii)       Indebtedness existing on the Closing Date and described in
Schedule 7.2 as in effect as of the Closing Date, which Indebtedness, for the
avoidance of doubt hereunder, may not be refinanced, amended, modified or
extended;

 

(viii)      Indebtedness consisting of Guaranty Obligations of Company or any of
the Subsidiary Guarantors incurred in the ordinary course of business for the
benefit of another Company Party;

 

(ix)         unsecured Indebtedness consisting of (x) Contingent Purchase Price
Obligations of Company and the Subsidiary Guarantors or (y) existing
Indebtedness of any Person that becomes a Subsidiary of Company, in each case
incurred after the Closing Date in connection with a Permitted Acquisition;

 

(x)          Indebtedness arising from any judgment, order, decree or award not
constituting an Event of Default under Section 8.1(j);

 

(xi)         Indebtedness that may be deemed to exist pursuant to any
performance bond, surety, statutory appeal or similar obligation entered into or
incurred by Company or any of the Subsidiary Guarantors in the ordinary course
of business;

 

(xii)        Indebtedness of Company and the Subsidiary Guarantors arising from
the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently (except in the case of daylight overdrafts)
drawn against insufficient funds in the ordinary course of business; provided
that such Indebtedness is extinguished within five Business Days of its
incurrence;

 

(xiii)       Indebtedness in respect of this Note; and

 

(xiv)      Indebtedness not otherwise permitted under this Section 7.2, provided
that such additional Indebtedness is (a) unsecured, (b) taken together with all
other Indebtedness permitted under this clause (xiv), does not exceed, in the
aggregate principal amount outstanding at any time, $55,000, and (c) ranks pari
passu or junior in right of payment to the Obligations under this Note.

 

23

 

 

7.3           Liens. Company will not, and will not permit or cause any of the
Subsidiary Guarantors to, directly or indirectly, make, create, incur, assume or
suffer to exist, any Lien upon or with respect to any part of its property or
assets, whether now owned or hereafter acquired, or file or permit the filing
of, or permit to remain in effect, any financing statement or other similar
notice of any Lien with respect to any such property, asset, income or profits
under the Uniform Commercial Code of any state or under any similar recording or
notice statute, or agree to do any of the foregoing, other than the following
(collectively, “Permitted Liens”):

 

(i)          Liens in favor of Holder created by or otherwise existing under or
in connection with the Credit Agreement and the other Credit Documents;

 

(ii)         Liens in existence on the Closing Date and set forth on
Schedule 7.3;

 

(iii)        Liens imposed by law, such as Liens of carriers, warehousemen,
mechanics, materialmen and landlords, incurred in the ordinary course of
business for sums not constituting borrowed money that are not overdue for a
period of more than 30 days or that are being contested in good faith by
appropriate proceedings and for which adequate reserves have been established in
accordance with GAAP (if so required);

 

(iv)        Liens (other than any Lien imposed by ERISA, the creation or
incurrence of which would result in an Event of Default under Section 8.1(m))
incurred in the ordinary course of business in connection with worker’s
compensation, unemployment insurance or other forms of governmental insurance or
benefits, or to secure the performance of letters of credit, bids, tenders,
statutory obligations, surety and appeal bonds, leases, public or statutory
obligations, government contracts and other similar obligations (other than
obligations for borrowed money) entered into in the ordinary course of business;

 

(v)         Liens for taxes, assessments or other governmental charges or
statutory obligations that are not delinquent or remain payable without any
penalty or that are being contested in good faith by appropriate proceedings and
for which adequate reserves have been established in accordance with GAAP (if so
required);

 

(vi)        any attachment, judgment or other Lien not constituting an Event of
Default under clause (j), (k) or (l) of Section 8.1;

 

(vii)       Liens securing the Indebtedness permitted under Section 7.2(ii);
provided that (x) any such Lien shall attach to the property or Person being
acquired, constructed or improved with such Indebtedness concurrently with or
within 90 days after the acquisition (or completion of construction or
improvement) or the refinancing thereof by Company or such Subsidiary, (y) the
amount of the Indebtedness secured by such Lien shall not exceed 100% of the
cost to Company or such Subsidiary of acquiring, constructing or improving the
property and any other assets then being financed solely by the same financing
source, and (z) any such Lien shall not encumber any other property of Company
or any of the Subsidiary Guarantors except assets then being financed solely by
the same financing source;

 

24

 

 

(viii)      customary rights of set-off, revocation, refund or chargeback under
deposit agreements or under the Uniform Commercial Code of banks or other
financial institutions where Company or any of the Subsidiary Guarantors
maintains deposits (other than deposits intended as cash collateral) in the
ordinary course of business;

 

(ix)         Liens that arise in favor of banks under Article 4 of the Uniform
Commercial Code on items in collection and the documents relating thereto and
proceeds thereof;

 

(x)          Liens arising from the filing (for notice purposes only) of UCC-1
financing statements (or equivalent filings, registrations or agreements in
foreign jurisdictions) in respect of true leases otherwise permitted hereunder;

 

(xi)         with respect to any Realty occupied by Company or any of the
Subsidiary Guarantors, (a) all easements, rights of way, reservations, licenses,
encroachments, variations and similar restrictions, charges and encumbrances on
title that do not secure monetary obligations and do not materially impair the
use of such property for its intended purposes or the value thereof, and (b) any
other Lien or exception to coverage described in mortgagee policies of title
insurance issued in favor of and accepted by Holder;

 

(xii)        any leases, subleases, licenses or sublicenses granted by Company
or any of the Subsidiary Guarantors to third parties in the ordinary course of
business and not interfering in any material respect with the business of
Company and the Subsidiary Guarantors, and any interest or title of a lessor,
sublessor, licensor or sublicensor under any lease or license permitted under
this Note;

 

(xiii)       Liens arising out of conditional sale, title retention, consignment
or similar arrangements for sale of goods entered into by any Company Party in
the ordinary course of business not materially interfering with the conduct of
the business of the Company Parties taken as a whole;

 

(xiv)      real estate security deposits with respect to leaseholds in the
ordinary course of business;

 

(xv)       interests of any collection agency in accounts receivable assigned to
it by any Company Party in the ordinary course of business for the purpose of
facilitating the collection of such accounts receivable; and

 

(xvi)      Liens not otherwise permitted under this Section 7.3, provided that
the obligations secured by such other Liens will not exceed $55,000 in the
aggregate at any time outstanding.

 

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7.4           Asset Dispositions. Company will not, and will not permit or cause
any of the Subsidiary Guarantors to, directly or indirectly, make or agree to
make any Asset Disposition except for:

 

(i)          the sale or other disposition of inventory and Cash Equivalents in
the ordinary course of business, non-exclusive licenses of intellectual property
in the ordinary course of business and the sale, discount or write-off of past
due or impaired accounts receivable for collection purposes (but not for
factoring, securitization or other financing purposes), and the termination or
unwinding of Hedge Agreements permitted hereunder;

 

(ii)         the sale or other disposition of assets pursuant to any Casualty
Event; provided any Net Cash Proceeds therefrom are reinvested or applied to the
prepayment of the loans in accordance with the provisions of Section 2.2(d) of
the Credit Agreement;

 

(iii)        the sale, lease or other disposition of assets by Company or any
Subsidiary Guarantor to Company or to a Subsidiary Guarantor, in each case so
long as no Event of Default shall have occurred and be continuing or would
result therefrom;

 

(iv)        the sale, exchange or other disposition in the ordinary course of
business of equipment or other assets that are obsolete or no longer used in or
necessary for the operations of Company and the Subsidiary Guarantors;

 

(v)         the sale, exchange or disposition of assets incidental to any
transactions permitted under Section 7.1;

 

(vi)        the sale, exchange or other disposition of assets (other than the
Capital Stock of Subsidiaries) outside the ordinary course of business for fair
value and for cash; provided that (x) the aggregate amount of proceeds from all
such sales or dispositions that are consummated during any fiscal year shall not
exceed $275,000, (y) any Net Cash Proceeds shall, to the extent required
hereunder, be reinvested or applied to the prepayment of this Note in accordance
with the provisions of Section 2.6(b), and (z) no Default or Event of Default
shall have occurred and be continuing or would result therefrom; and

 

(vii)       the sale, exchange or other disposition of Capital Stock as
permitted by Schedule 7.4(vii).

 

7.5           Investments. Company will not, and will not permit or cause any of
the Subsidiary Guarantors to, directly or indirectly, purchase, own, invest in
or otherwise acquire any Capital Stock, evidence of indebtedness or other
obligation or security or any interest whatsoever in any other Person, or make
or permit to exist any loans, advances or extensions of credit to, or any
investment in cash or by delivery of property in, any other Person, or purchase
or otherwise acquire (whether in one or a series of related transactions) any
portion of the assets, business or properties of another Person (including
pursuant to an Acquisition), or create or acquire any Subsidiary, or become a
partner or joint venturer in any partnership or joint venture (collectively,
“Investments”), or make a commitment or otherwise agree to do any of the
foregoing, other than:

 

26

 

 

(i)          Investments consisting of Cash Equivalents;

 

(ii)         Investments consisting of the extension of trade credit, the
creation of prepaid expenses, the purchase of inventory, supplies, equipment and
other assets, and advances to employees, in each case by Company and the
Subsidiary Guarantors in the ordinary course of business;

 

(iii)        Investments consisting of loans and advances to employees, officers
or directors of Company and the Subsidiary Guarantors in the ordinary course of
business not exceeding $27,500 at any time outstanding;

 

(iv)        Investments (including equity securities and debt obligations) of
Company and the Subsidiary Guarantors received in connection with the bankruptcy
or reorganization of suppliers and customers and in good faith settlement of
delinquent obligations of, and other disputes with, customers and suppliers
arising in the ordinary course of business;

 

(v)         Investments consisting of intercompany Indebtedness permitted under
clauses (iii), (iv) and (v) of Section 7.2;

 

(vi)        Investments existing as of the Closing Date and described in
Schedule 7.5;

 

(vii)       Investments consisting of the making of capital contributions or the
purchase of Capital Stock (x) by Company or any Subsidiary Guarantor in any
Affiliate or other Subsidiary that either is a Subsidiary Guarantor immediately
prior to, or will be a Subsidiary Guarantor immediately after giving effect to,
such Investment; provided that in the case of an Acquisition of any newly
created or acquired Subsidiary, Company complies with the provisions of Sections
5.8 and 5.9 and all requirements of this Note applicable to Permitted
Acquisitions, and (z) by any Subsidiary Guarantor in Company;

 

(viii)      Permitted Acquisitions;

 

(ix)         Guaranty Obligations constituting Indebtedness to the extent
permitted by Section 7.2(viii);

 

(x)          Hedge Agreements to the extent permitted by Section 7.2(vi);

 

(xi)         Investments constituting capital expenditures to the extent
otherwise permitted in this Note;

 

(xii)        Investments constituting prepaid expenses, negotiable instruments
held for collection and lease, utility and workers' compensation, performance
and other similar deposits provided to third parties, in each case, in the
ordinary course of business; and

 

(xiii)       Investments made pursuant to Physician Practice Management
Agreements.

 

27

 

 

7.6           Restricted Payments.

 

(a)          Company will not, and will not permit or cause any of the
Subsidiary Guarantors to, directly or indirectly, declare or make any dividend
payment, or make any other distribution of cash, property or assets, in respect
of any of its Capital Stock or any warrants, rights or options to acquire its
Capital Stock, or purchase, redeem, retire or otherwise acquire for value any
shares of its Capital Stock or any warrants, rights or options to acquire its
Capital Stock, or set aside funds for any of the foregoing, except that:

 

(i)          Company and any of the Subsidiary Guarantors may declare and make
dividend payments or other distributions payable solely in its common stock;

 

(ii)         each Wholly Owned Subsidiary of Company may declare and make
dividend payments or other distributions to Company or to another Wholly Owned
Subsidiary of Company, in each case to the extent not prohibited under
applicable Requirements of Law;

 

(iii)        each non-Wholly Owned Subsidiary may declare and make dividend
payments to Company and the other equity holders thereof so long as (i) such
dividend payments are not prohibited under applicable Requirements of Law and
(ii) Apollo Medical Management, Inc. (or another Subsidiary Guarantor of Company
that directly owns such non-Wholly Owned Subsidiary) receives at least its
proportionate share of each such dividend payments based upon its relative
holding of the Capital Stock in such non-Wholly Owned Subsidiary; and

 

(iv)        Company and its Subsidiaries may purchase shares of their Capital
Stock as permitted by Schedule 7.6(a)(iv) if (A) no Default or Event of Default
then exists and (B)(I) in an aggregate amount that shall not exceed $50,000 from
the Closing Date until such time as Company delivers its financial statements
pursuant to Section 5.1(a) for its fiscal quarter ended in December 2015 and,
thereafter, (II) in any amount as long as Company shall be in compliance with
the financial covenants set forth in Article VI, before and after giving effect
to any such payment, calculated on a pro forma basis as if any such payment was
made at the beginning of the calculation period for each such applicable
financial covenant.

 

(b)          Company will not, and will not permit any of the Subsidiary
Guarantors to, make any payment in respect of any Contingent Purchase Price
Obligations (whether or not such Contingent Purchase Price Obligations
constitute Indebtedness) unless (i) no Default or Event of Default has occurred
and is continuing or would result therefrom and (ii) immediately after giving
effect to such payment, Company is in compliance with the financial covenants
contained in Article VI, such compliance determined with regard to calculations
made on a pro forma basis for the Reference Period most recently ended,
calculated in accordance with GAAP as if such payment had been made on the last
day of such Reference Period, and Holder has received a certificate of a
Financial Officer of Company to such effect.

 

28

 

 

7.7           Transactions with Affiliates. Company will not, and will not
permit or cause any of the Subsidiary Guarantors to, enter into any transaction
(including, without limitation, any purchase, sale, lease or exchange of
property or the rendering of any service) with any officer, director,
stockholder or other Affiliate of Company or any of the Subsidiary Guarantors,
except in the ordinary course of its business and upon fair and reasonable terms
that are no less favorable to it than it would be obtained in a comparable arm’s
length transaction with a Person other than an Affiliate of Company or any of
the Subsidiary Guarantors; provided, however, that nothing contained in this
Section 7.7 shall prohibit:

 

(i)          transactions described on Schedule 7.7 (and any renewals or
replacements thereof on terms not materially more disadvantageous to the
applicable Company Party) or otherwise expressly permitted under the Credit
Agreement;

 

(ii)         transactions among Company and/or the Subsidiary Guarantors not
prohibited or contemplated under this Note (provided that such transactions
shall remain subject to any other applicable limitations and restrictions set
forth in this Note);

 

(iii)        (A) Equity Issuances with respect to Company’s Capital Stock to
directors, officers and employees of the Company Parties pursuant to equity
incentive plans, employment, consulting or director agreements or other
employment, consulting or director arrangements approved by the Company Board
(or the compensation committee thereof) and to the extent any such issuance
constitutes an Exempt Issuance; (B) Equity Issuances by Apollomed Accountable
Care Organization, Inc. to directors, officers and employees that do not cause
an Event of Default pursuant to Section 8.1(o); and (C) Equity Issuances by
Maverick Medical Group Inc. to directors, officers and employees that do not
cause a Default or Event of Default;

 

(iv)        the payment by Company of reasonable compensation and benefits to
its directors, officers and employees consistent with past practice as of the
date hereof; and

 

(v)         Company and the Subsidiary Guarantors entering into, and performing
under, Physician Practice Management Agreements, Physician Shareholder
Agreements and Intercompany Loan Agreements, each on terms and conditions
reasonably satisfactory to Holder.

 

7.8           Lines of Business. Company will not, and will not permit or cause
any of the Subsidiary Guarantors to, engage in any material respect in any lines
of business other than the lines of businesses engaged in by it on the Closing
Date and businesses and activities reasonably related thereto.

 

7.9           Sale-Leaseback Transactions. Company will not, and will not permit
or cause any of the Subsidiary Guarantors to, directly or indirectly, become or
remain liable as lessee or as guarantor or other surety with respect to any
lease, whether an operating lease or a Capitalized Lease, of any property
(whether real, personal or mixed, and whether now owned or hereafter acquired)
(i) that any Company Party has sold or transferred (or is to sell or transfer)
to a Person that is not a Company Party or (ii) that any Company Party intends
to use for substantially the same purpose as any other property that, in
connection with such lease, has been sold or transferred (or is to be sold or
transferred) by a Company Party to another Person that is not a Company Party.

 

29

 

 

7.10         Certain Amendments. Company will not, and will not permit or cause
any of the Subsidiary Guarantors to, amend, modify or waive (i) any provision of
any Existing Note or any private placement memorandum relating thereto, the
effect of which would be (A) to increase the principal amount due thereunder or
provide for any mandatory prepayments not already provided for by the terms
thereof, (B) to increase the applicable interest rate or amount of any fees or
costs due thereunder, (C) to amend any of the subordination provisions
thereunder (including any of the definitions relating thereto), (D) to make any
covenant or event of default therein more restrictive or add any new covenant or
event of default, (E) to grant any security or collateral to secure payment
thereof or (F) to effect any change in the rights or obligations of the Company
Parties thereunder or of the holders thereof that, in the reasonable
determination of Holder, would be adverse in any material respect to the rights
or interests of Holder, (ii) any provision of its articles or certificate of
incorporation or formation, bylaws, operating agreement or other applicable
formation or organizational documents, as applicable, the terms of any class or
series of its Capital Stock, or any agreement among the holders of its Capital
Stock or any of them, in each case other than in a manner that could not
reasonably be expected to adversely affect Holder in any material respect
(provided that Company shall give Holder notice of any such amendment,
modification or change, together with certified copies thereof), or (iii) any
provision or term of, or the amount of the fees or compensation with respect to,
any Physician Practice Management Agreement, Intercompany Loan Agreement,
Physician Shareholder Agreement or Executive Employment Agreement without
Holder’s written consent.

 

7.11         Limitation on Certain Restrictions. Company will not, and will not
permit or cause any of the Subsidiary Guarantors to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any restriction
or encumbrance on (a) the ability of the Company Parties to perform and comply
with their respective obligations under this Note or (b) the ability of any
Subsidiary of Company to make any dividend payment or other distribution in
respect of its Capital Stock, to repay Indebtedness owed to Company or any other
Subsidiary, to make loans or advances to Company or any other Subsidiary, or to
transfer any of its assets or properties to Company or any other Subsidiary,
except (in the case of clause (b) above only) for such restrictions or
encumbrances existing under or by reason of (i) the Investment Documents (as in
effect as of the date hereof), (ii) applicable Requirements of Law,
(iii) customary non-assignment provisions in leases and licenses of real or
personal property entered into by Company or any Subsidiary as lessee or
licensee in the ordinary course of business, restricting the assignment or
transfer thereof or of property that is the subject thereof, and (iv) customary
restrictions and conditions contained in any agreement relating to the sale of
assets (including Capital Stock of a Subsidiary) pending such sale; provided
that such restrictions and conditions apply only to the assets being sold and
such sale is permitted under this Note.

 

7.12         No Other Negative Pledges. Company will not, and will not permit or
cause any of the Subsidiary Guarantors to, enter into or suffer to exist any
agreement or restriction that, directly or indirectly, prohibits or conditions
the creation, incurrence or assumption of any Lien upon or with respect to any
part of its property or assets, whether now owned or hereafter acquired, or
agree to do any of the foregoing, except for such agreements or restrictions
existing under or by reason of (i) this Note and the other Investment Documents,
(ii) applicable Requirements of Law, (iii) any agreement or instrument creating
a Permitted Lien (but only to the extent such agreement or restriction applies
to the assets subject to such Permitted Lien), (iv) customary provisions in
leases and licenses of real or personal property entered into by Company or any
Subsidiary as lessee or licensee in the ordinary course of business, restricting
the granting of Liens therein or in property that is the subject thereof, and
(v) customary restrictions and conditions contained in any agreement relating to
the sale of assets (including Capital Stock of a Subsidiary) pending such sale;
provided that such restrictions and conditions apply only to the assets being
sold and such sale is permitted under this Note.

 

30

 

 

7.13         Fiscal Year. Company and the Subsidiary Guarantors shall change
their fiscal year so that it ends in March, but otherwise Company will not, and
will not permit or cause any of the Subsidiary Guarantors to, change its fiscal
year or its method of determining fiscal quarters.

 

7.14         Accounting Changes. Other than as permitted pursuant to Section 1.2
of this Note, Company will not, and will not permit or cause any of the
Subsidiary Guarantors to, make or permit any material change in its accounting
policies or reporting practices, except as may be required by GAAP.

 

ARTICLE VIII

 

EVENTS OF DEFAULT; REMEDIES

 

8.1           Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default hereunder:

 

(a)          Company shall fail to (i) pay when due any principal amount payable
under this Note or (ii) pay any interest, fees or other charges payable this
Note within three (3) Business Days after the same becomes due;

 

(b)          Company shall fail to observe or perform any covenant, restriction
or agreement contained in Sections 2.9, 5.1, 5.2(a), 5.2(d)(i), 5.3, 5.8 or 5.9
or Articles VI or VII of this Note;

 

(c)          Company or any Subsidiary shall fail to observe or perform any
covenant, restriction or agreement contained in this Note or any other
Investment Document and not described in Sections 8.1(a) or (b) above for
fifteen (15) days after the earlier of Company (i) obtaining knowledge of such
failure, or (ii) receiving written notice of such failure from Holder;

 

(d)          Any representation, warranty, certification or statement made or
deemed made by Company or any Subsidiary Guarantor in this Note, in any other
Investment Document or in any certificate, financial statement or other document
delivered pursuant to this Note or any other Investment Document shall prove to
have been incorrect in any material respect when made or deemed made;

 

(e)          The occurrence and continuance of any default or event of default
on the part of Company or any Subsidiary Guarantor (including specifically, but
without limitation, defaults due to non-payment) under the terms of any
agreement, document or instrument pursuant to which Company or a Subsidiary has
incurred any Indebtedness in excess of $55,000, which default would permit
acceleration of such indebtedness;

 

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(f)          Any Investment Document to which Company or any Subsidiary
Guarantor is now or hereafter a party shall for any reason cease to be in full
force and effect, in each case unless any such cessation occurs in accordance
with the terms thereof or is due to any act or failure to act on the part of
Holder; or Company or any Subsidiary Guarantor shall assert any of the
foregoing; or any Subsidiary Guarantor or any Person acting on behalf of any
Subsidiary Guarantor shall deny or disaffirm such Subsidiary’s obligations under
the Guaranty or such;

 

(g)          Company or any Subsidiary Guarantor (i) other than as permitted
under Section 7.1, files a petition for relief under the Bankruptcy Code or any
other insolvency law or seeking to adjudicate it bankrupt or insolvent, or
seeking dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fails to file
an answer or other pleading denying the material allegations of any such
proceeding filed against it, (ii) other than as permitted under Section 7.1,
takes any corporate action to authorize or effect any of the foregoing actions,
(iii) generally fails to pay, or admits in writing its inability to pay, its
debts as such debts become due; (iv) shall apply for, seek or consent to, or
acquiesce in, the appointment of a custodian, receiver, trustee, examiner,
liquidator or similar official for it or for any material portion of its assets;
(v) benefits from or is subject to the entry of an order for relief under any
bankruptcy or insolvency law; or (vi) makes an assignment for the benefit of
creditors;

 

(h)          Failure of Company or any Subsidiary Guarantor within thirty (30)
days after the commencement of any proceeding against it seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, to
have such proceeding dismissed, or to have all orders or proceedings thereunder
affecting the operations or the business of Company or such Subsidiary Guarantor
stayed, or failure of Company or such Subsidiary Guarantor within thirty (30)
days after the appointment, without its consent or acquiescence, of any
custodian, receiver trustee, examiner, liquidator or similar official for it or
for any material portion of its assets, to have such appointment vacated;

 

(i)          Company or any Subsidiary Guarantor ceases to be Solvent, or ceases
to conduct its business substantially as now conducted or is enjoined,
restrained or in any way prevented by court order from conducting all or any
material part of its business affairs;

 

(j)          The entry of one or more judgments or orders for the payment of
money in excess of $55,000 in the aggregate against Company or any Subsidiary
Guarantor and such judgment(s) or order(s) shall continue unsatisfied and
unstayed for a period of thirty (30) days;

 

(k)          The issuance of a writ of execution, attachment or similar process
against Company or any Subsidiary Guarantor which shall not be dismissed,
stayed, discharged or bonded within thirty (30) days after Company acquires
knowledge thereof;

 

(l)          A notice of Lien, levy or assessment in excess of $55,000 is filed
of record with respect to all or any portion of the assets of Company or any
Subsidiary Guarantor by the United States, or any department, agency or
instrumentality thereof, or by any other Governmental Authority, including,
without limitation, the PBGC, or if any taxes or debts in excess of $55,000
owing at any time or times hereafter to any one of them becomes a lien or
encumbrance upon any assets of Company or any Subsidiary Guarantor in each case
and the same is not satisfied, released, discharged or bonded within thirty (30)
days after the same becomes a lien or encumbrance or, in the case of ad valorem
taxes, prior to the last day when payment may be made without material penalty;

 

32

 

 

(m)          Any ERISA Event or any other event or condition shall occur or
exist with respect to any Plan or Multiemployer Plan and, as a result thereof,
together with all other ERISA Events and other events or conditions then
existing, Company and its ERISA Affiliates have incurred or would be reasonably
likely to incur liability to any one or more Plans or Multiemployer Plans or to
the PBGC (or to any combination thereof) in excess of $55,000;

 

(n)          Any one or more licenses, permits, accreditations or authorizations
of Company or any Subsidiary Guarantor shall be suspended, limited or terminated
or shall not be renewed, or any other action shall be taken, by any Governmental
Authority in response to any alleged failure by Company or any of its
Subsidiaries to be in compliance with applicable Requirements of Law, and such
action, individually or in the aggregate, if the event giving rise to such
action is not remediated within thirty (30) days of notice of any of the
foregoing events, would be reasonably likely to have a Material Adverse Effect;

 

(o)          Any of the following shall occur: (i) Company, itself or through
100% ownership and control of any of the Subsidiary Guarantors, ceases to own,
beneficially and of record, and control 100% of the total Capital Stock of any
Subsidiary Guarantor hereunder, other than Apollomed Accountable Care
Organization, Inc. or any physician practice that is a Subsidiary, (ii) Company,
itself or through 100% ownership and control of any of its Subsidiaries, ceases
to own, beneficially and of record, and control 51% of the total Capital Stock
of Apollomed Accountable Care Organization, Inc., (iii) any Person, or group of
Persons acting in concert shall become the “beneficial owner” of Capital Stock
of Company representing 35% or more of (x) the combined voting power of the then
outstanding Capital Stock of Company ordinarily having the right to vote in the
election of directors, or (y) all Capital Stock of Company, (iv) Warren
Hosseinion, M.D. shall cease to serve as a senior executive pursuant to his
Executive Employment Agreement for any reason unless (A) because of his death or
disability or (B) Company hires a new senior executive within thirty (30) days
after Warren Hosseinion, M.D. ceases to serve as senior executive and who is
reasonably satisfactory to Holder, (v) any Physician Practice Management
Agreement or Physician Shareholder Agreement is terminated, for any reason,
unless any such agreement is replaced concurrently with its termination by
another agreement in form and substance satisfactory to Holder in its sole
discretion and Holder has provided its written confirmation of such satisfaction
prior to the termination of such agreement, or (vi) during any period of up to
twelve (12) consecutive months, commencing after the Closing Date, individuals
who at the beginning of such twelve (12) month period were directors of Company
(together with any new director whose election by the Company’s Board or whose
nomination for election by Company’s stockholders was approved by a vote of at
least two-thirds of the directors then still in office who either were directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
directors of the Company Board then in office; or

 

(p)          The occurrence of an Event of Default under and as defined in the
Credit Agreement.

 

33

 

 

8.2           Remedies. Upon the occurrence and during the continuance of any
Event of Default:

 

(a)          Acceleration of Indebtedness. Holder may, in its sole discretion,
(i) declare all or any part of this Note immediately due and payable, whereupon
this Note shall become immediately due and payable without presentment, demand,
protest, notice or legal process of any kind, all of which are hereby expressly
waived by Company; provided, however, that this Note shall automatically become
due and payable upon the occurrence of an Event of Default under Sections 8.1(f)
or (h); and (ii) pursue all other remedies available to it by contract, at law
or in equity.

 

(b)          Rights and Remedies Cumulative; Non-Waiver; etc. The enumeration of
Holder’s rights and remedies set forth in this Note is not intended to be
exhaustive and the exercise by Holder of any right or remedy shall not preclude
the exercise of any other rights or remedies, all of which shall be cumulative,
and shall be in addition to any other right or remedy given hereunder, under any
Guaranty or under any other agreement between Company and Holder or that may now
or hereafter exist in law or in equity or by suit or otherwise. No delay or
failure to take action on the part of Holder in exercising any right, power or
privilege shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or privilege preclude other or further
exercise thereof or the exercise of any other right, power or privilege or shall
be construed to be a waiver of any Event of Default. No course of dealing
between Company and Holder or their agents or employees shall be effective to
change, modify or discharge any provision of this Note or to constitute a waiver
of any Event of Default.

 

ARTICLE IX

 

TRANSFER

 

This Note and the rights granted to Holder are transferable and assignable, in
whole or in part, subject to the terms of this Article IX, upon surrender of
this Note to Company for registration of transfer, duly endorsed, or accompanied
by a duly executed written instrument of transfer; provided that, other than to
Affiliates of Holder, this Note and the rights granted to Holder hereunder shall
not be transferable or assignable, in whole or in part, at any time prior to the
first anniversary of the date of this Note and, thereafter, shall be
transferrable or assignable to any Person other than a Person whose principal
business is providing integrated healthcare services or who otherwise is a
competitor of Company as determined reasonably and in good faith by the Company
Board. Thereupon, this Note shall be reissued to, and registered in the name of,
the transferee(s), or a new Note for like principal amount and interest shall be
issued to, and registered in the name of, the transferee(s). Interest and
principal shall be paid solely to the registered holder of this Note. Such
payment shall constitute full discharge of Company’s obligation to pay such
interest and principal. Company shall not have the right to assign or transfer
its rights or obligations hereunder or any interest herein and any assignment of
rights and obligations by Company shall be null and void as a matter of law.

 

34

 

 

ARTICLE X

 

REGISTRATION RIGHTS

 

10.1         Registrable Securities. The Conversion Shares issuable upon
conversion of this Note shall be “Registrable Securities” under that certain
Registration Rights Agreement, dated as of March 28, 2014, by and between
Company and Holder.

 

10.2         Market Stand-off Agreement. In the event of a Qualified IPO, Holder
hereby agrees that it will not, if so requested by the managing underwriter for
such Qualified IPO, without the prior written consent of such managing
underwriter, during the period commencing on the date of the final prospectus
relating to such Qualified IPO, and ending on the date specified by such
managing underwriter (such period not to exceed one hundred eighty (180) days,
or such other period as may be requested by such underwriter to accommodate
regulatory restrictions on (1) the publication or other distribution of research
reports, and (2) analyst recommendations and opinions, including, but not
limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule
472(f)(4), or any successor provisions or amendments thereto), (i) lend; offer;
pledge; sell; contract to sell; sell any option or contract to purchase;
purchase any option or contract to sell; grant any option, right, or warrant to
purchase; or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable (directly or indirectly) for Common Stock (whether such shares or
any such securities are then owned by Holder or are thereafter acquired) or (ii)
enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of such securities,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or other securities, in cash, or otherwise.
The foregoing provisions of this Section 10.2 shall not apply to the sale of any
shares to an underwriter pursuant to an underwriting agreement, and shall be
applicable to Holder only if all Company officers and directors are subject to
the same restrictions. The underwriters in connection with such Qualified IPO
are intended third party beneficiaries of this Section 10.2 and shall have the
right, power and authority to enforce the provisions hereof as though they were
a party hereto. Holder further agrees to execute such agreements as may be
reasonably requested by the underwriters in connection with such Qualified IPO
that are consistent with this Section 10.2 or that are necessary to give further
effect thereto.

 

ARTICLE XI

 

MISCELLANEOUS

 

11.1         Lost or Destroyed Note. Upon receipt of evidence reasonably
satisfactory to Company of the loss, theft, destruction or mutilation of this
Note and, in the case of any such loss, theft or destruction, upon delivery of
an indemnity agreement reasonably satisfactory in form and amount to Company,
or, in the case of any such mutilation, upon surrender and cancellation of this
Note, Company, at its expense, shall execute and deliver, in lieu thereof, a new
Note of like date and tenor.

 

35

 

 

11.2         Notices. All demands, notices, approvals, consents, requests, and
other communications hereunder shall be in writing and shall be deemed to have
been given when the writing is delivered, if given or delivered by hand,
overnight delivery service or facsimile transmitter (with confirmed receipt), or
five (5) days after being mailed, if mailed, by first class, registered or
certified mail, postage prepaid, to the address or telecopy number set forth
below. If any time period for giving notice or taking action hereunder expires
on a day that is not a Business Day, the time period shall automatically be
extended to the Business Day immediately following such day. Such notices,
demands, requests, consents and other communications shall be sent to the
following Persons at the following addresses.

 

Party Address     Company Apollo Medical Holdings, Inc.   700 N. Brand Blvd.,
Suite 220   Glendale, California  91203   Attention:  Chief Financial Officer  
Telephone:  (818) 396-8050   Fax:  (818) 844-3888     Holder NNA of Nevada, Inc.
  920 Winter Street   Waltham, Massachusetts  02451   Attention:  Mark
Fawcett/Christine Smith   Telephone:  (781) 699-2668/(781) 699-9165   Fax:(781)
699-9756

 

Company or Holder may, by notice given hereunder, designate any further or
different addresses or telecopy numbers to which subsequent demands, notices,
approvals, consents, requests or other communications shall be sent or persons
to whose attention the same shall be directed.

 

11.3         Waivers. The rights and remedies provided for herein are cumulative
and not exclusive of any right or remedy that may be available to Holder whether
at law, in equity, or otherwise. No delay, forbearance, or neglect by Holder,
whether in one or more instances, in the exercise of any right, power,
privilege, or remedy hereunder or in the enforcement of any term or condition of
this Note shall constitute or be construed as a waiver thereof. No waiver of any
provision hereof, or consent required hereunder, or any consent or departure
from this Note, shall be valid or binding unless expressly and affirmatively
made in writing and duly executed by Holder. No waiver shall constitute or be
construed as a continuing waiver or a waiver in respect of any subsequent
breach, either of similar or different nature, unless expressly so stated in
such writing.

 

11.4         Specific Enforcement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of Sections 2.55 and
2.66, Article III or Article IV or Section 5.15 of this Note were not performed
in accordance with their specific intent or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of Sections 2.55 and
2.66, Article III or Article IV or Section 5.15 of this Note and to enforce
specifically the terms and provisions hereof, in addition to any other remedy to
which they may be entitled by law or equity.

 

36

 

 

11.5         Controlling Law. This Note and shall be governed by and interpreted
in accordance with the laws of the State of New York (including Sections 5-1401
and 5-1402 of the New York General Obligations Law, but excluding all other
choice of law and conflicts of law rules).

 

11.6         Amendment. Any provision of this Note or any other Investment
Document to which Company is a party may be amended if such amendment is in
writing and is signed by Company and Holder. In connection with any amendment
entered into in accordance with this Section, Company shall pay to Holder a fee
to be negotiated between Company and Holder. Payment of such fee by Company to
Holder shall be a condition precedent to the effectiveness of such amendment and
shall be due on the date such amendment is signed by Holder.

 

11.7         Severability. In the event that any provision of this Note shall be
determined to be invalid or unenforceable by any court of competent
jurisdiction, such determination shall not invalidate or render unenforceable
any other provision hereof.

 

11.8         Counterparts. This Note may be executed in several counterparts,
each of which shall be an original and all of which, together shall constitute
but one and the same instrument.

 

11.9         Captions. The captions to the various sections and subsections of
this Note have been inserted for convenience only and shall not limit or affect
any of the terms hereof.

 

11.10         Confidential Information. In the event the Receiving Party
(including its officers, employees, counsel, accountants, partners and other
authorized representatives) obtains or has obtained from the Disclosing Party
any Confidential Information, the Receiving Party (i) shall treat all such
Confidential Information as confidential, (ii) shall use such Confidential
Information only for the purposes contemplated in the Investment Agreement and
this Note (and related documents), (iii) shall protect such Confidential
Information with the same degree of care as the Receiving Party uses to protect
its own confidential and proprietary information against public disclosure, but
in no case with less than reasonable care, and (iv) shall not disclose such
Confidential Information to any third party except to such officers, employees,
counsel, accountants, partners and other authorized representatives of the
Receiving Party, its Affiliates or potential permitted transferees of the
Receiving Party’s rights under this Note and the Investment Agreement who need
to know such Confidential Information for any proper purpose related to this
Note, the Investment Agreement or any transaction contemplated thereby and who
have been informed of and have agreed in writing to protect the confidential
nature of such Confidential Information and not to use such Confidential
Information for any unlawful purpose (and the Receiving Party shall be
responsible for compliance with this Section 11.10 by its and its Affiliates’
officers, employees, counsel, accountants, partners and other authorized
representatives) or to the extent required by applicable Requirements of Law,
provided that, if not prohibited by applicable Requirements of Law, the
Receiving Party will (i) provide reasonable advance notice to the Disclosing
Party of such disclosure so that the Disclosing Party may seek an appropriate
protective order and (ii) to cooperate with the Disclosing Party, at the
Disclosing Party’s expense, to obtain such protective order. Each party agrees
that, due to the unique nature of the Confidential Information, the unauthorized
disclosure or use of any Confidential Information of the Disclosing Party may
cause irreparable harm and significant injury to the Disclosing Party, the
extent of which may be difficult to ascertain and for which there may be no
adequate remedy at law. Accordingly, each party agrees that the Disclosing
Party, in addition to any other available remedies, shall have the right to seek
an immediate injunction and other equitable relief enjoining any breach or
threatened breach of this Section 11.10 without the necessity of posting any
bond or other security. The Receiving Party shall notify the Disclosing Party in
writing immediately upon the Receiving Party’s becoming aware of any such breach
or threatened breach. Notwithstanding anything to the contrary set forth in this
Note or the Investment Agreement, this Section 11.10 shall survive the
termination of this Note.

 

[signature page follows]

 

37

 

 

IN WITNESS WHEREOF, Company has caused this Note to be duly executed and
delivered by its duly authorized representative as of the date first above
written.

 

  APOLLO MEDICAL HOLDINGS, INC.

 

  By: /s/ Kyle Francis         Name: Kyle Francis         Title: CFO

 

Signature Page to Convertible Note

 

 

 

 

APPENDIX I

 

CONVERSION NOTICE

 

Reference is made to the Convertible Note (the “Note”) issued to the undersigned
by Apollo Medical Holdings, Inc. (“Company”). In accordance with and pursuant to
the Note, the undersigned hereby elects to convert the Conversion Amount (as
defined in the Note) of the Note indicated below into Conversion Shares, par
value $0.001 per share (the “Common Stock”) of Company, as of the date specified
below.

 

Date of Conversion:

 

Aggregate Conversion Amount to be converted:

 

Please confirm the following information:

 

Conversion Price:

 

Number of Conversion Shares to be issued:

 

Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:

 

Issue to:

 

 

Facsimile Number:

 

Authorization:

By:

Title:

Dated:

 

 

 

 

SCHEDULE I

 

DEFINITIONS

 

“Acquisition” means any transaction or series of related transactions,
consummated on or after the date hereof, by which Company or any of its
Subsidiaries, (i) acquires all or substantially all of the assets of any Person
or any going business, division thereof or line of business, whether through
purchase of assets, merger or otherwise, (ii) acquires Capital Stock of any
Person having at least a majority of combined voting power of the then
outstanding Capital Stock of such Person or (iii) enters into a Physician
Practice Management Agreement, some other physician practice management
agreement or such other agreement with another Person and the effect of which is
to cause such Person to be consolidated with Company in accordance with GAAP.

 

“Acquisition Amount” means, with respect to any Acquisition, the sum (without
duplication) of (i) the amount of cash paid as purchase price by Company and its
Subsidiaries in connection with such Acquisition, (ii) the value of all Capital
Stock of Company issued or given as purchase price in connection with such
Acquisition (as determined by the parties thereto under the definitive
acquisition agreement and, if no such determination is made, as determined in
good faith by the Board of Directors of Company), (iii) the amount (determined
by using the face amount or the amount payable at maturity, whichever is
greater) of all Indebtedness assumed or acquired by Company and its Subsidiaries
in connection with such Acquisition, (iv) the maximum amount of any Contingent
Purchase Price Obligations payable in connection with such Acquisition, as
determined in good faith by Company, (v) all amounts paid in respect of
noncompetition agreements, consulting agreements and similar arrangements
entered into in connection with such Acquisition, and (vi) the aggregate fair
market value of all other real, mixed or personal property paid as purchase
price by Company and its Subsidiaries in connection with such Acquisition.

 

“Affiliated Physician Practice Entity” means any of Maverick Medical Group,
Inc., ApolloMed Care Clinic, ApolloMed Hospitalists, and any other physician
practice group that from time to time is consolidated with Company in accordance
with GAAP and (i) that is a party to a Physician Practice Management Agreement
with Company or any Subsidiary and (ii) for which the owner(s) of at least
seventy five percent (75%) of its outstanding Capital Stock have entered into a
Physician Shareholder Agreement.

 

“Asset Disposition” means any sale, assignment, lease, conveyance, transfer or
other disposition by any Company Party (whether in one or a series of
transactions) of all or any of its assets, business or other properties
(including Capital Stock of Subsidiaries), other than pursuant to a Casualty
Event.

 

“Bankruptcy Code” means Title 11 of the United States Code, as amended, and any
successor statute or statutes having substantially the same function.

 

“Book-Entry Shares” has the meaning set forth in Section 3.3.

 

 

 

 

“Capital Stock” means (i) with respect to any Person that is a corporation, any
and all shares, interests or equivalents in capital stock (whether voting or
nonvoting, and whether common or preferred) of such corporation, and (ii) with
respect to any Person that is not a corporation, any and all partnership,
membership, limited liability company or other equity interests of such Person;
and in each case, any and all warrants, rights or options to purchase any of the
foregoing.

 

“Capital Stock Equivalents” means any evidences of indebtedness, shares of
capital stock or other securities (including without limitation the Warrants and
Convertible Note) that are convertible into or exchangeable for, with or without
payment of additional consideration in cash or property, shares of Capital
Stock, and any and all options, warrants or other securities or rights to
subscribe for, purchase or otherwise acquire shares of Capital Stock or any of
the foregoing and any other security or instrument representing, convertible
into or exchangeable for Capital Stock or any of the foregoing, in each case
whether or not immediately exercisable.

 

“Capitalized Lease” means any lease or similar arrangement which is of a nature
that payment obligations of the lessee or obligor thereunder at the time are or
should be capitalized and shown as liabilities (other than current liabilities)
upon a balance sheet of such lessee or obligor prepared in accordance with GAAP.

 

“Capitalized Lease Obligations” means, with respect to any Capitalized Lease,
the amount of the obligation of the lessee thereunder that would, in accordance
with GAAP, appear on a balance sheet of such lessee with respect to such
Capitalized Lease.

 

“Cash Equivalents” means (i) securities issued or unconditionally guaranteed or
insured by the United States of America or any agency or instrumentality
thereof, backed by the full faith and credit of the United States of America and
maturing within one year from the date of acquisition, (ii) commercial paper
issued by any Person organized under the laws of the United States of America,
maturing within 180 days from the date of acquisition and, at the time of
acquisition, having a rating of at least A-1 or the equivalent thereof by
Standard & Poor’s Ratings Services or at least P-1 or the equivalent thereof by
Moody’s Investors Service, Inc., (iii) time deposits and certificates of deposit
maturing within 180 days from the date of issuance and issued by a bank or trust
company organized under the laws of the United States of America or any state
thereof (y) that has combined capital and surplus of at least $500,000,000 or
(z) that has (or is a subsidiary of a bank holding company that has) a long-term
unsecured debt rating of at least A or the equivalent thereof by Standard &
Poor’s Ratings Services or at least A2 or the equivalent thereof by Moody’s
Investors Service, Inc., (iv) repurchase obligations with a term not exceeding
thirty (30) days with respect to underlying securities of the types described in
clause (i) above entered into with any bank or trust company meeting the
qualifications specified in clause (iii) above, (v) money market funds at least
ninety-five percent (95%) of the assets of which are continuously invested in
securities of the foregoing types, and (vi) cash balances in accounts deposited
with banks or other financial institutions in the United States.

 

“Casualty Event” means, with respect to any property (including any interest in
property) of any Company Party, any loss of, damage to, or condemnation or other
taking of, such property for which such Company Party receives insurance
proceeds, proceeds of a condemnation award or other compensation.

 

Schedule I, page 2

 

 

 

 

“Code” means the Internal Revenue Code of 1986, as amended, or any successor
federal tax code. Any reference to any provision of the Code shall also include
the income tax regulations promulgated thereunder, whether final, temporary or
proposed.

 

“Company” has the meaning set forth in the introductory paragraph of this Note.

 

“Company’s Next Financing” has the meaning set forth in Section 4.5.

 

“Compliance Certificate” means a fully completed and duly executed certificate
in the form of Exhibit I to this Note, together with a Covenant Compliance
Worksheet.

 

“Consolidated EBITDA” means, for Company for any period, the aggregate of (i)
Consolidated Net Income of Company for such period, plus (ii) the sum of
interest expense, income tax expense, depreciation and amortization, and minus
(iii) interest income, all to the extent taken into account in the calculation
of Consolidated Net Income of Company for such period.

 

“Consolidated Funded Debt” means, without duplication, any of the following
types of Indebtedness of Company and its Subsidiaries, as determined on
consolidated basis in accordance with GAAP:

 

(i)          all obligations for borrowed money, whether current or long-term
(including the Obligations hereunder), and all obligations evidenced by bonds,
debentures, notes, loan agreements or similar instruments;

 

(ii)         all purchase money Indebtedness (including indebtedness and
obligations in respect of conditional sales and title retention arrangements,
except for customary conditional sales and title retention arrangements with
suppliers that are entered into in the ordinary course of business) and all
Indebtedness and obligations in respect of deferred purchase price of property
or services (other than trade payables incurred in the ordinary course of
business that are payable on terms customary in the trade and not past due other
than as a result of a bona fide dispute pursuant to Section 5.5);

 

(iii)        the principal amount of capital leases;

 

(iv)        any non-contingent obligations with respect to preferred stock and
comparable equity interests providing for mandatory redemption, sinking fund or
other like payments; and

 

(v)         any of the foregoing types of Indebtedness of any partnership or
joint venture or other similar entity which any such Person is a general partner
or joint venture, and, as such, has personal liability for such obligations, but
only to the extent there is recourse to such Person for payment thereof.

 

“Consolidated Net Income” means, for Company for any period, the net income (or
loss) of Company and its Subsidiaries, as determined on consolidated basis in
accordance with GAAP, but excluding extraordinary gains and losses and any other
non-operating gains and losses.

 

Schedule I, page 3

 

 

 

 

“Consolidated Tangible Net Worth” means, at any date, (i) Company’s total
stockholders’ equity at such date determined for Company and its Subsidiaries on
a consolidated basis in accordance with GAAP minus (ii) the amount of intangible
assets of Company and its Subsidiaries at such date, including without
limitation, goodwill (whether representing the excess of cost over book value of
assets acquired, or otherwise), capitalized expenses, patents, trademarks,
tradenames, copyrights, franchises, licenses and deferred charges, all
determined for Company and its Subsidiaries on a consolidated basis in
accordance with GAAP; provided, however, that Company and Holder may mutually
agree in writing, in each such party’s sole discretion and without any
obligation to do so, to add-back to the calculation of “Consolidated Tangible
Net Worth” certain goodwill relating to one or more acquisitions.

 

“Consolidated Entities” means Company and the Subsidiaries of Company.

 

“Contingent Purchase Price Obligations” means any earnout obligations or similar
deferred or contingent purchase price obligations of Company or any of its
Subsidiaries incurred or created in connection with an Acquisition.

 

“Covenant Compliance Worksheet” means a fully completed worksheet in the form of
Exhibit A to Exhibit I of this Note.

 

“Conversion Amount” has the meaning set forth in Section 3.2(a).

 

“Conversion Date” has the meaning set forth in Section 3.3.

 

“Conversion Notice” has the meaning set forth in Section 3.3.

 

“Conversion Price” has the meaning set forth in Section 3.2(b).

 

“Default” means any event which with the giving of notice, lapse of time, or
both, would become an Event of Default.

 

“Dilutive Issuance” has the meaning set forth in Section 4.5.

 

“Disposition of Assets” has the meaning set forth in Section 4.3.

 

“Environmental Claims” means any and all administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, allegations, notices of
noncompliance or violation, investigations by a Governmental Authority, or
proceedings (including administrative, regulatory and judicial proceedings)
relating in any way to any Hazardous Substance, any actual or alleged violation
of or liability under any Environmental Law or any permit issued, or any
approval given, under any Environmental Law (collectively, “Claims”), including
(i) any and all Claims by Governmental Authorities for enforcement, cleanup,
removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from any Hazardous Substance or arising from alleged
injury or threat of injury to human health or the environment.

 

Schedule I, page 4

 

 

 

 

“Environmental Laws” means any and all federal, state and local laws, statutes,
ordinances, rules, regulations, permits, licenses, approvals, rules of common
law and orders of courts or Governmental Authorities, relating to the protection
of human health, occupational safety with respect to exposure to Hazardous
Substances, or the environment, now or hereafter in effect, and in each case as
amended from time to time, including requirements pertaining to the manufacture,
processing, distribution, use, treatment, storage, disposal, transportation,
handling, reporting, licensing, permitting, investigation or remediation of
Hazardous Substances.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, and all rules
and regulations from time to time promulgated thereunder.

 

“ERISA Affiliate” means any trade or business (whether or not incorporated)
that, together with any Consolidated Entity, is treated as (i) a single employer
under Section 414(b), (c), (m) or (o) of the Code or (ii) a member of the same
controlled group under Section 4001(a)(14) of ERISA.

 

“ERISA Event” means any of the following: (i) a “reportable event” as defined in
Section 4043(c) of ERISA with respect to a Plan or, if any Consolidated Entity
or any ERISA Affiliate has received notice, a Multiemployer Plan, for which the
requirement to give notice has not been waived by the PBGC (provided, however,
that a failure to meet the minimum funding standard of Section 412 of the Code
shall be considered a “reportable event” regardless of the issuance of any
waiver), (ii) the application by any Consolidated Entity or any ERISA Affiliate
for a funding waiver pursuant to Section 412 of the Code, (iii) the incurrence
by any Consolidated Entity or any ERISA Affiliate of any Withdrawal Liability,
or the receipt by any Consolidated Entity or any ERISA Affiliate of notice from
a Multiemployer Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated
under Section 4041A of ERISA, (iv) the distribution by any Consolidated Entity
or any ERISA Affiliate under Section 4041 or 4041A of ERISA of a notice of
intent to terminate any Plan or the taking of any action to terminate any Plan,
(v) the commencement of proceedings by the PBGC under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any Plan, or
the receipt by any Consolidated Entity or any ERISA Affiliate of a notice from
any Multiemployer Plan that such action has been taken by the PBGC with respect
to such Multiemployer Plan, (vi) the institution of a proceeding by any
fiduciary of any Multiemployer Plan against any Consolidated Entity or any ERISA
Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed
within 30 days, (vii) the imposition upon any Consolidated Entity or any ERISA
Affiliate of any liability under Title IV of ERISA, other than for PBGC premiums
due but not delinquent under Section 4007 of ERISA, or the imposition or
threatened imposition of any Lien upon any assets of any Consolidated Entity or
any ERISA Affiliate as a result of any alleged failure to comply with the Code
or ERISA with respect to any Plan, or (viii) the engaging in or otherwise
becoming liable for a Prohibited Transaction by any Consolidated Entity or any
ERISA Affiliate.

 

“Event of Default” has the meaning set forth in Article VIII.

 

“Excluded Asset Disposition” means any Asset Disposition permitted under
Section 7.4(i), (ii), (iii) or (iv).

 

Schedule I, page 5

 

 

 

 

“Executive Employment Agreements” has the meaning set forth in Section 3.1(o) of
the Credit Agreement.

 

“Existing Notes” means the 9% Promissory Convertible Notes, as in effect as of
the date hereof, scheduled to mature on February 15, 2015 and with an aggregate
outstanding principal balance of $1,100,000 as of the Closing Date.

 

“Financial Officer” means, with respect to any Person, the chief financial
officer, vice president - finance, principal accounting officer or treasurer of
such Person.

 

“Fixed Charge Coverage Ratio” means, as of the last day of any fiscal quarter,
for Company and its Subsidiaries as determined on consolidated basis in
accordance with GAAP, the ratio of (i) Consolidated EBITDA for the period of
four consecutive fiscal quarters ending as of such day, to (ii) the sum of (A)
all interest expense to the extent paid (or required to be paid) in cash for the
period of four consecutive fiscal quarters ending as of such day, (B) all
scheduled payments of principal of Consolidated Funded Debt for the 12-month
period immediately following such period, (C) all taxes to the extent paid in
cash during the period of four consecutive fiscal quarters ending as of such
day, (D) all rent expense to the extent paid in cash during the period of four
consecutive fiscal quarters ending as of such day and (E) all payments made by
Company and its Subsidiaries for purchases of shares of Capital Stock permitted
by Section 7.6(a)(iv) during the period of four consecutive fiscal quarters
ending as of such day.

 

“Fully Diluted Basis” means, with respect to the Common Stock, as of any date of
determination, the number of shares of outstanding Common Stock as of such date
plus, without duplication, the maximum number of Conversion Shares issuable as
of such date upon exercise of the purchase, conversion or exchange rights
associated with all issued and outstanding Common Stock Equivalents.

 

“fiscal quarter” means a fiscal quarter of Company and its Subsidiaries.

 

“fiscal year” means a fiscal year of Company and its Subsidiaries.

 

“Hazardous Substance” means any substance or material meeting any one or more of
the following criteria: (i) it is or contains a substance designated as a
hazardous waste, hazardous substance, hazardous material, pollutant, contaminant
or toxic substance under any Environmental Law, (ii) it is toxic, explosive,
corrosive, ignitable, infectious, radioactive, mutagenic or otherwise hazardous
to human health or the environment and is or becomes regulated by any
Governmental Authority, (iii) its presence may require investigation or response
under any Environmental Law, (iv) it constitutes a nuisance, trespass or health
or safety hazard to Persons or neighboring properties, or (v) it is or contains,
without limiting the foregoing, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived
substances or wastes, crude oil, nuclear fuel, natural gas or synthetic gas.

 

“Hedge Agreement” means any interest or foreign currency rate swap, cap, collar,
option, hedge, forward rate or other similar agreement or arrangement designed
to protect against fluctuations in interest rates or currency exchange rates.

 

Schedule I, page 6

 

 

 

 

“Holder” has the meaning set forth in the introductory paragraph of this Note.

 

“Immaterial Subsidiary” means, at any date of determination, (i) Los Angeles
Lung Center and Eli E. Hendel, M.D. and (ii) (A) until financial statements are
delivered pursuant to Section 5.1(b) for Company’s fiscal year ended in 2015,
those subsidiaries listed on Schedule 1.1, as such schedule may be updated from
time to time as mutually agreed by Company and Holder, and (B) commencing upon
Company’s delivery of the financial statements pursuant to Section 5.1(b) for
Company’s fiscal year ended in 2015, any Subsidiary, together with its
Subsidiaries and each other Subsidiary which Company is treating as an
“Immaterial Subsidiary” for purposes of this clause (ii)(B) (and, for the
avoidance of doubt, excluding Los Angeles Lung Center and Eli Hendel, M.D.,
which shall remain Immaterial Subsidiaries pursuant to clause (i) of this
definition), including their Subsidiaries and without duplication, that
contributed less than an aggregate of 5% of Consolidated EBITDA for the fiscal
year of Company most recently ended prior to such date of determination.

 

“Indebtedness” means, for any Person, without duplication (i) obligations of
such Person for borrowed money; (ii) obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) obligations of such
Person in respect of the deferred purchase price of property or services (other
than trade payables incurred in the ordinary course of business on terms
customary in the trade and not past due other than as a result of a bona fide
dispute pursuant to Section 5.5); (iv) obligations of such Person under any
conditional sale or other title retention agreement(s) relating to property
acquired by such Person; (v) Capitalized Lease Obligations of such Person; (vi)
obligations, contingent or otherwise, of such Person in respect of letters of
credit, acceptances or similar extensions of credit (whether or not drawn upon
and in the stated amount thereof); (vii) guaranties by such Person of the type
of indebtedness described in clauses (i) through (vi) above; (viii) all
indebtedness of a third party secured by any Lien on property owned by such
Person, whether or not such indebtedness has been assumed by such Person;
(ix) all obligations of such Person, contingent or otherwise, to purchase,
redeem, retire or otherwise acquire for value any common stock of such Person;
(x) off-balance sheet liability retained in connection with asset securitization
programs, synthetic leases, sale and leaseback transactions or other similar
obligations arising with respect to any other transaction which is the
functional equivalent of or takes the place of borrowing but which does not
constitute a liability on the consolidated balance sheet of such Person and its
Subsidiaries; and (xi) obligations under any Hedge Agreement.

 

“Intercompany Loan Agreement” means any intercompany loan agreement between
Company or a Subsidiary, on the one hand, and an Affiliated Physician Practice
Entity, on the other hand, on terms and conditions satisfactory to Holder,
including without limitation (i) that certain Intercompany Revolving Loan
Agreement, dated July 31, 2013, by and between ApolloMed Care Clinic and Apollo
Medical Management, Inc., as amended on March 28, 2014, (ii) that certain
Intercompany Revolving Loan Agreement, dated September 30, 2013, by and between
ApolloMed Hospitalists and Apollo Medical Management, Inc., as amended on March
28, 2014, and (iii) that certain Intercompany Revolving Loan Agreement, dated
February 1, 2013, by and between Apollo Medical Management, Inc. and Maverick
Medical Group, Inc., as amended on March 28, 2014.

 

“Investment Agreement” has the meaning set forth in Section 1.1 of this Note.

 

Schedule I, page 7

 

 

 

 

“Investment Documents” means this Note, the Investment Agreement, the Guaranty
and all other documents executed and delivered with respect to this Note, in
each case, as in effect on the Closing Date, as supplemented, amended, restated,
extended, renewed, replaced or otherwise modified from time to time in
accordance with the terms hereof and thereof.

 

“Investments” has the meaning set forth in Section 7.5.

 

“Leverage Ratio” means, as of the last day of any fiscal quarter, the ratio of
(i) the amount of Consolidated Funded Debt on such day to (ii) Consolidated
EBITDA for the period of four consecutive fiscal quarters ending as of such day.

 

“Lien” means any interest in property securing an obligation owed to, or claim
by, a Person other than the owner of such property, whether such interest arises
by virtue of contract, statute or common law, including but not limited to the
lien or security interest arising from a mortgage, security agreement, pledge,
lease, conditional sale, consignment or bailment for security purposes or from
attachment, judgment or execution. The term “Lien” shall include any easements,
covenants, restrictions, conditions, encroachments, reservations, rights-of-way,
leases and other title exceptions and encumbrances affecting real property. For
the purpose of this Note, Company or any Subsidiary shall be deemed to own,
subject to a Lien, any proceeds of a sale with recourse of accounts receivable,
any asset leased under any “sale and lease back” or similar arrangement and any
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, financing lease or other title
retention agreement relating to such asset.

 

“Material Contracts” has the meaning set forth in Section 4.19 of the Credit
Agreement.

 

“Maturity Date” has the meaning set forth in Section 2.12.

 

“Merger” has the meaning set forth in Section 4.3.

 

“Multiemployer Plan” means any “multiemployer plan” within the meaning of
Section 4001(a)(3) of ERISA.

 

“Note” has the meaning set forth in Section 1.1.

 

“Obligations” means (i) indebtedness, liabilities, obligations, covenants and
duties owing, arising, due or payable from Company or any Subsidiary to Holder
of any kind or nature, present or future, arising under this Note or the other
Investment Documents, whether direct or indirect (including those acquired by
assignment), absolute or contingent, primary or secondary, due or to become due,
now existing or hereafter arising and however acquired; and (ii) all interest
(including to the extent permitted by law, all post-petition interest), charges,
expenses, fees, attorneys’ fees and any other sums payable by Company or any
Subsidiary to Holder under this Note and the other Investment Documents.

 

“Optional Redemption Date” has the meaning set forth in Section 2.5.

 

“PATRIOT Act” means the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act
of 2001), as amended from time to time, and any successor statute, and all rules
and regulations from time to time promulgated thereunder.

 

Schedule I, page 8

 

 

 

 

“PBGC” means the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA, and any successor thereto.

 

“Permitted Acquisition” means any Acquisition for which the Acquisition Amount
is less than $500,000 and any other Acquisition to which Holder shall have given
its prior written consent (which consent may be in its sole discretion and may
be given subject to such additional terms and conditions as it shall establish).

 

“Permitted Liens” has the meaning set forth in Section 7.3.

 

“Physician Practice Management Agreement” means a Physician Practice Management
Agreement between an Affiliated Physician Practice Entity and a Subsidiary or
Company, as manager, and providing for the management of the non-medical aspects
of such Affiliated Physician Practice Entity on terms and conditions
satisfactory to Holder.

 

“Physician Shareholder Agreement” means a Physician Shareholder Agreement, by
and between owners of at least seventy five percent (75%) of the Capital Stock
issued by an Affiliated Physician Practice Entity, the Subsidiary or Company
that is the manager pursuant to the Physician Practice Management Agreement to
which such Affiliated Physician Practice Entity is a party, such Affiliated
Physician Practice Entity, and Company (if not already party thereto as manager)
and on terms and conditions satisfactory to Holder.

 

“Plan” means any “employee pension benefit plan” within the meaning of
Section 3(2) of ERISA that is subject to the provisions of Title IV of ERISA
(other than a Multiemployer Plan) and to which any Consolidated Entity or any
ERISA Affiliate may have any liability.

 

“Prohibited Transaction” means any transaction described in (i) Section 406 of
ERISA that is not exempt by reason of Section 408 of ERISA or by reason of a
Department of Labor prohibited transaction individual or class exemption or
(ii) Section 4975(c) of the Code that is not exempt by reason of
Section 4975(c)(2) or 4975(d) of the Code.

 

“Realty” means the real property owned by Company or a Subsidiary Guarantor and
set forth on Schedule 4.12 of the Credit Agreement.

 

“Reference Period” with respect to any date of determination, means (except as
may be otherwise expressly provided herein) the period of twelve consecutive
fiscal months of Company immediately preceding such date or, if such date is the
last day of a fiscal quarter, the period of four consecutive fiscal quarters
ending on such date.

 

“Requirements of Law” means, with respect to any Person, the charter, articles
or certificate of organization or incorporation and bylaws or other
organizational or governing documents of such Person, and any statute, law,
treaty, rule, regulation, order, decree, writ, injunction or determination of
any arbitrator or court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject or otherwise pertaining to any or all of the
transactions contemplated by this Note.

 

Schedule I, page 9

 

 

 

 

“Responsible Officer” means, with respect to any Person, the president, the
chief executive officer, the chief financial officer, any executive officer, or
any other Financial Officer of such Person, and any other officer or similar
official thereof responsible for the administration of the obligations of such
Person in respect of this Note or any other Investment Document.

 

“Shareholders Agreement” has the meaning set forth in Section 3.1(a)(vii) of the
Credit Agreement.

 

“Solvent” means as to any Person on any particular date, that such Person (i)
does not have unreasonably small capital to carry on its business as now
conducted and as presently proposed to be conducted, (ii) is able to pay its
debts as they become due in the ordinary course of business, and (iii) has
assets with a present fair saleable value greater than its total stated
liabilities and identified contingent liabilities, including any amounts
necessary to satisfy preferential rights of shareholders.

 

“Subsequent Issuance” means any issue, sale, grant by Company of Common Stock or
Common Stock Equivalents or rights to acquire any of the foregoing after the
issuance of the Warrants and Note.

 

“Target” has the meaning set forth in Section 5.8(a)(i).

 

“Terminating Indebtedness” has the meaning set forth in Section 3.1(l) of the
Credit Agreement.

 

“2012 Equity Incentive Plan” means the 2012 Equity Incentive Plan of Apollomed
Accountable Care Organization, Inc. as in effect on the Closing Date.

 

“Wholly Owned” means, with respect to any Subsidiary of any Person, that 100% of
the outstanding Capital Stock of such Subsidiary is owned, directly or
indirectly, by such Person.

 

Schedule I, page 10

 

 

 

 

EXHIBIT I

 

COMPLIANCE CERTIFICATE

 

To:NNA of Nevada, Inc.

920 Winter Street

Waltham, Massachusetts 02451

Attention: ____________________

 

This Compliance Certificate is furnished pursuant to that certain Convertible
Note dated as of March 28, 2014 (as amended or otherwise modified from time to
time, the “Note”) issued by Apollo Medical Holdings, Inc. (“Company”) to NNA of
Nevada, Inc., as Holder. Unless otherwise defined herein, capitalized terms used
in this Compliance Certificate (and the attached schedule) have the meanings
ascribed thereto in the Note.

 

THE UNDERSIGNED HEREBY CERTIFIES THAT:

 

1.          I am an employee of Company;

 

2.          I have reviewed the terms of the Note and I have made, or have
caused to be made under my supervision, a reasonable review of the transactions
and conditions of Company during the accounting period covered by the attached
financial statements;

 

3.          The examinations described in paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or event which constitutes
a Default during or at the end of the accounting period covered by the attached
financial statements or as of the date of this Compliance Certificate, except as
set forth below; and

 

4.          Exhibit A attached hereto sets forth financial data and computations
evidencing Company’s compliance with the financial covenants set forth in
Article VI in the Note, all of which data and computations are true, complete
and correct.

 

Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which any Company Party has taken, is taking, or proposes
to take with respect to each such condition or event:

 

Exhibit I – Compliance Certificate – Page 1

 

 

 

 

The foregoing certifications, together with the computations set forth in
Exhibit A hereto and the financial statements delivered with this Compliance
Certificate in support hereof, are made and delivered this ______ day of
_______________, ______.

 

  APOLLO MEDICAL HOLDINGS, INC.         By:     Name:     Title:  

 

Exhibit I – Compliance Certificate – Page 2

 

 

 

 

Exhibit A

 

COVENANT COMPLIANCE WORKSHEET

 

A.           Consolidated EBITDA

 

as of _____________, _____

 

Note: The Consolidated EBITDA Financial Covenant is applied to the fiscal year
ended March 2016.

 

1. Consolidated EBITDA for the fiscal quarter ended as of the date of
determination:                       (a)     Consolidated Net Income1  
$______________                   (b)     Interest expense   $______________    
              (c)     Income tax expense   $______________                  
(d)     Depreciation   $______________                   (e)     Amortization  
$______________                   (f)     Sum of Line 1(a) through Line 1(e)  
$______________                   (g)     Interest income   $______________    
              (h)     Subtract Line 1(g) from Line 1(f)       $______________  
          2. Minimum Consolidated EBITDA as of the date of determination
permitted by the Note.2       $______________

 

 

1 Consolidated Net Income for the fiscal quarter is the net income (or loss) of
Company and its Subsidiaries, as determined on a consolidated basis in
accordance with GAAP, but excluding extraordinary gains and losses and any other
non-operating gains and losses.

 

2 The Minimum Consolidated EBITDA, calculated for the period commencing on April
1, 2015 and ending on the last day of the following fiscal quarters, is: (i) 2nd
fiscal quarter ended September 2015, $1,000,000; (ii) 3rd fiscal quarter ended
December 2015, $1,500,000; and (iii) 4th fiscal quarter ended March 2016,
$2,000,000.

 

 

 

 

B.           Leverage Ratio

 

as of _____________, _____

 

Note: The Leverage Ratio Financial Covenant is applied to the fiscal quarter
ended March 2016 and each fiscal quarter thereafter.

 

Table 1

 

1. Consolidated Funded Debt for the fiscal quarter ended as of the date of
determination   $______________         2. Consolidated EBITDA for the period of
four consecutive fiscal quarters ending as of the date of determination:3  
$______________         3. Leverage Ratio:               Divide Line 1 by Line 2
  _____ to 1.0         4. Maximum Leverage Ratio permitted by Note   4.0 to 1.0

 

Table 2

 

1. Consolidated EBITDA for the period of four consecutive fiscal quarters ending
as of the date of determination:                       (a)     Consolidated Net
Income4 $______________                   (b)     Interest expense  
$______________                   (c)     Income tax expense   $______________  
                (d)     Depreciation   $______________                  
(e)     Amortization   $______________                   (f)     Sum of Line
1(a) through Line 1(e)   $______________                   (g)     Interest
income   $______________                   (h)     Subtract Line 1(g) from Line
1(f)       $______________

 

 

3 Use Table 2 to calculate the Consolidated EBITDA for the four consecutive
fiscal quarters ending on the date of determination.

 

4 Consolidated Net Income for the fiscal quarter is the net income (or loss) of
Company and its Subsidiaries, as determined on a consolidated basis in
accordance with GAAP, but excluding extraordinary gains and losses and any other
non-operating gains and losses.

 

 

 

 

C.           Fixed Charge Coverage Ratio

 

as of _____________, _____

 

Note: The Fixed Charge Coverage Ratio Financial Covenant is applied to the
fiscal quarter ended September 2015 and for each fiscal quarter thereafter.

 

Table 1

  

1. Consolidated EBITDA for the period of four consecutive fiscal quarters ending
as of the date of determination:5   $______________         2. Fixed Charges:  
 

 

  (a) all interest expense to the extent paid (or required to be paid) in cash
for the period of four consecutive fiscal quarters ending as of the date of
determination   $______________                     (b) all scheduled payments
of principal of Consolidated Funded Debt for the 12-month period immediately
following such date of determination   $______________                     (c)
all taxes to the extent paid in cash during the period of four consecutive
fiscal quarters ending as of the date of determination   $______________        
            (d) all rent expense to the extent paid in cash during the period of
four consecutive fiscal quarters ending as of the date of determination  
$______________                     (e) all payments made by Company and its
Subsidiaries for purchases of shares of Capital Stock permitted by Section
7.6(a)(iv) of the Note during the period of four fiscal quarters ending as of
the date of determination   $______________                     (f) Sum of Line
2(a) through Line 2(e)       $______________

 

3. Fixed Charge Ratio:       Divide Line 1 by Line 2(f)   _____ to 1.0        
4. Minimum Fixed Charge Coverage Ratio permitted by the Note   1.25 to 1.0

 

 

5 Use Table 2 to calculate the Consolidated EBITDA for the four consecutive
fiscal quarters ending on the date of determination.

 

 

 

 

Table 2

 

1. Consolidated EBITDA for the period of four consecutive fiscal quarters ending
as of the date of determination:                       (a)     Consolidated Net
Income6   $______________                   (b)     Interest expense  
$______________                   (c)     Income tax expense   $______________  
                (d)     Depreciation   $______________                  
(e)     Amortization   $______________                   (f)     Sum of Line
1(a) through Line 1(e)   $______________                   (g)     Interest
income   $______________                   (h)     Subtract Line 1(g) from Line
1(f)       $______________

 

 

6 Consolidated Net Income for the fiscal quarter is the net income (or loss) of
Company and its Subsidiaries, as determined on a consolidated basis in
accordance with GAAP, but excluding extraordinary gains and losses and any other
non-operating gains and losses.

 

 

 

 

D.           Consolidated Tangible Net Worth

 

as of _____________, _____

 

Note: The Consolidated Tangible Net Worth Financial Covenant is applied to the
first fiscal quarter ended June 2014 and each fiscal quarter thereafter.

 

1. Consolidated Tangible Net Worth7 for the fiscal quarter ended as of the date
of determination   $______________         2. Minimum Consolidated Tangible Net
Worth permitted as of the date of determination permitted by the Note8  
$______________

 

 

7 Consolidated Tangible Net Worth for the fiscal quarter is (i) Company’s total
stockholders’ equity at such date determined for Company and its Subsidiaries on
a consolidated basis in accordance with GAAP minus (ii) the amount of intangible
assets of Company and its Subsidiaries at such date, including without
limitation, goodwill (whether representing the excess of cost over book value of
assets acquired, or otherwise), capitalized expenses, patents, trademarks,
tradenames, copyrights, franchises, licenses and deferred charges, all
determined for Company and its Subsidiaries on a consolidated basis in
accordance with GAAP; provided, however, that Company and Holder may mutually
agree in writing, in each such party’s sole discretion and without any
obligation to do so, to add-back to the calculation of “Consolidated Tangible
Net Worth” certain goodwill relating to one or more acquisitions.

 

8 The minimum Consolidated Tangible Net Worth for: (i) the 1st fiscal quarter
ended June 2014 is $(3,700,000); (ii) the 2nd fiscal quarter ended September
2014 is $(3,700,000); (iii) the 3rd fiscal quarter ended December 2014 is
$(3,700,000); (iv) the 4th fiscal quarter ended March 2015 is $(3,700,000); (v)
the 1st fiscal quarter ended June 2015 is $(3,700,000); (vi) the 2nd fiscal
quarter ended September 2015 is $(3,700,000); (vii) the 3rd fiscal quarter ended
December 2015 is $0; (viii) the 4th fiscal quarter ended March 2016 and each
fiscal quarter thereafter is $2,000,000.