**Exhibit 10.6**

 

**CREDIT AGREEMENT**

** **

**between**

** **

**BROTMAN MEDICAL CENTER, INC.**

** **

**and**

** **

**such other Persons joined hereto as Borrowers fromtime to time,**

** **

**as Borrowers,**

** **

**and**

** **

**GEMINO HEALTHCARE FINANCE,LLC,**

** **

**as Lender**

** **

** **

dated as of April 14, 2009

 

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** **

**TABLE OF CONTENTS**

 
| ** **                                                                                       | ** **                                  | **PAGE** |
|--------------------------------------------------------------------------------------------------|---------------------------------------------|----------|
|                                                                                             |                                        |     |
| ARTICLE  1.    DEFINITIONS, ACCOUNTING TERMS AND PRINCIPLES OF  CONSTRUCTION | 1                                           |
| 1.01                                                                                             | Terms  Defined                              | 1        |
| 1.02                                                                                             | Matters  of Construction                    | 1        |
| 1.03                                                                                             | Accounting  Principles                      | 1        |
| 1.04                                                                                             | Fiscal  Quarters                            | 1        |
|                                                                                             |                                        |     |
| ARTICLE  2.    THE LOANS                                                     | 2                                           |
| 2.01                                                                                             | Credit  Facility - Description              | 2        |
| 2.02                                                                                             | Funding  Procedures                         | 2        |
| 2.03                                                                                             | Interest  and Fees                          | 3        |
| 2.04                                                                                             | Additional  Interest Provisions             | 4        |
| 2.05                                                                                             | Payments                                    | 4        |
| 2.06                                                                                             | Use  of Proceeds                            | 5        |
| 2.07                                                                                             | Lockboxes  and Collections                  | 5        |
| 2.08                                                                                             | Application  of Proceeds of Collateral      | 6        |
|                                                                                             |                                        |     |
| ARTICLE  3.    COLLATERAL                                                    | 6                                           |
| 3.01                                                                                             | Description:                                | 6        |
| 3.02                                                                                             | Extent  of Security Interests               | 7        |
| 3.03                                                                                             | Lien  Documents                             | 7        |
| 3.04                                                                                             | Other  Actions                              | 7        |
| 3.05                                                                                             | Searches                                    | 8        |
| 3.06                                                                                             | Good  Standing Certificates                 | 8        |
| 3.07                                                                                             | Filing  Security Agreement                  | 8        |
| 3.08                                                                                             | Power  of Attorney                          | 8        |
| 3.09                                                                                             | [Reserved]                                  | 8        |
| 3.10                                                                                             | [Reserved]                                  | 8        |
| 3.11                                                                                             | Credit  Balances; Additional Collateral     | 8        |
| 3.12                                                                                             | Reference  to Other Loan Documents          | 9        |
|                                                                                             |                                        |     |
| ARTICLE  4.    CLOSING AND CONDITIONS PRECEDENT TO ADVANCES                  | 9                                           |
| 4.01                                                                                             | Resolutions,  Opinions, and Other Documents | 9        |
| 4.02                                                                                             | Additional  Preconditions to Loans          | 10       |
| 4.03                                                                                             | Absence  of Certain Events                  | 11       |
| 4.04                                                                                             | Compliance  with this Agreement             | 11       |
| 4.05                                                                                             | Closing  Certificate                        | 11       |
| 4.06                                                                                             | Closing                                     | 11       |
| 4.07                                                                                             | Non-Waiver  of Rights                       | 11       |
|                                                                                             |                                        |     |
| ARTICLE  5.    REPRESENTATIONS AND WARRANTIES                                | 12                                          |
| 5.01                                                                                             | Organization  and Validity                  | 12       |
| 5.02                                                                                             | Places  of Business                         | 12       |
| 5.03                                                                                             | Healthcare  Matters                         | 12       |
| 5.04                                                                                             | Pending  Litigation                         | 15       |

 

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| 5.05                                                     | Medicaid  and Medicare Cost Reporting                       | 15     |
|----------------------------------------------------------|-------------------------------------------------------------|--------|
| 5.06                                                     | Title  to Collateral                                        | 15     |
| 5.07                                                     | Governmental  Consent                                       | 15     |
| 5.08                                                     | Taxes                                                       | 15     |
| 5.09                                                     | Financial  Statements                                       | 15     |
| 5.10                                                     | Full  Disclosure                                            | 16     |
| 5.11                                                     | Guarantees,  Contracts, etc                                 | 16     |
| 5.12                                                     | Compliance  with Laws                                       | 16     |
| 5.13                                                     | Other  Associations                                         | 16     |
| 5.14                                                     | Environmental  Matters                                      | 16     |
| 5.15                                                     | Capital  Stock                                              | 17     |
| 5.16                                                     | Lockboxes                                                   | 17     |
| 5.17                                                     | Borrowing  Base Reports                                     | 17     |
| 5.18                                                     | Security  Interest                                          | 17     |
| 5.19                                                     | Accounts                                                    | 17     |
| 5.20                                                     | ERISA                                                       | 17     |
| 5.21                                                     | Representations  and Warranties for each Loan               | 18     |
| 5.22                                                     | Interrelatedness  of Borrowers                              | 19     |
| 5.23                                                     | [Reserved]                                                  | 19     |
| 5.24                                                     | [Reserved]                                                  | 19     |
| 5.25                                                     | Intellectual  Property                                      | 19     |
| 5.26                                                     | Solvency                                                    | 20     |
| 5.27                                                     | Schedules                                                   | 20     |
| 5.28                                                     | Location  of Computerized Billing System; Books and Records | 20     |
| 5.29                                                     | No  Documents or Correspondence Regarding CMS Claim         | 20     |
|                                                     |                                                        |   |
| ARTICLE  6.    AFFIRMATIVE COVENANTS | 20                                                          |
| 6.01                                                     | Payment  of Taxes and Claims                                | 20     |
| 6.02                                                     | Maintenance  of Insurance, Financial Records and Existence  | 20     |
| 6.03                                                     | Business  Conducted                                         | 21     |
| 6.04                                                     | Litigation                                                  | 21     |
| 6.05                                                     | Taxes                                                       | 21     |
| 6.06                                                     | Financial  Covenants                                        | 21     |
| 6.07                                                     | Financial  and Business Information                         | 21     |
| 6.08                                                     | Officers’  Certificates                                | 22     |
| 6.09                                                     | Inspection                                                  | 22     |
| 6.10                                                     | Tax  Returns and Reports                                    | 23     |
| 6.11                                                     | Material  Adverse Developments                              | 23     |
| 6.12                                                     | Places  of Business                                         | 23     |
| 6.13                                                     | Notice  of Action                                           | 23     |
| 6.14                                                     | Verification  of Information                                | 23     |
| 6.15                                                     | Receivables  Tracking System                                | 23     |
| 6.16                                                     | [Reserved]                                                  | 23     |
| 6.17                                                     | Compliance  with Laws                                       | 23     |
| 6.18                                                     | Collateral  Reporting                                       | 24     |
| 6.19                                                     | Collateral                                                  | 24     |
| 6.20                                                     | [Reserved]                                                  | 24     |

 

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| 6.21                                                  | Additional  Capital Infusion                                   | 24     |
|-------------------------------------------------------|----------------------------------------------------------------|--------|
| 6.22                                                  | Potential  CMS Liability                                       | 24     |
| 6.23                                                  | Maintenance  of Computerized Billing System; Books and Records | 24     |
| 6.24                                                  | Dissolution  of Southern California Spine Institute, LLC       | 24     |
|                                                  |                                                           |   |
| ARTICLE  7.    NEGATIVE COVENANTS | 25                                                             |
| 7.01                                                  | Merger,  Consolidation, Dissolution or Liquidation             | 25     |
| 7.02                                                  | Liens  and Encumbrances                                        | 25     |
| 7.03                                                  | Negative  Pledge                                               | 25     |
| 7.04                                                  | Transactions  With Affiliates or Subsidiaries                  | 25     |
| 7.05                                                  | Guarantees                                                     | 25     |
| 7.06                                                  | Investments                                                    | 25     |
| 7.07                                                  | Indebtedness                                                   | 26     |
| 7.08                                                  | Loans  to Other Persons                                        | 26     |
| 7.09                                                  | Change  in Ownership/Management                                | 26     |
| 7.10                                                  | Subordinated  Debt Payments                                    | 27     |
| 7.11                                                  | Distributions                                                  | 27     |
| 7.12                                                  | No  Change in Business                                         | 27     |
|                                                  |                                                           |   |
| ARTICLE  8.    DEFAULT            | 27                                                             |
| 8.01                                                  | Events  of Default                                             | 27     |
| 8.02                                                  | Cure                                                           | 29     |
| 8.03                                                  | Rights  and Remedies on Default                                | 30     |
| 8.04                                                  | [Reserved]                                                     | 31     |
| 8.05                                                  | Nature  of Remedies                                            | 31     |
| 8.06                                                  | Set-Off                                                        | 31     |
| 8.07                                                  | Application  of Proceeds                                       | 31     |
|                                                  |                                                           |   |
| ARTICLE  9    MISCELLANEOUS       | 31                                                             |
| 9.01                                                  | Governing  Law                                                 | 31     |
| 9.02                                                  | Integrated  Agreement                                          | 31     |
| 9.03                                                  | Waiver  and Indemnity                                          | 31     |
| 9.04                                                  | Time                                                           | 32     |
| 9.05                                                  | Expenses  of Lender                                            | 32     |
| 9.06                                                  | Confidentiality                                                | 33     |
| 9.07                                                  | Notices                                                        | 33     |
| 9.08                                                  | Brokerage                                                      | 33     |
| 9.09                                                  | Headings                                                       | 33     |
| 9.10                                                  | Survival                                                       | 33     |
| 9.11                                                  | Successors  and Assigns                                        | 33     |
| 9.12                                                  | Duplicate  Originals                                           | 33     |
| 9.13                                                  | Modification                                                   | 33     |
| 9.14                                                  | Signatories                                                    | 34     |
| 9.15                                                  | Third  Parties                                                 | 34     |
| 9.16                                                  | Waivers                                                        | 34     |
| 9.17                                                  | Consent  to Jurisdiction                                       | 34     |
| 9.18                                                  | Waiver  of Jury Trial                                          | 35     |

 

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| 9.19                                                                  | Publication                                            | 35     |
|-----------------------------------------------------------------------|--------------------------------------------------------|--------|
| 9.20                                                                  | Discharge  of Taxes, Borrower’s Obligations, Etc  | 35     |
| 9.21                                                                  | Injunctive  Relief                                     | 35     |
| 9.22                                                                  | Assignment  or Syndication by Lender                   | 35     |
| 9.23                                                                  | Severability                                           | 35     |
| 9.24                                                                  | Authority                                              | 35     |
| 9.25                                                                  | Usury  Limit                                           | 36     |
| 9.26                                                                  | Termination                                            | 36     |
|                                                                  |                                                   |   |
| ARTICLE  10.    SPECIAL INTER-BORROWER PROVISIONS | 36                                                     |
| 10.01                                                                 | Certain  Borrower Acknowledgments and Agreements       | 36     |
| 10.02                                                                 | Maximum  Amount of Joint and Several Liability         | 37     |
| 10.03                                                                 | Authorization  of Borrower Representative by Borrowers | 37     |
| 10.04                                                                 | Joint and Several Liability                            | 37     |

 

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** **

**LIST OF EXHIBITS AND ANNEXES**

 
| Exhibit 2.01(b) | Form of  Revolving Note           |
|----------------------|----------------------------------------|
| Exhibit 2.02(b) | Form of  Borrowing Base Report    |
| Exhibit 2.02(c) | Loan  Request                          |
| Exhibit 4.01    | Form of  Opinion of Counsel       |
| Exhibit 4.02(c) | Notice  Letter Re: Commercial Obligors |
| Exhibit 4.02(d) | Notice  Letter Re: Government Obligors |
| Exhibit 6.08    | Officer’s  Certificate            |
| Exhibit 6.23    | Form of  Landlord Waiver          |
|                 |                                   |
| Annex  A             | Definitions                            |

 

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**LIST OFSCHEDULES**

 
| Schedule  1    | Accounts                                                                            |
|----------------|-------------------------------------------------------------------------------------|
| Schedule  5.01 | Borrowers’  States of Qualifications                                           |
| Schedule  5.02 | Jurisdictions  of Organization/Chief Executive Office/Other Locations of Collateral |
| Schedule  5.03 | Provider  Identification Numbers                                                    |
| Schedule  5.04 | Pending  Litigation                                                                 |
| Schedule  5.06 | Permitted  Liens                                                                    |
| Schedule  5.09 | Fiscal  Year End                                                                    |
| Schedule  5.11 | Existing  Guaranties, Investments and Borrowings                                    |
| Schedule  5.13 | Other  Associations                                                                 |
| Schedule  5.14 | Environmental  Matters                                                              |
| Schedule  5.15 | Capital  Stock                                                                      |
| Schedule  5.25 | Intellectual  Property and General Intangibles                                      |
| Schedule  7.04 | Permitted  Affiliate Transactions                                                   |
| Schedule  7.06 | Investments                                                                         |
| Schedule  7.07 | Indebtedness                                                                        |

 

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**CREDIT AGREEMENT**

** **

THIS CREDIT AGREEMENT (“Agreement”) is datedthis 14th day of April, 2009, between BROTMAN MEDICAL CENTER, INC., aCalifornia Corporation (“BMC”), and such other Persons joined hereto asa Borrower from time to time (together with BMC, “Borrowers” and eachindividually a “Borrower”), and GEMINO HEALTHCARE FINANCE, LLC, aDelaware limited liability company, as lender (“Lender”).

 

**RECITALS**

** **

WHEREAS, Borrowers have requested that Lender makeavailable to them, on a joint and several basis, a Credit Facility in themaximum amount of $6,000,000.00 which will be secured by a first priorityperfected security interest in the Collateral (as defined below); and

 

WHEREAS, Lender is willing to make the CreditFacility available to Borrowers pursuant to the terms and provisionshereinafter set forth; and

 

WHEREAS, the parties desire to set forth the termsand conditions of their relationship to writing.

 

NOW, THEREFORE, in consideration of the foregoingand for other good and valuable consideration, the receipt and sufficiency ofwhich is hereby acknowledged, the parties hereto, intending to be legallybound, hereby agree as follows:

 

**ARTICLE1**

** **

**DEFINITIONS,ACCOUNTING TERMS ANDPRINCIPLES OF CONSTRUCTION**

** **

1.01         TermsDefined. As used in this Agreement, those terms set forth in Annex A shallhave the respective meanings set forth therein.

 

1.02         Mattersof Construction. The terms “herein,” “hereof” and “hereunder” and otherwords of similar import refer to this Agreement as a whole and not to anyparticular section, paragraph or subdivision. The words “include”, “includes”and “including” when used in any Loan Document, shall be deemed to be followedby the phrase “without limitation”. Any pronoun used shall be deemed to coverall genders. Wherever appropriate in the context, terms used herein in thesingular also include the plural and vice versa. All references to statutes andrelated regulations shall include any amendments of same and any successor statutesand regulations. Unless otherwise provided, all references to any instrumentsor agreements to which Lender and/or, where applicable, a Borrower, is a party,including, without limitation, references to any of the Loan Documents, shallinclude any and all modifications or amendments thereto and any and allextensions or renewals thereof.

 

1.03         AccountingPrinciples. Where the character or amount of any asset or liability or itemof income or expense is required to be determined or any consolidation or otheraccounting computation is required to be made for the purposes of thisAgreement, this shall be done in accordance with GAAP, to the extentapplicable, except as otherwise expressly provided in this Agreement.

 

1.04         FiscalQuarters. For the purposes hereof, “fiscal quarter” shall mean eachquarterly accounting period during any fiscal year; provided, that, allreferences to the fiscal quarter ending December 31, March 31, June 30or September 30 shall mean the first, second, third or fourth fiscal quarterof the applicable fiscal year, respectively, irrespective of the actual date onwhich such fiscal quarter may end.

 

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**ARTICLE 2**

 

**THE LOANS**

2.01                           Credit Facility -Description

 

(a)           Subjectto the terms and conditions of this Agreement, Lender hereby establishes forthe joint and several benefit of Borrowers, a credit facility (“CreditFacility”) which shall include advances which may be extended by Lender toor for the benefit of Borrowers from time to time hereunder in the form ofrevolving loans (“Revolving Loans”). The aggregate outstanding amount ofall Revolving Loans, shall not at any time exceed the lesser of (i) MaximumCredit Limit and (ii) the Borrowing Base. In no event shall the initialprincipal amount of any Revolving Loan be less than $25,000.00. Subject to suchlimitation, the outstanding balance of all Revolving Loans may fluctuate fromtime to time, to be reduced by repayments made by Borrowers, to be increased byfuture Revolving Loans which may be made by Lender. If the aggregate outstandingamount of all Revolving Loans exceeds the lesser of (i) the Borrowing Baseor (ii) the Maximum Credit Limit, Borrowers shall immediately repay suchexcess in full. Lender has the right at any time, and from time to time, to setaside cash reserves against the Borrowing Base in such amounts as it may deemappropriate in Lender’s reasonable discretion (“Reserves”). TheObligations of Borrowers under the Credit Facility and this Agreement are jointand several and shall at all times be absolute and unconditional.

 

(b)           AtClosing, Borrowers shall execute and deliver a promissory note to Lender in theprincipal amount of Six Million and No/100 Dollars ($6,000,000.00) (as may beamended, modified or replaced from time to time, the “Revolving Note”).The Revolving Note shall evidence Borrowers’ joint and several, absolute andunconditional obligation to repay Lender for all Revolving Loans made by Lenderunder the Credit Facility, with interest as herein and therein provided. Eachand every Revolving Loan under the Credit Facility shall be deemed evidenced bythe Revolving Note, which is deemed incorporated herein by reference and made apart hereof. The Revolving Note shall be substantially in the form set forth inExhibit 2.01(b) attached hereto and made a part hereof.

 

(c)           ***[Reserved]***

 

(d)           Theinitial term of the Credit Facility (“Initial Term”) shall expire on theearlier of (i) April 14, 2012, and (ii) the JHA Maturity Date.All Loans shall be repaid on or before the earlier of the last day of theInitial Term or upon termination of the Credit Facility or termination of thisAgreement (“Maturity Date”). After the Maturity Date no furtherRevolving Loans shall be available from Lender.

 

(e)           Fromtime to time, upon not less than three (3) Business Days notice toBorrowers, Lender may adjust the Advance Rate in order to reflect, in Lender’ssole discretion, the experience with Borrowers (including by way ofillustration, to adjust for any known or potential offsets by Medicare orMedicaid) or the aggregate amount or percentage of the Collections with respectto the Accounts.

 

2.02                           Funding Procedures.

 

(a)           Subjectto the terms and conditions of this Agreement and so long as no Event ofDefault or Unmatured Event of Default has occurred hereunder, Lender will makeRevolving Loans to Borrowers upon request. Borrowers shall provide Lender witha signed Borrowing Base Report on a specified Business Day of each week (suchday to be mutually agreeable to Borrowers and Lender (such date shall bereferred to herein as the “Settlement Date”, whether or not Borrowershave requested a Revolving Loan to be made on such date)). Borrowers mayrequest a Revolving Loan on the Settlement Date or any other day of the week(such day along with the Settlement Date are referred to herein as the “FundingDate”). Whether or not Borrowers have requested a Revolving Loan to be madeon such date, Lender may at any time deduct from the Borrowing Base an amountequal to all fees, Expenses, interest or other amounts due and payable toLender hereunder, and such deduction shall be deemed to be a Revolving Loanhereunder.

 

(b)           Notlater than 2:00 p.m. (Eastern Time) two (2) Business Days prior toeach Settlement Date (“Download Date”), Borrowers will deliver to Lenderthe computer file data associated with the Accounts, 

 

2

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which shall include without limitation, theinformation (including changes in the Obligor reimbursement rates and changesin federal or state laws or regulations affecting payment for medicalservices), required by Lender to enable Lender to process and value theoutstanding Accounts of Borrowers, as well as bill and collect such Accountsfollowing an Event of Default (“Accounts Detail File”). Upon completionof the processing of the data with respect to such Accounts, Lender or itsagent will prepare and deliver to Borrowers by no later than 12:00 p.m.(Eastern Time) on the second Business Day following the Download Date (or ifsuch Accounts Detail File is not delivered until after 2:00 p.m. (EasternTime) on the Download Date, the third Business Day following the DownloadDate), a report regarding the Borrowing Base then in effect, which shall besubstantially in the form of Exhibit 2.02(b) hereto (a “BorrowingBase Report”). No later than 2:00 p.m. (Eastern Time) one (1) BusinessDay prior to the Settlement Date, Borrowers will deliver to Lender a cashposting file.

 

(c)           IfBorrowers request that a Revolving Loan be made on any date other than theSettlement Date, Borrowers shall deliver to Lender an executed Borrowing BaseReport and a written request for such Loan substantially in the form of Exhibit 2.02(c) hereto(a “Loan Request”). The Borrowing Base Report and Loan Request may bedelivered via telecopy and Borrowers acknowledge that Lenders may rely onBorrowers signatures by facsimile, which shall be legally binding uponBorrowers.

 

(d)           Subjectto the terms and conditions of this Agreement, if the Borrowing Base Report (ifapplicable) and Loan Request are delivered to Lender before 3:00 p.m.(Eastern Time) on the Funding Date, Lender will advance on the Funding Date (orthe next Business Day if the Borrowing Base Report and Loan Request aredelivered after 3:00 p.m. (Eastern Time)) to Borrowers a Revolving Loan inthe amount equal to the lesser of (i) the amount of the Revolving Loanrequested by Borrowers in the Loan Request, or (ii) the Borrowing BaseExcess as of such date.

 

(e)           Lender’sdetermination of the Estimated Net Value of the Eligible Accounts and otheramounts to be determined or calculated under this Agreement shall, in theabsence of manifest error, be binding and conclusive.

 

2.03                           Interest and Fees.

 

(a)           EachRevolving Loan shall bear interest on the outstanding principal amount thereoffrom the date made until such Revolving Loan is paid in full, at a rate perannum equal to the LIBOR Rate plus seven percent (7.0%) (the “Interest Rate”).The interest rate on all amounts outstanding under the Credit Facility shall beadjusted daily based on the LIBOR Rate. If at any time the outstanding balanceof the Revolving Loans is less than $2,000,000.00 (the “Minimum Balance”),Borrowers shall pay interest at a rate per annum equal to the Interest Ratetimes the Minimum Balance until such time as the outstanding balance of theRevolving Loans is $2,000,000.00 or more.

 

(b)           Ifany Event of Default shall occur and be continuing, the rate of interestapplicable to each Loan then outstanding shall be the Default Rate. The DefaultRate shall apply from the date of the Event of Default until the date suchEvent of Default is waived, and interest accruing at the Default Rate shall bepayable upon demand.

 

(c)           Shouldthe Credit Facility be terminated for any reason on or prior to the last day ofthe Initial Term, in addition to repayment of all Obligations then outstandingand termination of Lender’s commitment hereunder, Borrowers shallunconditionally be obligated to pay at the time of such termination, a fee (“RevolvingTermination Fee”) in an amount equal to the following percentage of theRevolving Loan Commitment: threepercent (3%), if such early termination occurs on or prior to the firstanniversary of the date of this Agreement; two percent (2%) if such earlytermination occurs after the first anniversary date of this Agreement but on orprior to the second anniversary of the date of this Agreement; and one percent(1%) if such early termination occurs after the second anniversary of the dateof this Agreement but on or prior to 180 days after the second anniversary ofthe date of this Agreement.

 

Borrowers acknowledge that the Revolving TerminationFee is an estimate of Lender’s damages in the event of early termination and isnot a penalty. In the event of termination of the Credit Facility, all of theObligations shall be immediately due and payable upon the termination datestated in any notice of termination. All

 

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undertakings, agreements, covenants,warranties and representations of Borrowers contained in the Loan Documentsshall survive any such termination, and Lender shall retain its securityinterests in the Collateral and all of its rights and remedies under the LoanDocuments notwithstanding such termination until Borrowers have paid theObligations to Lender, in full, in immediately available funds, together withthe applicable Revolving Termination Fee, if any. Notwithstanding the paymentin full of the Obligations, Lender shall not be required to terminate itssecurity interests in the Collateral unless, with respect to any loss or damageLender may incur as a result of dishonored checks or other items of paymentreceived by Lender from Borrowers or any Obligor and applied to theObligations, Lender shall, at its option, (i) have received a writtenagreement executed by Borrowers and by any Person whose loans or other advancesto Borrowers are used in whole or in part to satisfy the Obligations,indemnifying Lender from any such loss or damage; or (ii) have retainedsuch monetary reserves and security interests on the Collateral for such periodof time as Lender, in its reasonable discretion, may deem necessary to protectLender from any such loss or damage.

 

(d)           Borrowers shall unconditionally pay to Lender a fee(“Unused Line Fee”) equal to one-half percent (0.5%) per annum of theunused portion of the Credit Facility. The unused portion of the CreditFacility shall be the difference between the Revolving Loan Commitment and theAverage Outstanding Balance of the Revolving Loans during each month (orportion thereof, as applicable), which fees shall be calculated and payablemonthly, in arrears, and shall be due and payable on the first calendar day ofeach month.

 

(e)           Borrowers shall unconditionally pay to Lender a collateral monitoring fee(“Collateral Monitoring Fee”) equal to one-half percent (0.5%) per annumof the Average Outstanding Balance of the Revolving Loans. The CollateralMonitoring Fee shall be calculated and payable monthly, in arrears, and shallbe due and payable on the first calendar day of each month.

 

(f)            Lender hasfully earned a non-refundable commitment fee (“Commitment Fee”) equal toOne Hundred Twenty Thousand and No/Dollars ($120,000.00). Borrowers agree andacknowledge that the Commitment Fee in its entirety is due and payable uponClosing.

 

2.04         Additional Interest Provisions.

 

(a)           Calculation of Interest. Interest onthe Loans shall be based on a year of three hundred sixty (360) days andcharged for the actual number of days elapsed.

 

(b)           Continuation of Interest Charges. Allcontractual rates of interest chargeable on outstanding Loans shall continue toaccrue and be paid even after default, maturity, acceleration, termination of theCredit Facility, judgment, bankruptcy, insolvency proceedings of any kind orthe happening of any event or occurrence similar or dissimilar.

 

(c)           Applicable Interest Limitations. In nocontingency or event whatsoever shall the aggregate of all amounts deemedinterest hereunder and charged or collected pursuant to the terms of thisAgreement exceed the highest rate permissible under any law which a court ofcompetent jurisdiction shall, in a final determination, deem applicable hereto.In the event that such court determines Lender has charged or received interesthereunder in excess of the highest applicable rate, Lender shall, in its solediscretion, apply and set off such excess interest received by Lender againstother Obligations due or to become due and such rate shall automatically bereduced to the maximum rate permitted by such law.

 

2.05         Payments.

 

(a)           All accrued interest on the Revolving Loans shall bedue and payable monthly in arrears on the first calendar day of each month. Anyaccrued Unused Line Fees and Collateral Monitoring Fees shall be due andpayable monthly on the first calendar day of the following calendar month.

 

(b)           If at any time the aggregate principal amount of allRevolving Loans outstanding exceeds the lesser of (i) the Borrowing Basethen in effect, or (ii) the Maximum Credit Limit, Borrowers shallimmediately make such principal prepayments of the Revolving Loans in theamount of such excess.

 

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(c)           The entire principal balance of all of the RevolvingLoans, together with all unpaid accrued interest thereon and the RevolvingTermination Fee, if any, and any unpaid Unused Line Fees, shall be due andpayable on the Maturity Date.

 

(d)           Subject to the terms of Sections 2.03(c) and2.03(d) hereof, Borrowers may prepay the principal of the Loans andterminate the Credit Facility on any Settlement Date by giving Lender writtennotice of the proposed prepayment at least two (2) Business Days prior tosuch Settlement Date.

 

(e)           ***[Reserved]***

 

(f)            If any Borrower sells any of the Collateral, suchBorrower shall pay to Lender a sum equal to the proceeds received by suchBorrower from such sale, net of all reasonable costs, expenses and taxesincurred by such Borrower in connection with such sale, as approved by Lenderin its sole discretion, or as otherwise expressly authorized by this Agreement,as and when received by such Borrower and as a mandatory prepayment of theoutstanding Loans, until all Obligations are paid and satisfied in full.

 

(g)           Monthly, on the first calendar day of each month,all payments and prepayments shall be applied first to any unpaid interest,fees, and thereafter to the principal of the Loans and to other amounts dueLender, in the order provided in Section 2.07(f) hereof. Except asotherwise provided herein, all payments of principal, interest, fees, or otheramounts payable by Borrowers hereunder shall be remitted to Lender inimmediately available funds not later than 11:00 a.m. (Eastern Time) onthe day due. Whether or not Borrowers have requested a Revolving Loan to bemade on such date, Borrowers authorize Lender to charge interest, fees and allother amounts due to Lender, to Borrowers’ account, and such charge shall bedeemed to be a Revolving Loan as of the date such payment is due.

 

2.06         Use of Proceeds. The extensions of creditunder and proceeds of the Credit Facility shall be used (a) to repay existing Indebtedness of Borrowers, (b) tomake payments as provided under the Plan of Reorganization, (c) to pay amountsowing under the Credit Facility, and (d) for working capital and generalbusiness purposes.

 

2.07         Lockboxes and Collections.

 

(a)           Borrowers will enter into Depository Agreements inrespect of the Government Lockbox and Commercial Lockbox in such form and withthe Lockbox Bank or such other bank as is acceptable to Lender. Borrowers shallinstruct the Lockbox Bank maintaining the Government Lockbox that allcollections sent to the Government Lockbox shall be deposited into a bankaccount at the Lockbox Bank in which Lender has a first priority perfectedsecurity interest. Borrower shall instruct the Lockbox Bank maintaining theCommercial Lockbox that all Collections sent to the Commercial Lockbox shall bedeposited into a bank account at the Lockbox Bank in the name of Lender.Borrowers shall also instruct the Lockbox Bank as described further in theDepository Agreements to initiate a daily transfer of all available funds to anaccount of Lender to be designated by Lender (“Collection Account”).

 

(b)           Borrowers will cause all Collections with respect toall of the Accounts, other than Government Accounts and Accounts which pay intothe Risk Pool Account, to be sent directly to the Commercial Lockbox, and willcause all Collections with respect to all of the Government Accounts to be sentdirectly to the Government Lockbox (which may be effectuated by electronictransfer directly to the Government Lockbox). In the event that any Borrowerreceives any Collections that should have been sent to the Commercial Lockboxor the Government Lockbox, such Borrower will, promptly upon receipt and in anyevent within one Business Day of receipt, forward such Collections directly tothe Commercial Lockbox or Government Lockbox, as applicable, in the formreceived, and if requested by Lender, promptly notify Lender of such event.Until so forwarded, such Collections not generated from Government Accountsshall be held in trust for the benefit of Lender.

 

(c)           No Borrower shall withdraw any amounts from theaccounts into which the Collections remitted to the Commercial Lockbox aredeposited nor shall any Borrower change the procedures under the agreementsgoverning the Commercial Lockbox and related accounts.

 

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(d)           Borrowers will cooperate with Lender in theidentification and reconciliation on a daily basis of all amounts received inthe Commercial Lockbox and the Government Lockbox. If more than five percent(5%) of the Collections since the most recent Settlement Date is not identifiedor reconciled to the satisfaction of Lender within ten (10) Business Daysof receipt, Lender shall not be obligated to make further Loans until suchamount is identified or is reconciled to the reasonable satisfaction of Lender,as the case may be. In addition, if any such amount cannot be identified orreconciled to the satisfaction of Lender, Lender may utilize its own staff or,if it deems necessary, engage an outside auditor, in either case at Borrowers’expense (which in the case of Lender’s own staff shall be in accordance withLender’s then prevailing customary charges (plus expenses), to make suchexamination and report as may be necessary to identify and reconcile suchamount.

 

(e)           No Borrower will send to or deposit in theCommercial Lockbox or the Government Lockbox any funds other than payments madewith respect to Accounts.

 

(f)            So long as no Event of Default has occurred and iscontinuing, once a week, Lender shall cause all Collections deposited and/ortransferred to the Collection Account to be applied in the following order ofpriority:

 

(i)            to Lender, any interest due and payable hereunder;

 

(ii)           to Lender, any fees, costs and Expenses of Lenderrequired to be paid or reimbursed by Borrowers under this Agreement or underany of the other Loan Documents;

 

(iii)          to Lender, the amount of any Borrowing BaseDeficiency, if any; and

 

(iv)          to Lender, to be applied to the principal amountoutstanding of the Revolving Loans.

 

In addition, promptly upon request of Borrowers,Lender shall disburse to Borrowers the amount, if any, by which the collectedbalance in the Collection Account exceeds the aggregate outstanding principalamount of the Revolving Loans and all interest and other amounts that will bepayable on or before the next Settlement Date.

 

2.08         Application of Proceeds of Collateral.

 

(a)           Unless this Agreement expressly provides otherwise,so long as no Event of Default shall have occurred and remain outstanding,Lender agrees to apply all Collections as set forth in Section 2.07(f) hereof.

 

(b)           If an Event of Default shall have occurred andremain outstanding, Lender may apply Collections, any other proceeds ofCollateral and all other payments received by Lender to the payment of theObligations in such manner and in such order as Lender may elect in its solediscretion.

 

**ARTICLE3**

 

**COLLATERAL**

 

3.01         Description.

 

To secure the prompt payment and performance in fullwhen due, whether by lapse of time, acceleration, mandatory prepayment orotherwise, of the Obligations, each Borrower hereby grants to the Lender acontinuing security interest in, and a right to set off against, any and allright, title and interest of such Borrower in and to all of the following,whether now owned or existing or owned, acquired, or arising hereafter (collectively,the “Collateral”): (a) all Accounts; (b) all cash and currency(other than cash and currency deposited in the Excluded Deposit Accounts); (c) allDocuments and General Intangibles directly related to the Accounts; (d) allDeposit Accounts (other than the Excluded Deposit Accounts); and (e) allProceeds of any and all of the foregoing.

 

All capitalized terms in this Section 3.01shall have the meanings set forth in the Uniform Commercial Code unlessotherwise defined herein.

 

Notwithstanding anything to the contrarycontained herein, the security interests granted under this Agreement shall notextend to any lease, license or other contract of a Borrower if the grant of asecurity interest in such lease, license or contract in the manner contemplatedby this Agreement is prohibited by the terms of such 

 

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lease, license or contractor by Applicable Law and would result in the termination of such lease, licenseor contract or give the other parties thereto the right to terminate,accelerate or otherwise adversely alter such Borrower’s rights, titles andinterests thereunder (including upon the giving of notice or the lapse of timeor both); provided that (i) any such limitation described in theforegoing clause on the security interests granted hereunder shall only applyto the extent that any such prohibition could not be rendered ineffectivepursuant to the UCC or any other Applicable Law (including Debtor Relief Laws)or principles of equity and (ii) in the event of the termination orelimination of any such prohibition or the requirement for any consentcontained in such lease, license or contract or in any Applicable Law, to theextent sufficient to permit any such item to be Collateral hereunder, or uponthe granting of any such consent, or waiving or terminating any requirement forsuch consent, a security interest in such lease, license or contract shall beautomatically and simultaneously granted hereunder and shall be included asCollateral hereunder.

 

Borrowers and the Lender hereby acknowledge andagree that the security interest created hereby in the Collateral (i) constitutescontinuing collateral security for all of the Obligations, whether now existingor hereafter arising and (ii) is not to be construed as an assignment ofany copyrights, copyright licenses, patents, patent licenses, trademarks ortrademark licenses.

 

3.02         Extent of Security Interests. The securityinterest granted in Section 3.01 hereof shall extend and attach to all Collateralwhich is presently in existence or hereafter acquired and which is owned by anyBorrower or in which any Borrower has any interest, whether held by suchBorrower or by others for such Borrower’s account, and wherever located.

 

3.03         Lien Documents. At Closing and thereafteras Lender deems necessary, each Borrower shall execute (if required) anddeliver to Lender, or shall have executed (if required) and delivered (all inform and substance reasonably satisfactory to Lender):

 

(a)           Financing Statements. Financing statementspursuant to the UCC, which Lender may file in the jurisdiction where anyBorrower is organized and in any other jurisdiction that Lender deemsappropriate; and

 

(b)           Other Agreements. Any other agreements,documents, instruments and writings, including, without limitation, securityagreements, deposit account control agreements, deeds of trust, mortgages, andassignment agreements, reasonably required by Lender to evidence, perfect orprotect Lender’s liens and security interest in the Collateral or as Lender mayreasonably request from time to time, including, without limitation, a waiveragreement from each landlord with respect to any real property of any Borrower,in form and substance satisfactory to Lender.

 

3.04         Other Actions.

 

(a)           In addition to the foregoing, each Borrower shall doanything further that may be lawfully and reasonably required by Lender toperfect its security interests and to effectuate the intentions and objectivesof this Agreement, including, but not limited to, the execution (if required)and delivery of continuation statements, amendments to financing statements,security agreements, contracts and any other documents required hereunder. AtLender’s request, each Borrower shall also immediately deliver (with executionby such Borrower of all necessary documents or forms to reflect Lender’ssecurity interest therein) to Lender, all items for which Lender must or mayreceive possession to obtain a perfected security interest.

 

(b)           Lender is hereby authorized to file financingstatements naming any Borrower as debtor, in accordance with the UniformCommercial Code, and if necessary, to the extent applicable, to otherwise filefinancing statements without any Borrower’s signature if permitted by law. EachBorrower hereby authorizes Lender to file all financing statements andamendments to financing statements describing the Collateral in any filingoffice as Lender, in its sole, discretion may determine, containing languageindicating that the acquisition by a third party of any right, title orinterest in or to the Collateral without Lender’s consent shall be a violationof Lender’s rights. Borrowers agree to comply with the requirements of allfederal and state laws and requests of Lender in order for Lender to have andmaintain a valid and perfected first priority security interest in theCollateral including, without limitation, executing and causing any otherPerson to execute such documents as Lender may require to obtain Control (asdefined in the UCC) over all Deposit Accounts (as defined in the UCC), otherthan the Excluded Deposit Accounts.

 

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3.05         Searches. Lender shall, prior to orat Closing, and thereafter as Lender may reasonably determine from time to time,at Borrowers’ expense, obtain the following searches (the results of which areto be consistent with the warranties made by Borrowers in this Agreement):

 

(a)           UCC Searches. With respect to eachBorrower, UCC searches with the Secretary of State and local filing office ofeach state where such Borrower maintains its chief executive office, itsjurisdiction of organization and/or a place of business or assets;

 

(b)           Judgments, Etc. Judgment, federal tax lienand corporate tax lien searches against each Borrower, in all applicable filingoffices of each state searched under Section 3.05(a) hereof.

 

3.06         Good Standing Certificates. Borrowersshall, prior to or at Closing and at its expense, obtain and deliver to Lendergood standing or equivalent certificates showing each Borrower to be in goodstanding in its state of incorporation or organization and authorized totransact business as a foreign corporation or entity in each other state orforeign country in which it is doing and presently intends to do business forwhich such Borrower’s failure to be so qualified could reasonably be expectedto cause a Material Adverse Effect.

 

3.07         Filing Security Agreement. A carbon,photographic or other reproduction or other copy of this Agreement or of afinancing statement is sufficient as and may be filed in lieu of a financingstatement.

 

3.08         Power of Attorney. Each of the officers ofLender is hereby irrevocably made, constituted and appointed the true andlawful attorney for each Borrower (without requiring any of them to act assuch) with full power of substitution to do the following (such power to bedeemed coupled with an interest): (a) endorse the name of such Borrowerupon any and all checks, drafts, money orders and other instruments for thepayment of monies that are payable to such Borrower and constitute collectionson the Collateral; (b) execute in the name of such Borrower any financingstatements, schedules, assignments, instruments, documents and statements thatsuch Borrower is obligated to give Lender hereunder or is necessary to perfectLender’s security interest or lien in the Collateral; (c) to verifyvalidity, amount or any other matter relating to the Collateral by mail,telephone, telecopy or otherwise; and (d) do such other and further actsand deeds in the name of such Borrower that Lender may reasonably deemnecessary or desirable to enforce its right with respect to any Collateral.

 

3.09         ***[Reserved]***

 

3.10         ***[Reserved]***

 

3.11         Credit Balances; AdditionalCollateral.

 

(a)           The rights and security interests granted to theLender hereunder shall continue in full force and effect, notwithstanding thetermination of this Agreement or the fact that the Revolving Loans may fromtime to time be temporarily in a credit position, until the termination of thisAgreement and the full and final payment and satisfaction of the Obligations.Any reserves or balances to the credit of the Borrowers, and any other Propertyof the Borrowers (or any of them) in the possession of Lender, may be held byLender, and applied in whole or partial satisfaction of such Obligations whendue, subject to the terms of this Agreement. The liens and security interestsgranted to Lender herein and any other lien or security interest which Lendermay have in any other assets of the Borrowers secure payment and performance ofall present and future Obligations.

 

(b)           Notwithstanding Lender’s security interests in theCollateral, to the extent that the Obligations are now or hereafter secured byany assets or Property other than the Collateral, or by the guaranty,endorsement, assets or property of any other Person, Lender shall have theright in its sole discretion to determine which rights, security, liens,security interests or remedies Lender shall at any time pursue, foreclose upon,relinquish, subordinate, modify or take any other action with respect to,without in any way modifying or affecting any of such rights, security, liens,security interests or remedies, or any of Lenders’ rights under this Agreement

 

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3.12         Reference to Other Loan Documents.  Reference is hereby made to the other LoanDocuments for additional representations, covenants and other agreements of theBorrowers regarding the Collateral covered by such Loan Documents.

 

**ARTICLE4**

 

**CLOSINGAND CONDITIONS PRECEDENT TO REVOLVING LOANS**

 

Closing under this Agreement and the making of eachLoan are subject to the following conditions precedent (all documents to be inform and substance satisfactory to Lender and Lender’s counsel):

 

4.01         Resolutions, Opinion, and Other Documents. At theClosing, Borrowers shall have delivered to Lender the following:

 

(a)           this Agreement, the Revolving Note and the Perfection Certificate, eachproperly executed;

 

(b)           each document and agreement required to be executedunder any provision of this Agreement or any of the other Loan Documents;

 

(c)           certified copies of (i) resolutions of eachBorrower’s board of director(s), or manager(s), as applicable authorizing theexecution of this Agreement, the Revolving Note, the other Loan Documents andeach other document to which it is a party, required to be delivered by any Section hereofand (ii) each Borrower’s Organizational Documents;

 

(d)           incumbency certificates identifying all AuthorizedOfficers of each Borrower, with specimen signatures;

 

(e)           a written opinion of Borrowers’ independent counseladdressed to Lender in the form attached hereto as Exhibit 4.01,which shall include, without limitation, an opinion that Lender has a firstpriority perfected security interest in the Collateral;

 

(f)            payment by Borrowers of all Expenses associated withthe Credit Facility incurred to the Closing Date and the Commitment Fee;

 

(g)           the Business Associate Agreement properly executed;

 

(h)           the Depository Agreements required pursuant to Section 2.07hereof and the Wells Fargo Depository Agreements;

 

(i)            Uniform Commercial Code, judgment, federal and statetax lien searches pursuant to Section 3.05 hereof, which searches shallreflect no liens in the Collateral, other than the Lender’s lien and PermittedLiens;

 

(j)            an initial borrowing base report dated the ClosingDate evidencing Borrower’s availability under the Borrowing Base;

 

(k)           an as-filed copy of the confirmation order enteredby the Bankruptcy Court with respect to the Plan of Reorganization, which ordershall provide for the release of all security interests in the Collateral;

 

(l)            certification by Borrowers that all past due payrolland unemployment taxes have been paid in full and that Borrowers remain currenton such taxes;

 

(m)          copies of each of the accreditations, licenses,permits and certifications related to the representations in Section 5.03hereof, and all Contracts requested by Lender;

 

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(n)           the fully executed Subordination Agreements;

 

(o)           monthly and year to date consolidated andconsolidating financial statements for the month ending January 31, 2009;

 

(p)           background checks on the senior management ofBorrowers;

 

(q)           evidence satisfactory to Lender that the RequiredInsurance is in full force and effect and that Lender has been named as alender’s loss payee or additional insurer with respect to such RequiredInsurance in a manner satisfactory to Lender;

 

(r)            all UCC financing statements and similar documentsrequired to be filed in order to create in favor of Lender a first priorityperfected security interest in the Collateral (to the extent that such asecurity interest may be perfected by a filing under the UCC or ApplicableLaw), shall have been properly filed in each office in each jurisdictionrequired;

 

(s)           all information necessary for Lender to issue wiretransfer instructions on behalf of each Borrower for the initial and subsequentLoans, including disbursement authorizations in form acceptable to Lender;

 

(t)            evidence satisfactory to Lender in its sole discretion that a payment inthe amount of $2,500,000.00 has been made by BMC to the Creditor Trust;

 

(u)           an IRS Form 8821, complete in all respects andsatisfactory to Lender in its sole discretion, for each Borrower;

 

(v)           an order of the Bankruptcy Court confirming the Planof Reorganization that is in full force and effect and is unstayed, such orderbeing satisfactory to Lender in its sole discretion;

 

(w)          an Eagle 9 UCC insurance policy issued by FirstAmerican Title Company insuring the perfection of the Lender’s lien in theCollateral;

 

(x)            the Negative Pledge Agreement properly executed; and

 

(y)           all other documents, information and reportsrequired or requested to be executed and/or delivered by Borrowers under anyprovision of this Agreement or any of the Loan Documents.

 

4.02         Additional Preconditions to Loans. Lender’sobligation to make the initial Revolving Loan and each subsequent RevolvingLoan shall be subject to the satisfaction of each of the following conditions:

 

(a)           After giving effect to each such Revolving Loan:

 

(i)            the aggregate principal amount of all RevolvingLoans outstanding shall not exceed the Borrowing Base then in effect and theaggregate amount of all Loans outstanding shall not exceed the Maximum CreditLimit;

 

(ii)           the ENV of all Eligible Accounts shall not exceedany of the Concentration Limits; and

 

(iii)          the amount of outstanding Revolving Loans supportedby the ENV of all Eligible Accounts included in the Borrowing Base which havenot been billed shall at no time exceed an amount equal to fifty percent (50%)of outstanding Revolving Loans supported by the ENV of all Eligible Accountsincluded in the Borrowing Base which have been billed.

 

(b)           All representations and warranties of Borrowersshall be deemed reaffirmed as of the making of such Loan and shall be true bothbefore and after giving effect to such Loan, and no Event of Default orUnmatured Event of Default shall have occurred and be continuing, no MaterialAdverse Effect shall have occurred, Borrowers shall be in compliance with thisAgreement and the other Loan Documents, and Borrowers shall have certified suchmatters to Lender.

 

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(c)           Each Borrower shall have signed and delivered toLender notices, in the form of Exhibit 4.02(c), directing theObligors (other than Obligors with respect to Government Accounts and Obligorsthat pay into the Risk Pool Account) to make payment to the Commercial Lockbox.

 

(d)           Each Borrower shall have signed and delivered toLender notices, in the form of Exhibit 4.02(d), directing theObligors with respect to Government Accounts to make payment to the GovernmentLockbox.

 

(e)           Borrowers shall have taken all actions necessary topermit Lender to record all of the Eligible Accounts in Lender’s accountsreceivable monitoring system.

 

(f)            The lockbox arrangements required by Section 2.07hereof shall be in effect, and the amounts received in the lockboxes shall havebeen identified or reconciled to Lender’s satisfaction, as required by Section 2.07(e) hereof.

 

(g)           All JHA Loan Documents shall be acceptable to Lenderin its sole discretion, the transactions contemplated by the JHA Loan Documentsshall have closed and such JHA Loan Documents shall be in full force andeffect.

 

(h)           Borrowers shall have permitted Lender to access andinterface with any of Borrowers’ collateral monitoring systems, and providedassistance with such access and interface as Lender requests.

 

(i)            No later than five (5) Business Days prior tothe initial Revolving Loan, Lender shall have been provided with sufficientaccess to conduct a final on-site management meeting on the premises of BMCwith such officers of BMC as Lender requires.

 

(j)            On the Closing Date, the Borrowing Base lessthe amount of the initial Revolving Loan shall be greater than $1,000,000.00.

 

(k)           Borrowers shall have taken such other actions,including the delivery of documents and opinions as Lender may reasonablyrequest.

 

4.03         Absence of Certain Events. As of theClosing Date and prior to each Loan, no Event of Default or Unmatured Event ofDefault hereunder shall have occurred and be continuing.

 

4.04         Compliance with this Agreement. Borrowersshall have performed and complied with all agreements, covenants and conditionscontained herein including, without limitation, the provisions of Sections 6and 7 hereof, which are required to be performed or complied with by Borrowersbefore or at the Closing Date and as of the date of each Revolving Loan.

 

4.05         Closing Certificate. Lender shall have receiveda certificate dated the Closing Date and signed by the chief executive officeror chief financial officer of Borrowers certifying that all of the conditionsspecified in this Section have been fulfilled and that there has notoccurred any material adverse change in the operations and conditions(financial or otherwise) of Borrowers since September 30, 2008.

 

4.06         Closing. Subject to the conditionsof this Article 4, the Credit Facility shall be made available on the date(“Closing Date”) this Agreement is executed and all of the conditionscontained in Section 4.01 and Section 4.02 hereof are completed (“Closing”).

 

4.07         Non-Waiver of Rights. By completing the Closinghereunder, or by making Revolving Loans hereunder, Lender does not therebywaive a breach of any warranty, representation or covenant made by Borrowershereunder or under any agreement, document, or instrument delivered to Lenderor otherwise referred to herein, and any claims and rights of Lender resultingfrom any breach or misrepresentation by Borrowers are specifically reserved byLender.

 

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**ARTICLE5**

** **

**REPRESENTATIONSAND WARRANTIES**

** **

To induce Lender to complete the Closing and makethe Loans under the Credit Facility to Borrowers, Borrowers warrant andrepresent to Lender that, subject to such exceptions or qualifications as aredisclosed in any disclosure schedules delivered pursuant to this Article 5:

 

5.01         Organization and Validity.

 

(a)           Each Borrower is duly organized as either apartnership, corporation or limited liability company and validly existingunder the laws of its state of organization, incorporation or formation, isduly qualified, validly existing and, to the extent applicable, in goodstanding and has lawful power and authority to engage in the business itconducts in each state and other jurisdiction where the nature and extent ofits business requires qualification, except where the failure to so qualify couldnot reasonably be expected to cause a Material Adverse Effect. A list of allstates and other jurisdictions where each Borrower is qualified to do businessis attached hereto as Schedule 5.01 and made a part hereof.

 

(b)           The making and performance of this Agreement andrelated agreements, and each document required by any Section hereof willnot violate (i) any law, government rule, regulation, order, judgment oraward applicable to such Borrower or its Property, (ii) any provision ofsuch Borrower’s Organizational Documents, or (iii) violate or result in adefault (immediately, with the passage of time or with the giving of notice)under any contract, agreement or instrument to which such Borrower is a party,or by which such Borrower is bound. No Borrower is in violation of any term ofany agreement or instrument to which it is a party or by which it may be boundor of its Organizational Documents or minutes, which violation could reasonablybe expected to cause a Material Adverse Effect.

 

(c)           Each Borrower has all requisite power and authorityto enter into and perform this Agreement and the other Loan Documents and toincur the Obligations herein provided for, and has taken all proper andnecessary action to authorize the execution, delivery and performance of thisAgreement and the other Loan Documents.

 

(d)           This Agreement, the Revolving Note and the otherLoan Documents required to be executed and delivered by any Borrower hereunder,when delivered, will be valid and binding upon such all Borrowers a partythereto and enforceable in accordance with their respective terms.

 

5.02         Places of Business; Borrower Names. Each Borrower’sjurisdiction of organization is set forth in Schedule 5.02 hereto and (a) eachBorrower’s chief executive office, (b) all other places of business ofeach such Borrower and (c) any other locations of any Collateral arelocated at the corresponding addresses set forth on Schedule 5.02hereto. Except as disclosed on Schedule 5.02 hereto: (a) noBorrower has been organized in any other jurisdiction nor changed any suchlocation in the last five (5) years, (b) no Borrower has changed itsname in the last five (5) years, and (c) during such period noBorrower used, nor does any Borrower now use, any fictitious or trade name.

 

5.03         Healthcare Matters.

 

(a)           Operation of Facilities. Each Borrower owns or leases HealthcareFacilities in which it provides healthcare services and with respect to theoperations of the Healthcare Facilities (i) maintains Medicare andMedicaid provider status and is the holder of the provider identificationnumbers, including but not limited to, Medicare, Medicaid and other third partypayor provider numbers and National Provider Identifiers, identified on Schedule5.03 hereto, all of which are current and valid and such Borrower has notallowed, permitted, authorized or caused any other Person to use any suchprovider identification number, and (ii) has obtained all material Permitsnecessary for such Borrower to own its assets, to carry on its business, toexecute, deliver and perform the Loan Documents, and to receive payments fromthe Obligors and, if organized as a not-for-profit entity, has and maintainsits status, if any, as an organization exempt from federal taxation under Section 501(c)(3) ofthe Internal Revenue

 

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Code. No Borrower has been notified by any such governmental authorityor other Person during the immediately preceding 24 month period that suchparty has rescinded, limited or not renewed, or intends to rescind, limit ornot renew, any such license or approval.

 

(b)           Healthcare Permits. With respect to theHealthcare Facilities, each Borrower has (i) each Permit and other rightsfrom, and have made all declarations and filings with, all applicableGovernmental Authorities, all self regulatory authorities and all courts andother tribunals necessary to engage in the ownership and operation of theHealthcare Facilities, except where such failure could not reasonably beexpected to have a Material Adverse Effect and (ii) no knowledge that anyGovernmental Authority is considering limiting, suspending or revoking any suchPermit. All such Permits are valid and in full force and effect and eachBorrower is in material compliance with the terms and conditions of all suchPermits except where failure to be in such compliance or for a Permit to bevalid and in full force and effect could not reasonably be expected to have aMaterial Adverse Effect.

 

(c)           Specific Licensing. Each Healthcare Facilityis duly licensed under the Applicable Laws of the state where the HealthcareFacility is located, in order to operate as currently operated.

 

(d)           ParticipationAgreements/Provider Status/Cost Reports.

 

(i)            Each Borrower has the requisite participationagreement or provider number or other Permit to bill the respective Medicaidprogram in the state or states in which such Borrower operates (to the extentsuch Borrower participates in the Medicare or Medicaid program in such state orstates) and all other Third Party Payor Programs (including Medicare) whichaccount for any portion of the revenues of such Healthcare Facility.

 

(ii)           There is no investigation, audit, claim review, orother action pending or, to the knowledge of any Borrower, threatened whichcould result in a revocation, suspension, termination, probation, materialrestriction, limitation, or non-renewal of any participation agreements withThird Party Payors with respect to the business of each Borrower (collectively,“Participation Agreements”) or provider number or other Permit or resultin a Borrower’s exclusion from any Third Party Payor Program, nor has any ThirdParty Payor Program made any decision not to renew any Participation Agreementor provider agreement or other Permit related to any Healthcare Facility, norhas any Borrower made any decision not to renew any Participation Agreement orprovider agreement or other Permit, nor is there any action pending or, to theknowledge of Borrowers, threatened to impose material intermediate or alternativesanctions with respect to any Healthcare Facility.

 

(iii)          Each Borrower, and, to the knowledge of suchBorrower, its contractors, have properly and legally billed all intermediariesand Third Party Payors for services rendered with respect to the HealthcareFacilities and have maintained their records to reflect such billing practices.No funds relating to any Borrower are now, or, to the knowledge of any Borrowerwill be, withheld by any Third Party Payor.

 

(iv)          All Medicare, Medicaid, and private insurance costreports and financial reports submitted by each Borrower are and will bematerially accurate and complete and have not been and will not be misleadingin any material respects. There are no current, pending or outstandingMedicare, Medicaid or Third Party Payor Program reimbursement audits or appealspending with respect to the Healthcare Facilities or any Borrower.

 

(v)           With respect to the operation of the HealthcareFacilities, each Borrower is properly enrolled in the Medicare program and isnot experiencing any material payment delays or denials as a result of theMedicare program’s use and adoption of the National Provider Identifier.

 

(vi)          Each Borrower and Healthcare Facility is currentlyenrolled as a participating provider in the Medicare program or is otherwisenot subject to the moratorium on the establishment of new long term carehospitals and long term care hospital satellites contained in the Medicare,Medicaid and SCHIP Extension Act of 2007.

 

(e)           No Violation of HealthcareLaws.

 

(i)            None of the Healthcare Facilities or any Borroweris, to the knowledge of any Borrower, in violation of any Healthcare Laws,except where any such violation could not reasonably be expected to have aMaterial Adverse Effect.

 

(ii)           Each Borrower is, to the knowledge of each Borrower,HIPAA Compliant with respect to the operations of the Healthcare Facilities.

 

(iii)          No Healthcare Facility has received a statement ofdeficiencies or survey violation of a “Level A” (or equivalent) or worse (withrespect to assisted living facilities), or a tag level of “G” or

 

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higher with respect to any skilled nursingfacility, within the past three years for which a plan of correction has notbeen filed with the applicable state authority. No Healthcare Facility iscurrently subject to any plan of correction that has not been accepted by or iscurrently the subject of a review by the applicable state authority. NoBorrower has received notice of any charges of patient abuse at any HealthcareFacility.

 

(f)            Proceedings. No Borrower or HealthcareFacility is subject to any proceeding, suit or, to Borrowers’ knowledge,investigation by any federal, state or local government or quasi-governmentalbody, agency, board or authority or any other administrative or investigativebody (including the Office of the Inspector General of the United StatesDepartment of Health and Human Services): (i) which may result in theimposition of a fine, alternative, interim or final sanction, a lowerreimbursement rate for services rendered to eligible patients at the HealthcareFacilities; (ii) which could result in the revocation, transfer,surrender, suspension or other material impairment of the operating certificateprovider agreement or Permits of any Healthcare Facility; (iii) whichpertains to any state or federal Medicare or Medicaid cost reports or claimsfiled by any Borrower (including, but not limited to, any reimbursementaudits), or any disallowance by any commission, board or agency in connectionwith any audit of such cost reports; or (iv) which pertains to or requestsany voluntary disclosure pertaining to a potential overpayment matter involvingthe submission of claims to such payor by any Borrower, which, in each casewith respect to clauses (i), (iii) and (iv) above, has not beenprovided for on their respective financials statements, or which couldreasonably be expected to have a Material Adverse Effect on any Borrower or theoperation of any individual Healthcare Facility.

 

(g)           Fraud & Abuse.

 

(i)            No Borrower has, or to its knowledge has beenthreatened to have, and, to the knowledge of Borrower, no owner, officer,manager, employee or person with a “direct or indirect ownership interest” (asthat phrase is defined in 42 C.F.R. §420.201) in any Borrower has, engaged inany of the following: (A) knowingly and willfully making or causing to bemade a false statement or representation of a material fact in any applicationfor any benefit or payment under any Healthcare Laws; (B) knowingly andwillfully making or causing to be made any false statement or representation ofa material fact for use in determining rights to any benefit or payment underany Healthcare Laws; (C) failing to disclose knowledge by a claimant ofthe occurrence of any event affecting the initial or continued right to anybenefit or payment under any Healthcare Laws on its own behalf or on behalf ofanother, with intent to secure such benefit or payment fraudulently; (D) knowinglyand willfully soliciting or receiving any remuneration (including any kickback,bribe or rebate), directly or indirectly, overtly or covertly, in cash or inkind or offering to pay such remuneration (1) in return for referring anindividual to a person for the furnishing or arranging for the furnishing ofany item or service for which payment may be made in whole or in part by anyHealthcare Laws, or (2) in return for purchasing, leasing or ordering orarranging for or recommending the purchasing, leasing or ordering of any good,facility, service, or item for which payment may be made in whole or in part byany Healthcare Laws; (E) presenting or causing to be presented a claim forreimbursement for services that is for an item or services that was known orshould have been known to be (1) not provided as claimed, or (2) falseor fraudulent; or (F) knowingly and willfully making or causing to be madeor inducing or seeking to induce the making of any false statement orrepresentation (or omitting to state a fact required to be stated therein ornecessary to make the statements contained therein not misleading) of amaterial fact with respect to (1) a facility in order that the facilitymay qualify for Governmental Authority certification, or (2) informationrequired to be provided under 42 U.S.C. § 1320a-3.

 

(ii)           No Borrower has been, or to its knowledge has beenthreatened to be, and, to the knowledge of Borrower, no owner, officer,manager, employee or person with a “direct or indirect ownership interest” (asthat phrase is defined in 42 C.F.R. §420.201) in any Borrower: (A) has hada civil monetary penalty assessed against him or her pursuant to 42 U.S.C.§1320a-7a or is the subject of a proceeding seeking to assess such penalty; (B) hasbeen excluded from participation in a Federal Health Care Program (as that termis defined in 42 U.S.C. §1320a-7b) or is the subject of a proceeding seeking toassess such penalty, or has been “suspended” or “debarred” from sellingproducts to the U.S. government or its agencies pursuant to the FederalAcquisition Regulation, relating to debarment and suspension applicable tofederal government agencies generally (48 C.F.R. Subpart 8.4), or otherApplicable Laws or regulations; (C) has been convicted (as that term isdefined in 42 C.F.R. §1001.2) of any of those offenses described in 42 U.S.C.§1320a-7b or 18 U.S.C. §§669, 1035, 1347, 1518 or is the subject of a proceedingseeking to assess such penalty; (D) has been involved or named in a U.S.Attorney complaint made or any other action taken pursuant to the False ClaimsAct under 31 U.S.C. §§3729-3731 or qui tam action brought pursuant to 31 U.S.C.§3729 et seq.; (E) has been made a party to any other action by anygovernmental authority that may prohibit it from selling products to anygovernmental or other purchaser pursuant to any law; or

 

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(F) was or has become subject to anyfederal, state, local governmental or private payor civil or criminalinvestigations or inquiries, proceedings, validation review, program integrityreview or statement of charges involving and/or related to its compliance withHealthcare Laws or involving or threatening its participation in Medicare,Medicaid or other Third Party Payor Programs or its billing practices withrespect thereto.

 

5.04         Pending Litigation. There are no judgments orjudicial or administrative orders, proceedings or investigations (civil orcriminal) pending, or to the knowledge of any Borrower, threatened, against anyBorrower in any court or before any governmental authority or arbitration boardor tribunal, other than as set forth on Schedule 5.04 hereto, which, ifadversely determined could reasonably be expected to cause a Material AdverseEffect. No Borrower is in default with respect to any order of any court,governmental authority, regulatory agency or arbitration board or tribunal. NoShareholder or executive officer of any Borrower has been indicted or convictedin connection with or is engaging in any criminal conduct, or is currentlysubject to any lawsuit or proceeding or under investigation in connection withany anti-racketeering or other conduct or activity.

 

5.05         Medicaid and Medicare Cost Reporting. The Medicaidand Medicare cost reports of each facility and of the home office of eachBorrower for all cost reporting periods have been submitted when and asrequired to (a) as to Medicaid, the state agency, or other CMS-designatedagent or agent of such state agency, charged with such responsibility or (b) asto Medicare, the Medicare intermediary or other CMS-designated agent chargedwith such responsibility.

 

5.06         Title to Collateral. Each Borrower has good andmarketable title to all the Collateral it respectively purports to own, freefrom co-owners, liens, claims and encumbrances, except those of Lender andthose listed on Schedule 5.06 hereto (“Permitted Liens”). Thepossession and use of the Collateral does not and will not infringe,misappropriate or otherwise violate the intellectual property rights of anyPerson.

 

5.07         Governmental Consent. Neither the nature of anyBorrower or of any Borrower’s business or Property, nor any relationship betweenany Borrower and any other Person, nor any circumstance affecting any Borrowerin connection with the execution, issuance and/or delivery of this Agreement orthe Revolving Note is such as to require a consent, approval or authorizationof, or filing, registration or qualification with, any governmental authorityon the part of any such Borrower in connection with the execution and deliveryof this Agreement or the issuance or delivery of the Revolving Note or otherLoan Documents.

 

5.08         Taxes. All tax returns requiredto be filed by Borrowers, or any of them, in any jurisdiction have in fact beenfiled, and all Taxes, assessments, fees and other governmental charges uponBorrowers, or any of them, or upon any of their respective Property, income orfranchises, which are shown to be due and payable on such returns have beenpaid, except for those Taxes being contested in good faith with due diligenceby appropriate proceedings and for which appropriate reserves have beenmaintained under GAAP. No Borrower is aware of any proposed additional taxassessment or tax to be assessed against or applicable to any Borrower thatcould reasonably be expected to cause a Material Adverse Effect.

 

5.09         Financial Statements.

 

(a)           Borrowers’ annual consolidated and consolidatingbalance sheet as of September 30, 2008 and the quarterly consolidatedbalance sheet, the related income statements and statements of cash flows, eachas of September 30, 2008 (complete copies of which have been delivered toLender), have been prepared in accordance with GAAP (other than the absence offootnotes) and present fairly, accurately and completely (subject to auditadjustments) the financial position of Borrowers as of such dates and theresults of their operations for such periods.

 

(b)           Since the date of the last annual consolidated andconsolidating balance sheet and related income statements and statements ofcash flows, there has been no event or circumstance that has had or couldreasonably be expected to have a Material Adverse Effect.

 

(c)           The fiscal year for each Borrower currently ends onthe date set forth on Schedule 5.09 hereto. Each Borrower’s federal taxidentification number and organization number are as set forth on Schedule5.09 hereto.

 

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5.10         Full Disclosure. Neither the financialstatements referred to in Section 5.09 hereof, nor this Agreement orrelated agreements and documents or any written statement furnished by anyBorrower to Lender in connection with the negotiation of the Credit Facilityand contained in any financial statements (subject to audit adjustments) ordocuments relating to any Borrower contain any untrue statement of a materialfact or omit a material fact necessary to make the statements contained thereinor herein not misleading.

 

5.11         Guarantees, Contracts, etc.

 

(a)           No Borrower owns or holds partnership interests orequity or long term debt investments in, has any outstanding advances to, orserves as guarantor, surety or accommodation maker for the obligations of, anyPerson except as described in Schedule 5.11 hereto.

 

(b)           No Borrower is a party to any contract or agreement,or subject to any charter or other entity restriction which could reasonably beexpected to cause a Material Adverse Effect.

 

(c)           Except as otherwise specifically provided in thisAgreement, no Borrower has agreed or consented to cause or permit any of theCollateral whether now owned or hereafter acquired to be subject in the future(upon the happening of a contingency or otherwise) to a lien or encumbrance notpermitted by this Agreement.

 

5.12         Compliance with Laws.

 

(a)           No Borrower is in violation of, or has receivedwritten notice that it is in violation of, any applicable statute, regulationor ordinance of the United States of America, or of any state, city, town,municipality, county or of any other jurisdiction, or of any agency, ordepartment thereof, (including, without limitation, environmental laws andregulations), which could reasonably be expected to cause a Material AdverseEffect.

 

(b)           Each Borrower is current with all reports anddocuments required to be filed with any state or federal securities commission(if any) or similar agency and is in full compliance with all applicable rules andregulations of such commissions, except where such failure to so comply couldnot reasonably be expected to cause a Material Adverse Effect.

 

5.13         Other Associations. No Borrower is engaged innor has an interest in any joint venture or partnership with any other Personor has any Subsidiaries or Affiliates, except as described on Schedule 5.13hereto.

 

5.14         Environmental Matters. Except as disclosed on Schedule5.14 hereto, no Borrower has knowledge:

 

(a)           of violations of any Environmental Laws on any ofthe real property where any Borrower maintains operations or has its personalproperty, or where any Collateral is located;

 

(b)           of any claims or actions pending or threatened, orclaims or actions in the past during Borrower’s period of ownership, againstBorrower or any of such real property by any governmental entity or agency orby any other person or entity relating to Hazardous Substances or pursuant toany Environmental Laws;

 

(c)           of the presence of any Hazardous Substances on anyof such real property, other than solid or biohazardous wastes generated in thediagnosis or treatment of patients as are commonly found in hospitals similarto the hospital operated by BMC;

 

(d)           of any such real property ever having been used byany of the Borrowers or, to the best of Borrowers’ knowledge any other person,to refine, produce, store, handle, transfer, process, transport, or dispose ofHazardous Substances other than in full compliance with Environmental Laws,except with respect to any such use which would not reasonably be expected toresult in a Material Adverse Effect;

 

(e)           of storage tanks (including, without limitation,petroleum or heating oil storage tanks), underground or above-ground, presenton or under any of such real property, or that have been on or under any suchreal property but removed therefrom;

 

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(f)            of any on-site spills, releases, discharges,disposal, or storage of Hazardous Substances, other than solid or biohazardouswastes generated in the diagnosis or treatment of patients as are commonlyfound in hospitals similar to the hospital operated by BMC, that have occurredor are presently occurring on any of such real property, which spills,releases, discharges, disposal or storage could be reasonably expected to havea Material Adverse Effect; or

 

(g)           of any spills, releases, discharges, disposal, orstorage of Hazardous Substances, other than solid or biohazardous wastesgenerated in the diagnosis or treatment of patients as are commonly found inhospitals similar to the hospital operated by BMC, that have occurred or arepresently occurring on any other real property as a result of the conduct,action, or activities of any Borrower, which spills, releases, discharges,disposal or storage could be reasonably expected to have a Material AdverseEffect.

 

5.15         Capital Stock. The authorized andoutstanding Capital Stock of each Borrower is as set forth on Schedule 5.15hereto. All of the Capital Stock and equity interests of each Borrower havebeen duly and validly authorized and issued and is fully paid andnon-assessable and have been sold and delivered to the holders thereof incompliance with, or under valid exemption from, all federal and state laws andthe rules and regulations of all regulatory bodies thereof governing thesale and delivery of securities. Except for the rights and obligations setforth in Schedule 5.15****hereto,there are no subscriptions, warrants, options, calls, commitments, rights oragreements by which any Borrower or any of the Shareholders of any Borrower isbound relating to the issuance, transfer, voting or redemption of its CapitalStock or any preemptive rights held by any Person with respect to the CapitalStock of any such Borrower. Except as set forth in Schedule 5.15 hereto,no Borrower has issued any securities convertible into or exchangeable for itsCapital Stock or any options, warrants or other rights to acquire such CapitalStock or securities convertible into or exchangeable for such Capital Stock.

 

5.16         Lockboxes. The Government Lockbox andthe Commercial Lockbox are the only lockbox accounts maintained by Borrowers,and each Obligor of an Eligible Account has been directed by the noticeattached as Exhibit 4.02(c) to this Agreement, and is requiredto, remit all payments with respect to such Account for deposit in theCommercial Lockbox (other than the Obligors of Government Accounts which havebeen directed by the notice attached as Exhibit 4.02(d) tothis Agreement to remit all payments with respect to such Accounts for depositin the Government Lockbox).

 

5.17         Borrowing Base Reports. EachBorrowing Base Report signed by Borrowers, on behalf of Borrowers, contains andwill contain an accurate summary of all Eligible Accounts of Borrowerscontained in the Borrowing Base as of its date.

 

5.18         Security Interest. The Borrowers representand warrant to Lender that except for the Permitted Liens, (a) upon thefiling of UCC financing statements covering the Collateral in all requiredjurisdictions, this Agreement creates a valid, perfected, first prioritysecurity interest in the Collateral as to which perfection may be achieved byfiling, (b) Lender’s security interests in the Collateral constitute, andwill at all times constitute, first priority and exclusive liens on theCollateral, and (c) each Borrower is, or will be at the time additionalCollateral is acquired by such Borrower, the absolute owner of such additionalCollateral with full right to pledge, sell, transfer and create a securityinterest therein, free and clear of any and all claims or liens other thanPermitted Liens.

 

5.19         Accounts.

 

(a)           No Borrower has done nor shall do anything tointerfere with the collection of the Accounts and no Borrower shall amend orwaive the terms or conditions of any Account or any related Contract in anymaterial adverse manner without Lender’s prior written consent.

 

(b)           Each Borrower has made and will continue to make allpayments to Obligors necessary to prevent any Obligor from offsetting anyearlier overpayment to such Borrower against any amounts such Obligor owes onan Account.

 

5.20         ERISA. Borrowers and each othermember of its Controlled Group has fulfilled its obligations under the minimumfunding standards of, and is in compliance in all material respects with, ERISAand the Code to

 

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the extent applicable to it and, other than aliability for premiums under Section 4007 of ERISA, has not incurred anyliability to the PBGC or a Plan under Title IV of ERISA. Borrowers and theirSubsidiaries and/or Affiliates have no contingent liabilities with respect toany post-retirement benefits under a welfare plan, as defined in Section 3(1) ofERISA, other than liability for continuation coverage described in Article 6of Title 1 of ERISA.

 

5.21         Representations and Warranties for each Loan. As of eachdate that Borrowers shall request any Loan, each Borrower shall be deemed tomake, with respect to each Eligible Account included in the Borrowing Base,each of the following representations and warranties:

 

(a)           Such Account satisfies each of the conditions of anEligible Account.

 

(b)           All information relating to such Account that hasbeen delivered to Lender is true, complete and correct in all materialrespects. With respect to each such Account that has been billed, thecorresponding Borrower has delivered to the Obligor all requested supportingclaim documents and all information set forth in the bill and supporting claimdocuments is true, complete and correct in all material respects.

 

(c)           Other than the CMS Claim, there is no lien oradverse claim in favor of any third party, nor any filing against any Borrower,as debtor, covering or purporting to cover any interest in such Account.

 

(d)           Such Account is (i) payable in an amount notless than its Estimated Net Value by the Obligor identified by Borrowers asbeing obligated to do so, (ii) to the knowledge of Borrowers the legallyenforceable obligation of such Obligor, and (iii) an account or generalintangible within the meaning of the UCC, or is a right to payment under apolicy of insurance or proceeds thereof, and is not evidenced by any instrumentor chattel paper. To the knowledge of Borrowers, there is no payor other thanthe Obligor identified by Borrowers as the payor primarily liable on suchAccount.

 

(e)           No such Account (i) requires the approval ofany third person for such Account to be assigned to Lender hereunder, (ii) issubject to any legal action, proceeding or investigation (pending orthreatened), dispute, set-off, counterclaim, defense, abatement, suspension,deferment, deductible, reduction or termination by the Obligor, or (iii) ispast the statutory limit for collection applicable to the Obligor.

 

(f)            Such Borrower does not have any guaranty of, letterof credit support for, or collateral security for, such Account, other than anysuch guaranty, letter of credit or collateral security as has been assigned toLender.

 

(g)           The services constituting the basis of such Account (i) weremedically necessary for the patient and (ii) at the time such serviceswere rendered, were fully covered by the insurance policy or Contractobligating the applicable Obligor to make payment with respect to such Account(and the corresponding Borrower has verified such determination), and (iii) thepatient received such services in the ordinary course of such Borrower’sbusiness.

 

(h)           The fees and charges charged for the servicesconstituting the basis for such Account were when rendered consistent with (i) theusual, customary and reasonable fees charged by Borrowers or (ii) pursuantto negotiated fee contracts, or imposed fee schedules, with or by theapplicable Obligors.

 

(i)            The Obligor with respect to such Account is locatedin the United States, and is (i) a party which in the ordinary course ofits business or activities agrees to pay for healthcare services received byindividuals, including, commercial insurance companies and non-profit insurancecompanies issuing health, or other types of insurance, employers or unions,self-insured healthcare organizations, preferred provider organizations, andhealth insured, prepaid maintenance organizations, (ii) a state, an agencyor instrumentality of a state or a political subdivision of a state, or (iii) theUnited States or an agency or instrumentality of the United States.

 

(j)            The insurance policy or Contract obligating anObligor to make payment (i) does not prohibit the transfer of such paymentobligation from the patient to the corresponding Borrower and (ii) is andwas in full force and effect and applicable to the patient at the time theservices constituting the basis for such Account were performed.

 

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(k)           The representations and warranties made by Borrowersin the Loan Documents and all financial or other information delivered toLender with respect to Borrowers and such Account do not contain any untruestatement of material fact or omit to state a material fact necessary to makethe statement made not misleading.

 

(l)            If requested by Lender, a copy of each relatedContract to which each Borrower is a party has been delivered to Lender unlessany such Borrower shall have, prior to the related Funding Date, certified inan Officer’s Certificate that such delivery is prohibited by the terms of theContract or by law, and the circumstances of such prohibition.

 

(m)          If such Account has not been billed, the servicesgiving rise to such Account have been properly recorded in the correspondingBorrower’s accounting system.

 

(n)           Such Account was (or if unbilled, will be) in anyevent billed no later than forty-five(45) days after the date the services or goods giving rise to suchAccount were rendered as provided, as applicable, and each bill contains anexpress direction requiring the Obligor to remit payments to either theGovernment Lockbox or Commercial Lockbox, as applicable.

 

(o)           Such Account has an Estimated Net Value which, whenadded to the Estimated Net Value of all other Accounts owing by the sameObligor and which constitute Eligible Accounts hereunder, does not exceed anyapplicable Concentration Limit.

 

(p)           Neither such Account nor the related Contractcontravenes any laws, rules or regulations applicable thereto (including,without limitation, laws, rules and regulations relating to usury,consumer protection, truth-in-lending, fair credit billing, fair creditreporting, equal credit opportunity, fair debt collection practices andprivacy) and Borrowers are not and, to the knowledge of Borrowers, no party tosuch related Contract is in violation of any such law, rule or regulationin connection with such Contract.

 

(q)           As of the applicable Funding Date, to the Borrowers’knowledge, no Obligor on such Account is bankrupt, insolvent, or is unable tomake payment of its obligations when due, and no other fact exists which wouldcause any Borrower reasonably to expect that the amount billed to the relatedObligor for such Account will not be paid in full when due.

 

5.22         Interrelatedness of Borrowers. The businessoperations of each Borrower are interrelated and complement one another, andsuch companies have a common business purpose, with intercompany bookkeepingand accounting adjustments used to separate their respective Properties,liabilities and transactions. To permit their uninterrupted and continuousoperation, such companies now require and will from time to time hereafterrequire funds for general business purposes. The proceeds of Revolving Loansunder the Credit Facility will directly or indirectly benefit each Borrowerhereunder severally and jointly, regardless of which Borrower requests orreceives part or all of the proceeds of such Loan.

 

5.23         ***[Reserved]***

 

5.24         ***[Reserved***]

 

5.25         Intellectual Property. Except for “shrink-wrapped”software and as shown on Schedule 5.25 hereto and made part hereof, (a) Borrowersdo not require any copyrights, patents, trademarks, other intellectual propertyor other general intangibles (as defined in the UCC), or any license(s) touse any patents, trademarks or other intellectual property in order to (i) provideservices to their customers, (ii) bill Obligors and collect therefrom, inthe ordinary course of business or (iii) otherwise conduct Borrowers’business as presently conducted, and (b) Borrowers have not granted anexclusive license to any party that relates to Borrower’s intellectualproperty. All of Borrower’s rights in its intellectual property areenforceable, valid and subsisting. No action, suit, demand, charge or claim hasbeen made or threatened which challenges the enforceability or validity of Borrower’sintellectual property.

 

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5.26         Solvency. On the Closing Date andimmediately prior to and after giving effect to each borrowing hereunder andthe use of the proceeds thereof, with respect to each Borrower (a) thefair value of its assets is greater than the amount of its liabilities(including disputed, contingent and unliquidated liabilities) as such value isestablished and liabilities evaluated, (b) the present fair saleable valueof its assets is not less than the amount that will be required to pay theprobable liability on its debts as they become absolute and matured, (c) itis able to realize upon its assets and pay its debts and other liabilities(including disputed, contingent and unliquidated liabilities) as they mature inthe normal course of business, (d) it does not intend to, and does notbelieve that it will, incur debts or liabilities beyond its ability to pay assuch debts and liabilities mature, and (e) it is not engaged in business ora transaction, and is not about to engage in business or a transaction, forwhich its property would constitute unreasonably small capital.

 

5.27         Schedules. Each of the Schedulesattached to this Agreement sets forth a true, correct and complete descriptionof the matter or matters covered thereby.

 

5.28         Location of Computerized Billing System; Books andRecords.  Any and all computer hardware,software and electronic data, as well as any books, records or otherinformation, necessary to bill for services provided by Borrowers and collectpayments for such services are stored and maintained in good working conditionat the Healthcare Facility located at 3828 Delmas Terrace, Culver City, CA90231, which is owed in fee simple by Borrowers.

 

5.29         No Documents or Correspondence Regarding CMS Claim. As of theClosing Date, Borrowers have not received any notice, correspondence ordocumentation of any kind from CMS regarding any CMS Claim.

** **

**ARTICLE6**

** **

**AFFIRMATIVECOVENANTS**

** **

Each Borrower covenants that until all of Borrowers’Obligations to Lender are paid and satisfied in full and the Credit Facilityhas been terminated:

 

6.01         Payment of Taxes and Claims. Each Borrowershall pay, before they become delinquent, all Taxes, assessments andgovernmental charges or levies imposed upon it or upon such Borrower’sProperty, except for those being contested in good faith with due diligence byappropriate proceedings and for which appropriate reserves have been maintainedunder GAAP.

 

6.02         Maintenance of Insurance,Financial Records and Existence.

 

(a)           Required Insurance. Borrowers shall maintainor cause to be maintained insurance on its Property against fire, casualty,public liability, business interruption and such other hazards, as well asgeneral liability, medical malpractice insurance and other liability insurancerelated to the business of the Borrowers required by the Lender, all in suchamounts, with such deductibles and with such insurers as are at all timesreasonably satisfactory to Lender (the “Required Insurance”). Thepolicies relating to the Required Insurance shall contain standard “lender losspayable” clauses with respect to property insurance and “additional insured”clauses with respect to general liability or automobile insurance issued infavor of Lender pursuant to which all losses thereunder shall be paid to Lenderas Lender’s interests may appear. Such policies shall expressly provide thatthe carrier of any Required Insurance will endeavor to provide ten (10) days’prior written notice of cancelation of such policy for non-payment to Lenderand shall insure Lender notwithstanding the act or neglect of the insured. Ator prior to Closing, Borrowers shall furnish Lender with insurance certificatescertified as true and correct and being in full force and effect as of theClosing Date or such other evidence of the Required Insurance as Lender mayrequire. In the event Borrowers fail to procure or cause to be procured any ofthe Required Insurance or to timely pay or cause to be paid the premium(s) onany of the Required Insurance, Lender may do so for Borrowers, but Borrowersshall continue to be liable for the same. Borrowers further covenant that allinsurance premiums owing under its current casualty policy have been paid.Borrowers also agree to notify Lender, promptly, upon any Borrower’s receipt ofa notice of termination, cancellation or non-renewal from its insurance companyof any of the Required Insurance. Each Borrower hereby appoints Lender as itsattorney-in-fact, exercisable at Lender’s option, upon the

 

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occurrence and during the continuation of anEvent of Default, to endorse any check which may be payable to such Borrower inorder to collect the proceeds of the Required Insurance.

 

(b)           Financial Records. Borrowers shall keepcurrent and accurate books of records and accounts in which full and correctentries will be made of all of its business transactions, and will reflect inits financial statements adequate accruals and appropriations to reserves, allin accordance with GAAP. No Borrower shall change its respective fiscal yearend date without the prior written notice to Lender.

 

(c)           Existence and Rights. Each Borrower shall do (orcause to be done) all things necessary to preserve and keep in full force andeffect its legal existence, good standing, rights and franchises.

 

6.03         Business Conducted. Each Borrower shallcontinue in the business presently operated by it using its best efforts tomaintain its customers. No Borrower shall engage, directly or indirectly, inany line of business substantially different from the businesses conducted byit immediately prior to the Closing Date.

 

6.04         Litigation. Borrowers shall giveprompt notice to Lender of any litigation claiming in excess of $500,000.00from Borrowers, or any of them, or which could reasonably be expected to causea Material Adverse Effect.

 

6.05         Taxes. Borrowers shall pay allTaxes when due (other than taxes based upon or measured by Lender’s income orrevenues), if any, in connection with the Loans and/or the recording of anyfinancing statements or other Loan Documents. The Obligations of Borrowersunder this section shall survive the payment of Borrowers’ Obligations underthis Agreement and the termination of this Agreement.

 

6.06         Financial Covenants.

 

(a)           Maximum Loan Turn Days. Borrowersshall at all times maintain a Maximum Loan Turn Days calculation, measured atthe end of the fiscal quarter ending June 30, 2009 and the end of eachfiscal quarter thereafter, of not greater than thirty (30) days.

(b)           Fixed Charge Coverage Ratio. Borrowersshall maintain a Fixed Charge Coverage Ratio, measured quarterly at the end ofeach fiscal quarter, of not less than (i) 1.10:1.00 for the fiscal quarterending June 30, 2009; (ii) 1.15:1.00 for the fiscal quarter ending September 30,2009; and (iii) 1.20:1.00 for each fiscal quarter ending thereafter. TheFixed Charge Coverage Ratio shall be calculated for the four quartersimmediately preceding the quarter being measured, *provided*,*however*, that for the first threequarters of testing following the Closing, the Fixed Charge Coverage Ratioshall be calculated on a cumulative annualized basis. The first calculation ofthe Fixed Charge Coverage Ratio shall be for the quarter ending June 30,2009.

 

6.07         Financial and Business Information. Borrowersshall deliver to Lender the following (all to be in form and substancesatisfactory to Lender):

 

(a)           Financial Statements and Collateral Reports.

 

(i)            as soon as available but in any event within one hundredtwenty (120) days after the end of each fiscal year of Borrowers, financialstatements of Borrowers for such year which present fairly Borrowers’ financialcondition, including the balance sheet of Borrowers as at the end of suchfiscal year and a statement of cash flows and income statement for such fiscalyear, all on a consolidated and consolidating basis, setting forth in theconsolidated statements in comparative form, the corresponding figures as ofthe end of and for the previous fiscal year, all in reasonable detail,including all supporting schedules, and auditedby independent public accountants of recognized standing, selected by Borrowersand reasonably satisfactory to Lender, and prepared in accordance with GAAP;

 

(ii)           as soon as available but in any event on the earlierof (i) the date upon which Prospect Medical Holdings, Inc. files a Form 10-Qfor such fiscal quarter with the Securities and Exchange Commission and (ii) forty-five(45) days after the end of each fiscal quarter, Borrowers’ internally preparedquarterly consolidated and consolidating financial statements, for such fiscalquarter, along with year to date information, including a balance sheet, incomestatement and statement of cash flows with respect to the periods measured,operating statistics and a quarterly compliance certificate;

 

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(iii)          promptly upon request, such other informationconcerning Borrowers as Lender may from time to time request, includingMedicare and Medicaid cost reports and audits, annual reports, security lawfilings and reports to any security holders;

 

(iv)          as soon as possible and no later than thirty (30)days prior to the first day of each fiscal year, an annual operating budgetalong with annual consolidated and consolidating projections for Borrowers forsuch year, including a balance sheet, income statement and statement of cashflow, all prepared on a monthly basis;

 

(v)           contemporaneously with delivery of the annualfinancial statements referred to in clause (i) above, a good standingcertificate from each Borrower’s jurisdiction of organization evidencing thatsuch Borrower remains in good standing in, and continues to be organized underthe laws of, such jurisdiction;

 

(vi)          as soon as available but in any event within onehundred twenty (120) days after the effective date of the Plan ofReorganization, audited balance sheets for Borrowers for the fiscal year ended September 30,2008, all on a consolidated and consolidating basis, setting forth in theconsolidated statements in comparative form, the corresponding figures as ofthe end of and for the previous fiscal year, all in reasonable detail,including all supporting schedules, and auditedby independent public accountants of recognized standing, selected by Borrowersand reasonably satisfactory to Lender;

 

(vii)         as soon as available but in any event within onehundred twenty (120) days after the effective date of the Plan ofReorganization, an audited income statement for the fiscal year ended September 30,2008, on a consolidated and consolidating basis, audited by independent publicaccountants of recognized standing, selected by Borrowers and reasonablysatisfactory to Lender, and prepared in accordance with GAAP; and

 

(viii)        such other data, reports, statements and information(financial or otherwise), as Lender may reasonably request.

 

(b)           Notice of Event of Default or Unmatured Event ofDefault- promptly (but at least within 2 Business Days) upon becoming aware ofthe existence of any condition or event which constitutes an Event of Defaultor Unmatured Event of Default under this Agreement, a written notice specifyingthe nature and period of existence thereof and what action Borrowers are taking(and propose to take) with respect thereto;

 

(c)           Notice of Claimed Default - promptlyupon receipt by any Borrower, notice of default, oral or written, given to suchBorrower by any creditor for borrowed money in excess of $100,000.00.

 

6.08         Officer’s Certificate. Along with the set offinancial statements delivered to Lender at the end of each fiscal quarter andfiscal year pursuant to Section 6.07(a) hereof, deliver to Lender acertificate (in the form of Exhibit 6.08 hereto and made a parthereof) from the chief financial officer of Borrowers setting forth:

 

(a)           Covenant Compliance - the information(including detailed calculations) required in order to establish whetherBorrowers are in compliance with the requirements of Section 6.06 as ofthe end of the period covered by the financial statements then being furnished(and any exhibits appended thereto) under Section 6.07 hereof; and

 

(b)           Event of Default - that the signer in hiscapacity as an officer of Borrowers has reviewed the relevant terms of thisAgreement, and has made (or caused to be made under his supervision) a reviewof the transactions and conditions of Borrowers from the beginning of theaccounting period covered by the financial statements being delivered therewithto the date of the certificate, and that such review has not disclosed theexistence during such period of any condition or event which constitutes anEvent of Default or Unmatured Event of Default or if any such condition orevent existed or exists, specifying the nature and period of existence thereofand what action Borrowers have taken or propose to take with respect thereto.

 

6.09         Inspection. No more than two times percalendar year so long as no Event of Default or Unmatured Event of Default hasoccurred and is continuing, Borrowers will permit any of Lender’s officers orother representatives to visit and inspect any Borrower’s location(s) orwhere any Collateral is kept during regular business hours to examine and auditall of such Borrower’s books of account, records, reports and other papers, tomake copies and extracts therefrom and to discuss its affairs, finances andaccounts with its officers, employees and independent certified publicaccountants and attorneys. Borrowers shall pay to Lender all reasonable feesbased on standard rates for such inspections, currently at the rate of$1,000.00 per day, per person (plus reasonable out-of-pocket expenses payablemonthly in arrears on the first day at the immediately successive calendarmonth at the

 

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inspection). All reasonable costs, fees andexpenses incurred by Lender in connection with such inspections shallconstitute Expenses for purposes of this Agreement.

 

6.10         Tax Returns and Reports. At Lender’srequest from time to time, Borrowers shall promptly furnish Lender with copiesof any annual federal and state income tax returns, any other tax returns ofBorrowers or any other documents related to Taxes of the Borrowers

 

6.11         Material Adverse Developments. Each Borroweragrees that immediately (but at least within 2 Business Days) upon it or any ofits officers becoming aware of any development or other information which wouldreasonably be expected to have a Material Adverse Effect, it shall give toLender telephonic or facsimile notice specifying the nature of such developmentor information and such anticipated effect. In addition, such verbalcommunication shall be confirmed by written notice thereof to Lender on thenext Business Day after such verbal notice is given.

 

6.12         Places of Business. Each Borrower shall givethirty (30) days prior written notice to Lender of any changes to (a) itsjurisdiction of organization, (b) the location of any of its chiefexecutive office or any other places of business, or the establishment of anynew, or the discontinuance of any existing place of business, and (c) itsname.

 

6.13         Notice of Action. Each Borrower willpromptly notify Lender in the event of any legal action, dispute, setoff,counterclaim, defense or reduction that is or may be asserted by an Obligorwith respect to any Account that may have a Material Adverse Effect on thecollectability of such Account or all Accounts collectively.

 

6.14         Verification of Information. At the requestof Lender, Borrowers will promptly provide and verify the accuracy ofinformation concerning Borrowers and their Affiliates of the type provided toLender in connection with Lender’s decision to enter into this Agreement andsuch other information concerning Borrowers and their Affiliates as Lender mayreasonably request in connection with any offering documents with respect tothe sale of securities backed by the Eligible Accounts (the **“**Securities**”**), including, without limitation, allinformation necessary to provide full and complete disclosure of all materialfacts pertaining to an investment in the Securities in compliance with federaland state securities and blue sky laws, and such information may be publishedin such offering documents and relied upon by Lender and any party arrangingthe offering of such Securities by Lender or its assignee. Such informationwill be true and complete in all material respects and will not omit to state amaterial fact necessary to make the statements contained in such information,in light of the circumstances under which they were made, not misleading.

 

6.15         Accounts Receivables Monitoring System. Borrowersshall permit Lender or its agents to interface its accounts receivablesmonitoring system to Borrowers’ data files and will assist Lender or its agentin completing and maintaining such interface such that the interface caninterpret, track and reconcile the Accounts Detail File provided by Borrowers.

 

6.16         ***[Reserved]***

 

6.17         Compliance with Laws.

 

(a)           Borrowers agree to comply with all Applicable Laws,and all orders of any federal, state or local legislative, administrative orjudicial body or official, provided that Borrowers may contest any acts,rules, regulations, orders and directions of such bodies or officials in anyreasonable manner which Lender determines will not materially and adverselyeffect Lender’s rights or priorities in the Collateral.

 

(b)           Without limiting the generality of the foregoing,each Borrower agrees to comply with all environmental statutes, acts, rules,regulations or orders, as presently existing or as adopted or amended in thefuture, applicable to the ownership and/or use of such Borrower’s real propertyand operation of its business, if the failure to so comply could reasonably beexpected to have a Material Adverse Effect. No Borrower shall be deemed to havebreached any provision of this Section 6.17(b) if (i) thefailure to comply with the requirements of this Section 6.17(b) resultedfrom good faith error or innocent omission, (ii) such Borrower promptlycommences and

 

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diligently pursues a cure of such breach and (iii) suchfailure is cured within thirty (30) days following such Borrower’s receipt ofnotice from Lender of such failure, or if such breach cannot in good faith becured within thirty (30) days following such Borrower’s receipt of such notice,then such breach is cured within a reasonable time frame based on the extentand nature of the breach and the necessary remediation, and in conformity withany applicable consent order, consensual agreement and Applicable Law.

 

(c)           Borrowers will (i) maintain in full force andeffect, and free from restrictions, probations, conditions or known conflictswhich would materially impair the use or operation of any Healthcare Facilityfor its current use, all Permits necessary under Healthcare Laws to continue toreceive reimbursement under all Third Party Payor Programs in which anyBorrower or any Healthcare Facility participates as of the date of thisAgreement, and (ii) provide to Lender upon request, an accurate, completeand current list of all participation agreements with Third Party Payors withrespect to the business of each Borrower (collectively, “ParticipationAgreements”). Borrowers will at all times comply with all requirements,contracts, conditions and stipulations applicable to such Borrower in order tomaintain in good standing and without default or limitation all suchParticipation Agreements.

 

6.18         Collateral Reporting.  Borrowers agree to furnish to Lender suchinformation as Lender reasonably requires in connection with monitoring theCollateral, at the times and in the manner determined by Lender, includingMedicare and Medicaid cost reports and audits.

 

6.19         Collateral. Borrowers, at theirexpense, agree to forever warrant and defend the Collateral from any and allclaims and demands of any other person, other than holders of Permitted Liens.

 

6.20         ***[Reserved]***

 

6.21         Additional Creditor Trust Payment. On or priorto 180 days after the Closing Date, Borrowers shall deliver to Lender evidencesatisfactory to Lender in its sole discretion that payment in the amount of$1,000,000.00 has been made by BMC to the Creditors Trust.

 

6.22         Potential CMS Liability.

 

(a)           No later than five (5) Business Days after thefirst calendar day of each month, Borrowers shall provide a description toLender in writing, acceptable to Lender in its sole discretion, detailing thestatus of any actual or potential claims by CMS against Borrowers or any actualor potential liability of Borrowers to CMS.

 

(b)           Borrowers shall immediately (but within 2 BusinessDays of knowledge) upon Borrowers or any of its officers becoming aware of anyclaim asserted by CMS, deliver a written notice specifying the nature andamount of such claim, and provide copies of any documentation related to such claim,to Lender.

 

6.23         Maintenance of Computerized Billing System; Booksand Records.  Any and allcomputer hardware, software and electronic data, as well as any books, recordsor other information, necessary to bill for services provided by Borrowers and collectpayments for such services shall be maintained in good working condition at itsrecords location (the “Records Location”), which, as of the ClosingDate, is located at 3847 Delmas Terrace, Culver City, CA 90231 (the “3847Delmas Terrace Facility”). Until all Obligations have been paid in full,Borrowers shall either (i) maintain the Records Location at the 3847Delmas Terrace Facility and continue to own the 3847 Delmas Terrace Facility infee simple, or, if the 3847 Delmas Terrace Facility is no longer owned in feesimple, (ii) obtain a landlord waiver in form and substance similar to theform attached hereto as Exhibit 6.23, and reasonably satisfactoryto Lender, simultaneously with the transfer of ownership of the 3847 DelmasTerrace Facility or (iii) move the Records Location to another propertyowned in fee simple by Borrower and provide written notice to Lender of suchmove and the address of the subsequent location at least fifteen (15) BusinessDays prior to such move.

 

6.24         Dissolution of Southern California Spine Institute,LLC. On or prior to sixty (60) days after the Closing Date, BMC shall (i) causeSouthern California Spine Institute, LLC., a California limited liabilitycompany (“SCSI”), which is a wholly-owned subsidiary of BMC, to transferall of the assets and liabilities of SCSI to BMC,

 

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and (ii) dissolve SCSI and provide toLender evidence of such dissolution from the appropriate Governmental Authorityin California.

** **

**ARTICLE7**

** **

**NEGATIVECOVENANTS**

** **

Each Borrower covenants that until all of Borrowers’Obligations to Lender are paid and satisfied in full and the Credit Facilityhas been terminated:

 

7.01         Merger, Consolidation,Dissolution or Liquidation.

 

(a)           No Borrower shall sell, lease, license, transfer orotherwise dispose of any material portion of its Property other than inventorysold to patients/customers in the ordinary course or ordinary operation of suchBorrower’s business or pursuant to the JHA Loan Documents, without Lender’sprior written consent.

 

(b)           No Borrower shall merge or consolidate with, oracquire any Capital Stock or substantially all of the assets of any otherPerson, or commence a dissolution or liquidation, other than through a mergerwith another Borrower, without Lender’s prior written consent.

 

7.02         Liens and Encumbrances. No Borrowershall: (a) execute a negative pledge agreement with any Person coveringany of the Collateral, or (b) cause or permit or agree or consent to causeor permit in the future (upon the happening of a contingency or otherwise) theCollateral, whether now owned or hereafter acquired, to be subject to any lien,claim or encumbrance other than those of Lender and Permitted Liens.

 

7.03         Negative Pledge. No Borrower shall pledgeor permit a lien or security interest to exist on the Capital Stock of itsSubsidiaries.

 

7.04         Transactions With Affiliatesor Subsidiaries.

 

(a)           Except as set forth on Schedule 7.04, noBorrower shall enter into any transaction with any Subsidiary or other Affiliate(other than another Borrower) including, without limitation, the purchase,sale, lease or exchange of Property, or the loaning, capitalization or givingof funds to any such Affiliate or any Subsidiary, unless (i) suchSubsidiary or Affiliate is engaged in a business substantially related to thebusiness conducted by such Borrower, (ii) the transaction is in theordinary course of and pursuant to the reasonable requirements of such Borrower’sbusiness and upon terms substantially the same and no less favorable to suchBorrower as it would obtain in a comparable arm’s length transaction with anyPerson not an Affiliate or a Subsidiary, and (iii) such transaction is notprohibited hereunder.

 

(b)           Except with the prior written consent of Lender, noBorrower shall create or acquire any Subsidiary or own any Capital Stock in anyPerson.  In the event that Lender permitsthe foregoing, Lender may, in its reasonable discretion, require that suchPerson becomes a Borrower hereunder.

 

7.05         Guarantees. No Borrower shall becomeor be liable, directly or indirectly, primary or secondary, matured orcontingent, in any manner, whether as guarantor, surety, accommodation maker,or otherwise, for the existing or future indebtedness of any kind of any otherPerson, except endorsements in the ordinary course of business of negotiableinstruments for deposit or collection.

 

7.06         Investments.         Without Lender’s prior written consent, no Borrowershall make any Investments, except:

 

(a)           Investments consisting ofcash or Cash Equivalents;

 

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(b)           Investments consisting ofAccounts and promissory notes created, acquired or made and trade creditextended in the ordinary course of business and payable or dischargeable inaccordance with customary trade terms;

 

(c)           Investments consisting ofCapital Stock, obligations, securities or other property received in settlementof Accounts from financially troubled obligors in the ordinary course ofbusiness;

 

(d)           Investments existing as of theClosing Date and set forth on Schedule 7.06 hereto;

 

(e)           Guarantees permitted by Section 7.05hereof;

 

(f)            Investments in any otherBorrower that is a Borrower prior to giving effect to such Investment; and

 

(g)           Investments permitted under Section 7.04.

 

7.07         Indebtedness.  Without Lender’s prior written consent, noBorrower shall create, incur or suffer to exist any Indebtedness (exclusive oftrade debt) except (subject to compliance with Section 6.06 hereof):

 

(a)           Indebtedness to Lender;

 

(b)           Indebtedness specificallyidentified on Schedule 7.07 hereto;

 

(c)           Indebtedness constitutingpurchase money indebtedness for financing of capital expenditures or a CapitalLease so long as such Indebtedness is secured only by a security interest inthe equipment being financed, and so long as such Indebtedness does not cause,or result in, an Event of Default or Unmatured Event of Default;

 

(d)           Indebtedness of any Borrowerto any other Borrower;

 

(e)           Indebtedness constitutingSubordinated Debt;

 

(f)            Indebtedness existing underthe JHA Loan Documents;

 

(g)           Indebtedness incurred tofinance the design and construction of a new emergency room and relatedfacilities;

 

(h)           Indebtedness issued pursuantto the Plan of Reorganization, in an amount not to exceed $4,000,000; and

 

(i)            Indebtedness that refinancesany Indebtedness permitted under Sections 7.07(f) or 7.07(g) (the “RefinancedIndebtedness”) so long as (i) such Refinanced Indebtedness does notexceed the original principal amount of the Indebtedness it refinances on thedate of its incurrence, (ii) no Event of Default has occurred and iscontinuing, and (iii) Borrowers are in pro forma compliance for the twelve(12) month period immediately preceding the refinancing with the financialcovenants set forth in Section 6.06 after giving effect to such RefinancedIndebtedness.

 

7.08         Loans to Other Persons. No Borrowershall make or be permitted to have outstanding any loans, advances orextensions of credit to any Person (other than as permitted under Section 7.06(f)).Borrowers may make intercompany loans to other Borrowers pursuant to Section 7.06(f),but such loans shall be documented prior to the disbursement of the loanproceeds with such promissory notes, loan agreements and collateral documentsas Lender may require in its sole discretion.

 

7.09         Change in Ownership/Management. No Borrowershall permit Prospect Hospital Advisory Services, Inc. to at any time own,legally or beneficially, less than fifty-one percent (51%) of the aggregatevoting interest of all classes of Capital Stock of such Borrower entitled tovote generally. No Borrower shall replace its

 

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chief executive officer unless a replacementacceptable to Lender is employed within ninety (90) days of any termination.

 

7.10         Subordinated Debt Payments. No Borrowershall make (i) any payment in contravention of the terms and conditions ofthe Subordination Agreements or (ii) any payment pursuant to anymanagement agreement, or any similar agreement, if an Event of Default orUnmatured Event of Default has occurred and is continuing or if such paymentwould cause an Event of Default or Unmatured Event of Default.

 

7.11         Distributions. Borrowers shall notdeclare or pay or make any forms of Distributions to its Shareholders,Affiliates, officers or directors or their respective successors or assigns,nor may any Borrower declare to pay or make any form of Distribution, except tothe extent that a Distribution can be made without causing an Event of Defaultor an Unmatured Event of Default and only so long as no Event of Default hasoccurred and is continuing.

 

7.12         No Change in Business. No Borrower shall engagein any line of business which has not been disclosed in writing to Lender priorto the date hereof without Lender’s prior written consent.

** **

**ARTICLE8**

** **

**DEFAULT**

** **

8.01         Events of Default. Each of the followingevents shall constitute an event of default (“Event of Default”) andLender shall thereupon have the option to declare the Obligations immediatelydue and payable, all without demand, notice, presentment or protest or furtheraction of any kind (it also being understood that the occurrence of any of theevents or conditions set forth in Sections 8.01(i), (j), (k), (l), (q) or (x) shallautomatically cause an acceleration of the Obligations without notice ordemand):

 

(a)           Payments. if Borrowers fail to makeany payment of principal, interest, or any other charges, fees, Expenses orother monetary obligations owing to Lender, arising out of or incurred inconnection with this Agreement on the date when such payment is due and payableand such failure continues for a period of one (1) Business Day; provided,however, that the one (1) Business Day grace period shall not beapplicable if such payments are due and payable due to maturity, accelerationor demand, whether following an Event of Default or otherwise;

 

(b)           Particular Covenant Defaults. if anyBorrower fails to perform, comply with or observe any covenant or undertakingcontained in this Agreement or any other Loan Document not otherwise describedin this Section 8.01, and such failure continues for a period of ten (10) BusinessDays after the earlier of a Borrower becoming aware of such failure or aBorrower receiving written notice of such failure;

 

(c)           Financial Information. if any statement, report,financial statement, or certificate made or delivered by a Borrower or any oftheir officers, employees or agents, to Lender is not true and correct, in allmaterial respects, when made;

 

(d)           Uninsured Loss. if there shall occur anyuninsured damage to or loss, theft, or destruction in excess of $100,000.00with respect to any portion of any Borrower’s Property;

 

(e)           Warranties or Representations. if anywarranty, representation or other statement by or on behalf of Borrowers, orany of them, contained in or pursuant to this Agreement, any Loan Document, orin any document, agreement or instrument furnished in compliance with, relatingto, or in reference to this Agreement, is false, erroneous, or misleading in anymaterial respect when made;

 

(f)            Agreements with Others. if Borrowers,or any of them, shall default beyond any grace period under any agreement withrespect to any Indebtedness or Subordinated Debt and (i) such defaultconsists of the failure to pay any principal, premium or interest with respectto such Indebtedness or (ii) such default consists of the failure toperform any covenant or agreement with respect to such Indebtedness, if theeffect of such default is to

 

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cause or permit such Indebtedness to becomedue prior to its maturity date or prior to its regularly scheduled date ofpayment;

 

(g)           Other Agreements with Lender.

 

(i)            the occurrence of any default or event of default(after giving effect to any applicable grace cure period) under any of theother Loan Documents;

 

(ii)            any of the other Loan Documents ceases to be valid,binding and enforceable in accordance with its terms; and

 

(iii)          Borrowers, or any of them, breach or violate theterms of, or if a default or an event of default, occurs under, any otherexisting or future agreement (related or unrelated) between or among Borrowers,or any of them and Lender, including, without limitation, any lease agreementsor finance agreements with any affiliate of Lender;

 

(h)           Judgments. if any final judgment forthe payment of money in excess of $100,000.00 shall be rendered againstBorrowers, or any of them, which is not fully and unconditionally covered byinsurance (such coverage to be acknowledged by a financially sound andreputable insurance company in writing) or an appeal bond, or for which suchPerson has not established a cash or cash equivalent reserve in the amount ofsuch judgment each in the form, substance and amount satisfactory to Lender inits reasonable discretion;

 

(i)            Assignment for Benefit of Creditors, etc. if Borrowers,or any of them, call a meeting of the creditors of any Borrower for the purposeof compromising such Borrower’s debts or obligations, or make or propose anassignment for the benefit of creditors generally, offers a composition orextension to creditors, or makes or sends notice of an intended bulk sale ofany business or assets now or hereafter owned or conducted by any Borrowerwhich might materially and adversely affect such Person;

 

(j)            Bankruptcy, Dissolution, etc. upon thecommencement of any action for the bankruptcy, insolvency, receivership,assignment for the benefit of creditors, dissolution or liquidation, or similarproceeding under any federal or state law, of Borrowers, or any of them, or thecommencement of any proceeding to avoid any transaction entered into byBorrowers, or any of them, or the commencement of any case or proceeding forreorganization or liquidation of Borrowers’, or any of their debts under theUnited States Bankruptcy Code or any other state or federal law now orhereafter enacted for the relief of debtors, whether instituted by or againstany Borrower; provided, however, that Borrowers shall have ten (10) daysto contest such proceeding and thirty (30) days from the commencement of theaction to obtain the dismissal or discharge of involuntary proceedings filedagainst a Borrower, it being understood that during such ten (10) andthirty (30) day periods, respectively, Lender shall be not obligated to makeRevolving Loans hereunder and Lender may seek adequate protection, stay relief,right to setoff or recoupment, and/or any other right or remedy deemednecessary in the sole discretion of Lender in any bankruptcy proceeding;

 

(k)           Receiver.  upon the appointment of a receiver,liquidator, custodian, trustee or similar official or fiduciary for Borrowers,or any of them, or for any of any such Borrower’s Property;

 

(l)            Execution Process, Seizure, etc.  the issuance of any execution or distraintprocess against any Borrower, or any of them, or any Property of any suchBorrower is seized by any governmental entity, federal, state or local;

 

(m)          Termination of Business. if Borrowers,or any of them, cease any material portion of their business operations aspresently conducted or any Borrower fails to generally meet its debts as thosedebts mature;

 

(n)           Plans, etc. any Borrower or ERISAAffiliate shall (i) engage in any “prohibited transaction” as defined inERISA, (ii) incur any “accumulated funding deficiency” as defined inERISA, (iii) incur any “reportable event” as defined in ERISA, (iv) anevent or condition which constitutes grounds under Section 4042 of ERISAfor the termination of, or the appointment of a trustee to administer, any Planor Multiemployer Plan, (v) become subject to the assertion of a materialclaim (other than routine claims for benefits) against any “plan” (as definedin ERISA) or against any Borrower or ERISA Affiliate in connection with anysuch plan, (vi) receive from the Internal Revenue Service notice of thefailure of any “plan” (as defined in ERISA) intended to be qualified under Section 401(a) ofthe Code to qualify under such section or (vii) the imposition of anyliability under

 

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Title IV of ERISA, other than for PBGCpremiums due but not delinquent under Section 4007 of ERISA, upon anyBorrower or ERISA Affiliate, and with respect to this Section 8.01(n),such event or condition either (i) remains uncured for a period of thirty(30) days from date of occurrence or (ii) could, in Lender’s reasonablebusiness judgment, subject any Borrower to any tax, penalty or other liabilityhaving a Material Adverse Effect;

 

(o)           Investigations. any indication or evidencereceived by Lender that reasonably leads it to believe Borrowers, or any ofthem, may have directly or indirectly been engaged in any type of activitywhich would be reasonably likely to result in the forfeiture of any Property ofBorrowers, or any of them, to any Governmental Authority, which wouldreasonably be expected to have a Material Adverse Effect;

 

(p)           Material Adverse Events.

 

(i)            Lender reasonably determines that an event whichadversely affects the collectability of a material portion of the Accounts hasoccurred; or

 

(ii)           a Material Adverse Effect has occurred;

 

(q)           Lockbox Instructions. any instruction oragreement regarding the Commercial Lockbox or the Government Lockbox or thebank accounts related thereto, including the Depository Agreements and anystanding transfer instructions, is amended or terminated without the writtenconsent of Lender, or if any Borrower fails, within one (1) Business Dayof receipt, to forward Collections it receives with respect to any Accounts tothe Commercial Lockbox or the Government Lockbox, as the case may be;

 

(r)            Modification of Subordinated Debt. Borrowers (orany of them) shall modify the terms or provisions of any agreement, instrumentor other document relating to any Subordinated Debt without Lender’s priorwritten consent, unless such modification is permitted by the applicableSubordination Agreement;

 

(s)           Change in Ownership/Management. any Borrowerfails to perform, comply with or observe the covenants and undertakingscontained in Section 7.09 hereof;

 

(t)            Restraint on Business. any Borrowershall be prohibited or otherwise restrained from conducting the businesstheretofore conducted by it at any of the Healthcare Facilities in any mannerthat has or could reasonably be expected to have or result in a MaterialAdverse Effect by virtue of any determination, ruling, decision, decree,ordinance, or order of any court of competent jurisdiction, GovernmentalAuthority, or municipality;

 

(u)           Revocation of Permits.  a Governmental Authority shall have revokedany material Permit, including any license, permit, certificate or Medicaid orMedicare qualification pertaining to any Healthcare Facility, regardless ofwhether such material Permit was held by or originally issued for the benefitof any Borrower;

 

(v)           Taxes. If Borrowers fail to payany obligation related to any Taxes no later than the date that suchobligations become due and payable, unless the Borrowers are challenging theTaxes in good faith and are maintaining adequate reserves;

 

(w)          CMS Claims.  If (i) CMS asserts a CMS Claim in anamount that exceeds Excess Availability and is not approved by CMS forrepayment under an extended repayment plan, or (ii) Borrowers enter into asettlement agreement and/or extended repayment plan with CMS that would resultin Borrowers’ violating the Fixed Charge Coverage Ratio calculated as of theprior quarter-end on a pro forma basis, assuming that payments due under anysuch settlement agreement and/or extended repayment plan in the following 12month period shall be deemed paid in the prior 12 month period.

 

8.02         Cure. Nothing contained in thisAgreement or the Loan Documents shall be deemed to compel Lender to accept acure of any Event of Default hereunder beyond any cure period specificallyprovided in this Agreement.

 

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8.03         Rights and Remedies onDefault.

 

(a)           In addition to all other rights, options andremedies granted or available to Lender under this Agreement or the LoanDocuments, or otherwise available at law or in equity, upon or at any timeafter the occurrence of an Event of Default, Lender may, in its discretion,charge Borrowers’ Default Rate on all then outstanding or thereafter incurredObligations and/or withhold or cease making Revolving Loans under the CreditFacility, unless such Event of Default is cured to Lender’s satisfaction orwaived in accordance herewith.

 

(b)           In addition to all other rights, options andremedies granted or available to Lender under this Agreement or the LoanDocuments (each of which is also then exercisable by Lender), Lender may, inits discretion, upon or at any time after the occurrence of an Event ofDefault, terminate the Credit Facility (it also being understood that theoccurrence of any of the events or conditions set forth in Sections 8.01(i),(j), (k) or (q) hereof shall automatically cause a termination of theCredit Facility without notice or demand).

 

(c)           The Lender will be entitled to take any and allactions to enforce its claims against Borrowers to recover the balance of theIndebtedness then due, including, without limitation, being entitled to pursueall remedies provided for by law, equity, or otherwise, and to exercise thewarrants of attorney to confess judgment against Borrowers, or any of them,contained in this Agreement or the other Loan Documents;

 

(d)           The Lender will be entitled to take any and allactions permitted by this Agreement, the other Loan Documents, and/or by law,equity or otherwise;

 

(e)           In addition to all other rights, options and remediesgranted or available to Lender under this Agreement or the Loan Documents (eachof which is also then exercisable by Lender), Lender may, upon or at any timeafter the occurrence of an Event of Default, exercise all rights under the UCCand any other applicable law or in equity, by contract or otherwise, and underall Loan Documents permitted to be exercised after the occurrence of an Eventof Default, including the following rights and remedies (which list is given byway of example and is not intended to be an exhaustive list of all such rightsand remedies):

 

(i)            Subject to all applicable laws and regulationsgoverning payment of Medicare and Medicaid receivables, the right to “takepossession” of or foreclose on the Collateral (including removing from anypremises where same may be located any and all books and records, computers,electronic media and software programs associated with any Collateral(including electronic records, contracts and signatures pertaining thereto),documents, instruments and files, and any receptacles or cabinets containingsame, relating to the Accounts) by any available judicial procedure, or withoutjudicial process, and to enter any premises where any Collateral may be locatedfor the purpose of taking possession of or removing the same, and notify allObligors of Lender’s security interest in the Collateral and require paymentunder the Accounts to be made directly to Lender and Lender may, in its ownname or in the name of the applicable Borrower, exercise all rights of asecured party with respect to the Collateral and collect, sue for and receivepayment on all Accounts, and settle, compromise and adjust the same on anyterms as may be satisfactory to Lender, in its sole and absolute discretion forany reason or without reason and Lender may do all of the foregoing with orwithout judicial process (including, without limitation, notifying the UnitedStates postal authorities to redirect mail addressed to Borrowers, or any ofthem, to an address designated by Lender) and may use, at Borrowers’ expense,such of the Borrowers’ personnel, supplies or space as may be necessary tomanage such Accounts;

 

(ii)           Require Borrowers, at Borrowers’ expense, toassemble all or any part of the Collateral and make it available to Lender atany place designated by Lender, which may include providing Lender or anyentity designated by Lender with access (either remote or direct) to Borrowers’information system for purposes of monitoring, posting payments and rebillingAccounts to the extent deemed desirable by Lender in its sole discretion;

 

(iii)          The right to reduce or modify the Revolving LoanCommitment, Borrowing Base or any portion thereof or the Advance Rates or tomodify the terms and conditions upon which Lender may be willing to considermaking Revolving Loans under the Credit Facility or to take additional Reservesin the Borrowing Base for any reason; or

 

(iv)          The right to sell, assign and deliver all or anypart of the Collateral, in the name of the Borrowers (or any of them) orLender, or in the name of such other party as Lender may designate, with orwithout advertisement, at public or private sale, for cash, on credit orotherwise, at Lender’s sole discretion, with or

 

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without warranties or representations(including warranties of title, possession, quiet enjoyment and the like), andupon such other terms and conditions as Lender in its sole discretion may deemadvisable, and Lender may bid or become a purchaser at any such sale, free fromany right of redemption, which right is hereby expressly waived by theBorrowers.

 

(f)            Borrowers hereby agree that a notice received bythem at least ten (10) days before the time of any intended public sale orof the time after which any private sale or other disposition of the Collateralis to be made, shall be deemed to be reasonable notice of such sale or otherdisposition. If permitted by applicable law, any Collateral which threatens tospeedily decline in value or which is sold on a recognized market may be soldimmediately by Lender without prior notice to Borrowers. Each Borrowercovenants and agrees not to interfere with or impose any obstacle to Lender’sexercise of its rights and remedies with respect to the Collateral.

 

8.04         ***[Reserved]***

 

### **8.05**         Nature ofRemedies. All rights and remedies grantedLender hereunder and under the Loan Documents, or otherwise available at law orin equity, shall be deemed concurrent and cumulative, and not alternativeremedies, and Lender may proceed with any number of remedies at the same timeuntil all Obligations are satisfied in full. The exercise of any one right orremedy shall not be deemed a waiver or release of any other right or remedy,and Lender, upon or at any time after the occurrence of an Event of Default,may proceed against Borrowers, or any of them, at any time, under anyagreement, with any available remedy and in any order.

 

8.06         Set-Off. Upon the occurrence of anEvent of Default, Lender and/or any Affiliate of Lender and/or participant withLender shall have and be deemed to have, without notice to Borrowers, theimmediate right of set-off and may apply the funds or other amounts or Propertythus set off against any of Borrowers’ Obligations hereunder.

 

8.07         Application of Proceeds. The net cashproceeds resulting from Lender’s exercise of any of Lenders rights pursuant tothis Article 8 (after deducting all Expenses relating thereto) shall beapplied by Lender to the payment of the Obligations as set forth in Section 2.08(b) hereof,and the Borrowers shall remain liable to Lender for any deficiencies, andLender in turn agrees to remit to the Borrowers or their successors or assigns,any surplus resulting therefrom.

** **

**ARTICLE9**

 

**MISCELLANEOUS**

 

**9.01**         GOVERNING LAW. THIS AGREEMENT, AND ALL MATTERS ARISING OUT OF OR RELATING TO THISAGREEMENT, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OFTHE COMMONWEALTH OF PENNSYLVANIA, WITHOUT GIVING EFFECT TO PRINCIPLES OFCONFLICTS OF LAWS, AND SHALL BE CONSTRUED WITHOUT THE AID OF ANY CANON, CUSTOMOR RULE OF LAW REQUIRING CONSTRUCTION AGAINST THE DRAFTSMAN.

** **

**9.02**         Integrated Agreement. The Revolving Note, the other Loan Documents, all related agreements,and this Agreement shall be construed as integrated and complementary of eachother, and as augmenting and not restricting Lender’s rights and remedies. If,after applying the foregoing, an inconsistency still exists, the provisions ofthis Agreement shall constitute an amendment thereto and shall control.

 

9.03         Waiver and Indemnity.

 

(a)           No omission or delay by Lender in exercising anyright or power under this Agreement or any related agreements and documentswill impair such right or power or be construed to be a waiver of any default,or Event of Default or an acquiescence therein, and any single or partialexercise of any such right or power will not preclude other or further exercisethereof or the exercise of any other right, and as to any Borrower no waiverwill be valid unless in writing and signed by Lender and then only to theextent specified.

 

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(b)           Each Borrower releases and shall indemnify, defendand hold harmless Lender, and its respective officers, directors, employees,attorneys and agents (each, an “Indemnified Party”), of and from anyclaims, demands, liabilities, obligations, judgments, injuries, losses, damagesand costs and expenses (including, without limitation, Expenses and reasonablelegal fees) of any kind or nature, which at any time may be imposed on, incurredby, or asserted against any Indemnified Party, resulting from (i) acts orconduct of a Borrower under, pursuant or related to this Agreement and theother Loan Documents, (ii) as a result of Lender’s exercise of (or failureto exercise) any of Lender’s rights and remedies hereunder, including (A) anysale or transfer of the Collateral, (B) the preservation, repair,maintenance, preparation for sale or securing of any Collateral, and (C) thedefense of Lender’s interests in the Collateral (including the defense ofclaims brought by the Borrowers (or any of them) as a debtor-in-possession orotherwise, any secured or unsecured creditors of the Borrowers (or any ofthem), or any trustee or receiver in bankruptcy); (ii) as a result of anyenvironmental pollution, hazardous material or environmental clean-up and theBorrowers’ off-site disposal practices; (iii) in connection with anyregulatory investigation or proceeding by any regulatory authority or agencyhaving jurisdiction over the Borrowers (or any of them); (iv) otherwiserelating to or arising out of the transactions contemplated by this Agreementand the other Loan Documents, or any action taken (or failure to act) by anyIndemnified Party with respect thereto; (v) any Borrower’s breach, oralleged breach, or violation of any representation, warranty, covenant orundertaking contained in this Agreement or the other Loan Documents, and (vi) anyBorrower’s failure, or alleged failure, to comply with any or all laws,statutes, ordinances, governmental rules, regulations or standards, whetherfederal, state or local, or court or administrative orders or decrees(including, without limitation, environmental laws, etc.), and all costs,expenses, fines, penalties or other damages resulting therefrom, unless resultingfrom acts or conduct of Lender constituting willful misconduct or grossnegligence, as finally determined by a court of competent jurisdiction. Thisindemnification shall survive the termination of this Agreement and the paymentin full and satisfaction of the Obligations.

 

(c)           Lender shall not be liable for, and Borrowers herebyagree that Lender’s liability in the event of a breach by Lender of thisAgreement shall be limited to Borrowers’ direct damages suffered and shall notextend to, any consequential or incidental damages. In the event Borrowersbring suit against Lender in connection with the transactions contemplatedhereunder, and Lender is found not to be liable, Borrowers shall indemnify and holdLender harmless from all costs and expenses, including attorneys’ fees,incurred by Lender in connection with such suit.

 

9.04         Time. Whenever Borrowers, or anyof them, shall be required to make any payment, or perform any act, on a daywhich is not a Business Day, such payment may be made, or such act may beperformed, on the next succeeding Business Day. Time is of the essence inBorrowers’ performance under all provisions of this Agreement and all relatedagreements and documents.

 

9.05         Expenses of Lender.

 

(a)           At Closing and from time to time thereafter,Borrowers will pay all reasonable expenses of Lender on demand (including,without limitation, search costs, audit fees, appraisal fees, and the fees andexpenses of legal counsel for Lender) relating to this Agreement, and allrelated agreements and documents, including, without limitation, expensesincurred in the analysis, negotiation, preparation, closing, administration andenforcement of this Agreement and the other Loan Documents, the enforcement,protection and defense of the rights of Lender in and to the Loans andCollateral or otherwise hereunder, and any reasonable expenses relating toextensions, amendments, waivers or consents pursuant to the provisions hereof,or any related agreements and documents or relating to agreements with othercreditors, or termination of this Agreement (collectively, the “Expenses”).Any Expenses not paid upon demand by Lender shall bear interest at the highestper annum rate of interest applicable to the Loans.

 

(b)           In addition, at any time following the date of thisAgreement, Borrowers effect any changes which results in a change in the formator sequence of Borrowers’ data, Borrowers shall pay to Lender its reasonablecharge for implementing such changes as are necessary to accommodate thechanges in the format or sequence of the data such that Lender’s accountsreceivable monitoring system is capable of importing such data, including anhourly fee of $150.00.

 

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9.06         Confidentiality. Except as provided in Section 9.19hereof or to the extent required by law or applicable regulations, Borrowersand Lender agree to maintain the confidentiality of this Agreement and not todisclose the contents hereof or provide a copy hereof to any third party,except (i) disclosures made in the Bankruptcy Case, (ii) accountants,lawyers and financial advisers of the parties who are informed of and agree tobe bound by this Section 9.06, and (iii) that copies hereof may beprovided to any assignee or participant (or potential assignee or participant)of Lender’s interests herein, any investors or prospective investors whoacquire or may acquire Securities backed by Accounts and any parties whichfacilitate the issuance of such Securities, including rating agencies,guarantors and insurers, who are informed of and agree to be bound by this Section 9.06.Lender agrees to maintain the confidentiality of patient information obtainedas a result of its interests in, or duties with respect to, the Accounts and asotherwise may be required pursuant to the Business Associate Agreement.

 

9.07         Notices.

 

(a)           Any notices or consents required or permitted bythis Agreement shall be in writing and shall be deemed given if delivered inperson or if sent by facsimile or by nationally recognized overnight courier,or via first class, certified or registered mail, postage prepaid, to theaddress of such party set forth on the signature pages hereof, unless suchaddress is changed by written notice hereunder;

 

(b)           Any notice sent by Lender or Borrowers, or any ofthem, by any of the above methods shall be deemed to be given when so received;and

 

(c)           Lender shall be fully entitled to rely upon anyfacsimile transmission or other writing purported to be sent by any AuthorizedOfficer (whether requesting a Revolving Loan or otherwise) as being genuine andauthorized.

 

9.08         Brokerage. Borrowers represent thatBorrowers have not committed Lender to the payment of any brokerage fee,commission or charge in connection with this transaction. If any such claim ismade on Lender by any broker, finder or agent or other Person, each Borrowerhereby indemnifies, defends and saves Lender harmless against such claim andfurther will defend, with counsel satisfactory to Lender, any action or actionsto recover on such claim, at Borrowers’ own cost and expense, including Lender’sreasonable counsel fees. Each Borrower further agrees that until any such claimor demand is adjudicated in Lender’s favor, the amount demanded shall be deemedan Obligation of Borrowers under this Agreement.

 

9.09         Headings. The headings of anyparagraph or section of this Agreement are for convenience only and shall notbe used to interpret any provision of this Agreement.

 

9.10         Survival. All warranties,representations, and covenants made by any or all Borrowers and/herein, or inany agreement referred to herein or on any certificate, document or otherinstrument delivered by it or on its behalf under this Agreement, shall beconsidered to have been relied upon by Lender, and shall survive the deliveryto Lender of the Revolving Note, regardless of any investigation made by Lenderor on its behalf. All statements in any such certificate or other instrumentprepared and/or delivered for the benefit of Lender shall constitute warrantiesand representations by Borrowers hereunder. Except as otherwise expresslyprovided herein, all covenants made by any or all Borrowers hereunder or underany other agreement or instrument shall be deemed continuing until allObligations are satisfied in full.

 

9.11         Successors and Assigns. ThisAgreement shall inure to the benefit of and be binding upon the successors andassigns of each of the parties. No Borrower may transfer, assign or delegateany of its duties or obligations hereunder.

 

9.12         Duplicate Originals. Two or more duplicateoriginals of this Agreement may be signed by the parties, each of which shallbe an original but all of which together shall constitute one and the sameinstrument. This Agreement may be executed in counterparts, all of whichcounterparts taken together shall constitute one completed fully executeddocument.

 

9.13         Modification. No modification hereof orany agreement referred to herein shall be binding or enforceable unless inwriting and signed by Borrowers and Lender.

 

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9.14         Signatories. Each individual signatoryhereto represents and warrants that he is duly authorized to execute thisAgreement on behalf of his principal and that he executes the Agreement in suchcapacity and not as a party.

 

9.15         Third Parties. No rights are intended tobe created hereunder, or under any related agreements or documents for thebenefit of any third party donee, creditor or incidental beneficiary of anyBorrower. Nothing contained in this Agreement shall be construed as adelegation to Lender of any Borrower’s duty of performance, including, withoutlimitation, such Borrower’s duties under any account or contract with any otherPerson.

 

9.16         Waivers.

 

(a)           Borrowers hereby waive diligence, demand,presentment, protest and any notices thereof as well as notices of nonpayment,intent to accelerate and acceleration. Borrowers each hereby irrevocably,unconditionally and fully subordinate in favor of Lender, any and all rightsthey or any of them, may have at any time (whether arising directly orindirectly, by operation of law or contract) to assert or receive payment onany claim against each other or any of them, on account of payments made underthis Agreement, including, without limitation, any and all rights ofsubrogation, reimbursement, exoneration, contribution or indemnity. EachBorrower waives any event or circumstances which might constitute a legal orequitable defense of, or discharge of, such Borrower. Furthermore, eachBorrower agrees that if any payment on the Obligations is recovered from orrepaid by Lender in whole or in part in any bankruptcy, insolvency or similarproceeding instituted by or against any Borrower, the remaining Borrowersand/shall be obligated to the same extent as if the recovered or repaid paymenthad never been originally made on such Obligation. Each Borrower consents andagrees that Lender shall be under no obligation to marshal any assets orCollateral in favor of such Borrower or against or in payment of any or all ofthe Obligations.

 

(b)           Each Borrower hereby consents and agrees thatLender, at any time or from time to time in its discretion may: (i) settle,compromise or grant releases for liabilities of other Borrowers, and/or anyother Person or Persons liable for any Obligations, (ii) exchange, release,surrender, sell, subordinate or compromise any Collateral of any party now orhereafter securing any of the Obligations, and (iii) following an Event ofDefault, apply any and all payments received at any time against theObligations in any order as Lender may determine; all of the foregoing in suchmanner and upon such terms as Lender may see fit, without notice to or furtherconsent from such Borrower who hereby agrees and shall remain bound upon thisAgreement notwithstanding any such action on Lender’s part.

 

(c)           The liability of each Borrower hereunder is absoluteand unconditional and shall not be reduced, impaired or affected in any way byreason of (i) any failure to obtain, retain or preserve, or the lack ofprior enforcement of, any rights against any Person or Persons (including otherBorrowers), or in any Property, (ii) the invalidity or unenforceability ofany Obligations or rights in any Collateral, (iii) any delay in makingdemand upon other Borrowers or any delay in enforcing, or any failure toenforce, any rights against other Borrowers or in any Collateral even if suchrights are thereby lost, (iv) any failure, neglect or omission to obtain,perfect or retain any lien upon, protect, exercise rights against, or realizeon, any Property of any Borrower, or any other party securing the Obligations, (v) theexistence or nonexistence of any defenses which may be available to the otherBorrowers with respect to the Obligations, or (vi) the commencement of anybankruptcy, reorganization, liquidation, dissolution or receivership proceedingor case filed by or against any Borrower.

 

9.17         CONSENT TO JURISDICTION. EACH BORROWERAND LENDER HEREBY IRREVOCABLY CONSENT TO THE NONEXCLUSIVE JURISDICTION OF, ANDVENUE IN, ANY STATE OR FEDERAL COURT LOCATED IN THE COMMONWEALTH OFPENNSYLVANIA IN ANY AND ALL ACTIONS AND PROCEEDINGS WHETHER ARISING HEREUNDEROR UNDER ANY OTHER AGREEMENT OR UNDERTAKING. BORROWERS WAIVE ANY OBJECTION TOIMPROPER VENUE AND FORUM NON-CONVENIENS TO PROCEEDINGS IN ANY SUCH COURT OR COURTSAND ALL RIGHTS TO TRANSFER FOR ANY REASON. EACH BORROWER IRREVOCABLY AGREES TOSERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED TO THE ADDRESSOF THE APPROPRIATE PARTY SET FORTH HEREIN.

 

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9.18         WAIVER OF JURY TRIAL. EACH BORROWER AND LENDERHEREBY WAIVE ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTIONWITH ANY LITIGATION COMMENCED BY OR AGAINST LENDER WITH RESPECT TO RIGHTS ANDOBLIGATIONS OF THE PARTIES HERETO OR UNDER THE LOAN DOCUMENTS, WHETHER SOUNDINGIN TORT, CONTRACT OR OTHERWISE.

 

9.19         Publication. Borrowers grant Lender theright to publish and/or advertise information to the effect that thistransaction has closed, which information may include, without limit, (a) thenames of Borrowers and Lender, (b) the size of the transaction and (c) thoseitems of information commonly included within a “tombstone advertisement” ofthe type customarily published in financial or business periodicals.

 

9.20         Discharge of Taxes, Borrowers’ Obligations, Etc. Lender, inits reasonable discretion, shall have the right at any time, and from time totime, with prior notice to Borrowers, if Borrowers fail to do so five (5) BusinessDays after requested in writing to do so by Lender, to: (a) pay for theperformance of any of Borrowers’ Obligations hereunder, and (b) dischargetaxes or liens, at any time levied or placed on any of Borrowers’ Property inviolation of this Agreement unless Borrowers are in good faith with duediligence by appropriate proceedings contesting such taxes or liens and haveestablished appropriate reserves therefor under GAAP. Expenses and advancesshall be deemed Revolving Loans hereunder and shall be deemed Revolving Loanshereunder and shall bear interest at the highest rate applied to the Loansuntil reimbursed to Lender. Such payments and advances made by Lender shall notbe construed as a waiver by Lender of an Event of Default under this Agreement.

 

9.21         Injunctive Relief. The parties acknowledgeand agree that, in the event of a breach or threatened breach of any party’sobligations hereunder, the other party may have no adequate remedy in moneydamages and, accordingly, shall be entitled to an injunction (including,without limitation, a temporary restraining order, preliminary injunction, writof attachment, or order compelling an audit) against such breach or threatenedbreach, including, without limitation, maintaining the cash management andcollection procedure described herein. However, no specification in thisAgreement of a specific legal or equitable remedy shall be construed as awaiver or prohibition against any other legal or equitable remedies in theevent of a breach or threatened breach of any provision of this Agreement.

 

9.22         Assignment or Syndication by Lender. Lender may,at its sole discretion, assign in whole or in part any and all of its rightsand/or obligations herein to any other person (other than Prime), including butnot limited to any assignment by Lender to an Affiliate of Lender or anyassignment in part or in whole of its rights herein to another party (otherthan Prime) as collateral security for Lender’s obligation(s) to suchother party.

 

9.23         Severability. If any provision hereof orof any other Loan Document is held to be illegal or unenforceable, suchprovision shall be fully severable, and the remaining provisions of theapplicable agreement shall remain in full force and effect and shall not beaffected by such provision’s severance. Furthermore, in lieu of any suchprovision, there shall be added automatically as a part of the applicableagreement a legal and enforceable provision as similar in terms to the severedprovision as may be possible.

 

9.24         Authority.  Without limiting the powers granted to Lenderin Section 8.03 hereof, if an Event of Default shall have occurred, theBorrowers hereby authorize Lender, or any person or agent which Lender maydesignate, at the Borrowers’ cost and expense, to exercise all of the followingpowers, which authority shall be irrevocable until the termination of thisAgreement and the full and final payment and satisfaction of the Obligationsto: (a) receive, take, endorse, sign, assign and deliver, all in the nameof Lender or the Borrowers (or any of them), any and all checks, notes, drafts,and other documents or instruments relating to the Collateral; (b) receive,open and dispose of all mail addressed to the Borrowers (or any of them), andto notify postal authorities to change the address for delivery thereof to suchaddress as Lender may designate; (c) request from customers indebted onAccounts at any time, in the name of Lender, information concerning the amountsowing on the Accounts; (d) request from customers indebted on Accounts atany time, in the name of the Borrowers (or any of them), any certified publicaccountant designated by Lender or any other designee of Lender, informationconcerning the amounts owing on the Accounts; (e) transmit to customersindebted on Accounts notice of Lender’s interest therein and to notifycustomers indebted on Accounts to make payment directly to Lender for theBorrowers’ account (subject to all applicable laws and regulations governingpayment of Medicare and Medicaid receivables); and/or (f)

 

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take or bring, in the name of Lender or theBorrowers (or any of them), all steps, actions, suits or proceedings deemed byLender necessary or desirable to enforce or effect collection of the Accounts.

 

9.25         Usury Limit.   In no event shall the Borrowers, upon demandby Lender for payment of any indebtedness relating hereto, by acceleration ofthe maturity thereof, or otherwise, be obligated to pay interest and fees inexcess of the amount permitted by law. Regardless of any provision herein or inany agreement made in connection herewith, Lender shall never be entitled toreceive, charge or apply, as interest on any indebtedness relating hereto, anyamount in excess of the maximum amount of interest permissible under ApplicableLaw. If Lender ever receives, collects or applies any such excess, it shall bedeemed a partial repayment of principal and treated as such. If as a result,the entire principal amount of the Obligations is paid in full, any remainingexcess shall be refunded to Borrowers. This Section 9.25 shall controlevery other provision of this Agreement, the other Loan Documents and any otheragreement made in connection herewith.

 

9.26         Termination.  Except as otherwise provided in Article 8hereof, Lender may terminate this Agreement only as of the Maturity Date.Borrowers, or any one of them, may terminate this Agreement at any time priorto the Maturity Date only in accordance with the terms of Section 2.03(c).A termination by one Borrower shall be deemed to be a termination by allBorrowers.

 

**ARTICLE 10**

 

**SPECIALINTER-BORROWER PROVISIONS**

** **

10.01       Certain BorrowerAcknowledgments and Agreements.

 

(a)           Each Borrower acknowledges that it will enjoysignificant benefits from the business conducted by the other Borrowers becauseof, inter alia, their combined ability to bargain with other Persons including,without limitation, their ability to receive the Credit Facility on favorableterms granted by this Agreement and other Loan Documents which would not havebeen available to an individual Borrower acting alone. Each Borrower hasdetermined that it is in its best interest to procure the Credit Facility whicheach Borrower may utilize directly and which receive the credit support of theother Borrowers as contemplated by this Agreement and the other Loan Documents.

 

(b)           Lender has advised Borrowers that it is unwilling toenter into this Agreement and the other Loan Documents and make available theCredit Facility extended hereby to any Borrower unless each Borrower agrees,among other things, to be jointly and severally liable for the due and properpayment of the Obligations of each Borrower under this Agreement and other LoanDocuments. Each Borrower has determined that it is in its best interest and inpursuit of its purposes that it so induce Lender to extend credit pursuant tothis Agreement and the other documents executed in connection herewith (i) becauseof the desirability to each Borrower of the Credit Facility, the interest ratesand the modes of borrowing available hereunder, (ii) because each Borrowermay engage in transactions jointly with other Borrowers and (iii) becauseeach Borrower may require, from time to time, access to funds under thisAgreement for the purposes herein set forth.

 

(c)           Each Borrower has determined that it has and, aftergiving effect to the transactions contemplated by this Agreement and the otherLoan Documents (including, without limitation, the inter-Borrower arrangementset forth in this Section 10.01) will have, assets having a fair saleablevalue in excess of the amount required to pay its probable liability on itsexisting debts as they fall due for payment and that the sum of its debts isnot and will not then be greater than all of its Property at a fair valuation,that such Borrower has, and will have, access to adequate capital for theconduct of its business and the ability to pay its debts from time to timeincurred in connection therewith as such debts mature and that the value of thebenefits to be derived by such Borrower from the access to funds under thisAgreement (including, without limitation, the inter-Borrower arrangement setforth in this Section 10.01) is reasonably equivalent to the obligationsundertaken pursuant hereto.

 

(d)           Borrower Representative (on behalf of each Borrower)shall maintain records specifying (i) all Obligations incurred by eachBorrower, (ii) the date of such incurrence, (iii) the date and amountof any payments made in respect of such Obligations and (iv) allinter-Borrower obligations pursuant to this Section 10. Borrower Representativeshall make copies of such records available to Lender, upon request.

 

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10.02       Maximum Amount of Joint and Several Liability.  Notwithstanding any provisions of thisAgreement to the contrary, it is the intent of the parties hereto that theprimary and secondary nature of the liabilities of the Borrowers, and thesecurity interests granted by the Borrowers to secure the Obligations directlyincurred by any Borrower not constitute a fraudulent conveyance under Section 548of Chapter 11 of Title II of the United States Code (11 U.S.C.§ 101, et seq.), as amended, or a fraudulent conveyance or fraudulenttransfer under the applicable provisions of any fraudulent conveyance,fraudulent transfer or similar law of any state, nation or other governmentalunit, as in effect from time to time or otherwise be rendered invalid orunenforceable due to the nature of the joint and several liability.Accordingly, Lender and Borrowers agree that if the Obligations of anyBorrower, or any security interests granted by such Borrower securing theObligations would, but for the application of this sentence, constitute afraudulent conveyance or fraudulent transfer under Applicable Law, or wouldotherwise render such Borrower’s Obligations or the security interests grantedherein invalid or unenforceable, the Obligations of such Borrower hereunder, aswell as the security interests securing such Obligations, shall be valid andenforceable only to the maximum extent that would not cause such Obligations orsecurity interests to constitute a fraudulent conveyance or fraudulent transferunder Applicable Law or otherwise result in such invalidity orunenforceability; providedhowever that each Borrower’sObligations shall be presumptively valid and enforceable to their fullestextent in accordance with the terms hereof or thereof, as if this Section 10.02were not a part of this Agreement.

 

10.03       Authorization of BorrowerRepresentative by Borrowers.

 

(a)           Each of Borrowers hereby irrevocably authorizesBorrower Representative to give notices, make requests, make payments, receivepayments and notices, give receipts and execute agreements, make agreements ortake any other action whatever on behalf of such Borrower under and withrespect to any Loan Document and each Borrower shall be bound thereby. Thisauthorization is coupled with an interest and shall be irrevocable, and Lendermay rely on any notice, request, information supplied by BorrowerRepresentative, every document executed by Borrower Representative, everyagreement made by Borrower Representative or other action taken by BorrowerRepresentative in respect of Borrowers or any thereof as if the same weresupplied, made or taken by any or all Borrowers. Without limiting thegenerality of the foregoing, the failure of one or more Borrowers to join inthe execution of any writing in connection herewith shall not, unless thecontext clearly requires, relieve any such Borrower from obligations in respectof such writing.

 

(b)           Borrowers acknowledge that the credit providedhereunder is on terms more favorable than any Borrower acting alone wouldreceive and that each Borrower benefits directly and indirectly from allRevolving Loans hereunder. Each of Borrowers, shall be jointly and severallyliable for all Obligations, regardless of, inter alia, which Borrower requested(or received the proceeds of) a particular Revolving Loan.

 

10.04       Joint and Several Liability.        TheLoans made to the Borrowers shall be deemed jointly funded to, and received by,all of the Borrowers. Each Borrower jointly and severally agrees to pay, andshall be joint and severally liable for the payment and performance of, allObligations directly incurred by any other Borrower, regardless of whether suchBorrower actually receives the proceeds of the indebtedness governed hereby orthe benefit of any other extensions of credit hereunder. Each Borroweracknowledges and agrees that the joint and several liability of the Borrowersis provided as an inducement to Lender to provide loans and other financialaccommodations to the Borrowers, and that each such Loan or other financialaccommodation shall be deemed to have been done or extended by Lender inconsideration of, and in reliance upon, the joint and several liability of theBorrowers. The joint and several liability of each Borrower hereunder isabsolute, unconditional and continuing, regardless of the validity orenforceability of any of the Obligations, or the fact that a security interestor lien in any Collateral may not be enforceable or subject to equities ordefenses or prior claims in favor of others, or may be invalid or defective inany way and for any reason. Each Borrower hereby waives: (a) all noticesto which such Borrower may be entitled as a co-obligor with respect to theObligations, including notice of (i) acceptance of this Agreement, (ii) themaking of Loans or other financial accommodations under this Agreement, or thecreation or existence of the Obligations, and (iii) presentment, demand,protest, notice of protest and notice of non-payment; and (b) all defensesbased on (i) any modification (or series of modifications) of thisAgreement, the other Loan Documents, that may create a substituted contract, orthat may fundamentally alter the risks imposed on such Borrower hereunder, (ii) therelease of any other Borrower****fromits duties this Agreement, the other Loan Documents, or the extension of thetime of performance of any other Borrower’s duties hereunder or thereunder, (iii) thetaking, releasing, impairment or abandonment of any Collateral, or thesettlement, release or compromise of

 

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the Obligations or any other Borrower’sliabilities with respect to all or any portion of the Obligations, or (iv) anyother act (or any failure to act) that fundamentally alters the risks imposedon such Borrower by virtue of its joint and several liability hereunder. It isthe intent of each Borrower by this paragraph to waive any and all suretyshipdefenses available to such Borrower with respect to the Obligations, whether ornot specifically enumerated above. Borrowers acknowledge that the creditprovided hereunder is on terms more favorable than any Borrower acting alonewould receive and that each Borrower benefits directly and indirectly from theLoans made hereunder. Each Borrower shall be jointly and severally liable forall Obligations regardless of, inter alia, which Borrower received proceeds ofthe Loans.

** **

**[Remainder of Page IntentionallyLeft Blank]**

 

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**IN WITNESS WHEREOF**, thisAgreement has been duly executed as of the day and year first above written

 

 
| **BORROWERS:**                                       |              |                           |                    |
|------------------------------------------------------|-------------------|--------------------------------|-------------------------|
|                                                 |              |                           |                    |
| Address for notices to Borrowers:                    |              | BROTMAN MEDICAL CENTER, INC.   |
|                                                 |              |                           |                    |
| Brotman  Medical Center, Inc.                   |              |                           |                    |
| 3828  Delmas Terrace                                 |              |                           |                    |
| Culver  City, CA 90231                               |              |                           |                    |
| Attn:  Michael Lane, Chief Restructuring Officer     |              | By:                            | /s/ Stanley Otake       |
| Fax:  (310) 202-4125                                 |              | Name:                          | Stanley Otake           |
|                                                 |              | Title:                         | Chief Executive Officer |
|                                                 |              |                           |                    |
| ** **                                           |              |                           |                    |
| **LENDER:**                                          |              |                           |                    |
|                                                 |              |                           |                    |
| Address for notices to Lender:                       |              | GEMINO HEALTHCARE FINANCE, LLC |
|                                                 |              |                           |                    |
| Gemino Healthcare Finance, LLC                       |              |                           |                    |
| 1  International Plaza, Suite 220               |              | By:                            | /s/ Stacy L. Allen      |
| Philadelphia,  PA 19113                              |              | Name:                          | Stacy L. Allen          |
| Attn:  Tom Schneider                                 |              | Title:                         | Vice  President         |
| Fax:  (610) 870-5401                                 |              |                           |                    |
|                                                 |              |                           |                    |
| With  a copy to (which shall not constitute notice): |              |                           |                    |
|                                                 |              |                           |                    |
| Waller Lansden Dortch & Davis, LLP          |              |                           |                    |
| 511  Union Street, Suite 2700                   |              |                           |                    |
| Nashville  City Center                               |              |                           |                    |
| Nashville,  TN 37219                                 |              |                           |                    |
| Attn:                                                | Robert  L. Harris |                           |                    |   |
|                                                 | J.  Kevin Kidd    |                           |                    |   |
| Fax:  (615) 244-6804                                 |              |                           |                    |

 

*Signature Page to CreditAgreement*

 

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ANNEXI

 

**DEFINITIONS**

 

“Account(s)” means (a) all of Borrowers’present and future Accounts, Payment Intangibles, Instruments, Chattel Paper(including Electronic Chattel Paper) (all as defined in the UCC) and all otherrights of each Borrower to receive payments including, without limitation, thethird party reimbursable portion of accounts receivable owing to a Borrowerarising out of the delivery by such Borrower of medical, surgical, diagnostic,treatment or other professional or medical or healthcare related servicesand/or the supply of goods related to any of such services (whether suchservices are supplied by a Borrower or a third party), including, withoutlimitation all Health-Care-Insurance-Receivables (as defined in the UCC) andall other rights to reimbursement under any agreements with an Obligor, (b) allAccounts, General Intangibles, rights, remedies, guarantees, SupportingObligations, Letter-of-Credit Rights, and security interests in respect of theforegoing and, all rights of enforcement and collection, all books and recordsevidencing or related to the foregoing, and all rights under this Agreement inrespect of the foregoing, (c) all information and data compiled or derivedby such Borrower in respect of such Accounts (other than any such informationand data subject to legal restrictions of patient confidentiality), and (d) allProceeds of any of the foregoing.

 

“Accounts Detail File” has the meaning setforth in Section 2.02(b) hereof.

 

“Advance Rate” means (a) seventy-five percent (75%), *provided*,*however*, that (i) if no Eventof Default or Unmatured Event of Default has occurred on or prior to Lender’sreceipt of the Officer’s Certificate delivered pursuant to Section 6.08for the fiscal quarter ending September 30, 2009, the Advance Rate shallbe increased to eighty percent (80%) as of the date such Officer’s Certificateis received; and (ii) if no Event of Default or Unmatured Event of Defaulthas occurred on or prior to Lender’s receipt of the Officer’s Certificatedelivered pursuant to Section 6.08 for the fiscal quarter ending December 31,2009, the Advance Rate shall be increased to eighty-five (85%) as of the datesuch Officer’s Certificate is received; or (b) such otherpercentage(s) resulting from an adjustment pursuant to Section 2.01(e).

 

“Affiliate” means with respect to any Person(the “Specified Person”), (a) any Person which directly orindirectly controls, or is controlled by, or is under common control with, theSpecified Person, whether by way of equity ownership or through a managementagreement and (b) any partner, director or officer (or, in the case of aPerson which is not a corporation, any individual having analogous powers) ofthe Specified Person. For purposes of the preceding sentence, “control” of aPerson shall mean the possession, directly or indirectly, of the power todirect or cause the direction of the management or policies of such Person, ordirect or indirect ownership (beneficially or of record) of, or direct orindirect power to vote, five percent (5%) or more of the Capital Stock of suchPerson. Notwithstanding the foregoing, Lender shall not be deemed to be anAffiliate of any Borrower or any Affiliate thereof.

 

“Applicable Law” shall mean, as to anyBorrower or its assets, any law, ordinance, policy, manual provision,administrative guidance, statute, rule or regulation, or any determinationof an arbitrator or a court or other Governmental Authority, in each caseapplicable to or binding upon such Borrower or any of its assets, or to whichsuch Borrower or any of its assets is subject.

 

“Authorized Officer” means any officer,member or partner of a Borrower authorized by specific resolution of Borrowerto request Loans as set forth in the incumbency certificate referred to in Section 4.01(d) ofthis Agreement.

 

“Average Outstanding Balance” means an amountcalculated each month equal to a fraction the numerator of which is equal tothe sum of the outstanding balances of all Revolving Loans hereunder for eachday of such month and the denominator of which is the number of actual days insuch month.

 

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“Bankruptcy Case” means Case number 07-19705commenced by BMC under chapter 11 of title 11 of the United States Code in theBankruptcy Court.

 

“Bankruptcy Court” means the United StatesBankruptcy Court for the Central Division of California.

 

“Billing Date” means (a) the lastBusiness Day of the week in which goods or the services giving rise to thecorresponding Account were rendered or provided in the case of out- patientservices and (b) the earlier of the discharge date or the regular monthlybilling date for billing the respective Obligor, or if none, the last BusinessDay of a calendar month, in the case of inpatient services.

 

“Borrower Representative” shall mean BrotmanMedical Center, Inc.

 

“Borrowing Base” means, at any date, anamount equal to the lesser of (a) the Revolving Loan Commitment, or (b) theproduct of (i) the applicable Advance Rate then in effect, times (ii) theEstimated Net Value of all Eligible Accounts as of such date, minus (iii) anamount equal to any Reserves, minus (iv) unposted cash.

 

“Borrowing Base Deficiency” means, as of anydate, the amount, if any, by which (a) the aggregate amount of allRevolving Loans outstanding as of such date exceeds (b) the Borrowing Baseas of such date.

 

“Borrowing Base Excess” means, as of anydate, the amount, if any, by which (a) the Borrowing Base as of such dateexceeds (b) the aggregate amount of all Revolving Loans outstanding as ofsuch date.

 

“Borrowing Base Report” has the meaning setforth in Section 2.02(b) hereof.

 

“Business Associate Agreement” means thatcertain Business Associate Agreement among Borrowers and Lender of even dateherewith, as the same may be modified, amended, restated or replaced from timeto time.

 

“Business Day” means any day other than aSaturday, Sunday or any day on which banking institutions in Philadelphia,Pennsylvania or New York City, New York are permitted or required by law,executive order or governmental decree to remain closed or a day on whichLender is closed for business.

 

“Capital Lease” means, with respect toany Person, any lease of any property (whether real, personal or mixed) by suchPerson as lessee which would, in accordance with GAAP, be required to beaccounted for as a capital lease on the balance sheet of such person.

 

“Capital Stock” means (a) in the case ofa corporation, capital stock, (b) in the case of an association orbusiness entity, any and all shares, units, interests, participations, rightsor other equivalents (however designated) of capital stock, (c) in thecase of a partnership, partnership interests (whether general or limited), (d) inthe case of a limited liability company, membership interests and (e) anyother interest or participation that confers on a Person the right to receive ashare of the profits and losses of, or distributions of assets of, the issuingPerson.

 

“Cash Equivalents” means, as at any date:

 

(a)           securitiesissued or directly and fully guaranteed or insured by the United States or anyagency or instrumentality thereof (provided that the full faith and credit ofthe United States is pledged in support thereof) having maturities of not morethan twelve (12) months from the date of acquisition;

 

(b)           dollardenominated time deposits and certificates of deposit of (i) any Lender, (ii) anydomestic commercial bank of recognized standing having capital and surplus inexcess of $500,000,000.00 or (iii) any bank whose short-term commercialpaper rating from S&P is at least A-1 or the equivalent thereof or fromMoody’s is at least P-1 or the equivalent thereof (any such bank being an “ApprovedInstitution”), in each case with maturities of not more than two hundredseventy (270) days from the date of acquisition;

 

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(c)           commercialpaper and variable or fixed rate notes issued by any Approved Institution (orby the parent company thereof) or any variable rate notes issued by, orguaranteed by, any domestic corporation rated A-1 (or the equivalent thereof)or better by S&P or P-1 (or the equivalent thereof) or better by Moody’sand maturing within six (6) months of the date of acquisition;

 

(d)           repurchaseagreements entered into by any Person with a bank or trust company (includingany of the Lenders) or recognized securities dealer having capital and surplusin excess of $500,000,000.00 for direct obligations issued by or fullyguaranteed by the United States in which such Person shall have a perfectedfirst priority security interest (subject to no other Liens) and having, on thedate of purchase thereof, a fair market value of at least one hundred percent(100%) of the amount of the repurchase obligations;

 

(e)           debtobligations issued by any domestic corporation or any domestic governmentinstrumentality, in each case rated A-1 (or the equivalent thereof) or betterby S&P or P-1 (or the equivalent thereof) or better by Moody’s and maturingwithin six (6) months of the date of acquisition; and

 

(f)            Investments,classified in accordance with GAAP as current assets, in money marketinvestment programs registered under the Investment Company Act of 1940 whichare administered by reputable financial institutions having capital of at least$500,000,000.00 and the portfolios of which are limited to Investments of thecharacter described in the foregoing clauses (a) through (e).

 

“Closing” has the meaning set forth in Section 4.06hereof.

 

“Closing Date” has the meaning set forth in Section 4.06hereof.

 

“CMS” means the Centers for Medicare andMedicaid Services of the United States Department of Health and Human Servicesand any successor thereof and any predecessor thereof, including the UnitedStates Health Care Financing Administration.

 

“CMS Claim” means any claim held by CMSagainst BMC in respect of potential overpayments made to BMC by CMS.

 

“Code” means the Internal Revenue Codeof 1986, as amended from time to time.

 

“Collateral” has the meaning set forth in Section 3.01hereof.

 

“Collateral Monitoring Fee” has the meaningset forth in Section 2.03(e) hereof.

 

“Collections” means with respect toany Account, all cash collections on such Account.

 

“Collection Account” has the meaning setforth in Section 2.07(a) hereof.

 

“Commercial Lockbox” means a lockbox in thename of Lender (or a nominee of Lender) and maintained at the Lockbox Bank, orsuch other bank as is acceptable to Lender, to which Collections on allAccounts, other than Government Accounts, are sent.

 

“Commitment Fee” has the meaning set forth inSection 2.03(f) hereof.

 

“Concentration Limits” means the variousfinancial tests, expressed as percentages of the then current ENV of allEligible Accounts, described on Schedule 1 hereto as in effect from timeto time.

 

“Contract” means an agreement by which an Obligoris obligated to pay for services rendered to patients of Borrower.

 

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“Controlled Group” means all members of acontrolled group of corporations and all trades or businesses (whether or notincorporated) under common control which, together with Borrowers, are treatedas a single employer under Section 414 of the Code.

 

“Credit Facility” has the meaning set forthin Section 2.01(a) hereof.

 

“Creditor Trust” has the meaning ascribed tosuch term in the Plan of Reorganization.

 

“Debtor Relief Laws” means theBankruptcy Code of the United States, and all other liquidation,conservatorship, bankruptcy, assignment for the benefit of creditors,moratorium, rearrangement, receivership, insolvency, reorganization, or similardebtor relief Laws of the United States or other applicable jurisdictions fromtime to time in effect and affecting the rights of creditors generally.

 

“Default Rate” means three percent (3%) abovethe Interest Rate otherwise applicable on the Loans.

 

“Defaulted Account” means an Account as towhich (a) the initial ENV has not been received in full as Collectionswithin one hundred fifty (150) days of the Billing Date, or (b) Lenderreasonably deems uncollectible because of the bankruptcy or insolvency of theObligor or any other reason.

 

“Depository Agreement(s)” means those certainDepository Agreements entered into in connection with this Agreement amongBorrowers, Lender and the Lockbox Bank, relating to the Commercial Lockbox andthe Government Lockbox, as applicable.

 

“Distribution” means (a) dividendsor other distributions on Capital Stock of a Borrower in cash, equity or anyother form of consideration, including without limitation distributions for thepayment of Taxes; (b) the redemption, repurchase or acquisition of suchCapital Stock or of warrants, rights or other options to purchase such CapitalStock; and (c) loans made to any Shareholders, officers, directors and/orAffiliates of such Borrower.

 

“Download Date” has the meaning set forth in Section 2.02(b) hereof.

 

“EBITDAC” means the sum of net income plusinterest expense, plus taxes, plus depreciation and amortization, plusconsulting fee expense.

 

“Eligible Account” means an Account of aBorrower:

 

(a)           whichis a liability of an Obligor which is (i) a commercial insurance companyacceptable to Lender, organized under the laws of any jurisdiction in theUnited States, having its principal office in the United States, other thanthose listed on Schedule 1 hereto as ineligible, (ii) a BlueCross/Blue Shield Plan other than those listed on Schedule 1 hereto asineligible, (iii) Medicaid, (iv) an HMO, PPO, or an institutionalObligor acceptable to Lender or (v) any other type of obligor, notincluded in the categories of obligors listed in the foregoing clauses (i) -(iv), organized under the laws of any jurisdiction in the United States, havingits principal office in the United States, and listed on Schedule 1hereto as an eligible Obligor,

 

(b)           theObligor of which is not an Affiliate of Borrower;

 

(c)           theObligor of which has received a letter substantially in the form of Exhibit 4.02(c),(in the case of all Accounts other than Government Accounts), or a lettersubstantially in the form of Exhibit 4.02(d) (in the case ofall Government Accounts);

 

(d)           inan amount, as relating to an individual patient, not less than $5.00 nor morethan $250,000.00, denominated and payable in dollars in the United States;

 

(e)           asto which the representations and warranties of Section 5.21 hereof are true;

 

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(f)            which,if such Account is in the form of a cost report receivable owing from anygovernmental agency, Lender has agreed to include it in the Borrowing Base;

 

(g)           which(i) does not arise from the delivery of cosmetic surgery services, (ii) isnot a workers’ compensation claim (unless the Obligor on such Account is a typeof Obligor permitted pursuant to clause (a) of this definition), (iii) doesnot arise from any services delivered for injury sustained in a motor vehicleaccident (unless the Obligor on such Account is a type of Obligor permittedpursuant to clause (a) of this definition) and (iv) is not anIndividual Payor Account;

 

(h)           whichis not outstanding more than (i) one hundred fifty (150) days past thedischarge date of the patient in the case of Accounts that have been billed,and (ii) thirty (30) days past the date the corresponding services and/orgoods were provided in the case of Accounts that have not been billed; providedhowever that in no event may the Account be outstanding more than one hundredeighty (180) days past the date the corresponding services and/or goods wereprovided;

 

(i)            theObligor on which does not have fifty percent (50%) or more of its Accountsowing to Borrowers constituting Defaulted Accounts;

 

(j)            tothe extent such Account does not include late charges or finance charges;

 

(k)           whichis not subject to a dispute between the Obligor and applicable Borrower;

 

(l)            whichis not an Account for Health Net Medicare Advantage enrollees, which gets paidinto the Risk Pool Account; and

 

(m)          whichcomplies with such other criteria and requirements as may be specified fromtime to time by Lender in its reasonable discretion.

 

“Emergency Room Account” meansany account established, or to be established, by Borrower pursuant to the JHALoan Documents at a financial institution approved by JHA West 16, LLC toreserve for all soft and hard costs of design and construction of the newemergency room facility as required by the JHA Loan Documents.

 

“Environmental Laws” means,collectively, any local, state or federal law, rule or regulation orcommon law duty pertaining to the environment, natural resources, pollution,health (including any environmental clean up statutes and all regulationsadopted by any local, state, federal or other governmental authority, and anystatute, ordinance, code, order, decree, law rule or regulation all ofwhich pertain to or impose liability or standards of conduct concerning medicalwaste or medical products, equipment or supplies), safety or clean-up,including, without limitation, the Comprehensive Environmental Response,Compensation and Liability Act of 1980 (42 U.S.C. § 9601 et seq.), theResource Conservation and Recovery Act of 1976 (42 U.S.C. § 6901 et seq.),the Federal Water Pollution Control Act (33 U.S.C. § 1251 et seq.), theHazardous Materials Transportation Act (49 U.S.C. § 5101 et seq.), theClean Air Act (42 U.S.C. § 7401 et seq.), the Federal Insecticide,Fungicide and Rodenticide Act (7 U.S.C. § 136 et seq.), the EmergencyPlanning and Community Right-to-Know Act (42 U.S.C. § 11001 et seq.),the Residential Lead-Based Paint Hazard Reduction Act (42 U.S.C. § 4851 etseq.), any analogous state or local laws, any amendments thereto, and theregulations promulgated pursuant to said laws, together with all amendmentsfrom time to time to any of the foregoing.

 

“ERISA” means the Employee RetirementIncome Security Act of 1974, as amended from time to time, and the rules andregulations promulgated thereunder from time to time.

 

“ERISA Affiliate” means any trade orbusiness (whether or not incorporated) that, together with any Borrower, istreated as a single employer under Sections 414(b) or (c) of the Codeor, solely for purposes of Section 302 of ERISA and Section 412 ofthe Code, is treated as a single employer under Section 414 of the Code.

 

“Escrow Accounts” means any accountestablished, or to be established, by Borrower with Old Republic Title Company****in connection with the JHA Loan Documents.

 

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“Estimated Net Value” or “ENV” meanson any date of calculation with respect to any Account an amount equal to theanticipated cash collections as calculated by Lender in its reasonable discretion,except that if Lender determines in its reasonable discretion that all Obligorpayments with respect to an Account have been made or if an Account has becomea Defaulted Account, the ENV of such Account shall be zero.

 

“Event of Default” has the meaning set forthin Section 8.01 hereof.

 

“Excess Availability” means, as of any date,the amount, if any, by which (a) the Borrowing Base as of such dateexceeds (b) the greater of (i) the aggregate amount of all RevolvingLoans outstanding as of such date and (ii) the Minimum Balance.

 

“Excluded Deposit Accounts” means Borrowers’Emergency Room Account, Reserve Accounts, Tax and Insurance DepositAccounts and Escrow Accounts, the Risk Pool Account and the Letter of CreditAccount.

 

“Expenses” has the meaning set forth in Section 9.05(a) hereof.

 

“Fixed Charge Coverage Ratio” meansthe ratio of (a) EBITDAC, to (b) the sum of (i) the currentportion of any long-term Indebtedness, plus (ii) the currentportion of lease payments under capitalized leases, plus (iii) cashinterest paid, plus (iv) income taxes paid, plus (v) anyunfinanced capital expenditures paid in cash by Borrower, plus (vi) anyDistributions paid in cash, plus (vii) any management fees(including without limitation the Prospect Consulting Fee) paid, plus (viii) currentportion of any amount due to CMS under any extended repayment plan inconnection with any CMS Claim, in accordance with generally accepted accountingprinciples consistently applied, on a rolling four quarter basis; *provided*, *however*,that such calculation as of the fiscal quarter ending June 30, 2009 shallbe for the most recent fiscal quarterly period ending on such date on acumulative, annualized basis; such calculation for the fiscal quarter ending September 30,2009 shall be for the two (2) most recent fiscal quarterly periods endingon such date on a cumulative, annualized basis and such calculation for thefiscal quarter ending December 31, 2009 shall be for the three (3) mostrecent fiscal quarterly periods ending on such date on a cumulative, annualizedbasis.

 

“Funded Indebtedness” means, as to anyPerson at a particular time, without duplication, all of the following, whetheror not included as indebtedness or liabilities in accordance with GAAP:

 

(a)           all obligations for borrowed money, whether current orlong-term (including the Obligations, the Subordinated Debt) and allobligations of such Person evidenced by bonds, debentures, notes, loanagreements or other similar instruments;

 

(b)           all purchase money indebtedness;

 

(c)           the principal portion of all obligations under conditionalsale or other title retention agreements relating to Property purchased by suchPerson (other than customary reservations or retentions of title underagreements with suppliers entered into in the ordinary course of business);

 

(d)           the maximum amount available to be drawn under letters ofcredit (including standby and commercial), bankers’ acceptances, bankguaranties, surety bonds and similar instruments;

 

(e)           all obligations in respect of the deferred purchase priceof Property or services (other than trade accounts payable in the ordinarycourse of business);

 

(f)            all indebtedness in respect of Capital Leases;

 

(g)           all preferred stock or other equity interests providingfor mandatory redemptions, sinking fund or like payments prior to the MaturityDate;

 

(h)           all Funded Indebtedness of others secured by (or for whichthe holder of such Funded Indebtedness has an existing right, contingent orotherwise, to be secured by) any Lien on, or payable out of

 

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the proceeds of productionfrom, Property owned or acquired by such Person, whether or not the obligationssecured thereby have been assumed; and

 

(i)            all guarantees with respect to Funded Indebtedness of thetypes specified in clauses (a) through (h) above of another Person.

 

“Funding Date” has the meaning set forth in Section 2.02(a) hereof.

 

“GAAP” means generally accepted accountingprinciples, consistently applied.

 

“Government Accounts” means Accounts on whichany federal or state governmental unit or any intermediary for federal or stategovernmental unit is the Obligor.

 

“Government Lockbox” means a lockbox and/ordeposit account in the name of Borrower(s) maintained at the Lockbox Bank,or such other bank as is acceptable to Lender, to which Collections on allGovernment Accounts are sent.

 

“Governmental Authority” means any nation orgovernment, any state or other political subdivision thereof, and any agency,department or person exercising executive, legislative, judicial, regulatory oradministrative functions of or pertaining to government and any corporation orother person owned or controlled (through Capital Stock or capital ownership orotherwise) by any of the foregoing, whether domestic or foreign.

 

“Hazardous Substances” means any substancesdefined or designated as hazardous or toxic waste, hazardous or toxic material,hazardous or toxic substance or similar term, by any environmental statute, rule orregulation of any governmental entity presently in effect and applicable tosuch real property.

 

“Healthcare Facility” or “HealthcareFacilities”, as applicable, shall mean any one or more of the hospitals andother healthcare facilities operated by a Borrower, including the healthcarefacilities described on Schedule 5.03 hereto.

 

“Healthcare Laws” shall mean: (a) anyand all federal, state and local fraud and abuse laws, including (i) thefederal Anti-Kickback Statute (42 U.S.C. § 1320a-7(b)), (ii) theStark Law (42 U.S.C. § 1395nn and §1395(q)), (iii) the civil FalseClaims Act (31 U.S.C. § 3729 et seq.), (iv) Sections 1320a-7 and1320a-7a of Title 42 of the United States Code, and (v) theregulations promulgated pursuant to such statutes; (b) the federal Food,Drug & Cosmetic Act (21 U.S.C. §§ 301 et seq.) and theregulations promulgated pursuant thereto; (c) the Health InsurancePortability and Accountability Act of 1996 (Pub. L. No. 104-191) and theregulations promulgated pursuant thereto; (d) laws, rules andregulations governing Medicare and Medicaid; (e) the Medicare PrescriptionDrug, Improvement, and Modernization Act of 2003 (Pub. L. No. 108-173) andthe regulations promulgated pursuant thereto; (f) quality, safety, lifesafety, and accreditation standards and requirements of all applicable statelaws or regulatory bodies; (g) any Applicable Law relating to theBorrowers’ ownership, management, or operation of a healthcare facility orbusiness, or assets used in connection therewith; (h) any Applicable Lawrelating to the billing or submission of claims, collection of accountsreceivable, underwriting the cost of, or provision of management oradministrative services in connection with, any and all of the foregoing, byany Borrower; and (i) any and all other applicable healthcare laws,regulations, manual provisions, policies and administrative guidance, each of (a) through(h) as may be amended from time to time.

 

“Indebtedness” means, as to any Personat a particular time, without duplication, all of the following, whether or notincluded as indebtedness or liabilities in accordance with GAAP:

 

(a)           allFunded Indebtedness; and

 

(b)           allguarantees with respect to outstanding Indebtedness of the types specified inclauses (a) and (b) above of any other Person.

 

“Indemnified Party” has the meaning set forthin Section 9.03(b) hereof.

 

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“Individual Payor Account” means an Accountowing by an Obligor who is the individual patient or Person who received thegoods or services rendered.

 

“Initial Term” has the meaning set forth in Section 2.01(d) hereof.

 

“Interest Rate” and “Interest Rates”has the meaning set forth in Section 2.03(a) hereof.

 

“Investment” means, as to any Person, anydirect or indirect acquisition or investment by such Person, whether by meansof (a) the purchase or other acquisition of Capital Stock of anotherPerson, or (b) a loan, advance or capital contribution to, guarantee orassumption of debt of, or purchase or other acquisition of any other debt orequity participation or interest in, another Person, including any partnershipor joint venture interest in such other Person. For purposes of determiningcovenant compliance, the amount of any Investment shall be the amount actuallyinvested, without adjustment for subsequent increases or decreases in the valueof such Investment.

 

“JHA Loan Documents”means (i) that certain Loan Agreement between BMC and JHA West 16 LLC andany and all documents, instruments or agreements required or delivered inconnection with the transaction contemplated therein and (ii) that certainLoan Agreement between BMC and JHA East 7 LLC and any and all documents,instruments or agreements required or delivered in connection with thetransaction contemplated therein.

 

“JHA Loans” meansany and all credit facilities, loans or advances in connection with (i) thatcertain Loan Agreement between BMC and JHA West 16 LLC or (ii) thatcertain Loan Agreement between BMC and JHA East 7 LLC.

 

“JHA MaturityDate” means the earlier of (i) the date of termination or payoff of thecredit facility described in that certain Loan Agreement between BMC and JHAWest 16 LLC as contemplated by the Plan of Reorganization (other than uponexercise by JHA West 16 LLC of its option to acquire property in satisfactionof debt or any refinancing thereof permitted by Section 7.07(i) hereof),and (ii) the termination or payoff of the credit facility described inthat certain Loan Agreement between BMC and JHA East 7 LLC as contemplated bythe Plan of Reorganization of BMC (other than any refinancing thereof permittedby Section 7.07(i) hereof).

 

“Letter of Credit Account” means that certaindeposit account at Wells Fargo Bank securing BMC’s workers’ compensationinsurance arrangements.

 

**“**LIBOR Rate” means anannual rate equal to the greater of (i) four percent (4.0%) per annum or (ii) asa reference rate, the annual rate reported as the London Interbank Offer Rateapplicable to thirty (30) day deposits of United States dollars as reported inthe Money Rates Section of The Wall Street Journal on the date ofdetermination. If The Wall Street Journal is not published on suchBusiness Day or does not report such reference rate, such reference rate shallbe as reported by such other publication or source as Lender may select.

 

“Loan(s)” means collectively the RevolvingLoans, and each may also be referred to as a “Loan”.

 

“Loan Documents” means this Agreement, theRevolving Note, the Business Associate Agreement, the Depository Agreements,and all agreements relating to the Government Lockbox and the CommercialLockbox, all financing statements, the Subordination Agreement(s), the Perfection Certificate, the NegativePledge Agreement and any other agreements, instruments, documents andcertificates delivered in connection with this Agreement.

 

“Loan Request” has the meaning set forth in Section 2.02(c) hereof.

 

“Lockbox Bank” means Citizens Bank ofPennsylvania or such other bank that is acceptable to Lender.

 

“Material Adverse Effect” shall mean amaterial adverse affect upon, or a material adverse change in, any of (a) thefinancial condition, operations, business, Property or prospects of Borrowers,taken as a whole; (b) the ability of Borrowers to perform theirObligations; (c) the legality, validity or enforceability of any Loan 

 

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Document; (d) the perfection or priorityof the liens of Lender granted under the Loan Documents or the rights andremedies of Lender under the Loan Documents; or (e) the condition or valueof any portion of the Collateral as defined herein (other than marketfluctuations in the values of such Collateral); (f) the use or scope ofany Permit or (g) the continued participation or the ability to accept orbill for goods or services in the Medicaid, Medicare or other governmentreimbursement programs by any Borrower.

 

“Maturity Date” has the meaning set forth in Section 2.01(d) hereof.

 

“Maximum Credit Limit” means an amount, fromtime to time, equal to the Revolving Loan Commitment, not to exceed at any timeSix Million and No/Dollars ($6,000,000.00) in the aggregate.

 

“Maximum Loan Turn Days” means a number ofdays calculated as follows: (i) the result of (a) the averageoutstanding balance of the Revolving Loans for the trailing three (3) monthperiod ending on the calculation date divided by (b) the averagemonthly cash collections for the trailing three (3) month period ending onthe calculation date, multiplied by (ii) thirty (30).

 

“Medicaid” means, collectively, thehealthcare assistance program established by Title XIX of the Social SecurityAct (42 U.S.C. §§ 1396 et. seq.) and any statutes succeeding thereto, and alllaws, rules, regulations, manuals, orders, guidelines or requirements (whetheror not having the force of law) pertaining to such program, in each case as thesame may be amended, supplemented or otherwise modified from time to time.

 

“Medicare” means, collectively, the healthinsurance program for the aged and disabled established by Title XVIII of theSocial Security Act (42 U.S.C. §§ 1395 et. seq.) and any statutes succeedingthereto, and all laws, rules, regulations, manuals, orders or guidelines(whether or not having the force of law) pertaining to such program, in eachcase as the same may be amended, supplemented or otherwise modified from timeto time.

 

“Multiemployer Plan” means a multiemployerplan as defined in Section 4001(a)(3) of ERISA.

 

“Negative Pledge Agreement” means theNegative Pledge Agreement, dated as of the date hereof, between ProspectHospital Advisory Services, Inc. and Lender.

 

“Obligations” means all now existing orhereafter arising debts, obligations, covenants, and duties of payment orperformance of every kind, matured or unmatured, direct or contingent, owing,arising, due, or payable to Lender, by or from Borrowers, or any of them,whether arising out of this Agreement or any other Loan Document or otherwise,including, without limitation, all obligations to repay principal of andinterest on all the Loans, and to pay interest, fees, costs, charges, Expenses,professional fees, and all sums chargeable to Borrowers, or any of them, underthe Loan Documents, whether or not evidenced by any note or other instrument.

 

“Obligor” means the party primarily obligatedto pay an Account.

 

“Organizational Documents” means, (a) withrespect to any corporation, the, charter, certificate or articles ofincorporation and the bylaws (or equivalent or comparable constituent documentswith respect to any non-U.S. jurisdiction); (b) with respect to anylimited liability company, the certificate or articles of formation ororganization and operating agreement; and (c) with respect to anypartnership, joint venture, trust or other form of business entity, thepartnership, joint venture or other applicable agreement of formation ororganization and any agreement, instrument, filing or notice with respectthereto filed in connection with its formation or organization with theapplicable Governmental Authority in the jurisdiction of its formation ororganization and, if applicable, any certificate or articles of formation ororganization of such entity.

 

“Participation Agreements” has themeaning set forth in Section 5.03(d)(ii) hereof.

 

“PBGC” means the Pension BenefitGuaranty Corporation or any Person succeeding to any or all of its functionsunder ERISA.

 

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“PerfectionCertificate” means that certain Perfection Certificate, in form andsubstance satisfactory to Lender, entered into by Borrowers as of the datehereof.

 

“Permit” shall mean any permit,approval, authorization, license, accreditation, certification, provider orsupplier number, registration, certificate of authority, certificate of need,certificate of reimbursement, variance, qualification, filing or consentrequired under any Applicable Law.

 

“Permitted Liens” has the meaning set forthin Section 5.06 hereof.

 

“Person” means any individual, corporation,partnership, limited liability partnership, limited liability company,association, trust, unincorporated organization, joint venture, court orgovernment or political subdivision or agency thereof, or other entity.

 

“Plan” means any employee pensionbenefit plan (other than a Multiemployer Plan) subject to the provisions ofTitle IV of ERISA or Section 412 of the Code or Section 302 of ERISA,and in respect of which Borrowers or any ERISA Affiliate is (or, if such planwere terminated, would under Section 4069 of ERISA be deemed to be) an “employer”as defined in Section 3(5) of ERISA.

 

“Plan of Reorganization”means that certain “Second Amended Joint Chapter 11 Plan of ReorganizationProposed by Brotman Medical Center, Inc. and the Official Committee ofUnsecured Creditors (dated November 6, 2008)” confirmed pursuant to 11U.S.C. § 1129 by the Bankruptcy Court that is in full force and effect.

 

“Prime” means Prime Healthcare Services LosAngeles, LLC, its Affiliates, and any successor or assign thereof.

 

“Property” means an interest ofBorrowers, or any of them, in any kind of property or asset, whether real,personal or mixed, or tangible or intangible.

 

“Prospect Consulting Fee” means theconsulting fee payable pursuant to that certain Consulting Services Agreement,dated as of August 1, 2005 (as amended by that certain Amendment toConsulting Services Agreement, dated as of October 25, 2007), by andbetween BMC and Prospect Hospital Advisory Services, Inc. (f/k/a ProspectMedical Management, Inc.).

 

“Required Insurance” has the meaning setforth in Section 6.02(a) hereof

 

“Reserves” has the meaning set forth in Section 2.01(a) hereof.

 

“Reserve Accounts” means any accountestablished, or to be established, by Borrower pursuant to the JHA LoanDocuments at a financial institution approved by JHA West 16, LLC or JHA East7, LLC to pay for capital improvements, repairs and replacements as describedin the JHA Loan Documents.

 

“Revolving Loan(s)” has the meaning set forthin Section 2.01(a) hereof.

 

“Revolving Loan Commitment” means anamount equal to Six Million and No/Dollars ($6,000,000.00).

 

“Revolving Note” has the meaning set forth inSection 2.01(b) hereof.

 

“Revolving Termination Fee” has the meaningset forth in Section 2.03(c) hereof.

 

“Risk Pool Account” means that certaindeposit account at Wells Fargo Bank that receives certain capitation paymentsfrom Health Net of California, Inc. for Health Net Medicare Advantageenrollees and which is subject to the joint control of BMC and Prospect MedicalGroup, Inc.

 

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“Securities” has the meaning set forthin Section 6.14 hereof.

 

“Settlement Date” has the meaning set forthin Section 2.02(a) hereof.

 

“Shareholder” means, as applicable, ashareholder, member or partner of a Borrower.

 

“Subordinated Debt”means debt or other obligations of a Borrower that is subordinated to theObligations of Borrowers to Lender on terms and conditions that aresatisfactory to the Lender in its sole discretion.

 

“Subordination Agreement” means collectivelyand individually those certain Subordination Agreements, in form and substancesatisfactory to Lender, from the holders of the Subordinated Debt in favor ofLender.

 

“Subsidiary” of a Person means acorporation, partnership, limited liability company or other business entity ofwhich fifty-one percent (51%) of the Capital Stock having ordinary voting powerfor the election of directors or other governing body (other than Capital Stockhaving such power only by reason of the happening of a contingency) are at thetime beneficially owned, or the management of which is otherwise controlled,directly, or indirectly through one or more intermediaries, or both, by suchPerson. Unless otherwise specified, all references herein to a “Subsidiary” orto “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrowers.

 

“Tax and Insurance Deposit Accounts”means any account established, or to be established, by Borrower pursuant tothe JHA Loan Documents at a financial institution approved by JHA West 16, LLCor JHA East 7, LLC for the purpose of depositing payments of real estate taxesand assessments and insurance premiums in the amounts and in the manner setforth in the JHA Loan Documents.

 

“Taxes” shall mean all federal, state,local, foreign and other net income, gross income, gross receipts, sales, use,ad valorem, transfer, franchise, profits, license, lease, service, service use,withholding, payroll, employment, excise, severance, stamp, occupation,premium, property, windfall profits, customs, duties or other taxes, fees,assessments or charges of any kind whatsoever, together with any interest andany penalties, additions to tax, or additional amounts with respect thereto,and including liabilities under escheat, unclaimed property laws or similarlaws, and the term “Tax” means any of the foregoing taxes.

 

“Third Party Payor” means Medicare,Medicaid, TRICARE, and other state or federal health care program, Blue Crossand/or Blue Shield, private insurers, managed care plans and any other personor entity which presently or in the future maintains Third Party PayorPrograms.

 

“Third Party Payor Programs” means allpayment and reimbursement programs sponsored by a Third Party Payor, in which aBorrower participates.

 

“TRICARE” means the health care plan for theuniformed services, retirees and their families.

 

“Uniform Commercial Code” or “UCC”means the Uniform Commercial Code as in effect from time to time in the Stateof New York or any other state, as applicable.

 

“Unmatured Event of Default” means an eventwhich with the passage of time, giving of notice or both, would become an Eventof Default.

 

“Unused Line Fee” has the meaning set forthin Section 2.03(d) hereof.

 

“Wells Fargo Depository Agreements” meansthat certain Collection Account Agreement, dated as of the date hereof, betweenBMC, Wells Fargo Bank, National Association, and Gemino Healthcare Finance, LLCand that certain Four Party Wholesale Lockbox Agreement (Access RestrictedImmediately), dated as of the date hereof, between BMC, Wells Fargo Bank,National Association (as Lockbox Processor), Wells Fargo Bank, National Association(as Depository Bank), and Gemino Healthcare Finance, LLC.

 

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