Document:

Nobilis Health Corp.: Exhibit 10.35 - Filed by newsfilecorp.com

SECURITY AGREEMENT 

THIS SECURITY AGREEMENT (as amended, modified or
restated from time to time, this “Agreement”), dated as of
November 26, 2014 (the “Effective Date”), is entered into by and
among Steven Ganss, an individual, in his capacity as Seller Representative
and Collateral Agent under the hereinafter defined Purchase Agreement
(in such capacity, “Collateral Agent”), for the benefit of
Sellers (as defined in the Purchase Agreement) as security for the NHC
Note (as defined in the Purchase Agreement), Northstar Healthcare Inc., a
British Columbia registered corporation (“Maker”), and Northstar
Healthcare Surgery Center - Scottsdale, LLC, an Arizona limited liability
company (“Northstar AZ,” and together with Maker, each
individually, and collectively, “Debtor”). 

AGREEMENT 

1. Definitions. As used herein: 

“Business Day” means any day other than a
Saturday, Sunday or any other day on which banks in New York City are authorized
or required by Law to close. 

“Code” means the Uniform Commercial Code as the
same may, from time to time, be enacted and in effect in the State of Delaware;
provided, that to the extent that the Code is used to define any term herein or
in any Debt Document and such term is defined differently in different articles
or divisions of the Code, the definition of such term contained in Article 9
shall govern; provided further, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection or priority of, or
remedies with respect to, Collateral Agent’s lien on any Collateral is governed
by the Uniform Commercial Code as enacted and in effect in a jurisdiction other
than the State of Delaware, the term “Code” shall mean the Uniform
Commercial Code as enacted and in effect in such other jurisdiction solely for
purposes of the provisions thereof relating to such attachment, perfection,
priority or remedies and for purposes of definitions related to such provisions.

“Claims” is defined in Section 9. 

“Collateral” means: 

(a) All present and future accounts,
chattel paper (including electronic chattel paper), commercial tort claims,
commodity accounts, commodity contracts, deposit accounts, documents, financial
assets, general intangibles, health care insurance receivables, instruments,
Intellectual Property, investment property, letters of credit, letter of credit
rights, payment intangibles, securities, security accounts and security
entitlements now or hereafter owned, held or acquired. 

(b) All economic rights of Debtor
embodied in or arising out of Debtor’s status as a member of Medical Ambulatory
Surgical Suites, LP, a Texas limited partnership, First Nobilis, LLC, a Texas
limited liability company, and NHC ASC - Dallas, LLC, a Texas limited liability
company (collectively, the “Affiliates”) which may consist of,
without limitation, all rights to share in the profits and losses of the
Affiliates and all rights to receive distributions of the assets of the
Affiliates, but specifically excluding all governance rights, including without
limitation, all rights to vote, consent to action and otherwise participate in
the management of the Affiliates. 

(c) All present and hereafter acquired
inventory and goods (including without limitation, all raw materials, work in
process and finished goods) held, possessed, owned, held on consignment or held
for sale, lease, return or to be furnished under contracts of services, in whole
or in part, wherever located. 

(d) All equipment and fixtures of
whatsoever kind and character now or hereafter possessed, held, acquired, leased
or owned, together with all replacements, accessories, additions, substitutions
and accessions to all of the foregoing, and all records relating in any way to
the foregoing. 

(e) All books, records, data, plans,
manuals, computer software, computer tapes, computer systems, computer disks,
computer programs, source codes and object codes containing any information
pertaining directly or indirectly to the Collateral and all rights to retrieve
data and other information pertaining directly or indirectly to the Collateral
from third parties. 

The term “Collateral,” as used herein, shall also
include all supporting obligations, products and proceeds of all of the
foregoing (including without limitation, insurance payable by reason of loss or
damage to the foregoing property) and any property, assets securities,
guaranties or monies of Debtor which may at any time come into the possession of
Collateral Agent. The designation of proceeds does not authorize Debtor to sell,
transfer or otherwise convey any of the foregoing property except in the
ordinary course of Debtor’s business or as otherwise provided herein. 

“Constituent Documents” has the meaning given
such term in the Purchase Agreement. 

“Control” means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the ability
to exercise voting power, by contract or otherwise. “Controlling”
and “Controlled” have meanings correlative thereto. 

“Debt” means as to any Person at any time
(without duplication) all items of indebtedness, obligation or liability of a
Person, whether mature or unmatured, liquidated or unliquidated, direct or
indirect, absolute or contingent, joint or several. 

“Debt Documents” means this Agreement, the Note,
the Purchase Agreement (but only to the extent that it pertains to the Note),
and the other agreements, instruments, and documents evidencing, securing,
governing, guaranteeing, or pertaining to the Note. 

“Default” means any Event of Default or event
which with notice and/or the passage of time would be an Event of Default.

“Dollars” and “$” mean lawful money of the
United States of America. 

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“Event of Default” is defined in Section 7. 

“Fundamental Reps” has the meaning given such term in the Purchase Agreement. 

“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body,
court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. 

“Indebtedness” means (a) all indebtedness, obligations and liabilities of Debtor to the Sellers of any kind or character, now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent,
liquidated, unliquidated, joint, several or joint and several, including without limitation all indebtedness, obligations and liabilities of Debtor to the Sellers now existing or hereafter arising under the Note, this Agreement, the Purchase
Agreement (but only to the extent it is related to the Note), and the other Debt Documents or any draft, acceptance, guaranty, endorsement, letter of credit, assignment, purchase, overdraft, discount, or indemnity agreement related to the Note, (b)
all accrued but unpaid interest on any of the indebtedness described in (a) above, (c) all costs and expenses incurred by Collateral Agent and/or the Sellers in connection with the collection of all or any part of the indebtedness and obligations
described in (a) and (b) or the protection or preservation of, or realization upon, the collateral securing all or any part of such indebtedness and obligations, including without limitation all reasonable attorneys’ fees and (d) all renewals,
extensions, modifications and rearrangements of the indebtedness and obligations described in (a), (b), and (c) above. 

“Indemnified Person” is defined in Section 9. 

“Intellectual Property” means all copyrights, trademarks, trade names, service marks, trade dress, domain names, trade secrets, patents, computer programs and other intellectual property and proprietary rights now owned or
hereafter acquired by Debtor. 

“Material Adverse Effect” means a material adverse effect on (a) the business, assets, property, operations, condition (financial or otherwise) or prospects of Debtor, (b) the ability of Debtor to pay or perform the
Indebtedness, (c) any of the rights of or benefits available to Collateral Agent under the Debt Documents, or (d) the validity or enforceability of the Debt Documents.

“Note” means that certain Promissory Note, dated as of the Effective Date, executed by Maker, payable to Collateral Agent, in the amount of Twelve Million Dollars and No/100 ($12,0000,000.00) as amended,
restated, or otherwise modified from time to time. 

“Payable Loss” has the meaning given such term in the Purchase Agreement. “Permitted Debt” is defined in Section 5(c). 

3 

“Permitted Encumbrances” means the following encumbrances: (a) liens for taxes, assessments or governmental charges or levies not yet due and payable or liens for taxes, assessments or governmental charges or levies being
contested in good faith and by appropriate proceedings; (b) liens in respect of property of a Person imposed by law which were incurred in the ordinary course of business and which have not arisen to secure Debt for borrowed money, such as
carriers’, materialmen’s, warehousemen’s and mechanics’ liens, statutory and common law landlord’s liens, and other similar liens arising in the ordinary course of business, and which either (i) do not in the aggregate
materially detract from the value of such property or materially impair the use thereof in the operation of the business of a Person, or (ii) are being contested in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property subject to such lien; (c) liens created by or pursuant to the Debt Documents; (d) liens in existence on the Effective Date which are listed, and the property subject thereto described, in Schedule
I, without giving effect to any extensions or renewals thereof; (e) liens arising from judgments, decrees, awards or attachments in circumstances not constituting an Event of Default; (f) liens (i) incurred or deposits made in the ordinary
course of business in connection with general insurance maintained by a Person, (ii) incurred or deposits made in the ordinary course of business of a Person in connection with workers’ compensation, unemployment insurance and social security,
(iii) to secure the performance by any Person of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government contracts, trade contracts, performance and return of money
bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) to the extent incurred in the ordinary course of business, and (iv) to secure the performance by a Person of leases of real property, to the extent
incurred or made in the ordinary course of business consistent with past practices; (g) licenses, sublicenses, leases or subleases granted to third Persons in the ordinary course of business not interfering in any material respect with the business
of a Person; (h) liens arising from precautionary Code financing statements regarding operating leases; (i) liens created pursuant to or in connection with capital leases permitted pursuant to this Agreement, provided that (i) such liens only serve
to secure the payment of rent or Debt arising under such capital leases, and (ii) the liens encumbering the assets leased or purported to be leased under such capital leases do not encumber any other assets of a Person; and (j) liens in equipment
and fixtures arising pursuant to purchase money security interests securing Debt representing the purchase price of assets acquired after the Effective Date; provided that (i) any such liens attach only to the assets so purchased, upgrades thereon
and, if the asset so purchased is an upgrade, the original asset itself (and such other assets financed by the same financing source), (ii) the Debt secured by any such lien does not exceed the purchase price of the property being purchased at the
time of the incurrence of such Debt, and (iii) the Debt secured thereby is permitted to be incurred pursuant to this Agreement. 

“Person” means any individual, corporation, limited liability company, business trust, association, company, partnership, joint venture, Governmental Authority, or other entity, and shall include such Person’s heirs,
administrators, personal representatives, executors, successors and assigns.

“Purchase Agreement” means that certain Membership Interest Purchase Agreement, dated as of the Effective Date, by and among Maker, Northstar Healthcare Subco, LLC a Delaware limited liability company, Athas Health, LLC, a Texas
limited liability company, Payee and each other Seller party thereto (as
amended, restated, or otherwise modified from time to time. 

4 

“Subsidiary” has the meaning given such term in
the Purchase Agreement. 

All words and phrases used herein shall have the meaning
specified in the Code except to the extent such meaning is inconsistent with
this Agreement. All definitions contained in this Agreement are equally
applicable to the singular and plural forms of the terms defined. The words
“hereof,” “herein” and “hereunder” and words of similar import referring to this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement.

2. Collateral.

(a) Grant of Security Interest.
As collateral security for the prompt payment in full when due (whether at
stated maturity, by acceleration or otherwise) of the Indebtedness, Debtor
hereby pledges to and grants Collateral Agent, for the ratable benefit of the
Sellers, a security interest in all of Debtor’s right, title and interest in the
Collateral, whether now owned by Debtor or hereafter acquired and whether now
existing or hereafter coming into existence. If Debtor at any time holds or
acquires a commercial tort claim, Debtor shall notify Collateral Agent in
writing within five (5) Business Days of such occurrence with the details
thereof and grant to Collateral Agent a security interest therein or lien
thereon and in the proceeds thereof, in form and substance satisfactory to
Collateral Agent. If the security interest granted hereby in any rights of
Debtor under any contract or other agreement included in the Collateral is
expressly prohibited by such contract, then the security interest hereby granted
therein nonetheless remains effective to the extent allowed by Article 9 of the
Code or other applicable law, but is otherwise limited by that prohibition. 

(b) Debtor Remains Liable.
Notwithstanding anything to the contrary contained herein, (i) Debtor shall
remain liable under the contracts and agreements included in the Collateral to
the extent set forth therein to perform all of Debtor’s respective duties and
obligations thereunder to the same extent as if this Agreement had not been
executed; (ii) the exercise by Collateral Agent of any of its rights hereunder
shall not release Debtor from any of its duties or obligations under the
contracts and agreements included in the Collateral and (iii) Collateral Agent
shall not have any obligation or liability under any of the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall
Collateral Agent be obligated to perform any of the obligations or duties of
Debtor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder. 

(c) Intellectual Property. All
material Intellectual Property owned or used by Debtor (if any) is listed,
together with application or registration numbers, where applicable, on
Schedule II. Debtor owns, or is licensed to use, all Intellectual
Property necessary to conduct its business as currently conducted except for
such Intellectual Property the failure of which to own or license could not
reasonably be expected to have a Material Adverse Effect. Debtor will maintain
the patenting and registration of all Intellectual Property with the United
States Patent and Trademark Office, the United States Copyright Office, or other
appropriate Governmental Authority, and Debtor will promptly patent or register,
as the case may be, all new Intellectual Property and notify Collateral Agent in
writing five (5) Business Days prior to filing any such new patent or
registration. 

5 

(d) Additional Documents. To
secure full and complete payment and performance of the Indebtedness, Debtor
shall execute and deliver or cause to be executed and delivered all of the Debt
Documents reasonably required by Collateral Agent covering the Collateral.
Debtor shall execute and cause to be executed such further documents and
instruments, as Collateral Agent, in its reasonable discretion, deems necessary
or desirable to create, evidence, preserve and perfect its liens and security
interests in the Collateral. In the event any of the Debt Documents evidencing
or securing the Indebtedness misrepresents or inaccurately reflects the correct
terms and/or provisions of the Indebtedness, Debtor shall upon request by
Collateral Agent and in order to correct such mistake, execute such new
documents or initial corrected, original documents as Collateral Agent may deem
reasonably necessary to remedy said errors or mistakes. Debtor shall execute
such other documents as Collateral Agent shall deem reasonably necessary to
correct any defects or deficiencies in the Debt Documents.

(e) Setoff. As further security
for the Indebtedness, Debtor grants to Collateral Agent a first lien and
contractual right of set-off in and to all money and property of Debtor now or
at any time hereafter coming within the custody or control of Collateral Agent.
It is further agreed that Collateral Agent shall have a first lien on all sums
at any time credited by or due from Collateral Agent to Debtor as security for
the payment of the Indebtedness, and Collateral Agent, at its option after the
occurrence of a. Event of Default may without notice and without any liability,
hold all or any part of any such deposits or other sums until all amounts owing
under the Debt Documents have been paid in full, and/or Collateral Agent may
apply or set-off all or any part of any such deposits or other sums credited by
or due from Collateral Agent to or against any sums due under the Debt Documents
in any manner and in any order of preference which Collateral Agent, in its sole
discretion, chooses. The rights and remedies of Collateral Agent hereunder are
in addition to any other rights and remedies (including, without limitation,
other rights of setoff) which Collateral Agent may have. 

(f) Satisfaction of
Indebtedness. Until the Indebtedness has been indefeasibly paid and fully
satisfied (other than contingent indemnification obligations to the extent no
unsatisfied claim has been asserted), Collateral Agent shall be entitled to
retain the security interests in the Collateral granted under the Debt Documents
and the ability to exercise all rights and remedies available to Collateral
Agent under the Debt Documents and applicable laws. 

6 

3. Representations and Warranties. Debtor hereby
represents and warrants to Collateral Agent as follows, in each case after
giving effect to the transactions contemplated by the Purchase Agreement: 

Existence. Debtor (i) is
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its organization; (ii) has all requisite power and authority to
own its assets and carry on its business as now being or as proposed to be
conducted; and (iii) is qualified to do business in all jurisdictions in which
the nature of its business makes such qualification necessary and where failure
to so qualify would have a Material Adverse Effect. Debtor has the power and
authority to execute, deliver, and perform its obligations under the Debt
Documents to which it is or may become a party.

Binding Obligations. The
execution, delivery, and performance of the Debt Documents by Debtor have been
duly authorized by all necessary action by Debtor, and constitute legal, valid
and binding obligations of Debtor, enforceable in accordance with their
respective terms, except as limited by bankruptcy, insolvency or similar laws of
general application relating to the enforcement of creditors’ rights and except
to the extent specific remedies may generally be limited by equitable
principles.> 

No Consent. The
execution, delivery and performance of the Debt Documents, and the consummation
of the transactions contemplated thereby, do not (i) conflict with, result in a
violation of, or constitute a default under (1) any provision of the Constituent
Documents (if any) or other instrument binding upon Debtor, (2) any law,
governmental regulation, court decree or order applicable to Debtor, or (3) any
contractual obligation, agreement, judgment, license, order or permit applicable
to or binding upon Debtor, (ii) require the consent, approval or authorization
of any third party, or (iii) result in or require the creation of any lien,
charge or encumbrance upon any property or asset of Debtor except as may be
expressly contemplated in the Debt Documents.

(a) Operation of Business.
Debtor possesses all contracts, licenses, permits, franchises, patents,
copyrights, trademarks, and tradenames, or rights thereto, necessary to conduct
its businesses substantially as now conducted and as presently proposed to be
conducted, and Debtor is not in violation of any valid rights of others with
respect to any of the foregoing, except any violations that could not reasonably
be expected to have a Material Adverse Effect. 

(b) Litigation and Judgments.
There is no action, suit, investigation, or proceeding before or by any
Governmental Authority or arbitrator pending, or to the knowledge of Debtor,
threatened against or affecting Debtor that would, if adversely determined, have
a Material Adverse Effect. There are no outstanding judgments against Debtor.

(c) Rights in Properties; Liens.
Debtor has good and indefeasible title to or valid leasehold interests in its
properties, including the properties and assets reflected in the financial statements provided to Collateral Agent, and none
of the properties of Debtor is subject to any lien, except Permitted
Encumbrances. 

7 

(d) Debt. Debtor has no Debt
other than the Permitted Debt (as defined below). 

(e) Subsidiaries, Ventures, Etc.
Debtor has no Subsidiaries or joint ventures or partnerships other than those
listed on Schedule III, and such Schedule sets forth the jurisdiction of
organization of each such Person and the percentage of Debtor’s ownership
interest in such Person. All of the outstanding ownership interest of Person
described in such Schedule has been validly issued, is fully paid, and is
non-assessable. 

(f) Compliance with Laws. Debtor
is in not violation of any law, rule, regulation, order, or decree of any
Governmental Authority or arbitrator, the violation of which could reasonably be
expected to have a Material Adverse Effect. 

(g) Taxes; Governmental Charges.
Debtor has filed all federal, state and local tax reports and returns required
by any law or regulation to be filed by it and has either duly paid all taxes,
duties and charges indicated due on the basis of such returns and reports, or
made adequate provision for the payment thereof, and the assessment of any
material amount of additional taxes in excess of those paid and reported is not
reasonably expected. Debtor has no knowledge of any pending investigation of
Debtor by any taxing authority or any pending but unassessed tax liability. 

(h) Security Interest. Debtor
has and will have at all times full right, power and authority to grant a
security interest in the Collateral to Collateral Agent in the manner provided
herein, free and clear of any lien, security interest or other charge or
encumbrance other than for the Permitted Encumbrances. This Agreement creates a
legal, valid and binding first priority security interest (subject to Permitted
Encumbrances) in favor of Collateral Agent in the Collateral securing the
Indebtedness. Possession by Collateral Agent of certain types of Collateral from
time to time or the filing of the financing statements delivered prior hereto or
concurrently herewith by Debtor to Collateral Agent will perfect and establish
the first priority of Collateral Agent’s security interest hereunder in the
Collateral (to the extent that perfection can be accomplished through the filing
of a financing statement or the possession of such Collateral) other than for
the Permitted Encumbrances. 

(i) Location. Debtor’s chief
executive office and the office where the records concerning the Collateral are
kept are at its address set forth on the signature page hereof. 

(j) Pledged Equity. Schedule
IV sets forth a complete and accurate list of the Pledged Equity owned by
Debtor. Debtor is the direct and beneficial owner of each item of Pledge Equity
listed on Schedule IV as being owned by it, free and clear of any liens,
except for the security interest granted to Collateral Agent hereunder. Debtor
further represents and warrants that (i) all such Pledged Equity which is shares
of stock in a corporation or ownership interests in a partnership or
limited liability company have been (to the extent such concepts are relevant
with respect to such instrument, security or other type of investment property)
duly and validly issued, are fully paid and non-assessable and (ii) with respect
to any certificates delivered to Collateral Agent representing an ownership
interest in a partnership or limited liability company, either such certificates
are securities as defined in Article 8 of the Code of the applicable
jurisdiction as a result of actions by the issuer or otherwise, or, if such
certificates are not securities, Debtor has so informed Collateral Agent so that
Collateral Agent may take steps to perfect its security interest therein as a
general intangible.

8 

4. Affirmative Covenants. Until all Indebtedness is
indefeasibly paid or performed, Debtor agrees and covenants as follows: 

(a) Payment of Obligations.
Debtor will pay its obligations, including tax liabilities, that, if not paid,
could become a lien on any of its property, before the same shall become
delinquent or in default, except where (i) the validity or amount thereof is
being contested in good faith by appropriate proceedings, and (ii) Debtor has
set aside on its books adequate reserves with respect thereto. 

(b) Maintenance and Conduct of
Business. Debtor will (i) keep, maintain and preserve all property (tangible
and intangible) material to the conduct of its business in good working order
and condition, ordinary wear and tear excepted, (ii) do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges, agreements and
franchises material to the conduct of its business, and (iii) engage in an
efficient and economical manner in a business of the same general type and
within Debtor’s powers under Constituent Documents. 

(c) Books and Records; Inspection
Rights. Debtor will keep proper books of record and account in which full,
true and correct entries are made of all dealings and transactions in relation
to its business and activities. Debtor will permit any representatives
designated by Collateral Agent, upon reasonable prior notice, to visit and
inspect its properties, to examine and make extracts from its books and records,
and to discuss its affairs, finances and condition with its officers and
independent accountants, all at such reasonable times and as often as reasonably
requested. 

(d) Insurance. Debtor will
maintain insurance, including but not limited to, fire insurance, comprehensive
property damage, public liability, worker’s compensation, business interruption
and other insurance deemed reasonably necessary by Collateral Agent. Debtor
will, at its own expense, maintain insurance with respect to all Collateral in
such amounts, against such risks, in such form and with such insurers, as shall
be satisfactory to Collateral Agent from time to time. Each policy of insurance
maintained by Debtor shall (i) name Debtor and Collateral Agent as insured
parties thereunder (without any representation or warranty by or obligation upon
Collateral Agent) as their interests may appear, (ii) contain the agreement by
the insurer that any loss thereunder shall be payable to Collateral Agent
notwithstanding any action, inaction or breach of representation or warranty by Debtor, and (iii) provide prior
written notice of cancellation or of lapse shall be given to Collateral Agent by
the insurer in accordance with the insurer’s commercial practices as adopted
from time to time. Debtor will deliver to Collateral Agent original or duplicate
policies of such insurance. Debtor will also, at the request of Collateral
Agent, duly execute and deliver instruments of assignment of such insurance
policies and cause the respective insurers to acknowledge notice of such
assignment. All insurance payments in respect of loss of or damage to any
Collateral shall be paid to Collateral Agent and applied by Collateral Agent in
accordance with the Debt Documents, provided, however, that so long as no
Default exists, Debtor may use such insurance payments for the repair or
replacement of such lost or damaged property. 

9 

(e) Compliance with Laws. Debtor
will comply with all laws, rules, regulations and orders of any Governmental
Authority applicable to it or its property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect. 

(f) Compliance with Agreements.
Debtor will comply, in all material respects with all material agreements,
contracts, and instruments binding on it or affecting its properties, assets or
business. 

(g) Additional Subsidiaries. If
any Subsidiary of Debtor is formed or acquired after the Effective Date, Debtor
will notify Collateral Agent thereof and (i) Debtor will cause the equity
interests in such Subsidiary to be pledged to Collateral Agent within five (5)
Business Days after such Subsidiary is formed or acquired. 

(h) Notices of Material Events.
Debtor will furnish to Collateral Agent prompt written notice of the following:

(i) the occurrence of any Default; 

(ii) the filing or commencement of any
action, suit or proceeding by or before any arbitrator or Governmental Authority
against Debtor that, if adversely determined, could reasonably be expected to
result in a Material Adverse Effect; and 

(iii) any occurrence of a Material
Adverse Effect. 

Each notice delivered under this Section shall be accompanied
by a statement of an officer of Debtor setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto. 

(i) Ownership and Liens. Debtor
will maintain good and indefeasible title to the Collateral free and clear of
all liens, security interests, encumbrances or adverse claims, except for
Permitted Encumbrances. Debtor will cause any financing statement or other
security instrument with respect to the Collateral to be terminated, except for
Permitted Encumbrances. Debtor will defend at its expense Collateral Agent’s
right, title and security interest in and to the Collateral against the claims
of any third party. 

10 

(j) Accounts and General
Intangibles. Debtor will, except as otherwise provided herein, collect, at
Debtor’s own expense, all amounts due or to become due under each of the
accounts and general intangibles. In connection with such collections, Debtor
may and, at Collateral Agent’s direction, will take such action not otherwise
forbidden herein as Debtor or Collateral Agent may deem reasonably necessary or
advisable to enforce collection or performance of each of the accounts and
general intangibles. Debtor will also duly perform and cause to be performed all
of its material obligations with respect to the goods or services, the sale or
lease or rendition of which gave rise or will give rise to each account and all
of its obligations to be performed under or with respect to the general
intangibles. Debtor also covenants and agrees to take any action and/or execute
any documents that Collateral Agent may reasonably request in order to comply
with law relating to the assignment of the accounts. 

(k) Chattel Paper, Documents and
Instruments. Debtor will take such action as may be reasonably requested by
Collateral Agent in order to cause any chattel paper, documents or instruments
to be valid and enforceable and will cause all chattel paper, and instruments to
have only one original counterpart. Upon request by Collateral Agent, Debtor
will deliver to Collateral Agent all originals of chattel paper, documents or
instruments and unless such request is made, Debtor will not deliver possession
of such chattel paper, documents or instruments to any Person and will mark all
chattel paper, documents or instruments with a legend indicating that such
chattel paper, document or instrument is subject to the security interest
granted hereunder. 

(l) Waivers and Consents Relating to
Real Property Interests. Upon the request of Collateral Agent, Debtor shall
cause each mortgagee of real property owned by Debtor and each landlord of real
property leased by Debtor to execute and deliver agreements satisfactory in form
and substance to Collateral Agent by which such mortgagee or landlord (i) waives
or subordinates any rights it may have in the Collateral, or (ii) consents to
the mortgage or other encumbrance of Debtor’s interest in such real property.

(m) Uncertificated Securities and
Certain Other Investment Property. Debtor will permit Collateral Agent from
time to time to cause the appropriate issuers (and, if held with a securities
intermediary, such securities intermediary) of uncertificated securities or
other types of investment property not represented by certificates which are
Collateral to mark their books and records with the numbers and face amounts of
all such uncertificated securities or other types of investment property not
represented by certificates and all rollovers and replacements therefor to
reflect the lien of Collateral Agent granted pursuant to this Agreement. Debtor
will take any actions necessary to cause (i) the issuers of uncertificated
securities which are Collateral and which are securities and (ii) any financial
intermediary which is the holder of any investment Property, to cause Collateral
Agent to have and retain control over such securities or other investment
property. Without limiting the foregoing, Debtor will, with respect to
investment property held with a financial intermediary, cause such financial
intermediary to enter into a control agreement with Collateral Agent in form and
substance satisfactory to Collateral Agent. 

11 

(n) Information. Debtor shall
promptly deliver such information concerning Debtor or the Collateral as
Collateral Agent may reasonably request. 

5. Negative Covenants. Until all Indebtedness is
indefeasibly paid or performed, and Collateral Agent has no further commitment
to lend under the Credit Facility, Debtor agrees and covenants as follows: 

(a) Fundamental Change. Debtor
will not, without the prior written consent of Collateral Agent, (i) make any
material change in the nature of its business as carried on as of the Effective
Date, (ii) amend or permit the amendment of any of its Constituent Documents,
(iii) liquidate, merge or consolidate with or into any other Person, (iv) make a
change in organizational structure or the jurisdiction in which it is organized,
or (v) permit any change in Debtor’s legal name, or the state of Debtor’s
organization, to another jurisdiction.

(b) OTHER CHANGES. DEBTOR WILL NOT,
WITHOUT THE PRIOR WRITTEN CONSENT OF COLLATERAL AGENT, (i) SELL, TRANSFER,
MORTGAGE, ASSIGN, PLEDGE, LEASE (OTHER THAN IN THE ORDINARY COURSE OF BUSINESS),
GRANT A SECURITY INTEREST IN OR ENCUMBER ANY OF DEBTOR’S ASSETS, EXCEPT AS
EXPRESSLY PERMITTED BY THE DEBT DOCUMENTS, OR (ii) SELL ANY OF DEBTOR’S
ACCOUNTS. 

(c) Debt. Debtor will not
create, incur, assume or permit to exist any Debt except for the following
(“Permitted Debt”): 

(i) The Indebtedness; 

(ii) Trade payables or similar
obligations from time to time incurred in the ordinary course of business other
than for borrowed money; and 

(iii) Other Debt existing on the
Effective Date and set forth on Schedule V. 

(d) Loans. Debtor will not make
loans or guarantee any obligation of any other Person or entity. 

(e) Dividends or Distributions.
Debtor will not, without the prior written consent of Collateral Agent, declare
or pay any dividends or distributions on any equity interest of Debtor to any
Person. 

(f) Impairment of Security
Interest. Debtor will not take any action that would in any manner impair
the enforceability of Collateral Agent’s security interest in any Collateral.

(g) Compromise of Collateral.
Debtor will not adjust, settle, compromise, amend or modify any Collateral,
except an adjustment, settlement, compromise, amendment or modification in good faith and in the ordinary
course of business; provided, however, this exception shall terminate following
written notice from Collateral Agent upon the occurrence and during the
continuation of an Event of Default. Debtor shall provide to Collateral Agent
such information concerning (i) any adjustment, settlement, compromise,
amendment or modification of any Collateral, and (ii) any claim asserted by any
account debtor for credit, allowance, adjustment, dispute, setoff or
counterclaim, as Collateral Agent may reasonably request from time to time. 

12 

(h) Change In Control. Debtor
shall not permit any change in Control of Debtor or any Subsidiary of Debtor.

6. Rights of Collateral Agent. Collateral Agent shall
have the rights contained in this Section at all times that this Agreement is
effective. 

(a) Financing Statements. Debtor
hereby authorizes Collateral Agent to file one or more financing or continuation
statements, and amendments thereto, relating to the Collateral. Debtor hereby
irrevocably authorizes Collateral Agent at any time and from time to time to
file in any Code jurisdiction any initial financing statements and amendments
thereto that (i) indicate the Collateral (1) as all assets of Debtor or words of
similar effect; regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the Code, or (2) as being of
an equal or lesser scope or with greater detail, and (ii) contain any other
information required by Article 9 of the Code for the sufficiency or filing
office acceptance of any financing statement or amendment. 

Power of Attorney. Debtor hereby
irrevocably appoints Collateral Agent as Debtor’s attorney-in-fact, such power
of attorney being coupled with an interest, with full authority in the place and
stead of Debtor and in the name of Debtor or otherwise, from time to time
following the occurrence and during the continuation of an Event of Default in
Collateral Agent’s reasonable discretion, to take any action and to execute any
instrument which Collateral Agent may deem necessary or appropriate to
accomplish the purposes of this Agreement, including without limitation: (i) to
obtain and adjust insurance required by Collateral Agent hereunder; (ii) to
demand, collect, sue for, recover, compound, receive and give acquittance and
receipts for moneys due and to become due under or in respect of the Collateral;
(iii) to receive, endorse and collect any drafts or other instruments, documents
and chattel paper in connection with clause (i) or (ii) above; (iv) to file any
claims or take any action or institute any proceedings which Collateral Agent
may deem necessary or appropriate for the collection and/or preservation of the
Collateral or otherwise to enforce the rights of Collateral Agent with respect
to the Collateral; and (v) to act on Debtor’s behalf as permitted by any other
Debt Document. 

(b) Performance by Collateral
Agent. If Debtor fails to perform any agreement or obligation provided for
in any Debt Document, Collateral Agent may itself perform, or cause performance
of, such agreement or obligation, and the expenses of Collateral Agent incurred in connection therewith shall be a
part of the Indebtedness, secured by the Collateral and payable by Debtor on
demand. 

13 

(c) Debtor’s Receipt of
Proceeds. Upon the occurrence and during the continuation of an Event of
Default, all amounts and proceeds (including instruments and writings) received
by Debtor in respect of the Collateral shall be received in trust for the
benefit of Collateral Agent hereunder and, upon the written request of
Collateral Agent, shall be segregated from other property of Debtor and shall be
forthwith delivered to Collateral Agent in the same form as so received (with
any necessary endorsement) and applied to the Indebtedness in accordance with
the Debt Documents. 

(d) Notification of Account
Debtors. Collateral Agent may at its reasonable discretion from time to time
during the continuation of an Event of Default notify any or all obligors under
any accounts (i) of Collateral Agent’s security interest in such accounts or
general intangibles and direct such obligors to make payment of all amounts due
or to become due to Debtor thereunder directly to Collateral Agent, and (ii) to
verify the accounts with such obligors. Collateral Agent shall have the right,
at the expense of Debtor, to enforce collection of any such accounts and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as Debtor. 

7. Events of Default. Each of the following shall
constitute an “Event of Default” under this Agreement: 

(a) Payment Default. The
failure, refusal or neglect of Debtor to pay when due any part of the principal
of, or interest on the Indebtedness owing to Collateral Agent by Debtor or any
other indebtedness or obligations due and owing from Debtor to Collateral Agent
under the Debt Documents from time to time. 

(b) Performance or Warranty
Default. The failure of Debtor to timely and properly observe, keep or
perform any covenant, agreement, warranty or condition required herein or in any
of the other Debt Documents. 

(c) Representations. Any
representation contained herein or in any of the other Debt Documents made by
Debtor is false, misleading or erroneous in any material respect when made or
when deemed to have been made. 

(d) Insolvency. If Debtor: (i)
becomes insolvent, or makes a transfer in fraud of creditors, or makes an
assignment for the benefit of creditors, or admits in writing its inability to
pay its debts as they become due; (ii) generally is not paying its debts as such
debts become due; (iii) has a receiver, trustee or custodian appointed for, or
take possession of, all or substantially all of its assets, either in a
proceeding brought by it or in a proceeding brought against it and such
appointment is not discharged or such possession is not terminated within sixty
(60) days after the effective date thereof or it consents to or acquiesces in
such appointment or possession; (iv) files a petition for relief under the
United States Bankruptcy Code or any other present or future federal or state
insolvency, Bankruptcy or similar laws (all of the foregoing hereinafter
collectively called “Applicable Bankruptcy Law”) or an
involuntary petition for relief is filed against it under any Applicable
Bankruptcy Law and such involuntary petition is not dismissed within sixty (60)
days after the filing thereof, or an order for relief naming it is entered under
any Applicable Bankruptcy Law, or any composition, rearrangement, extension,
reorganization or other relief of debtors now or hereafter existing is requested
or consented to by it; or (v) fails to have discharged within a period of sixty
(60) days any attachment, sequestration or similar writ levied upon any property
of it. 

14 

(e) Judgment. The entry of any
judgment against Debtor or the issuance or entry of any attachments or other
liens against any of the property of Debtor for an amount in excess of
$100,000.00 (individually or in the aggregate) if uninsured, undischarged,
unbonded or undismissed on the date on which such judgment could be executed
upon. 

(f) Action Against Collateral.
The Collateral or any portion thereof is taken on execution or other process of
law in any action. 

(g) Action of Lien Holder. The
holder of any lien or security interest on the Collateral (without hereby
implying the consent of Collateral Agent to the existence or creation of any
such lien or security interest on the Collateral), declares a default thereunder
or institutes foreclosure or other proceedings for the enforcement of its
remedies thereunder. 

(h) Transfer of the Property.
Title to all or any part of the Collateral (other than obsolete or worn personal
property replaced by adequate substitutes of equal or greater value than the
replaced items when new) shall become vested in any party other than Debtor,
whether by operation of law or otherwise.

(i) Debt Documents. (i) The Debt
Documents shall at any time after their execution and delivery and for any
reason cease (1) to create a valid and perfected first priority security
interest (subject to Permitted Encumbrances) in and to the Collateral; or (2) to
be in full force and effect or shall be declared null and void, or (ii) the
validity or enforceability of the Debt Documents shall be contested by Debtor or
any other Person party thereto or Debtor shall deny it has any further liability
or obligation under the Debt Documents. 

Nothing contained in this Agreement shall be construed to limit
the events of default enumerated in any of the other Debt Documents and all such
events of default shall be cumulative. 

8. Remedies and Related Rights. If an Event of Default
shall have occurred and be continuing, and without limiting any other rights and
remedies provided herein, under any of the Debt Documents or otherwise available
to Collateral Agent, Collateral Agent may exercise one or more of the rights and
remedies provided in this Section; provided, however, Collateral Agent may not
exercise any of the rights or remedies provided in this Section so long as there
remains unpaid any Payable Loss arising from the breach of any of the
Fundamental Reps.

15 

(a) Remedies. Upon the
occurrence and during the continuance of any one or more of the foregoing Events
of Default, the entire unpaid balance of principal of the Note, together with
all accrued but unpaid interest thereon, and all other Indebtedness owing to
Collateral Agent by Debtor at such time shall, at the option of Collateral
Agent, become immediately due and payable without further notice, demand,
presentation, notice of dishonor, notice of intent to accelerate, notice of
acceleration, protest or notice of protest of any kind, all of which are
expressly waived by Debtor; provided, however, concurrently and
automatically with the occurrence of an Event of Default under Section
7(e), the Indebtedness at such time shall, without any action by Collateral
Agent, become due and payable, without further notice, demand, presentation,
notice of dishonor, notice of acceleration, notice of intent to accelerate,
protest or notice of protest of any kind, all of which are expressly waived by
Debtor. All rights and remedies of Collateral Agent set forth in this Agreement
and in any of the other Debt Documents may also be exercised by Collateral
Agent, at its option to be exercised in its sole discretion, upon the occurrence
of an Event of Default, and not in substitution or diminution of any rights now
or hereafter held by Collateral Agent under the terms of any other agreement.

(b) Other Remedies. Upon the
occurrence of any one or more of the foregoing Events of Default, Collateral
Agent may from time to time at its discretion, without limitation and without
notice except as expressly provided in any of the Debt Documents: 

(i) Exercise in respect of the
Collateral all the rights and remedies of a Collateral Agent under the Code
(whether or not the Code applies to the affected Collateral); 

(ii) Require Debtor to, and Debtor
hereby agrees that it will at its expense and upon request of Collateral Agent,
assemble the Collateral as directed by Collateral Agent and make it available to
Collateral Agent at a place to be designated by Collateral Agent which is
reasonably convenient to both parties; 

(iii) Reduce its claim to judgment or
foreclose or otherwise enforce, in whole or in part, the security interest
granted hereunder by any available judicial procedure; 

(iv) Sell or otherwise dispose of, at
its office, on the premises of Debtor or elsewhere, the Collateral, as a unit or
in parcels, by public or private proceedings, and by way of one or more
contracts (it being agreed that the sale or other disposition of any part of the
Collateral shall not exhaust Collateral Agent’s power of sale, but sales or
other dispositions may be made from time to time until all of the Collateral has
been sold or disposed of or until the Indebtedness has been paid and performed
in full), and at any such sale or other disposition it shall not be necessary to
exhibit any of the Collateral; 

(v) Buy the Collateral, or any portion
thereof, at any public sale; 

16 

(vi) Buy the Collateral, or any portion
thereof, at any private sale if the Collateral is of a type customarily sold in
a recognized market or is of a type which is the subject of widely distributed
standard price quotations; 

(vii) Apply for the appointment of a
receiver for the Collateral, and Debtor hereby consents to any such appointment;
and 

(viii) At its option, retain the
Collateral in satisfaction of the Indebtedness whenever the circumstances are
such that Collateral Agent is entitled to do so under the Code or otherwise.

Debtor agrees that in the event Debtor
is entitled to receive any notice under the Code, as it exists in the state
governing any such notice, of the sale or other disposition of any Collateral,
reasonable notice shall be deemed given when such notice is deposited in a
depository receptacle under the care and custody of the United States Postal
Service, postage prepaid, at Debtor’s address set forth on the signature page
hereof, ten (10) days prior to the date of any public sale, or after which a
private sale, of any of such Collateral is to be held. Collateral Agent shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. Collateral Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. 

(c) Voting Rights in Respect of the
Pledged Equity. So long as no Event of Default shall have occurred, to the
extent permitted by law, Debtor may exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral of Debtor or any part
thereof for any purpose not inconsistent with the terms of this Agreement. Upon
the occurrence of an Event of Default and upon written notice to Debtor and
Debtor of its exercise of such rights under this Section, all rights of Debtor
to exercise the voting and other consensual rights which it would otherwise be
entitled to exercise pursuant to this Section shall cease, and all such rights
shall thereupon become vested in Collateral Agent, and who shall then have the
sole right to exercise such voting and other consensual rights. 

(d) Dividend and Distribution Rights
in Respect of the Pledged Equity. So long as no Event of Default shall have
occurred, Debtor may receive and retain any and all dividends (other than
dividends constituting Pledged Equity which are addressed hereinabove),
distributions or interest paid in respect of the Pledged Equity to the extent
they are allowed under this Agreement. Upon the occurrence of an Event of
Default: (i) all rights of Debtor to receive the dividends, distributions and
interest payments which it would otherwise be authorized to receive and retain
pursuant to this Section shall cease and all such rights shall thereupon be
vested in Collateral Agent which shall then have the sole right to receive and
hold as Pledged Equity such dividends, distributions and interest payments; and
(ii) all dividends, distributions and interest payments which are received by
Debtor contrary to the provisions of this Section shall be received in trust for
the benefit of Collateral Agent, shall be segregated from other property or
funds of such Debtor, and shall be forthwith paid over to Collateral Agent as
Pledged Equity in the exact form received, to be held by Collateral Agent as
Pledged Equity and as further collateral security for the Indebtedness. 

17 

(e) Application of Proceeds. If
any Event of Default shall have occurred and is continuing, Collateral Agent may
at its discretion apply or use any cash held by Collateral Agent as Collateral,
and any cash proceeds received by Collateral Agent in respect of any sale or
other disposition of, collection from, or other realization upon, all or any
part of the Collateral as follows in such order and manner as Collateral Agent
may elect: 

(i) to the repayment or reimbursement
of the reasonable costs and expenses (including, without limitation, reasonable
attorneys’ fees and expenses) incurred by Collateral Agent in connection with
(1) the administration of the Debt Documents, (2) the custody, preservation, use
or operation of, or the sale of, collection from, or other realization upon, the
Collateral, and (3) the exercise or enforcement of any of the rights and
remedies of Collateral Agent hereunder; 

(ii) to the payment or other
satisfaction of any liens and other encumbrances upon the Collateral; 

(iii) to the satisfaction of the
Indebtedness; 

(iv) by holding such cash and proceeds
as Collateral; 

(v) to the payment of any other amounts
required by applicable law; and 

(vi) by delivery to Debtor or any other
party lawfully entitled to receive such cash or proceeds whether by direction of
a court of competent jurisdiction or otherwise. 

(f) License. Collateral Agent is
hereby granted a license or other right to use, following the occurrence and
during the continuance of an Event of Default, without charge, Debtor’s labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks, customer lists and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral, and, following
the occurrence and during the continuance of an Event of Default, Debtor’s
rights under all licenses and all franchise agreements shall inure to Collateral
Agent’s benefit. In addition, Debtor hereby irrevocably agrees that Collateral
Agent may, following the occurrence and during the continuance of an Event of
Default, sell any of Debtor’s inventory directly to any Person, including
without limitation Persons who have previously purchased Debtor’s inventory from
Debtor and in connection with any such sale or other enforcement of Collateral
Agent’s rights under this Agreement, may sell inventory which bears any
trademark owned by or licensed to Debtor and any inventory that is covered by
any copyright owned by or licensed to Debtor and Collateral Agent may finish
any work in process and affix any trademark owned by or licensed to Debtor and
sell such inventory as provided herein. 

18 

(g) Deficiency. In the event
that the proceeds of any sale of, collection from, or other realization upon,
all or any part of the Collateral by Collateral Agent are insufficient to pay
all amounts to which Collateral Agent is legally entitled, Debtor (unless
otherwise provided) shall be liable for the deficiency, together with interest
thereon as provided in the Debt Documents. 

(h) Non-Judicial Remedies. In
granting to Collateral Agent the power to enforce its rights hereunder without
prior judicial process or judicial hearing, Debtor expressly waives, renounces
and knowingly relinquishes any legal right which might otherwise require
Collateral Agent to enforce its rights by judicial process. Debtor recognizes
and concedes that non-judicial remedies are consistent with the usage of trade,
are responsive to commercial necessity and are the result of a bargain at arm’s
length.

(i) Use and Possession of Certain
Premises. Upon the occurrence of an Event of Default, Collateral Agent shall
be entitled to occupy and use any premises owned or leased by Debtor where any
of the Collateral or any records relating to the Collateral are located until
the Indebtedness is paid or the Collateral is removed therefrom, whichever first
occurs, without any obligation to pay Debtor for such use and occupancy. 

(j) Other Recourse. Debtor
waives any right to require Collateral Agent to proceed against any third party,
exhaust any Collateral or other security for the Indebtedness, or to have any
third party joined with Debtor in any suit arising out of the Indebtedness or
any of the Debt Documents, or pursue any other remedy available to Collateral
Agent. Debtor further waives any and all notice of acceptance of this Agreement
and of the creation, modification, rearrangement, renewal or extension of the
Indebtedness. Debtor further waives any defense arising by reason of any
disability or other defense of any third party or by reason of the cessation
from any cause whatsoever of the liability of any third party. Until all of the
Indebtedness shall have been paid in full, Debtor shall have no right of
subrogation and Debtor waives the right to enforce any remedy which Collateral
Agent has or may hereafter have against any third party, and waives any benefit
of and any right to participate in any other security whatsoever now or
hereafter held by Collateral Agent. Debtor authorizes Collateral Agent, and
without notice or demand and without any reservation of rights against Debtor
and without affecting Debtor’s liability hereunder or on the Indebtedness to (i)
take or hold any other property of any type from any third party as security for
the Indebtedness, and exchange, enforce, waive and release any or all of such
other property, (ii) apply such other property and direct the order or manner of
sale thereof as Collateral Agent may in its discretion determine, (iii) renew,
extend, accelerate, modify, compromise, settle or release any of the
Indebtedness or other security for the Indebtedness, (iv) waive, enforce or
modify any of the provisions of any of the Debt Documents executed by any third
party, and (v) release or substitute any third party. 

19 

(k) No Waiver; Cumulative
Remedies. No failure on the part of Collateral Agent to exercise and no
delay in exercising, and no course of dealing with respect to, any right, power,
or privilege under this Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power, or privilege under this
Agreement preclude any other or further exercise thereof or the exercise of any
other right, power, or privilege. The rights and remedies provided for in this
Agreement and the other Debt Documents are cumulative and not exclusive of any
rights and remedies provided by law. 

(l) Equitable Relief. Debtor
recognizes that in the event Debtor fails to pay, perform, observe, or discharge
any or all of the Indebtedness, any remedy at law may prove to be inadequate
relief to Collateral Agent. Debtor therefore agrees that Collateral Agent, if
Collateral Agent so requests, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages. 

9. Indemnity. Debtor hereby indemnifies and agrees to
hold harmless Collateral Agent, and its officers, directors, employees, agents
and representatives (each an “Indemnified Person”) from and
against any and all liabilities, obligations, claims, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature (collectively, the “Claims”) which may be imposed
on, incurred by, or asserted against, any Indemnified Person arising in
connection with the Indebtedness or the Collateral (including without
limitation, the enforcement of the Note or this Agreement and the defense of any
Indemnified Person’s actions and/or inactions in connection with the Debt
Documents). WITHOUT LIMITATION, THE FOREGOING INDEMNITIES SHALL APPLY TO EACH
INDEMNIFIED PERSON WITH RESPECT TO ANY CLAIMS WHICH IN WHOLE OR IN PART ARE
CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH INDEMNIFIED PERSON,
EXCEPT TO THE LIMITED EXTENT THE CLAIMS AGAINST AN INDEMNIFIED PERSON ARE
PROXIMATELY CAUSED BY SUCH INDEMNIFIED PERSON’S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. The indemnification provided for in this Section shall survive
the termination of this Agreement and shall extend and continue to benefit each
individual or entity that is or has at any time been an Indemnified Person
hereunder. 

10. Waiver and Agreement. Neither the failure nor any
delay on the part of Collateral Agent to exercise any right, power or privilege
herein or under any of the other Debt Documents shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. No waiver of any provision in this Agreement or
in any of the other Debt Documents and no departure by Debtor therefrom shall be
effective unless the same shall be in writing and signed by Collateral Agent,
and then shall be effective only in the specific instance and for the purpose
for which given and to the extent specified in such writing. No modification or
amendment to this Agreement or to any of the other Debt Documents shall be valid
or effective unless the same is signed by the party against whom it is sought to
be enforced. 

11. Benefits. This Agreement shall be binding upon and
inure to the benefit of Collateral Agent and Debtor, and their respective heirs,
personal representatives, successors and assigns, provided, however, that Debtor
may not, without the prior written consent of Collateral Agent, assign any rights, powers, duties or obligations under
this Agreement or any of the other Debt Documents. 

20 

Incorporation. Sections 13.2 and 13.12 of the
Purchase Agreement are incorporated herein by reference and shall apply to the
terms and conditions of this Note and each party mutatis mutandis.

12. Invalid Provisions. If any provision of the this
Agreement is held to be illegal, invalid or unenforceable under present or
future laws, such provision shall be fully severable and the remaining
provisions of this Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance. 

13. Expenses. Debtor shall pay all reasonable costs and
expenses (including, without limitation, reasonable attorneys’ fees) in
connection with any action in the enforcement of Collateral Agent’s rights upon
the occurrence of an Event of Default. 

14. Counterparts. This Agreement may be separately
executed in any number of counterparts, each of which shall be an original, but
all of which, taken together, shall be deemed to constitute one and the same
instrument. 

15. Survival. All representations and warranties made in
the Debt Documents or in any document, statement, or certificate furnished in
connection with this Agreement shall survive the execution and delivery of the
Debt Documents, and no investigation by Collateral Agent or any closing shall
affect the representations and warranties or the right of Collateral Agent to
rely upon them. 

16. Waiver of Right to Trial by Jury. THE PARTIES HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, PROCEEDING, OR COUNTERCLAIM THAT RELATES TO OR ARISES OUT OF THE DEBT
DOCUMENTS OR THE ACTS OR FAILURE TO ACT OF OR BY COLLATERAL AGENT IN THE
ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR THE OTHER
DEBT DOCUMENTS. 

REMAINDER OF PAGE LEFT INTENTIONALLY BLANK 

 

21 

AGREED as of the Effective Date. 

	COLLATERAL AGENT: 	 	ADDRESS: 
	 	  	 	  
	 	 	 
  
	Steven Ganss 	 	  
	 	  	 	  
	 	  	 	  
	DEBTOR: 	 	ADDRESS: 
	 	  	 	  
	Northstar Healthcare Inc., 	 	4120 Southwest Freeway Suite 150 
	a British Columbia registered corporation
    	 	Houston, TX 77047 
	 	  	 	  
	By: 		 	  
	Name: 		 	  
	Title: 		 	  
	 	  	 	  
	Northstar Healthcare Surgery 	 	4120 Southwest Freeway Suite 150 
	Center - Scottsdale, LLC, 	 	Houston, TX 77047 
	an Arizona limited liability company 	 	  
	 	  	 	  
	By: 		 	  
	Name: 		 	  
	Title: 		    	  

[Signature Page to Security Agreement (Athas)] 

SCHEDULE I 

Existing Liens 

	Creditor  	Debtor  	Collateral  
	Donald L. Kramer 	Northstar Healthcare Inc. 	Assets of Northstar Healthcare Inc.

SCHEDULE II 

Patents, Copyrights, Trademarks and Licenses 

	  Trademarks   
	Mark 	Type 	Owner 	Status 	App./Reg.
      
# 
	NORTHSTAR 
HEALTHCARE 	Service Mark 	Northstar 
Healthcare Inc. 	Pending 	App. No. 
77892043 
	
    	Service Mark 	Northstar 
Healthcare
      
Acquisitions, 
LLC 	Registered 	Reg. No. 
3444878
  
	
    	Service Mark 	Northstar 
Healthcare Inc. 	Pending 	App. No. 
86119450 
	NUESTEP 	Service Mark 	Northstar 
Healthcare
      Inc. 	Pending 	App. No. 
86119447
  
	STEP AWAY 
FROM FOOT 
PAIN 	Service Mark 	Northstar 
Healthcare Inc. 	Pending 	App. No. 
86119444

	Patents 
	None
  

	Licenses 
	None
  

	Copyrights 
	None
  

SCHEDULE III 

Subsidiaries, Etc. 

See Attached Company Structure 

SCHEDULE IV 

Investments 

None. 

SCHEDULE V 

Other Debt 

Promissory Note to Donald Kramer 

Guaranty of Debt of Northstar Healthcare Surgery Center - Houston, LLC to Compass BankNobilis Health Corp.: Exhibit 10.36 - Filed by newsfilecorp.com

[Execution Version] 

SECURED PROMISSORY NOTE 

	$12,000,000 	November 26, 2014 

     FOR VALUE RECEIVED,
Northstar Healthcare Inc., a British Columbia registered corporation
(“Maker”), unconditionally promises to pay to the order of Steven
Ganss, an individual, in his capacity as the Seller Representative and
Collateral Agent under the hereinafter defined Purchase Agreement (in
such capacity, “Payee”), for the ratable benefit of Sellers (as
defined in the hereinafter defined Purchase Agreement), without setoff, at his
address at 10740 N. Central Expressway, Suite 275, Dallas, TX 75231, or at such
other place as may be designated by Payee, the principal amount of Twelve
Million and No/100 Dollars ($12,000,000.00), together with interest computed
daily on the outstanding principal balance hereunder, at an annual interest rate
(the “Rate”), and in accordance with the payment schedule
indicated below. 

     This Promissory Note (this
“Note”) is executed pursuant to that certain Membership Interest
Purchase Agreement, dated as of November 26, 2014 (the “Effective
Date”), by and among Maker, Northstar Healthcare Subco, LLC, a Delaware
limited liability company, Athas Health, LLC, a Texas limited liability company,
Payee and each other Seller party thereto (as amended, restated, or otherwise
modified from time to time, the “Purchase Agreement”), and is
secured in part by that certain Security Agreement, dated as of the Effective
Date, among Maker, Northstar Healthcare Surgery Center - Scottsdale, LLC, an
Arizona limited liability company, and Payee (as amended, restated, or otherwise
modified from time to time, the “Security Agreement”), to which
reference is made for a statement of the collateral, rights, and obligations of
Maker and Payee in relation thereto, but neither this reference to the Purchase
Agreement, the Security Agreement, nor any provision thereof, shall affect or
impair the absolute and unconditional obligation of Maker to pay unpaid
principal of and interest on this Note when due.

	 	1. 	Defined Terms. In addition to the
      capitalized terms defined elsewhere in this 

Note: 

“Business Day” has the
meaning assigned to it in the Security Agreement. 

“Debt Documents” has the
meaning assigned to it in the Security Agreement. “Default Rate”
is defined in Section 8. 

“Event of Default” has
the meaning assigned to it in the Security Agreement.
“Indebtedness” has the meaning assigned to it in the Security
Agreement. 

“Maturity Date” is
defined in Section 4. “Maximum Rate” is defined in
Section 2. 

“Obligor” and
“Obligors” are defined in Section 6. 

“Payable Loss” has the
meaning assigned to it in the Purchase Agreement. 

“Seller” and
“Sellers” have the meaning assigned to them in the Purchase
Agreement. 

     2. Rate. Prior to the
Maturity Date or an Event of Default, the Rate shall be the lesser of (a) the
Maximum Rate or (b) (i) for the period from the Effective Date to January 1,
2015, 3% per annum, (ii) for the period from January 2, 2014 to the Maturity
Date, 11% per annum. From and after the Maturity Date, the Rate shall be the
Default Rate. Notwithstanding any provision of this Note or any other agreement
or commitment between Maker and Payee, whether written or oral, express, or
implied, Payee shall never be entitled to charge, receive or collect, nor shall
amounts received hereunder be credited so that Payee shall be paid, as interest
a sum greater than interest at the Maximum Rate. It is the intention of the
parties that this Note, and all instruments securing the payment of this Note or
executed or delivered in connection therewith, shall comply with applicable law.
If Payee ever contracts for, charges, receives, or collects anything of value
which is deemed to be interest under applicable law, and if the occurrence of
any circumstance or contingency, whether acceleration of maturity of this Note,
prepayment of this Note, delay in advancing proceeds of this Note or any other
event, should cause such interest to exceed the Maximum Rate, any amount which
exceeds interest at the Maximum Rate shall be applied to the reduction of the
unpaid principal balance of this Note or any other Indebtedness, and if this
Note and such other Indebtedness are paid in full, any remaining excess shall be
paid to Maker. In determining whether the interest exceeds interest at the
Maximum Rate, the total amount of interest shall be spread, prorated, and
amortized throughout the entire term of this Note until its payment in full. The
term “Maximum Rate” as used in this Note means the maximum
nonusurious rate of interest per annum permitted by whichever of applicable
United States federal law or Delaware law permits the higher interest rate,
including to the extent permitted by applicable law, any amendments thereof
hereafter, or any new law hereafter coming into effect to the extent a higher
Maximum Rate is permitted thereby. If at any time the Rate shall exceed the
Maximum Rate, the Rate shall be automatically limited to the Maximum Rate until
the total amount of interest accrued hereunder equals the amount of interest
which would have accrued if there had been no limitation to the Maximum Rate.

     3. Accrual Method.
Interest on the Indebtedness evidenced by this Note shall be computed on the
basis of a three hundred sixty (360) day year and shall accrue on the actual
number of days elapsed for any whole or partial month in which interest is being
calculated. In computing the number of days during which interest accrues, the
day on which funds are initially advanced shall be included regardless of the
time of day such advance is made, and the day on which funds are repaid shall be
included unless repayment is credited prior to the close of business on the
Business Day received as provided herein.

     4. Payment Schedule.
Except as expressly provided herein to the contrary, all payments on this Note
shall be applied in the following order of priority: (a) the payment or
reimbursement of any expenses, costs, or obligations (other than the outstanding
principal balance hereof and interest hereon) for which either Maker shall be
obligated or Payee shall be entitled pursuant to the provisions of this Note or
the other Debt Documents, (b) the payment of accrued but unpaid interest hereon,
and (c) the payment of all or any portion of the principal balance hereof then
outstanding hereunder, in the direct order of maturity. If an Event of Default
exists, then Payee may, at the sole option of Payee, apply any
such payments, at any time and from time to time, to any of the items specified
in clauses (a), (b), or (c) above without regard to the order of priority
otherwise specified herein and any application to the outstanding principal
balance hereof may be made in either direct or inverse order of maturity. If any
payment of principal or interest on this Note shall become due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day and such extension of time shall be included in computing interest in
connection with such payment. This Note shall be due and payable as follows:

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(a) One (1) payment of principal on
December 21, 2014 in the amount of $1,000,000; 

(b) One (1) payment of principal on
April 1, 2015 in the amount of $1,000,000; 

(c) Consecutive monthly payments of
principal and interest, each in an amount sufficient to fully amortize the
outstanding principal balance of this Note as of May 1, 2015, on a straight line
basis, over a period of thirty six (36) months, commencing on May 1,
2015, and continuing on the same day of each successive month
thereafter until April 1, 2018 (the “Maturity Date”); and 

(d) One (1) payment of the entire
outstanding principal balance of this Note, plus accrued and unpaid interest
thereon, shall be due and payable in full in one payment on the Maturity Date.

     5. Delinquency Charge. In
the event any installment owing under this Note, or any part thereof, remains
unpaid for ten (10) or more days past the due date thereof as provided above,
Maker shall pay to Payee, in addition to any other amounts to which Payee may be
entitled hereunder, a reasonable late payment fee equal to 5.00% of the amount
of said installment, which amount is stipulated by Maker to be reasonable in
order to compensate Payee for its additional costs incurred as a result of
having to attend to such delinquency. This late charge should be paid only once
as to such amount as is due and owing, but promptly, as to each respective late
payment. It is further agreed that the imposition of any such late payment fee
shall in no way prejudice or limit Payee’s rights or remedies against Maker
under this Note or any of the other Debt Documents. In the event any check or
other payment item used to make a payment to Payee is dishonored for any reason,
Maker shall pay to Payee, in addition to any other amounts to which Payee may be
entitled hereunder, a reasonable processing fee of $30.00 (or the maximum amount
provided from time to time under applicable law). This processing fee should be
paid once with respect to each dishonor of a check or other payment item. It is
further agreed that the imposition of any such processing fee shall in no way
prejudice or limit Payee’s rights or remedies against Maker under this Note or
any of the other Debt Documents. 

     6. Waivers, Consents and
Covenants. Maker, any indorser or guarantor hereof, or any other party
hereto (individually an “Obligor” and collectively
“Obligors”) and each of them jointly and severally: (a) waives
presentment, demand, protest, notice of demand, notice of intent to accelerate,
notice of acceleration of maturity, notice of protest, notice of nonpayment,
notice of dishonor, and any other notice required to be given under
the law to any Obligor in connection with the delivery, acceptance, performance,
default or enforcement of this Note, any indorsement or guaranty of this Note,
or any other documents executed in connection with this Note or any other Debt
Documents now or hereafter executed in connection with any obligation of Maker
to Payee; (b) consents to all delays, extensions, renewals, or other
modifications of this Note or the Debt Documents, or waivers of any term hereof
or of the Debt Documents, or release or discharge by Payee of any Obligors, or
release, substitution, or exchange of any security for the payment hereof, or
the failure to act on the part of Payee, or any indulgence shown by Payee
(without notice to or further assent from any Obligors); (c) agrees that no such
action, failure to act or failure to exercise any right or remedy by Payee shall
in any way affect or impair the obligations of any Obligors or be construed as a
waiver by Payee of, or otherwise affect, any of Payee’s rights under this Note,
under any indorsement or guaranty of this Note or under any of the Debt
Documents; and (d) agrees to pay, on demand, all costs and expenses of
collection or defense of this Note or of any indorsement or guaranty hereof
and/or the enforcement or defense of Payee’s rights with respect to, or the
administration, supervision, preservation, or protection of, or realization
upon, any property securing payment hereof, including, without limitation,
reasonable attorney’s fees, including fees related to any suit, mediation, or
arbitration proceeding, out of court payment agreement, trial, appeal,
bankruptcy proceedings, or other proceeding, in such amount as may be determined
reasonable by any arbitrator or court, whichever is applicable. 

3 

     7. Prepayments.
Prepayments may be made in whole or in part at any time without premium or
penalty.

     8. Remedies Upon Default.
During the existence of an Event of Default, the entire balance outstanding
hereunder and all other obligations of any Obligor to Payee (however acquired or
evidenced) shall, at the option of Payee, become immediately due and payable;
provided, however, Payee may not require all such obligations of Obligor
hereunder to become immediately due and payable so long as there remains unpaid
any Payable Loss arising from the breach of any of the Fundamental Reps. From
and after an Event of Default, the Rate on the unpaid principal balance of this
Note shall be increased at Payee’s discretion up to the lesser of (i)
12.00%, or (ii) the Maximum Rate (the lesser of such percentages being the
“Default Rate”). The provisions herein for a Default Rate (a)
shall not be deemed to extend the time for any payment hereunder or to
constitute a “grace period” giving Obligors a right to cure any default, and (b)
shall be deemed the contract rate of interest applicable to the outstanding
principal balance of the Note from and after the occurrence of one of the events
set forth in this Section. At Payee’s option, any accrued and unpaid interest,
fees or charges may, for purposes of computing and accruing interest on a daily
basis after the due date of this Note or any installment thereof, be deemed to
be a part of the principal balance, and interest shall accrue on a daily
compounded basis after such date at the Default Rate provided in this Note until
the entire outstanding balance of principal and interest is paid in full. Upon
an Event of Default, Payee is hereby authorized at any time, at its option and
without notice or demand, to set off and charge against any money, instruments,
securities, documents, chattel paper, credits, claims, demands, income, and any
other property, rights, and interests of any Obligor which at any time shall
come into the possession or custody or under the control of Payee or any of its
agents, affiliates, or correspondents, any and all obligations due hereunder.
Additionally, Payee shall have all rights and remedies available under each of the Debt Documents, as
well as all rights and remedies available at law or in equity. 

4 

     9. Waiver. The failure at
any time of Payee to exercise any of its options or any other rights hereunder
shall not constitute a waiver thereof, nor shall it be a bar to the exercise of
any of its options or rights at a later date. All rights and remedies of Payee
shall be cumulative and may be pursued singly, successively or together, at the
option of Payee. The acceptance by Payee of any partial payment shall not
constitute a waiver of any default or of any of Payee’s rights under this Note.
No waiver of any of its rights hereunder, and no modification or amendment of
this Note, shall be deemed to be made by Payee unless the same shall be in
writing, duly signed on behalf of Payee; each such waiver shall apply only with
respect to the specific instance involved, and shall in no way impair the rights
of Payee or the obligations of Obligors to Payee in any other respect at any
other time. 

     10. Incorporation.
Sections 13.2 and 13.12 of the Purchase Agreement are incorporated
herein by reference and shall apply to the terms and conditions of this Note and
each party mutatis mutandis. 

     11. Partial Invalidity.
The unenforceability or invalidity of any provision of this Note shall not
affect the enforceability or validity of any other provision herein and the
invalidity or unenforceability of any provision of this Note or of the Debt
Documents to any person or circumstance shall not affect the enforceability or
validity of such provision as it may apply to other persons or circumstances.

     12. Binding Effect. This
Note shall be binding upon and inure to the benefit of Obligors and Payee and
their respective successors, assigns, heirs, and personal representatives,
provided, however, that no obligations of Obligors hereunder can be assigned
without prior written consent of Payee. 

     13. Controlling Document.
To the extent that this Note conflicts with or is in any way incompatible with
any other document related specifically to this Note, this Note shall control
over any other such document, and if this Note does not address an issue, then
each other such document shall control to the extent that it deals most
specifically with an issue. 

     14. Commercial Purpose.
MAKER REPRESENTS TO PAYEE THAT THE INDEBTEDNESS UNDER THIS NOTE IS TO BE USED
PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL PURPOSES AND NOT FOR
PERSONAL, FAMILY OR HOUSEHOLD PURPOSES. MAKER ACKNOWLEDGES HAVING READ AND
UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS AND CONDITIONS OF THIS NOTE.

     15. Collection. If this
Note is placed in the hands of an attorney for collection, or if it is collected
through any legal proceeding at law or in equity or in bankruptcy, receivership
or other court proceedings, Maker agrees to pay all costs of collection,
including, but not limited to, court costs and reasonable attorneys’ fees. 

5 

     16. Waiver of Jury Trial.
MAKER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM THAT RELATES TO OR ARISES
OUT OF THIS NOTE OR ANY OF THE DEBT DOCUMENTS OR THE ACTS OR FAILURE TO ACT OF
OR BY PAYEE IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS NOTE OR
THE OTHER DEBT DOCUMENTS. 

REMAINDER OF PAGE LEFT INTENTIONALLY BLANK 

6 

EXECUTED as of the Effective Date. 

	MAKER: 	ADDRESS: 
	  	  
	Northstar Healthcare Inc., 	4120 Southwest Freeway Suite 150 
	a British Columbia registered corporation 	Houston, TX 77047 
	  	  
	By: 	  
	Name: 	  
	Title: 	  

[Signature Page to Promissory Note (Athas)]

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