CREDIT AGREEMENT

 

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 OF SCHEDULES

 

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 dated this 14th day of April, 2009, between BROTMAN MEDICAL CENTER, INC., a California Corporation (“ BMC ”), and such other Persons joined hereto as a Borrower from time to time (together with BMC, “ Borrowers ” and each individually a “ Borrower ”), and GEMINO HEALTHCARE FINANCE, LLC, a Delaware limited liability company, as lender (“ Lender ”).

 

RECITALS

 

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

 

WHEREAS, Lender is willing to make the Credit Facility available to Borrowers pursuant to the terms and provisions hereinafter set forth; and

 

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

 

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

 

ARTICLE 1

 

DEFINITIONS, ACCOUNTING TERMS AND
PRINCIPLES OF CONSTRUCTION

 

1.01         Terms Defined . As used in this Agreement, those terms set forth in Annex A shall have the respective meanings set forth therein.

 

1.02         Matters of Construction . The terms “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. The words “include”, “includes” and “including” when used in any Loan Document, shall be deemed to be followed by the phrase “without limitation”. Any pronoun used shall be deemed to cover all genders. Wherever appropriate in the context, terms used herein in the singular also include the plural and vice versa. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. Unless otherwise provided, all references to any instruments or agreements to which Lender and/or, where applicable, a Borrower, is a party, including, without limitation, references to any of the Loan Documents, shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof.

 

1.03         Accounting Principles . Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, this shall be done in accordance with GAAP, to the extent applicable, except as otherwise expressly provided in this Agreement.

 

1.04         Fiscal Quarters . For the purposes hereof, “fiscal quarter” shall mean each quarterly accounting period during any fiscal year; provided , that, all references to the fiscal quarter ending December 31, March 31, June 30 or September 30 shall mean the first, second, third or fourth fiscal quarter of the applicable fiscal year, respectively, irrespective of the actual date on which such fiscal quarter may end.

 

 

ARTICLE 2

 

THE LOANS

2.01                            Credit Facility - Description

 

(a)           Subject to the terms and conditions of this Agreement, Lender hereby establishes for the joint and several benefit of Borrowers, a credit facility (“ Credit Facility ”) which shall include advances which may be extended by Lender to or for the benefit of Borrowers from time to time hereunder in the form of revolving loans (“ Revolving Loans ”). The aggregate outstanding amount of all Revolving Loans, shall not at any time exceed the lesser of (i) Maximum Credit Limit and (ii) the Borrowing Base. In no event shall the initial principal amount of any Revolving Loan be less than $25,000.00. Subject to such limitation, the outstanding balance of all Revolving Loans may fluctuate from time to time, to be reduced by repayments made by Borrowers, to be increased by future Revolving Loans which may be made by Lender. If the aggregate outstanding amount of all Revolving Loans exceeds the lesser of (i) the Borrowing Base or (ii) the Maximum Credit Limit, Borrowers shall immediately repay such excess in full. Lender has the right at any time, and from time to time, to set aside cash reserves against the Borrowing Base in such amounts as it may deem appropriate in Lender’s reasonable discretion (“ Reserves ”). The Obligations of Borrowers under the Credit Facility and this Agreement are joint and several and shall at all times be absolute and unconditional.

 

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

 

(c)           [Reserved]

 

(d)           The initial term of the Credit Facility (“ Initial Term ”) shall expire on the earlier 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 the Initial Term or upon termination of the Credit Facility or termination of this Agreement (“ Maturity Date ”). After the Maturity Date no further Revolving Loans shall be available from Lender.

 

(e)           From time to time, upon not less than three (3) Business Days notice to Borrowers, Lender may adjust the Advance Rate in order to reflect, in Lender’s sole discretion, the experience with Borrowers (including by way of illustration, to adjust for any known or potential offsets by Medicare or Medicaid) or the aggregate amount or percentage of the Collections with respect to the Accounts.

 

2.02                            Funding Procedures .

 

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

 

(b)           Not later than 2:00 p.m. (Eastern Time) two (2) Business Days prior to each Settlement Date (“ Download Date ”), Borrowers will deliver to Lender the computer file data associated with the Accounts,

 

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which shall include without limitation, the information (including changes in the Obligor reimbursement rates and changes in federal or state laws or regulations affecting payment for medical services), required by Lender to enable Lender to process and value the outstanding Accounts of Borrowers, as well as bill and collect such Accounts following an Event of Default (“ Accounts Detail File ”). Upon completion of the processing of the data with respect to such Accounts, Lender or its agent 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 if such Accounts Detail File is not delivered until after 2:00 p.m. (Eastern Time) on the Download Date, the third Business Day following the Download Date), a report regarding the Borrowing Base then in effect, which shall be substantially in the form of Exhibit 2.02(b)  hereto (a “ Borrowing Base Report ”). No later than 2:00 p.m. (Eastern Time) one (1) Business Day prior to the Settlement Date, Borrowers will deliver to Lender a cash posting file.

 

(c)           If Borrowers request that a Revolving Loan be made on any date other than the Settlement Date, Borrowers shall deliver to Lender an executed Borrowing Base Report 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 be delivered via telecopy and Borrowers acknowledge that Lenders may rely on Borrowers signatures by facsimile, which shall be legally binding upon Borrowers.

 

(d)           Subject to the terms and conditions of this Agreement, if the Borrowing Base Report (if applicable) 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 (or the next Business Day if the Borrowing Base Report and Loan Request are delivered after 3:00 p.m. (Eastern Time)) to Borrowers a Revolving Loan in the amount equal to the lesser of (i) the amount of the Revolving Loan requested by Borrowers in the Loan Request, or (ii) the Borrowing Base Excess as of such date.

 

(e)           Lender’s determination of the Estimated Net Value of the Eligible Accounts and other amounts to be determined or calculated under this Agreement shall, in the absence of manifest error, be binding and conclusive.

 

2.03                            Interest and Fees .

 

(a)           Each Revolving Loan shall bear interest on the outstanding principal amount thereof from the date made until such Revolving Loan is paid in full, at a rate per annum 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 be adjusted daily based on the LIBOR Rate. If at any time the outstanding balance of 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 Rate times the Minimum Balance until such time as the outstanding balance of the Revolving Loans is $2,000,000.00 or more.

 

(b)           If any Event of Default shall occur and be continuing, the rate of interest applicable to each Loan then outstanding shall be the Default Rate. The Default Rate shall apply from the date of the Event of Default until the date such Event of Default is waived, and interest accruing at the Default Rate shall be payable upon demand.

 

(c)           Should the Credit Facility be terminated for any reason on or prior to the last day of the Initial Term, in addition to repayment of all Obligations then outstanding and termination of Lender’s commitment hereunder, Borrowers shall unconditionally be obligated to pay at the time of such termination, a fee (“ Revolving Termination Fee ”) in an amount equal to the following percentage of the Revolving Loan Commitment: three percent (3%), if such early termination occurs on or prior to the first anniversary of the date of this Agreement; two percent (2%) if such early termination occurs after the first anniversary date of this Agreement but on or prior 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 date of this Agreement but on or prior to 180 days after the second anniversary of the date of this Agreement.

 

Borrowers acknowledge that the Revolving Termination Fee is an estimate of Lender’s damages in the event of early termination and is not a penalty. In the event of termination of the Credit Facility, all of the Obligations shall be immediately due and payable upon the termination date stated in any notice of termination. All

 

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undertakings, agreements, covenants, warranties and representations of Borrowers contained in the Loan Documents shall survive any such termination, and Lender shall retain its security interests in the Collateral and all of its rights and remedies under the Loan Documents notwithstanding such termination until Borrowers have paid the Obligations to Lender, in full, in immediately available funds, together with the applicable Revolving Termination Fee, if any. Notwithstanding the payment in full of the Obligations, Lender shall not be required to terminate its security interests in the Collateral unless, with respect to any loss or damage Lender may incur as a result of dishonored checks or other items of payment received by Lender from Borrowers or any Obligor and applied to the Obligations, Lender shall, at its option, (i) have received a written agreement executed by Borrowers and by any Person whose loans or other advances to Borrowers are used in whole or in part to satisfy the Obligations, indemnifying Lender from any such loss or damage; or (ii) have retained such monetary reserves and security interests on the Collateral for such period of time as Lender, in its reasonable discretion, may deem necessary to protect Lender 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 the unused portion of the Credit Facility. The unused portion of the Credit Facility shall be the difference between the Revolving Loan Commitment and the Average Outstanding Balance of the Revolving Loans during each month (or portion thereof, as applicable), which fees shall be calculated and payable monthly, in arrears, and shall be due and payable on the first calendar day of each month.

 

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

 

(f)             Lender has fully earned a non-refundable commitment fee (“ Commitment Fee ”) equal to One Hundred Twenty Thousand and No/Dollars ($120,000.00). Borrowers agree and acknowledge that the Commitment Fee in its entirety is due and payable upon Closing.

 

2.04          Additional Interest Provisions .

 

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

 

(b)            Continuation of Interest Charges . All contractual rates of interest chargeable on outstanding Loans shall continue to accrue and be paid even after default, maturity, acceleration, termination of the Credit Facility, judgment, bankruptcy, insolvency proceedings of any kind or the happening of any event or occurrence similar or dissimilar.

 

(c)            Applicable Interest Limitations . In no contingency or event whatsoever shall the aggregate of all amounts deemed interest hereunder and charged or collected pursuant to the terms of this Agreement exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such court determines Lender has charged or received interest hereunder in excess of the highest applicable rate, Lender shall, in its sole discretion, apply and set off such excess interest received by Lender against other Obligations due or to become due and such rate shall automatically be reduced to the maximum rate permitted by such law.

 

2.05          Payments .

 

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

 

(b)            If at any time the aggregate principal amount of all Revolving Loans outstanding exceeds the lesser of (i) the Borrowing Base then in effect, or (ii) the Maximum Credit Limit, Borrowers shall immediately make such principal prepayments of the Revolving Loans in the amount of such excess.

 

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

 

(d)            Subject to the terms of Sections 2.03(c) and 2.03(d) hereof, Borrowers may prepay the principal of the Loans and terminate the Credit Facility on any Settlement Date by giving Lender written notice of the proposed prepayment at least two (2) Business Days prior to such Settlement Date.

 

(e)            [Reserved]

 

(f)             If any Borrower sells any of the Collateral, such Borrower shall pay to Lender a sum equal to the proceeds received by such Borrower from such sale, net of all reasonable costs, expenses and taxes incurred by such Borrower in connection with such sale, as approved by Lender in its sole discretion, or as otherwise expressly authorized by this Agreement, as and when received by such Borrower and as a mandatory prepayment of the outstanding 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 due Lender, in the order provided in Section 2.07(f) hereof. Except as otherwise provided herein, all payments of principal, interest, fees, or other amounts payable by Borrowers hereunder shall be remitted to Lender in immediately available funds not later than 11:00 a.m. (Eastern Time) on the day due. Whether or not Borrowers have requested a Revolving Loan to be made on such date, Borrowers authorize Lender to charge interest, fees and all other amounts due to Lender, to Borrowers’ account, and such charge shall be deemed to be a Revolving Loan as of the date such payment is due.

 

2.06          Use of Proceeds . The extensions of credit under and proceeds of the Credit Facility shall be used (a) to repay existing Indebtedness of Borrowers, (b) to make payments as provided under the Plan of Reorganization, (c) to pay amounts owing under the Credit Facility, and (d) for working capital and general business purposes.

 

2.07          Lockboxes and Collections .

 

(a)            Borrowers will enter into Depository Agreements in respect of the Government Lockbox and Commercial Lockbox in such form and with the Lockbox Bank or such other bank as is acceptable to Lender. Borrowers shall instruct the Lockbox Bank maintaining the Government Lockbox that all collections sent to the Government Lockbox shall be deposited into a bank account at the Lockbox Bank in which Lender has a first priority perfected security interest. Borrower shall instruct the Lockbox Bank maintaining the Commercial Lockbox that all Collections sent to the Commercial Lockbox shall be deposited into a bank account at the Lockbox Bank in the name of Lender. Borrowers shall also instruct the Lockbox Bank as described further in the Depository Agreements to initiate a daily transfer of all available funds to an account of Lender to be designated by Lender (“ Collection Account ”).

 

(b)            Borrowers will cause all Collections with respect to all of the Accounts, other than Government Accounts and Accounts which pay into the Risk Pool Account, to be sent directly to the Commercial Lockbox, and will cause all Collections with respect to all of the Government Accounts to be sent directly to the Government Lockbox (which may be effectuated by electronic transfer directly to the Government Lockbox). In the event that any Borrower receives any Collections that should have been sent to the Commercial Lockbox or the Government Lockbox, such Borrower will, promptly upon receipt and in any event within one Business Day of receipt, forward such Collections directly to the Commercial Lockbox or Government Lockbox, as applicable, in the form received, and if requested by Lender, promptly notify Lender of such event. Until so forwarded, such Collections not generated from Government Accounts shall be held in trust for the benefit of Lender.

 

(c)            No Borrower shall withdraw any amounts from the accounts into which the Collections remitted to the Commercial Lockbox are deposited nor shall any Borrower change the procedures under the agreements governing the Commercial Lockbox and related accounts.

 

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(d)            Borrowers will cooperate with Lender in the identification and reconciliation on a daily basis of all amounts received in the Commercial Lockbox and the Government Lockbox. If more than five percent (5%) of the Collections since the most recent Settlement Date is not identified or reconciled to the satisfaction of Lender within ten (10) Business Days of receipt, Lender shall not be obligated to make further Loans until such amount 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 or reconciled 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 with Lender’s then prevailing customary charges (plus expenses), to make such examination and report as may be necessary to identify and reconcile such amount.

 

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

 

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

 

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

 

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

 

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

 

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

 

In addition, promptly upon request of Borrowers, Lender shall disburse to Borrowers the amount, if any, by which the collected balance in the Collection Account exceeds the aggregate outstanding principal amount of the Revolving Loans and all interest and other amounts that will be payable 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 and remain outstanding, Lender may apply Collections, any other proceeds of Collateral and all other payments received by Lender to the payment of the Obligations in such manner and in such order as Lender may elect in its sole discretion.

 

ARTICLE 3

 

COLLATERAL

 

3.01          Description .

 

To secure the prompt payment and performance in full when due, whether by lapse of time, acceleration, mandatory prepayment or otherwise, of the Obligations, each Borrower hereby grants to the Lender a continuing security interest in, and a right to set off against, any and all right, 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) all Documents and General Intangibles directly related to the Accounts; (d) all Deposit Accounts (other than the Excluded Deposit Accounts); and (e) all Proceeds of any and all of the foregoing.

 

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

 

Notwithstanding anything to the contrary contained herein, the security interests granted under this Agreement shall not extend to any lease, license or other contract of a Borrower if the grant of a security interest in such lease, license or contract in the manner contemplated by this Agreement is prohibited by the terms of such

 

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lease, license or contract or by Applicable Law and would result in the termination of such lease, license or contract or give the other parties thereto the right to terminate, accelerate or otherwise adversely alter such Borrower’s rights, titles and interests thereunder (including upon the giving of notice or the lapse of time or both); provided that (i) any such limitation described in the foregoing clause on the security interests granted hereunder shall only apply to the extent that any such prohibition could not be rendered ineffective pursuant to the UCC or any other Applicable Law (including Debtor Relief Laws) or principles of equity and (ii) in the event of the termination or elimination of any such prohibition or the requirement for any consent contained in such lease, license or contract or in any Applicable Law, to the extent sufficient to permit any such item to be Collateral hereunder, or upon the granting of any such consent, or waiving or terminating any requirement for such consent, a security interest in such lease, license or contract shall be automatically and simultaneously granted hereunder and shall be included as Collateral hereunder.

 

Borrowers and the Lender hereby acknowledge and agree that the security interest created hereby in the Collateral (i) constitutes continuing collateral security for all of the Obligations, whether now existing or hereafter arising and (ii) is not to be construed as an assignment of any copyrights, copyright licenses, patents, patent licenses, trademarks or trademark licenses.

 

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

 

3.03          Lien Documents . At Closing and thereafter as Lender deems necessary, each Borrower shall execute (if required) and deliver to Lender, or shall have executed (if required) and delivered (all in form and substance reasonably satisfactory to Lender):

 

(a)            Financing Statements . Financing statements pursuant to the UCC, which Lender may file in the jurisdiction where any Borrower is organized and in any other jurisdiction that Lender deems appropriate; and

 

(b)            Other Agreements . Any other agreements, documents, instruments and writings, including, without limitation, security agreements, deposit account control agreements, deeds of trust, mortgages, and assignment agreements, reasonably required by Lender to evidence, perfect or protect Lender’s liens and security interest in the Collateral or as Lender may reasonably request from time to time, including, without limitation, a waiver agreement 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 do anything further that may be lawfully and reasonably required by Lender to perfect its security interests and to effectuate the intentions and objectives of 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. At Lender’s request, each Borrower shall also immediately deliver (with execution by such Borrower of all necessary documents or forms to reflect Lender’s security interest therein) to Lender, all items for which Lender must or may receive possession to obtain a perfected security interest.

 

(b)            Lender is hereby authorized to file financing statements naming any Borrower as debtor, in accordance with the Uniform Commercial Code, and if necessary, to the extent applicable, to otherwise file financing statements without any Borrower’s signature if permitted by law. Each Borrower hereby authorizes Lender to file all financing statements and amendments to financing statements describing the Collateral in any filing office as Lender, in its sole, discretion may determine, containing language indicating that the acquisition by a third party of any right, title or interest in or to the Collateral without Lender’s consent shall be a violation of Lender’s rights. Borrowers agree to comply with the requirements of all federal and state laws and requests of Lender in order for Lender to have and maintain a valid and perfected first priority security interest in the Collateral including, without limitation, executing and causing any other Person to execute such documents as Lender may require to obtain Control (as defined in the UCC) over all Deposit Accounts (as defined in the UCC), other than the Excluded Deposit Accounts.

 

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

 

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

 

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

 

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

 

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

 

3.08          Power of Attorney . Each of the officers of Lender is hereby irrevocably made, constituted and appointed the true and lawful attorney for each Borrower (without requiring any of them to act as such) with full power of substitution to do the following (such power to be deemed coupled with an interest): (a) endorse the name of such Borrower upon any and all checks, drafts, money orders and other instruments for the payment of monies that are payable to such Borrower and constitute collections on the Collateral; (b) execute in the name of such Borrower any financing statements, schedules, assignments, instruments, documents and statements that such Borrower is obligated to give Lender hereunder or is necessary to perfect Lender’s security interest or lien in the Collateral; (c) to verify validity, amount or any other matter relating to the Collateral by mail, telephone, telecopy or otherwise; and (d) do such other and further acts and deeds in the name of such Borrower that Lender may reasonably deem necessary or desirable to enforce its right with respect to any Collateral.

 

3.09          [Reserved]

 

3.10          [Reserved]

 

3.11          Credit Balances; Additional Collateral .

 

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

 

(b)            Notwithstanding Lender’s security interests in the Collateral, to the extent that the Obligations are now or hereafter secured by any assets or Property other than the Collateral, or by the guaranty, endorsement, assets or property of any other Person, Lender shall have the right 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 Loan Documents for additional representations, covenants and other agreements of the Borrowers regarding the Collateral covered by such Loan Documents.

 

ARTICLE 4

 

CLOSING AND CONDITIONS PRECEDENT TO REVOLVING LOANS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(f)             payment by Borrowers of all Expenses associated with the 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 2.07 hereof and the Wells Fargo Depository Agreements;

 

(i)             Uniform Commercial Code, judgment, federal and state tax lien searches pursuant to Section 3.05 hereof, which searches shall reflect no liens in the Collateral, other than the Lender’s lien and Permitted Liens;

 

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

 

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

 

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

 

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

 

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(n)            the fully executed Subordination Agreements;

 

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

 

(p)            background checks on the senior management of Borrowers;

 

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

 

(r)             all UCC financing statements and similar documents required to be filed in order to create in favor of Lender a first priority perfected security interest in the Collateral (to the extent that such a security interest may be perfected by a filing under the UCC or Applicable Law), shall have been properly filed in each office in each jurisdiction required;

 

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

 

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

 

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

 

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

 

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

 

(x)             the Negative Pledge Agreement properly executed; and

 

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

 

4.02          Additional Preconditions to Loans . Lender’s obligation to make the initial Revolving Loan and each subsequent Revolving Loan 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 Revolving Loans outstanding shall not exceed the Borrowing Base then in effect and the aggregate amount of all Loans outstanding shall not exceed the Maximum Credit Limit;

 

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

 

(iii)           the amount of outstanding Revolving Loans supported by the ENV of all Eligible Accounts included in the Borrowing Base which have not 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 Accounts included in the Borrowing Base which have been billed.

 

(b)            All representations and warranties of Borrowers shall be deemed reaffirmed as of the making of such Loan and shall be true both before and after giving effect to such Loan, and no Event of Default or Unmatured Event of Default shall have occurred and be continuing, no Material Adverse Effect shall have occurred, Borrowers shall be in compliance with this Agreement and the other Loan Documents, and Borrowers shall have certified such matters to Lender.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(j)             On the Closing Date, the Borrowing Base less the 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 reasonably request.

 

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

 

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

 

4.05          Closing Certificate . Lender shall have received a certificate dated the Closing Date and signed by the chief executive officer or chief financial officer of Borrowers certifying that all of the conditions specified in this Section have been fulfilled and that there has not occurred any material adverse change in the operations and conditions (financial or otherwise) of Borrowers since September 30, 2008.

 

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

 

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

 

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ARTICLE 5

 

REPRESENTATIONS AND WARRANTIES

 

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

 

5.01          Organization and Validity .

 

(a)            Each Borrower is duly organized as either a partnership, corporation or limited liability company and validly existing under the laws of its state of organization, incorporation or formation, is duly qualified, validly existing and, to the extent applicable, in good standing and has lawful power and authority to engage in the business it conducts in each state and other jurisdiction where the nature and extent of its business requires qualification, except where the failure to so qualify could not reasonably be expected to cause a Material Adverse Effect. A list of all states and other jurisdictions where each Borrower is qualified to do business is attached hereto as Schedule 5.01 and made a part hereof.

 

(b)            The making and performance of this Agreement and related agreements, and each document required by any Section hereof will not violate (i) any law, government rule, regulation, order, judgment or award applicable to such Borrower or its Property, (ii) any provision of such Borrower’s Organizational Documents, or (iii) violate or result in a default (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 of any agreement or instrument to which it is a party or by which it may be bound or of its Organizational Documents or minutes, which violation could reasonably be expected to cause a Material Adverse Effect.

 

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

 

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

 

5.02          Places of Business; Borrower Names . Each Borrower’s jurisdiction of organization is set forth in Schedule 5.02 hereto and (a) each Borrower’s chief executive office, (b) all other places of business of each such Borrower and (c) any other locations of any Collateral are located at the corresponding addresses set forth on Schedule 5.02 hereto. Except as disclosed on Schedule 5.02 hereto: (a) no Borrower has been organized in any other jurisdiction nor changed any such location in the last five (5) years, (b) no Borrower has changed its name in the last five (5) years, and (c) during such period no Borrower 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 Healthcare Facilities in which it provides healthcare services and with respect to the operations of the Healthcare Facilities (i) maintains Medicare and Medicaid provider status and is the holder of the provider identification numbers, including but not limited to, Medicare, Medicaid and other third party payor provider numbers and National Provider Identifiers, identified on Schedule 5.03 hereto, all of which are current and valid and such Borrower has not allowed, permitted, authorized or caused any other Person to use any such provider identification number, and (ii) has obtained all material Permits necessary for such Borrower to own its assets, to carry on its business, to execute, deliver and perform the Loan Documents, and to receive payments from the Obligors and, if organized as a not-for-profit entity, has and maintains its status, if any, as an organization exempt from federal taxation under Section 501(c)(3) of the Internal Revenue

 

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

 

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

 

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

 

(d)            Participation Agreements/Provider Status/Cost Reports .

 

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

 

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

 

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

 

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

 

(v)            With respect to the operation of the Healthcare Facilities, each Borrower is properly enrolled in the Medicare program and is not experiencing any material payment delays or denials as a result of the Medicare program’s use and adoption of the National Provider Identifier.

 

(vi)           Each Borrower and Healthcare Facility is currently enrolled as a participating provider in the Medicare program or is otherwise not subject to the moratorium on the establishment of new long term care hospitals and long term care hospital satellites contained in the Medicare, Medicaid and SCHIP Extension Act of 2007.

 

(e)            No Violation of Healthcare Laws .

 

(i)             None of the Healthcare Facilities or any Borrower is, to the knowledge of any Borrower, in violation of any Healthcare Laws, except where any such violation could not reasonably be expected to have a Material 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 of deficiencies or survey violation of a “Level A” (or equivalent) or worse (with respect to assisted living facilities), or a tag level of “G” or

 

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

 

(f)             Proceedings . No Borrower or Healthcare Facility is subject to any proceeding, suit or, to Borrowers’ knowledge, investigation by any federal, state or local government or quasi-governmental body, agency, board or authority or any other administrative or investigative body (including the Office of the Inspector General of the United States Department of Health and Human Services): (i) which may result in the imposition of a fine, alternative, interim or final sanction, a lower reimbursement rate for services rendered to eligible patients at the Healthcare Facilities; (ii) which could result in the revocation, transfer, surrender, suspension or other material impairment of the operating certificate provider agreement or Permits of any Healthcare Facility; (iii) which pertains to any state or federal Medicare or Medicaid cost reports or claims filed by any Borrower (including, but not limited to, any reimbursement audits), or any disallowance by any commission, board or agency in connection with any audit of such cost reports; or (iv) which pertains to or requests any voluntary disclosure pertaining to a potential overpayment matter involving the submission of claims to such payor by any Borrower, which, in each case with respect to clauses (i), (iii) and (iv) above, has not been provided for on their respective financials statements, or which could reasonably be expected to have a Material Adverse Effect on any Borrower or the operation of any individual Healthcare Facility.

 

(g)            Fraud & Abuse .

 

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

 

(ii)            No Borrower has been, or to its knowledge has been threatened to be, and, to the knowledge of Borrower, no owner, officer, manager, employee or person with a “direct or indirect ownership interest” (as that phrase is defined in 42 C.F.R. §420.201) in any Borrower: (A) has had a 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) has been excluded from participation in a Federal Health Care Program (as that term is defined in 42 U.S.C. §1320a-7b) or is the subject of a proceeding seeking to assess such penalty, or has been “suspended” or “debarred” from selling products to the U.S. government or its agencies pursuant to the Federal Acquisition Regulation, relating to debarment and suspension applicable to federal government agencies generally (48 C.F.R. Subpart 8.4), or other Applicable Laws or regulations; (C) has been convicted (as that term is defined 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 proceeding seeking 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 Claims Act 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 any governmental authority that may prohibit it from selling products to any governmental or other purchaser pursuant to any law; or

 

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(F) was or has become subject to any federal, state, local governmental or private payor civil or criminal investigations or inquiries, proceedings, validation review, program integrity review or statement of charges involving and/or related to its compliance with Healthcare Laws or involving or threatening its participation in Medicare, Medicaid or other Third Party Payor Programs or its billing practices with respect thereto.

 

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

 

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

 

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

 

5.07          Governmental Consent . Neither the nature of any Borrower or of any Borrower’s business or Property, nor any relationship between any Borrower and any other Person, nor any circumstance affecting any Borrower in connection with the execution, issuance and/or delivery of this Agreement or the Revolving Note is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of any such Borrower in connection with the execution and delivery of this Agreement or the issuance or delivery of the Revolving Note or other Loan Documents.

 

5.08          Taxes . All tax returns required to be filed by Borrowers, or any of them, in any jurisdiction have in fact been filed, and all Taxes, assessments, fees and other governmental charges upon Borrowers, or any of them, or upon any of their respective Property, income or franchises, which are shown to be due and payable on such returns have been paid, except for those Taxes being contested in good faith with due diligence by appropriate proceedings and for which appropriate reserves have been maintained under GAAP. No Borrower is aware of any proposed additional tax assessment or tax to be assessed against or applicable to any Borrower that could reasonably be expected to cause a Material Adverse Effect.

 

5.09          Financial Statements .

 

(a)            Borrowers’ annual consolidated and consolidating balance sheet as of September 30, 2008 and the quarterly consolidated balance sheet, the related income statements and statements of cash flows, each as of September 30, 2008 (complete copies of which have been delivered to Lender), have been prepared in accordance with GAAP (other than the absence of footnotes) and present fairly, accurately and completely (subject to audit adjustments) the financial position of Borrowers as of such dates and the results of their operations for such periods.

 

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

 

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

 

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

 

5.11          Guarantees, Contracts, etc .

 

(a)            No Borrower owns or holds partnership interests or equity or long term debt investments in, has any outstanding advances to, or serves as guarantor, surety or accommodation maker for the obligations of, any Person 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 be expected to cause a Material Adverse Effect.

 

(c)            Except as otherwise specifically provided in this Agreement, no Borrower has agreed or consented to cause or permit any of the Collateral 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 not permitted by this Agreement.

 

5.12          Compliance with Laws .

 

(a)            No Borrower is in violation of, or has received written notice that it is in violation of, any applicable statute, regulation or ordinance of the United States of America, or of any state, city, town, municipality, county or of any other jurisdiction, or of any agency, or department thereof, (including, without limitation, environmental laws and regulations), which could reasonably be expected to cause a Material Adverse Effect.

 

(b)            Each Borrower is current with all reports and documents 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 and regulations of such commissions, except where such failure to so comply could not reasonably be expected to cause a Material Adverse Effect.

 

5.13          Other Associations . No Borrower is engaged in nor has an interest in any joint venture or partnership with any other Person or has any Subsidiaries or Affiliates, except as described on Schedule 5.13 hereto.

 

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

 

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

 

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

 

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

 

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

 

(e)            of storage tanks (including, without limitation, petroleum or heating oil storage tanks), underground or above-ground, present on or under any of such real property, or that have been on or under any such real 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 biohazardous wastes generated in the diagnosis or treatment of patients as are commonly found in hospitals similar to the hospital operated by BMC, that have occurred or are presently occurring on any of such real property, which spills, releases, discharges, disposal or storage could be reasonably expected to have a Material Adverse Effect; or

 

(g)            of any spills, releases, discharges, disposal, or storage of Hazardous Substances, other than solid or biohazardous wastes generated in the diagnosis or treatment of patients as are commonly found in hospitals similar to the hospital operated by BMC, that have occurred or are presently 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 Adverse Effect.

 

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

 

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

 

5.17          Borrowing Base Reports . Each Borrowing Base Report signed by Borrowers, on behalf of Borrowers, contains and will contain an accurate summary of all Eligible Accounts of Borrowers contained in the Borrowing Base as of its date.

 

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

 

5.19          Accounts .

 

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

 

(b)            Each Borrower has made and will continue to make all payments to Obligors necessary to prevent any Obligor from offsetting any earlier overpayment to such Borrower against any amounts such Obligor owes on an Account.

 

5.20          ERISA . Borrowers and each other member of its Controlled Group has fulfilled its obligations under the minimum funding standards of, and is in compliance in all material respects with, ERISA and the Code to

 

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

 

5.21          Representations and Warranties for each Loan . As of each date that Borrowers shall request any Loan, each Borrower shall be deemed to make, 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 an Eligible Account.

 

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

 

(c)            Other than the CMS Claim, there is no lien or adverse 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 not less than its Estimated Net Value by the Obligor identified by Borrowers as being obligated to do so, (ii) to the knowledge of Borrowers the legally enforceable obligation of such Obligor, and (iii) an account or general intangible within the meaning of the UCC, or is a right to payment under a policy of insurance or proceeds thereof, and is not evidenced by any instrument or chattel paper. To the knowledge of Borrowers, there is no payor other than the Obligor identified by Borrowers as the payor primarily liable on such Account.

 

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

 

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

 

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

 

(h)            The fees and charges charged for the services constituting the basis for such Account were when rendered consistent with (i) the usual, customary and reasonable fees charged by Borrowers or (ii) pursuant to negotiated fee contracts, or imposed fee schedules, with or by the applicable Obligors.

 

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

 

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

 

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

 

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

 

(m)           If such Account has not been billed, the services giving rise to such Account have been properly recorded in the corresponding Borrower’s accounting system.

 

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

 

(o)            Such Account has an Estimated Net Value which, when added to the Estimated Net Value of all other Accounts owing by the same Obligor and which constitute Eligible Accounts hereunder, does not exceed any applicable Concentration Limit.

 

(p)            Neither such Account nor the related Contract contravenes 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 credit reporting, equal credit opportunity, fair debt collection practices and privacy) and Borrowers are not and, to the knowledge of Borrowers, no party to such related Contract is in violation of any such law, rule or regulation in 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 to make payment of its obligations when due, and no other fact exists which would cause any Borrower reasonably to expect that the amount billed to the related Obligor for such Account will not be paid in full when due.

 

5.22          Interrelatedness of Borrowers . The business operations of each Borrower are interrelated and complement one another, and such companies have a common business purpose, with intercompany bookkeeping and accounting adjustments used to separate their respective Properties, liabilities a