Filed 04/18/Case 18-20070 Doc BROWN RUDNICK LLP CATHRINE M. CASTALDI, #156089 ccastaidi@brownrudnick.com HONIEH O.H. UDENKA, #319103 hudenka@brownrudnick.com 221 I Michelson Drive Seventh Floor Irvine, CA 92612 TeIephone: (949) 752-7100 Facsimile: (949) 252-1514 Attorneys for SURPRISE VALLEY HEALTH CARE DISTRICT UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF CALIFORNIA SACRAMENTO DIVISION In re: CASE Chapter 9 SURPRISE VALLEY HEALTH CARE DCN: SVH-9 DISTRICT Debtor. DATE: May 22, 2018 TIME: 9:30 am. CTRM: 32 Judge: Hon. Christopher D. Jaime APPENDIX OF EXHIBITS IN SUPPORT OF MOTION FOR AN ORDER (1) APPROVING THE SALE OF SUBSTANTIALLY ALL OF THE ASSETS FREE AND CLEAR OF ALL (2) APPROVING OF ASSUMPTION AND ASSIGNMENT OF CERTAIN UNEXPIRED LEASES AND EXECUTORY CONTRACTS AND DETERMINING CURE AMOUNTS AND APPROVING OF REJECTION OF THOSE UNEXPIRED LEASES AND EXECUTORY CONTRACTS WHICH ARE NOT ASSUMED AND (3) WAIVING THE 14- DAY STAY PERIODS SET FORTH IN BANKRUPTCY RULES AND - AND (4) GRANTING RELATED RELIEF 1253471 v1 ~034437/0001 '71 Filed 04/18/Case 18-20070 Doc TO THE HONORABLE CHRISTOPHER D. JAIME, UNITED STATES BANKRUPTCY THE UNITED STATES CREDITORS OF AND ALL OTHER PARTIES ENTITLED TO NOTICE: Surprise Valley Health Care District (the ?District? or hereby submits the following Appendix of Exhibit in support of Motion For An Order (1) Approving The Sale Of Substantially All Of The Debtor?s Assets Free And Clear Of All Liens; (2) Approving Of Debtor?s Assumption And Assignment Of Certain Unexpired LeasesAnd Executory Contracts And Determining Cure Amounts And Approving Of Debtor?s Rejection Of Those Unexpired Leases And Executory Contracts Which Are Not Assumed And Assigned; (3) Waiving Thel4?Day Stay Periods Set Forth In Bankruptcy Rules And and (4) Granting Related Relief ?led concurrently herewith: EXHIBIT DOCUMENT A. Asset Purchase Agreement between Surprise Valley Health Care District and Cadira Group Holdings, LLC dated February 26, 2018; B. Superpriority Senior Secured Credit Agreement between Cadira Group Holdings, LLC and Surprise Valley Health Care District, dated February 26, 2018; December 28, 2017 Board Resolution and February 20, 2018 Board Resolution; D. Extension of Lease between Surprise Valley Health Care District and Surprise Valley Medical Building Board Association, dated November 1, 2016; E. Individual Grant Deed from Modoc County to Surprise Valley Hospital District, dated December 1, 1986; F. Individual Grant Deed from Gary Odgers and Ann Wylie Odgers, Trustees of The Odgers Family Trust to Surprise Valley Hospital District, dated February 5, 2010; G. Final Order (I) Granting Senior Secured Status To The Debtor?s Postpetition Lender; (II) Authorizing Superpriority Administrative Expense Status For The 1253471 V1 ~034437/0001 71 Filed 04/18/Case 18-20070 Doc EXHIBIT DOCUMENT Postpetition Lender; Finding That Prepetition Lienholders Are Adequately Protected; (IV) Modifying The Automatic Stay; And (V) Granting Related Relief entered April, 10 2018 as Docket No. 63; Measure 1; Notice of Federal Tax Liens recorded (1) February 22, 2016; (2) 20, 2016; (3) May 3, 2016; and (4) November 8, 2016; Abstract of Judgment in Favor of Medliant, (Medliant v. Surprise Valley Health Care District, Superior Court of San Francisco, Case No. recorded September 18, 2017; Voluntary Petition ?led by the District on January 4, 2018, Docket No. 1; Interim Order (I) Granting Senior Secured Status To The Debtor?s Postpetition Lender; (II) Authorizing Superpriority Administrative Expense Status For The Postpetition Lender; Finding That Prepetition Lienholders Are Adequater Protected; (IV) Modifying The Automatic Stay; (V) Scheduling A Final Hearing Pursuant To Bankruptcy Rule 4001; And (VI) Granting Related Relief entered March 15, 2018 as Docket No. 58; Schedule of Contracts and Leases; Inventory of Personal Property; Valuation Analyst?s Representations, and Statement of Assumptions and Limiting Conditions; Preliminary Title Reports for the Clinic Premises dated January 26, 2018; Preliminary Title Reports for the Hospital Premises dated January 26, 2018; Short Form Deed of Trust and Assignment of Deeds recorded against the District, dated November 19, 2015; List of Creditors of the District as of January 4, 2018; Property Schedule prepared by Alliant Insurance Services, Inc. 1253471 v1-034437/0001 Filed 04/18/Case 18-20070 Doc EXHIBIT DOCUMENT U. The District?s Income Statement dated June 2017; V. Audit of the District completed by TCA Partners, LLC dated March 20, 2011; W. The District?s quarterly balance sheet through June 30, 2017 DATED: April 18, 2018 BROWN RUDNICK LLP By: M. CASTALDI Attorneys for SURPRISE VALLEY HEALTH CARE DISTRICT 125347] Filed 04/18/18 Case 18-20070 1 Doc 71 EXHIBIT Page 5 Filed 04/18/18 Case 18-20070 Doc 71 ASSET PURCHASE AGREEMENT between SURPRISE VALLEY HEALTH CARE DISTRICT, Debtor-in-Possession and CADIRA GROUP HOLDINGS, LLC February 26, 2018 106313230W-9 Page 6 Filed 04/18/18 Case 18-20070 TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS ..1 ARTICLE 2 PURCHASE AND SALE OF ASSETS ..4 2.1 Purchased Assets ..4 2.2 Excluded Assets ..6 2.3 No Liens, Claims or Encumbrances ..6 2.4 Assumption of Liabilities ..6 2.5 Excluded Liabilities ..7 2. 6 Prorations . .7 ARTICLE 3 PURCHASE PRICE AND CLOSING ..8 3.1 Purchase Price ..8 3.2 Payment of Certain Liabilities ..8 3.3 Allocation of Purchase Price ..8 3.4 Closing ..8 3.5 Termination . .8 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER ..9 4. 1 Organization . .9 4.2 Authorization ..9 4.3 Title to Assets ..9 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER ..9 5. 1 Organization ..9 5.2 AuthorizatiOn ..9 ARTICLE 6 COVENANTS ..9 6.1 Bankruptcy Court Authorization ..9 6.2 Additional Assumed Contracts .. 10 6.3 Duty To Confer ..10 6.4 Access to Information ..11 6.5 Conduct of Business ..11 ARTICLE 7 CONDITIONS TO OBLIGATIONS OF BUYER ..11 7.1 Representations and Warranties True ..11 7.2 Performance 7.3 Bankruptcy Court Order ..11 7.4 No Default. The Seller shall not be in default of the DIP Credit Agreement ..11 7.5 No Proceedings ..12 7.6 Casualty Loss ..12 7.7 Instruments of Transfer ..12 7.8 Regulatory Approval of Transfer ..12 7.9 Regulatory Corrective Action Obligations ..12 ARTICLE 8 CONDITIONS TO OBLIGATIONS OF SELLER ..12 8.1 Representations and Warranties True .. 12 i 106313230W-9 Page 7 Doc 71 Filed 04/18/18 Case 18-20070 8.2 Performance .. 12 8.3 Bankruptcy Court Order ..13 8.4 No Proceedings ..13 8.5 Delivery of Consideration ..13 ARTICLE 9 POST-CLOSJNG COVENANTS ..13 9.1 Further Assurances and Cooperation ..13 9.2 Post~Closing Access by Seller ..13 ARTICLE 10 MISCELLANEOUS ..13 10.1 Notices ..13 10.2 Expenses ..15 10.3 Entire Agreement ..15 10.4 Amendment .. 15 10.5 Waiver ..15 10.6 Severability .. 15 10.7 Successors and Assigns ..15 10.8 Headings ..15 10.9 Governing Law .. 15 10.10 Jurisdiction .. 15 10.11 Counterparts; Facsimile Signatures ..15 SCHEDULES Schedule 2.1(d) - Schedule 2. 1 Schedule 2.1(g) - Schedule 2.1(h) Schedule 2.2(1) Schedule 2.4(b) 106313230W-9 Motor Vehicles Assumed Contracts Licenses and Permits Trademarks Claims and Causes of Action Assumed Purchase Money Liabilities ii Page 8 Doc 71 Filed 04/18/18 Case 18-20070 ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (this ?Agreement?) is made and entered into as of February 26, 2018, by and between CADIRA GROUP HOLDINGS, LLC, a Delaware limited liability company, or its designee (?Buyer?), and SURPRISE VALLEY HEALTH CARE DISTRICT, a California health care district ?Seller?). WHEREAS, Seller is a debtor-in?possession under Title 11 of the United States Code, 11 U.S.C. 101 et seq. (the Code?) and on January 4, 2018 (the ?Petition Date?) commenced a bankruptcy case by ?ling a voluntary petition for relief under Chapter 9 of the Bankruptcy Code (the ?Chapter 9 Case") in the United States Bankruptcy Court for the Eastern District of California (Case No. 18-20070) (the ?Bankruptcy Court?); WHEREAS, Seller is continuing to operate its business and manage its properties as a debtor-in possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code; WHEREAS, Buyer wishes to buy, and Seller wishes to sell, substantially all of the assets of Seller on the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the following terms shall have the meanings set forth in this Article 1. ?Accreditation Body? means any Governmental Authority or private non-profit organization that reviews and, based on such reviews, accredits hospitals, laboratories, pharmacies and other providers of medical, surgical or diagnostic services, including without limitation, the Joint Commission and the College of American Pathologists. ?Additional Contracts? has the meaning set forth in Section 6.2 of this Agreement. ?Affiliate? of a specified Person means a Person who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Person specified. ?Assumed Contracts? has the meaning set forth in Section 2.1(e) of this Agreement. ?Assumed Liabilities? has the meaning set forth in Section 2.4 of this Agreement. ?Assumed Moucy Liabilities? has the meaning set forth in Section 2.4(b) of this Agreement. ?Authorized Assumed Contraets? has the meaning set forth in Section 2.4(a) of this Agreement. Page 9 Doc 71 Filed 04/18/18 Case 18-20070 Doc 71 ?Authorizing Order? has the meaning set forth in Section 6.1 of this Agreement. ?Buyer? has the meaning set forth in the introduction to this Agreement. ?Bankruptcy Code? has the meaning set forth in the recitals of this Agreement. Court? has the meaning set forth in the recitals of this Agreement. ?Busincss Day? means a day that is not a Saturday, Sunday or holiday in the State of California or the State of Colorado. ?Chapter 9 Case? has the meaning set forth in the recitals of this Agreement. ?Chaptcr 9 Professionals? means the following professionals retained pursuant to order of the Bankruptcy Court in the Chapter 9 Case: Brown Rudnick LLP, attorneys for Seller and (ii) Glass Ratner, LLP, ?nancial advisor and consultant to Seller. ?Closing? has the meaning set forth in Section 3.4 of this Agreement. ?Closing Date? has the meaning set forth in Section 3.4 of this Agreement. ?Committee? means any Of?cial Joint Committee of Unsecured Creditors 0f Seller in the Chapter 9 Case. Credit Agreement? means that certain Superpriority Senior Secured Credit Agreement dated as of February 26, 2018 between Buyer as Lender and Seller as Debtor. ?Effective Time? has the meaning set forth in Section 3.4 of this Agreement. ?Excluded Assets? has the meaning set forth in Section 2.2 of this Agreement. ?Excluded Liabilities? has the meaning set forth in Section 2.5 of this Agreement. ?Governmental Authority? means any nation, province; state or other political subdivision thereof, and any agency, natural person or other entity exercising executive, legislative, regulatory or administrative functions of or pertaining to government, including without limitation, the Centers for' Medicare Medicaid Services, the Cedarville Fire Department, the IRS, the Centers for Medicare and Medicaid, Modoc County Health Services, the California Departments of Public Health, Medi-Cal, TRICARE, the United States Department of Health and Human Services, the United States Drug Enforcement Agency, and the United States Food and Drug Administration. ?Hospital? means Surprise Valley Hospital, a 26-bed acute care hospital owned and operated by Seller, with a campus located at 741 North Main Street, Cedarville, California 94104. means the United States Internal Revenue Service of the United States Department of the Treasury. Page 10 Filed 04/18/18 Case 18-20070 ?Liceuses and Permits? has the meaning set forth in Section 2.1(g) of this Agreement. ?Lieus, Claims and Encumbrances? has the meaning set forth in Section 2.3 of this Agreement. ?Ordinary Course Purchase Orders? mean purchase orders of Seller for medical supplies, drugs, housekeeping, janitorial and office supplies, food, and other disposables and consumables that have not been delivered to Seller prior to the Effective Time and were issued by Seller in the ordinary course of business in arms?length transactions with Persons who are not Affiliates of Seller for fair market value, and without unlawful kickbacks to any Person. ?Person? means a natural person, a governmental entity, agency or representative (at any level of government), a corporation, partnership, limited liability company, joint venture, trust or other entity or association, as the context requires. ?Petitiou Date? has the meaning set forth in the recitals of this Agreement. ?Pre-Petitiou Federal Payroll Tax Liabilities? means the FICA and FUTA liabilities of Seller to the Internal Revenue Service relating to periods prior to the Petition Date, and including all interest and penalties thereon. means all liabilities of Seller for vacation and other paid time off of Seller Employees as of the Effective Time. ?Purchased Assets? has the meaning set forth in Section 2.1 of this Agreement. ?Purchase Price? has the meaning set forth in Section 3.1 of this Agreement. ?Retained Casb? means up to (but not exceeding) $635,000 of cash or cash equivalents, if any, held by the Seller immediately prior to the Closing including any cash on hand from proceeds borrowed in accordance with the DIP Credit Agreement immediately prior to Closing. ?Seller? has the meaning set forth in the introduction to this Agreement. ?Seller Employees? mean all Persons who are employees of Seller immediately prior to the Effective Time, whether such employees are full-time employees, part?time employees, on short?term or long-term disability, or on leave of absence pursuant to Seller?s policies, the Family and Medical Leave Act of 1993 or other similar local law. ?Seller Employee Benefit Plans? means all employee bene?t plans or fringe bene?t plans for Seller Employees, whether provided by third parties or by Seller, including without limitation: all employee health insurance plans, dental plans, vision plans, life insurance plans, disability plans and workers? compensation plans; and all 401(k) plans. ?Seller Liabilities? mean any and all debts, costs, liabilities, obligations and commitments of Seller, whether accrued or ?xed, known or unknown, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, or determined, undetermined or undeterminable, whether arising before, on or after the Effective Time. 106313230W-9 Page 1 1 Doc 71 Filed 04/18/18 Case 18-20070 ?ScroDynamics? means SeroDynamics, LLC, a Colorado limited liability company, the outstanding membership interests in which were acquired by the Seller pursuant to that certain Limited Liability Company Purchase Agreement dated February 26, 2018 by and between Buyer (as the owner and seller of such membership interests) and Seller (as the purchaser of such membership interests). ?SeroDynamics Facility? means the CAP?accredited laboratory facility located in Denver, Colorado and owned by SeroDynamics. ?Votcr Approval? has the meaning set forth in Section 3.5(d) of this Agreement. ARTICLE 2 PURCHASE AND SALE OF ASSETS 2.1 Purchased Assets. On the Closing Date and effective as of the Effective Time, Seller shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase, receive and accept from Seller, all right, title and interest in and to all of the rights, assets and properties (excluding only those rights, assets and properties described in Section 2.2 hereof), of every kind, character and description, which are owned or leased by Seller and used in the operation or management of the Hospital or otherwise for the bene?t of the Hospital, whether tangible, intangible, real personal or mixed, movable or ?xed, and wherever located, and (ii) the membership interests of SeroDynamics (collectively, the ?Purchased Assets?), including without limitation, the following: all cash, cash equivalents, bank accounts (other than payroll accounts), marketable securities and investment property, except for the Retained Cash; all accounts, accounts receivable and rights to payment, health care insurance receivables, general intangibles, payment intangibles, instruments, promissory notes, chattel paper, supporting obligations, and letter of credit rights, including without limitation, all rights and claims to payment under Medicare (including Medicare cost report settlements), Medicaid, TRICARE, the Children?s Health Insurance Program, and the Disproportionate Share Hospital Program, and all claims, causes of action, rights and defenses with respect to any of the foregoing; all inventory and supplies, including without limitation, all medical supplies, drugs, housekeeping, janitorial and office supplies, food, and other disposables and consumables; all equipment, machinery, furniture and furnishings, ?xtures, tools, vehicles and other tangible personal property, including without limitation, the motor vehicles listed in 2.1(d) hereto; all of the contracts and leases set forth on 2.1(c) (the ?Assumcd Contracts?), all amounts payable to Seller under the Assumed Contracts, and all claims, causes of action, rights and defenses against counterparties to Assumed Contracts; Page 12 Doc 71 Filed 04/18/18 Case 18-20070 all security deposits held by counterparties to the Assumed Contracts, all prepaid expenses, and all partial payments and balances held by vendors; all rights, to the extent assignable or transferable, to all licenses, Medicare and Medicaid provider numbers, permits, approvals (including pending approvals), certi?cates of need, certificates of exemption, franchises, accreditations, registrations and other licenses, permits and approvals issued to Seller by any Governmental Authority or Accreditation Body relating to the ownership, development or operations of the Hospital (?Licenses and Permits?), including Without limitation, the Licenses and Permits listed in Schedule 2.1(g) hereto; all rights to the names ?Surprise Valley Hospital,? other trade names, alone or in combination with other words, and all trademarks, trademark applications, trade names, business names, trade styles, slogans, fictitious names, service names, logos, symbols and service marks used by Seller in connection with the Hospital, including without limitation, the trademarks listed in Schedule 2.1(h) hereto; all copyrights, copyright applications, patents, patent applications, trade secrets, technology and know?how; all software, computer software programs and computer software licenses, whether owned or licensed, and all written materials relating to such software, computer software programs and computer software licenses; all rights, to the extent assignable, in all express or implied warranties, representations and guaranties of any manufacturer, vendor or contractor in connection with the Purchased Assets; (1) all general, financial, tax, personnel, medical staff records, medical and administrative libraries, patient and medical records, billing and payment records, research records, correspondence, and other documents, files, records, data, plans, proposals, vendor lists, and all other recorded knowledge of Seller relating to the Hospital, whether in written, electronic, visual or other form; all proprietary manuals, marketing materials, policy and procedure manuals, standard operating procedures, marketing, advertising and promotional brochures, data and studies analyses, and related materials used or held for use in connection with the Hospital; (11) all telephone numbers, telephone directory listings and internet websites owned hy Seller or used or held for use in connection with the Hospital, including without limitation, Seller?s websites; (0) all plans, specifications, ?as is? drawings, and other drawings related to any improvements made, or proposed to be made, to the Hospital; and all other assets of Seller used or useful in the operation of the Hospital as a going concern and all of the goodwill associated therewith. Page 13 Doc 71 Filed 04/18/18 Case 18-20070 For the avoidance of doubt, the Purchased Assets include the membership interests of SeroDynamics, and the parties understand and agree that the purchase and sale of the SeroDynamics Facility shall be completed exclusively through the purchase and sale of such membership interests. 2.2 Excluded Assets. Seller shall retain all right, tile and interest in and to the following assets of Seller (collectively, the ?Excluded Assets?), and no others: the Retained Cash; any assets that Buyer elects not to purchase by written notice delivered to Seller prior to the Closing Date; any of the Assumed Contracts that Buyer elects not to assume by written notice delivered to Seller prior to the Closing Date; employment contracts between Seller any Seller Employees (other than any employment contracts that are Assumed Contracts); the Seller Employee Benefit Plans; equity interests in Affiliates of Seller other than the membership interests of SeroDynamics; intercompany receivables owing to Seller by an Affiliate of Seller; tax refunds (other than payroll tax refunds) relating to periods prior to the Closing Date; parcel tax receipts collected by the County for the benefit of Seller; claims and causes of action arising under Chapter 5 of the Bankruptcy Code; and any claims or causes of action listed in Schedule 2.2(i) hereto and any other claims or causes of action that Buyer elects not to purchase by written notice delivered to Seller prior to the Closing Date. 2.3 No Liens, Claims or Encumbrances. Except as expressly provided in Section 2.4 hereof, the sale, assignment, transfer and conveyance of the Purchased Assets hereunder shall be made free and clear of all liens, claims (including successor liability claims), charges, security intcrests, or other interests or encumbrances of any nature, including without limitation, all Seller Liabilities (collectively, ?Liens, Claims and Eueumbrances?). 2.4 Assumption of Liabilities. Upon the sale of the Purchased Assets to Buyer on the Closing Date, Buyer shall assume and agree to discharge the following Seller Liabilities and only the following Seller Liabilities (collectively, the ?Assumed Liabilities?): Page 14 Doc 71 Filed 04/18/18 Case 18-20070 obligations of Seller from and after the Closing Date (but only to the extent that such obligations do not arise out of any non?monetary default or breach by Seller) under those Assumed Contracts (and no others) which the Bankruptcy Court has authorized Seller to assume and assign to Buyer (the ?Authorized Assumed Contracts?); provided, however, that Buyer shall have no obligation or liability under any Assumed Contract that the Bankruptcy Court has authorized Seller to assume and assign to Buyer if such Assumed Contract becomes an Excluded Asset prior to the Closing Date pursuant to Section 2.2ng hereof; the purchase money secured liabilities of Seller listed in Schedule 2.4(b) hereto, and any other purchase money secured liabilities of Seller that Buyer may agree to assume by written notice delivered to Seller prior to the Closing Date (the ?Assumed Purchase Money Liabilities?); liabilities of Seller arising after the Petition Date under Ordinary Course Purchase Orders for the Hospital; accrued but unpaid PTO of Seller Employees hired by Buyer as of the Closing Date; any sale or transfer taxes in connection with the purchase of the Purchased Assets by Buyer; and notwithstanding anything herein to the contrary (including Section 2.5 below), all liabilities and obligations related to the SeroDynamics Facility, including any liabilities arising out of Seller's acquisition, operation and ownership of SeroDynamics. 2.5 Excluded Liabilities. Except for the Assumed Liabilities, Buyer shall not assume, be liable for, or be bound by, agree to perform or discharge, indemnify Seller against, or otherwise have any responsibility for, any Seller Liabilities (collectively, the ?Excluded Liabilities?), including without limitation, any Seller Liabilities arising out of or relating to any of the following: The Pre?Petition Federal Payroll Tax Liabilities; the release, discharge or disposal (including the movement of material through or in air, soil, surface or groundwater) of any solid wastes, pollutants or hazardous substances or the handling, storage, use, transportation or disposal of any of the foregoing, as these terms are defined by current federal, state or local law, in or from the Hospital; A the termination of employment at any time prior to, on or after the Closing Date of any Seller Employees; or any foreign, federal, state or local taxes incurred by Seller at any time prior to, on or after the Closing. 2.6 Prorations. To the extent not otherwise prorated pursuant to this Agreement, Seller and Buyer shall prorate (as of the Effective Time), if applicable, real estate and personal Page 15 Doc 71 Filed 04/18/18 Case 18-20070 property taxes, assessments, costs of utilities and other similar charges against real and personal property. ARTICLE 3 PURCHASE PRICE AND CLOSING 3.1 Purchase Price. The purchase price payable by Buyer for the Purchased Assets (the ?Purchase Price?) shall be an amount comprised of the following and subject to adjustment as follows: a cash payment at Closing in an amount not to exceed $4,000,000 for payment in full of Seller?s liabilities to Cadira Group Holdings, LLC, plus (ii) cure payments under Authorized Assumed Contracts, plus unpaid fees and expenses of the Chapter 9 Professionals as of the Closing; plus assumption of the Assumed Purchase Money Liabilities; plus a cash payment at Closing in the amount of $700,000 (which amount shall be in addition to the amount referenced in 3.1(a) above). 3.2 Payment of Certain Liabilities. after the Closing Buyer shall pay the following liabilities of Seller: such amounts as the Bankruptcy Court shall direct in the Authorizing Order in respect of the Authorized Assumed Contracts; and all sales and transfer taxes in connection with the transactions contemplated by this Agreement. 3.3 Allocation of Purchase Price. Prior to the Closing Seller and Buyer shall mutually agree to allocate the Purchase Price among the Purchased Assets in accordance with applicable rules and regulations. All tax returns and reports ?led by Seller and Buyer shall be consistent with such allocation, as shall be ?nal and binding upon them pursuant to this Section 3.4. 3.4 Closing. Subject to the provisions of this Agreement, the closing of the sale of the Purchased Assets to Buyer (the ?Closing?) will take place at 11:00 am, local time, on the second Business Day after the conditions set forth in Article 7 and Article 8 of this Agreement have been satisfied (the ?Closing Date?), at the of?ces of Brown Rudnick LLP located at 2211 Michelson Drive, Seventh Floor, Irvine, California 92612, or at such other date, time or place as Buyer and Seller shall agree but in no event later than June 30, 2018, time being of the essence. Regardless of the actual time of the Closing on the Closing Date, the Closing shall be deemed effective as of 12:01 am. local time on the Closing Date (the ?Effective Time?). 3.5 Termination. Unless otherwise waived by Buyer in writing, this Agreement shall be terminated and abandoned prior to the Closing: upon execution by Buyer and Seller of a written instrument to such effect; Page 16 Doc 71 Filed 04/18/18 Case 18-20070 upon entry of an order of the Bankruptcy Court denying Seller?s motion for approval of the transactions contemplated by this Agreement; (0) if the Authorizing Order has not been entered on or before April 30, 2018; if the approval of the transactions Contemplated in this Agreement in a duly held election by the County of Modoc, California (the "Voter Approval") has not occurred on or before June 5, 2018; or if the Closing has not occurred on or before June 30, 2018. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer as follows: 4.1 Organization. Seller is a California health care district validly existing and in good standing under the laws of the state of its incorporation or organization. 4.2 Authorization. Subject to Voter Approval, Seller has full power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. This Agreement (subject to the entry of an appropriate order or orders of the Bankruptcy Court) constitutes the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms. 4.3 Title to Assets. At the Closing, Seller shall transfer the Purchased Assets to Buyer, pursuant to the Authorizing Order, free and clear of all Liens, Claims and Encumbrances. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: 5.1 Organization. Buyer is a limited liability company, duly organized, validly existing and in good standing under the laws of the State of Delaware. Any Person to whom Buyer assigns this Agreement is duly organized, validly existing and in good standing under the laws of the state of its organization, and is duly qualified to do business and is in good standing in the state of its organization. 52 Authorization. Buyer has full power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. This Agreement constitutes the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. ARTICLE 6 COVENANTS 6.1 Bankruptcy Court Authorization. Seller shall file a motion with the Bankruptcy Court to sell the Purchased Assets to Buyer on the terms and conditions set forth in this 1063 l3230\V-9 Page 17 Doc 71 Filed 04/18/18 Case 18-20070 Agreement. This Agreement shall become effective upon entry of an order or orders of the Bankruptcy Court (collectively, the ?Authorizing Order?), which order shall be in form and substance satisfactory to Buyer in its sole discretion: authorizing and approving Seller?s execution and delivery of this Agreement; authorizing and approving the sale, assignment, transfer and conveyance of the Purchased Assets to Buyer free and clear of all Liens, Claims and Encumbrances; con?rming the Purchase Price as representing the fair market value of the Purchased Assets; . determining the amounts necessary to compensate each of the counterparties to the Assumed Contracts for any unpaid monetary obligations and pecuniary loss liabilities of Seller arising prior to the Closing Date; authorizing the assumption and assignment to Buyer of each of the Assumed Contracts free and clear of all Liens, Claims and Encumbrances, including all liabilities and obligations of Seller arising out of any breach or default by Seller prior to the Closing Date; ordering and determining that each of the Assumed Contracts shall be a valid and enforceable contract of Buyer from and after the Closing Date; following the Closing Date, ordering the Seller to preserve $700,000 of the Purchase Price, plus any Retained Cash to be used in any plan of adjustment proposed or approved in the Bankruptcy Case; authorizing and approving the consummation of all of the other transactions provided for in this Agreement; and (1) including findings that Buyer is a purchaser acting in good faith, as such term is used in the Bankruptcy Code. 62 Additional Assumed Contracts. In addition to the Assumed Contracts which shall be assumed and assigned to Buyer pursuant to the Authorizing Order, Buyer shall have the right at any time during the Chapter 9 Case, whether prior to or after the Closing, to designate any other contracts or leases of Seller that Buyer desires to assume (the ?Additional Contracts?). Upon Buyer?s designation of any such Additional Contracts, Seller shall file a motion with the Bankruptcy Couit for an order of the Bankruptcy Court authorizing and approving the assumption and assignment to Buyer of such Additional Contracts upon the same terms and conditions provided under the Authorizing Order for the assumption and assignment to Buycr of the Assumed Contracts. 6.3 Duty To Confer. Seller shall confer with Buyer concerning, and furnish to Buyer prior to its submission to the Bankruptcy Court, all of the motions and orders contemplated in Section 6.1, Section 6.2 and Section 6.3 hereof, any plan of reorganization or plan of liquidation under chapter 9 of the Bankruptcy Code that provides for the sale of the Purchased Assets to i 10 Page 18 Doc 71 Filed 04/18/18 Case 18-20070 Buyer, and any disclosure statement or other document that Seller may desire to submit to the Bankruptcy Court in connection with any of the foregoing. All such motions, orders, plans, disclosure statements and other documents comply with the terms and provisions of this Agreement and shall be in form and substance reasonably acceptable to Buyer. 6.4 Access to Information. Prior to the Closing, Scller shall permit Buyer and its representatives to have reasonable access, during regular business hours, to the propeities, the employees and the books and records of Seller, and shall furnish to Buyer such financial and operating information with respect to the business and properties of Seller as Buyer shall, from time to time, reasonably request. Buyer shall have the right to engage in reasonable communications with the customers and suppliers of Seller, the parties to licenses and other contracts and agreements with Seller, and the consultants and advisors to Seller. 6.5 Conduct of Business. Prior to the Closing, the Hospital Facility shall be operated only in the ordinary course of business, consistent with current practice. In connection therewith, Seller shall not permit any of the following actions: the sale, transfer or acquisition by Seller of any assets other than in the ordinary course of business consistent with current practice; the entry into any contract or lease, or the amendment to any contract or lease, other than purchase and sale orders entered into in the ordinary course of business consistent with current practice; the increase in the compensation of any employee; or the payment of any dividend or distribution of equity holders. ARTICLE 7 CONDITIONS TO OBLIGATIONS OF BUYER The obligations of Buyer to effect the Closing hereunder are subject to the satisfaction (unless waived by Buyer in writing), at or before the Closing, of each of the following conditions: 7.1 Representations and Warranties True. The representations and warranties of Seller contained in this Agreement shall be true, complete and accurate as of the Closing. 7.2 Performance. Seller shall have performed, fulfilled and complied, in all material respects, with all covenants and agreements required by this Agreement to be performed, fulfilled and complied with by it on or prior to the Closing. 7.3 Bankruptcy Court Order. The Authorizing Order shall have become ?nal and not subject to appeal. 7.4 No Default. The Seller shall not be in default of the DIP Credit Agreement. 11 Page 19 Doc 71 Filed 04/18/18 Case 18-20070 7.5 No Proceedings. No order of any court of competent jurisdiction shall have been entered enjoining or restraining the sale of any of the Purchased Assets to Buyer, and no court of competent jurisdiction shall have determined that the acquisition of the Purchased Assets by Buyer constitutes a violation of applicable law or would be in contravention of the rights of any Person. 7.6 Casualty Loss. Neither the Hospital, nor the facilities in which the Hospital is located, shall have suffered any material damage or destruction (whether or not such damage or destruction is covered by insurance) from ?re, ?ood, earthquake or otherwise. 7.7 Instruments of Transfer. Seller shall have delivered to Buyer bills of sale in form and substance reasonably acceptable to Buyer, effective to vest in Buyer good and marketable title to the Purchased Assets free and clear of all Liens, Claims and Encumbrances. 7.8 Regulatory Approval of Transfer. All applicable regulatory authorities shall have approved the transfer to Buyer of the Licenses and Permits, and Buyer shall have obtained any other Licenses and Permits required for Buyer to operate the Hospital. Without limiting the generality of the foregoing, Buyer shall have been transferred provider numbers and certifications for Medicare and Medicaid so that Buyer can submit invoices to, and receive payments from, such programs from and after the Closing Date with respect to services provided at the Hospital. Neither Buyer nor Seller shall have received any communication that certification of the Hospital by any Governmental Authority or any Accreditation Body for operation of any of these facilities by Buyer will not be effective as of the Closing Date, or (ii) Buyer may not participate in and receive reimbursement from the use of Seller?s Medicare and Medicaid provider numbers. 7.9 Regulatory Corrective Action Obligations. Seller shall have completed any corrective actions requested or required by any Governmental Authority or any Accreditation Body that relate to operations other than SeroDynamics or the SeroDynamics Facility. ARTICLE 8 CONDITIONS TO OBLIGATIONS OF SELLER The obligations of Seller to effect the Closing hereunder are subject to the satisfaction, at or before the Closing, of each of the following conditions: 8.1 Representations and Warranties True. The representations and warranties of Buyer contained in this Agreement shall be true, complete and accurate as of the Closing. 8.2 Performance. Buyer shall have performed, ful?lled and complied, in all material respects, with all covenants and agreements required by this Agreement to be performed, fulfilled and complied with by it on or prior to the Closing. 12 Page 20 Doc 71 Filed 04/18/18 Case 18-20070 8.3 Bankruptcy Court Order. The Authorizing Order shall have become final and not subject to appeal; provided, however, if Buyer has waived the condition set forth in Section 7.3 hereof, Seller shall be deemed also to have waived the condition set forth in this Section 8.3. 8.4 No Proceedings. No order of any court of competent jurisdiction shall have been entered enjoining or restraining the sale of any of the Purchased Assets to Buyer, and no court of competent jurisdiction shall have determined that the acquisition of the Purchased Assets by Buyer constitutes a violation of applicable law or would be in contravention of the rights of any Person. 8.5 Delivery of Consideration. Buyer shall have delivered the cash portions of the Purchase Price to Seller. ARTICLE 9 POST-CLOSING COVENANTS 9.1 Fulther Assurances and Cooperation. After the Closing, each of Seller and Buyer shall execute, acknowledge and deliver to the other any and all other assignments, consents, approvals, conveyances, assurances, documents and instruments reasonably requested by the other at any time, and shall take any and all other actions reasonably requested by the other at any time for the purpose of more effectively assigning, transferring, granting, conveying and confirming to Buyer the Purchased Assets, and as may be necessary to fully consummate the transactions contemplated by this Agreement and to fully perform the obligations of the parties hereunder. After the consummation of the transactions contemplated by this Agreement, the parties agree to cooperate with each other and to take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of the terms of this Agreement, the documents referred to in this Agreement and the transactions contemplated hereby. 9.2 P0st?Closing Access by Seller. After the Closing, Buyer shall permit Seller and its representatives to have reasonable access, during regular business hours, to the financial, corporate and other books and records relating to the operation of the Seller?s businesses prior to the Closing Date to the extent reasonably necessary for administration of the Chapter 9 Case and the resolution of claims asserted against Seller in the Chapter 9 Case. 9.3 Emergency Services. After the Closing Buyer shall cause the Hospital to continue to offer emergency services with at least the same capabilities and service levels as offered to the community prior to the commencement of the Chapter 9 Case. ARTICLE 10 MISCELLANEOUS 10.1 Notices. All notices, requests, consents, demands and other communications hereunder shall be in writing (including a writing delivered by facsimile transmission) and shall be deemed to have been duly given when delivered, if sent by registered or certified mail (return receipt requested), (ii) when delivered, if delivered personally or by facsimile, or on the following business day, if sent by United States Express Mail or overnight courier, in each 13 Page 21 Doc 71 Filed 04/18/18 case to the parties at the following addresses (or at such other addresses as shall be specified by like notice): Case 18-20070 If to Seller to: Surprise Valley Health Care District 7741 North Main Street Cedarville, California 94104 Attention: Jennifer Hanor Telephone: (530) 279-6111 ext. 1225 Facsimile: with a copy to: Brown Rudnick LLP 2211 Michelson Drive, Seventh Floor Irvine, California 92612 Attention: Cathrine M. Castaldi, Esq. Telephone: (949) 752?0251 Facsimile: (949) 252-1514 If to Buyer to: Cadira Group Holdings, LLC 4789 Tejon Street, Suite 100 Denver, Colorado 80211 Attention: Beau Gertz Telephone: Facsimile: with a copy to: Paul Epner, Esq. 17705 Jessie James Lane Ramona, California 92065 Telephone: (858) 382?3610 and Dentons (US) LLP 1221 McKinney Street, Suite 1900 Houston, Texas 77010 Attention: Edward T. Laborde, Jr., Esq. Telephone: (713) 65 8?464 1 Facsimile: (713) 739?0834 14 Page 22 Doc 71 Filed 04/18/18 Case 18-20070 10.2 Expenses. Each party to this Agreement shall pay its own expenses in connection with the preparation of this Agreement and the consummation of the transactions contemplated hereby, including the fees of any attorneys, accountants, financial advisors, investment bankers or other professionals engaged by such party. 10.3 Entire Agreement. This Agreement contains the entire agreement between the parties and supersedes all prior agreements, arrangements and understandings relating to the subject matter hereof. There are no written or oral agreements, understandings, representations, or warranties between the parties other than those set forth in this Agreement. 10.4 Amendment. This Agreement may not be modi?ed, amended, altered or supplemented except by a written agreement executed by all of the parties hereto. 10.5 Waiver. Waiver by any party of any breach or failure to comply with any provision of this Agreement by any other party shall not be construed as, or constitute, a continuing waiver of such provision, or a waiver of any other breach of, or failure to comply with, any other provision of this Agreement. No waiver of any such breach or failure or of any term or condition of this Agreement shall be effective unless in a written notice signed by the waiving party and delivered, in the manner required for notices generally, to each affected party. 10.6 Severability. In case any provision of this Agreement shall be found by a court of competent jurisdiction to be invalid, illegal or unenforceable, such provision shall be construed and enforced as if it had been narrowly drawn so as not to be invalid illegal or unenforceable, and the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 10.7 Successors and Assigns. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and their respective permitted successors and assigns. Seller may not assign, delegate or otherwise transfer its rights or duties hereunder without the prior written consent of Buyer. Buyer may assign its rights and duties hereunder to any third party in its sole discretion. 10.8 Headings. The descriptive headings of sections and subsections of this Agreement are inserted for convenience only and do not constitute a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. 10.9 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to the choice of law principles thereof. 10.10 Jurisdiction. During the pendency of the Chapter 9 Case, the Bankruptcy Court shall have sole and exclusive jurisdiction over the parties hereto with respect to any dispute or controversy between them which arises under or in connection with this Agreement. 10.11 Counterparts; Facsimile Signatures. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may be executed and delivered by facsimile or electronic scan and upon such delivery the facsimile or electronic scan signature 15 Page 23 Doc 71 Filed 04/18/18 Case 18-20070 Doc 71 shall be deemed to have the same effect as if the original signature had been delivered to the other parties. IN WITNESS WHEREOF, this Agreement has been entered into as of the day and year ?rst above written. BUYER CADIRA GROUP HOLDINGS, LLC, a Delaware limited liability company By: Name: 335% 1/ Ti tie: mm m} m?L SELLER SURPRISE VALLEY HEALTH CARE DISTRICT, 3 California health care district By: mam?w Ne . Jennifer Han?ag) Tivtkle: Chief Executive Officer 16 Page 24 Filed 04/18/18 Case 18-20070 Doc 71 Schedule 2.1 MOTOR VEHICLES Effective {lance-Imam I Vehic?a [\Jumber Dam Gaie fe?ear?fia?ake??coe! ?3'pr "33mg 35?: w: a? ??938 F033 Ammance AB 3; ?FDmeFoaeraw W1 m3 ?3ng 33? 20% Few, ??nbu?arzce $.35 3 wma My; .3 199:; Pm: Van {245% PT 17 106313230W-9 Page 25 Filed 04/18/18 Surprise Valley Health Care District is a party to the following assumed contracts/leases: Case 18-20070 Schedule 2.11e) ASSUMED CONTRACTS Connecting to Care 1 Apr. 29, 2013 Apr. 29, 2019 Frontier Dec. 05, 2013 Dec. 05, 2018 Allsco Jul. 08, 2014 Jul. 08, 2019 Dr. Gary Haffner Feb. 23, 2015 20 Days? Notice Dell May 01,2016 May 01,2019 Dr. Robert James Nov. 16, 2016 30 Days? Notice NOR-CAL EMS Nov. 22, 2016 30 Days? Notice Canon Feb. 28, 2017 Feb. 28, 2021 Jun. 26, 2017 Jun. 30, 2018 Bill Browning Jul. 05, 2017 30 Days? Notice Shelly Bailey Jul. 18, 2017 30 Days? Notice Jennifer Hanor Aug. 04, 2017 60 Days? Notiee Dr. Valerie Dickerson Aug. 16, 2017 30 Days? Notice Ortho Clinical Diagnostics Sep. 07, 2017 Sep. 07, 2022 Dr. George Kibler Oct. 11, 2017 30 Days? Notice Kristen Clements Oct. 11, 2017 30 Days? Notice Owens Dec. 18, 2017 Dec. 18, 2018 Payor arrangements with the State of California Payor arrangements with Medicare/Medical 1063 18 Page 26 Doc 71 Filed 04/18/18 Case 18-20070 Doc 71 Schedule 2.1 LICENSES AND PERMITS 19 Page 27 Filed 04/18/18 Case 18-20070 Doc 71 Schedule 2.1 TRADEMARKS None. 20 106313230\Vv9 Page 28 Filed 04/18/18 Case 18-20070 Doc 71 Schedule 2.2!k) CLAIMS AND CAUSES OF ACTION Claims and causes of actions maintained or taken pursuant to, inter alia, Sections 542, 545, 547, 548, 549, 550, 552 and 553 of the Bankruptcy Code and arising out of or related to the Chapter 9 Case. 21 1063 Page 29 Filed 04/18/18 Case 18-20070 Doc 71 Schedule 2.4 ASSUMED PURCHASE MONEY LIABILITIES None. 1249689 v2 22 1063 Page 30 Filed 04/18/18 Case 18-20070 Doc 71 EXHIBIT Page 31 Filed 04/18/18 106084424W-I5 Case 18-20070 SUPERPRIORITY SENIOR SECURED CREDIT AGREEMENT CADIRA GROUP HOLDINGS, LLC (as Lender and Secured Party) and SURPRISE VALLEY HEALTH CARE DISTRICT Dated: February 26, 2018 Page 32 Doc 71 Filed 04/18/18 Case 18-20070 Doc 71 TABLE OF CONTENTS Page SECTION 1. De?nitions .. 2 SECTION 2. [Intentionally Omitted] .. 10 SECTION 3. DIP Loans .. 10 SECTION 4. Conditions to Effectiveness and Lending ..11 SECTION 5. [Intentionally Omitted] .. 13 SECTION 6. Collateral .. 13 SECTION 7. Representations, Warranties and Covenants ..16 SECTION 8. Interest, Fees and Expenses .. 21 SECTION 9. Releases ..22 SECTION 10. Events of Default and Remedies ..22 SECTION 11. Termination ..27 SECTION 12. Miscellaneous .. 27 EXHIBITS Exhibit A Form of DIP Loan Promissory Note Exhibit Form of Borrowing Notice SCHEDULES Schedule 1 Collateral Information Schedule 2 Litigation . Schedule Projected DIP Budget and DIP Loans Schedule Indebtedness 106084424W-15 Page 33 Filed 04/18/18 Case 18-20070 Doc 71 SUPERPRIORITY SENIOR SECURED CREDIT AGREEMENT SUPERPRIORIT SENIOR SECURED CREDIT AGREEMENT, dated as of February 26, 2018 (as amended, restated, supplemented or otherwise modi?ed from time to time, this "Agreement"), by and among CADIRA GROUP HOLDINGS, LLC, a Delaware, limited liability company, in its capacity as a Lender hereunder (?Lcuder? or ?Secured Party?), and SURPRISE VALLEY HEALTH CARE DISTRICT, a California health care district (the "Debtor"). BACKGROUND A. On January 4, 2018 (the ?Petition Date?), the Debtor ?led a voluntary case under Chapter 9 of the Bankruptcy Code pending in the United States Bankruptcy Court for the Eastern District of California, Case No. 18-20070 (the "Chapter 9 Case"), and the Debtor has retained possession of its assets and is authorized under the Bankruptcy Code to continue the operation of its business. B. In connection with the Chapter 9 Case, the Debtor has requested that the Lender provide it with a senior secured superpriority term loan facility in an aggregate principal amount not to exceed $4,000,000.00, consisting of $2,804,000.00 on an interim basis ($2,500,000 of which shall be used to ?nance the Lab Purchase Transaction described herein) and an additional $1,196,000.00 on a final basis. All of the Debtor's obligations under the DIP Loan are to be secured by ?rst priority priming Liens (subject only to the Carve-Out-and other exceptions set forth herein and in the other DIP Loan Documents) on the Collateral. The Lender is willing to extend such credit under such facility to the Debtor on the terms and subject to the conditions set forth herein. C. This Agreement and the rights and obligations of the Lender and Debtor hereunder shall be subject to approval of the Bankruptcy Court in the Chapter 9 Case pursuant to a Financing Order in form and substance acceptable to Lender in its sole and absolute discretion. Without limiting the generality of the foregoing, Lender has advanced $304,000.00 prior to the date hereof (the ?luitial Advauce?), and such amounts are hereby intended to be included as DIP Loan Obligations under this Agreement and will be included in the ?nancings approved in such Financing Order and as DIP Loan Obligations under this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and undertakings herein contained and other good and valuable consideration, the receipt and suf?ciency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. Dc?uitious As used in this Agreement, the following terms shall have the meanings set forth below: Accouuts shall mean all of each of the Debtor?s now existing and future: accounts (as de?ned in the UCC), and any and all other receivables (whether or not speci?cally listed on schedules 2 Page 34 Filed 04/18/18 Case 18-20070 furnished to the Lender), including, without limitation, all accounts created by, or arising from, all of the Debtor's operations, sales, leases, rentals of goods or renditions of services to its patients and customers, including but not limited to, those accounts arising under the Debtor's trade names or styles, or through the Debtor's divisions; any and all instruments, documents, chattel paper (including electronic chattel paper) (all as de?ned in the unpaid seller's or lessor's rights (including rescission, replevin, reclamation, repossession and stoppage in transit) relating to the foregoing or arising therefrom; rights to any goods represented by any of the foregoing, including rights to returned, reclaimed or repossessed goods; reserves and credit balances arising in connection with or pursuant hereto; guarantees, supporting obligations, payment intangibles and letter of credit rights (all as de?ned in the insurance policies or rights relating to any of the foregoing; general intangibles pertaining to any and all of the foregoing (including all rights to payment, including those arising in connection with bank and non-bank credit cards), and including books and records and any electronic media and software thereto; notes, deposits or property of account debtors securing the obligations of any such account debtors to the Debtor or any of them; and 0) cash and non-cash proceeds (as defined in the UCC) of any and all of the foregoing. Asset Purchase Agreement shall mean the Asset Purchase Agreement to be executed between the Debtor and Lender, pursuant to which Lender and the Debtor will complete the Sale Transaction for an aggregate purchase price of $4,000,000. Availability shall mean, as at any time of calculation, the amount by which: the Line of Credit exceeds the outstanding aggregate amount of all DIP Loans outstanding at such time. Bankruptcy Code shall mean the United States Bankruptcy Code, being Title 11 of the United States Code as enacted in 1978, as the same has heretofore been or may hereafter be amended, recodified, modified, or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. Bankruptcy Court shall mean the United States Bankruptcy Court or the United States District Court for the Eastern District of California, Sacramento Division. Business Day shall mean any day that is not Saturday, Sunday or a Legal Holiday as such term is defined in Rule 9006(a)(6) of the Federal Rules of Bankruptcy Procedure. Carve-Out shall mean: (A) unless and until the DIP Loans and all other DIP Loan Obligations are repaid in full U.S. Trustee fees, pursuant to 28 U.S.C. 1930 (the Trustee Fees?) and (ii) a total of $655,000.00 for all professional expenses incurred by all Debtor professionals at any time, whether or not then allowed or paid (but subject to ultimate allowance) payable out of the DIP Collateral, including all expenses of counsel permitted under the DIP Budget. Notwithstanding anything contained in this paragraph to the contrary nothing in this paragraph shall be construed to impair the ability of any interested party to object to any professional expenses sought by any professional person. Closing Date shall mean the date that this Agreement has been duly executed by the parties hereto and delivered to each other. Page 35 Doc 71 Filed 04/18/18 Case 18-20070 Collateral shall have the meaning set forth in Section 6 of this Agreement. Copyrights shall mean all of the Debtor's present and hereafter acquired copyrights, copyright registrations, supplemental registrations recordings, applications, designs, styles, licenses, marks, prints and labels bearing any of the foregoing, goodwill, all extension and renewals thereof, all cash and non-cash proceeds thereof, including, without limitation, all income, fees, royalties, damages, claims and payments now or hereafter due and/or payable thereunder and with respect thereto including, without limitation, damages and payments for past, present and future infringements, misappropriations or other violations with respect thereto, and rights to sue or otherwise recover for past, present and future infringements, misappropriations or violations thereof. County shall mean County of Modoc in the State of California. Debtor shall have the meaning set forth in the preamble of this Agreement and shall be deemed to include the Debtor as the debtor in the Chapter 9 Case, and its successors and assigns. Default shall mean any event specified in Section 10 hereof, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, event or act, has been satisfied. Defanlt Rate of Interest shall mean a fixed rate of interest per annum on any DIP Loan Obligations hereunder, equal to ten percent which the Lender shall be entitled to charge the Debtor on all DIP Loan Obligations due the Lender by the Debtor, as further set forth in Paragraph 10.2 of Section 10 of this Agreement. DIP Budgct shall mean the budget agreed to by the Debtor and the Lender and attached hereto as Schedule 3. DIP Loan Account shall mean the account on the Lender?s books, in the Debtor's name and on behalf of the Debtor, in which the Debtor will be charged with all DIP Loan Obligations. DIP Loan Documents shall mean this Agreement, the Promissory Note, deposit account control agreements securing the DIP Loan Obligations, the other closing documents, instruments and certificates, and any other ancillary loan and security agreements executed from time to time in connection with this Agreement, all as may be renewed, amended, restated, extended, increased or supplemented from time to time. DIP Loan Obligations shall mean all loans, advances and extensions of credit made or to be made by the Lender to the Debtor, or to others for the Debtor's account, pursuant to this Agreement (including, without limitation, all DIP Loans), whether new in existence or incurred by the Debtor from time to time hereafter; whether principal, interest, fees, costs, expenses or otherwise, and including, without limitation all Out-of-Pocket-Expenses; whether secured by pledge, Lien upon or security interest in any of the Debtor' Collateral, assets or property or the assets or property of any other Person; whether such indebtedness is absolute or contingent, joint or several, matured or unmatured, direct or indirect and whether the Debtor is liable to the 4 Page 36 Doc 71 Filed 04/18/18 Case 18-20070 Lender for such indebtedness as principal, surety, endorser, guarantor or otherwise. The DIP Loan Obligations shall also include the Election Termination Fee, if applicable in accordance with the terms of Section 11.2. DIP Loans shall mean the loans made by the Lenders to the Debtor pursuant to Section 3.1, including, for the avoidance of doubt, the Initial Advance. Documents of Title shall mean all of the Debtor?s present and future documents (as defined in the UCC), and any and all warehouse receipts, bills of lading, shipping documents, chattel paper, instruments and similar documents, all whether negotiable or not and all goods and Inventory relating thereto and all cash and non?cash proceeds of the foregoing. Election Termination Fee shall mean the amount, if any, equal to twenty percent of the cumulative Net Profits (as such term is defined in the Lab Management Agreement) received by Debtor following the completion of the Lab Purchase Transaction, which amount shall become due payable by the Debtor to the Lender in the event the Sale Transaction is not approved by the citizens of the County in accordance with this Agreement. Egnipment shall mean all of the Debtor's present and hereafter acquired equipment (as de?ned in the UCC) including, without limitation, all machinery, equipment, furnishings and fixtures, and all additions, substitutions and replacements thereof, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto and all proceeds thereof of whatever sort. ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and the rules and regulations promulgated thereunder from time to time. Event(s) of Default shall have the meaning provided for in Section 10 of this Agreement. Financing Orders shall mean any financing order in form and substance acceptable to Lender in its sole and absolute discretion, entered by the Bankruptcy Court authorizing the financing on terms and conditions set forth in this Agreement, granting to Lender the senior security interests and Liens described herein and super-priority administrative expense claims (subject to the Carve?Out expenses) and modifying the automatic stay and other provisions required by Lender and its counsel. General Intangibles shall mean all of the Debtor?s present and hereafter acquired general intangibles (as defined in the UCC), and shall include, without limitation, all present and future right, title and interest in and to: choses in action and causes of action and all other intangible personal property of the Debtor of every kind and nature (other than Accounts), corporate and business records, contract rights, (0) Intellectual Property including the proceeds or royalties of any licensing agreements, goodwill, registrations, licenses, permits and franchises, all customer lists, distribution agreements, supply agreements, blue prints, indemni?cation rights and tax refunds, all uncerti?cated equity interests in other companies (other than any stock or other equity ownership interests constituting ?Securities? as defined in the UCC), any letter of credit, guarantees, claim, security interests or other security held by or granted to the Debtor to secure payment by any account debtor of any of the accounts, and all monies and claims for monies now or hereafter due and payable in connection with any of the foregoing or otherwise, 5 Page 37 Doc 71 Filed 04/18/18 Case 18-20070 and all cash and non-cash proceeds thereof. Indebtedness shall mean, without duplication, all liabilities, contingent or otherwise, which are any of the following: obligations in respect of borrowed money or for the deferred purchase price of property, services or assets, lease obligations which, in accordance with appropriate accounting principles, have been, or should be capitalized. Initial Advance shall have the meaning set forth in the recitals of this Agreement. Insurance Proceeds shall mean proceeds or payments from an insurance carrier with respect to any loss, casualty or damage to Collateral. Intellectual Property means a collective reference to all rights, priorities and privileges relating to intellectual property, including, without limitation all Trademarks, tradenames, corporate names, business names, logos and any other designs or sources of business identities, all Patents, together with any improvements on said Patents, utility, models, industrial models, and designs, all Copyrights, all trade secrets, all licenses of any of the foregoing and the right to sue or otherwise recover for past, present and future infringement, dilution, misappropriation or other violation or impairment thereof, including the right to receive all proceeds therefrom, including without limitation license fees, royalties, income, payments, claims, damages and proceeds of suit, now or hereafter due and/or payable with respect thereto. Inventogy shall mean all of each of the Debtor's present and hereafter acquired inventory (as de?ned in the UCC) and including, without limitation, all merchandise, inventory and goods, and all additions, substitutions and replacements thereof, wherever located, together with all goods and materials used or usable in manufacturing, processing, packaging or shipping the same in all stages of production from raw materials through work-in?process to ?nished goods and all proceeds thereof of whatever sort. Investment Property shall mean all now owned and hereafter acquired investment property (as de?ned in the UCC), together with all equity interests (whether or not constituting ?Securities? as de?ned in the UCC) held by the Debtor in any other company, all certi?cates representing any such equity interests, all dividends, distributions and other amounts payable on or in respect of such equity interests, and all proceeds of the foregoing. Lab Management Agreement shall mean the management service agreement pursuant to which Lender (or one of its af?liated entities) will provide management and marketing services to Debtor. Lab Purchase Agreement shall mean the limited liability company purchase agreement between the Lender and Debtor pursuant to which the Debtor will complete the Lab Purchase Transaction. Lab Purchase Transaction shall mean the Debtor?s acquisition of Serodynamics, LLC, a Colorado limited liability company, owner and operator of a CAP-accredited laboratory facility located in Denver, Colorado for not less than $2,500,000.00. Lita shall mean, with respect to any asset, any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any ?nancing lease having substantially the same economic effect as any of the foregoing) relating to such asset, in the case of 6 Page 38 Doc 71 Filed 04/18/18 Case 18-20070 securities, any purchase option, call or similar right of a third party with respect to such secu1ities. Line of Credit shall mean the aggregate obligation of the Lender to make DIP Loans pursuant to Section 3 of this Agreement in the aggregate principal amount equal to $4,000,000.00 (which amount shall include $2,500,000 to ?nance the Lab Purchase Transaction and the Initial Advance). Maturity Date shall mean the earlier of July 31, 2018, (ii) the effective date of any plan of adjustment of the Debtor, dismissal of any of the Chapter 9 Case, (iv) closing of any sale of substantially all the assets of the Debtor or vote against the Sale Transaction by the citizens of the County in a duly held election. Milestones shall have the meaning set forth in section 10.10) of this Agreement. Other Collateral shall mean all of the Debtor's now owned and hereafter acquired lockbox, blocked account and any other deposit accounts maintained with any bank or ?nancial institutions into which the proceeds of Collateral are or may be deposited; all other deposit accounts; all cash and other monies and property in the possession or control of the Lender; all books, records, ledger cards, disks and related data processing software at any time evidencing or containing information relating to any of the Collateral described herein or otherwise neccssary or helpful in the collection thereof or realization thereon; and all cash and non?cash proceeds of the foregoing. Out-of-Pocket Expenses shall mean all of the present and future expenses of the Lender, not to exceed $25,000, incurred relative to this Agreement, or other DIP Loan Document, or negotiation or approval of the same in the Chapter 9 Case, whether incurred heretofore or hereafter, which expenses shall include, without being limited to: the cost of record searches, all costs and expenses incurred by the Lender in opening bank accounts, depositing checks, receiving and transferring funds, and wire transfer charges, any charges imposed on the Lender due to returned items and "insufficient funds" of deposited checks; expenses in connection with any amendment or modification of this Agreement or any other DIP Loan Document; following the occurrence and during the continuation of an Event of Default, reasonable travel, lodging and similar customary expenses of the Lender?s personnel in connection with inspecting and monitoring the Collateral, any applicable counsel fees and disbursements, and fees and taxes relative to the filing of financing statements, provided however, that Out?of?Pocket Expenses incurred in connection with and following an Event of Default and all expenses, costs and fees set forth in Paragraph 10.3 of Section 10 of this Agreement shall not be capped at $25,000. Patents shall mean all of the Debtor's present and hereafter acquired patents, patent applications, registrations, recordings, including, in each case, any reissues or renewals thereof, any inventions and improvements claimed thereunder, all cash and non?cash proceeds thereof including, without limitation, all licenses, income, royalties, damages, claims and payments now or hereafter due and/or payable thereunder and with respect thereto including, without limitation, damage and payments for past, present and future infringements, misappropriations, or other violations with respect thereto and all rights to sue or otherwise recover for past, present and future infringements, misappropriations or violations thereof. Permitted Eneumbrances shall mean: Liens consented to in writing by the Lender; statutory Liens of landlords, banks (and rights of set off), of carriers, warehousemen, mechanics, repairmen, workmen and materialmen or customers in connection with purchase orders and othcr 7 Page 39 Doc 71 Filed 04/18/18 Case 18-20070 agreements entered into in ordinary course of business, and other Liens imposed by law; Liens evidenced by the filing of precautionary UCC ?nancing statements and (ii) Liens arising from UCC ?nancing statements regarding operating leases or consignments entered into by the Loan Parties in the ordinary course of business; deposits made (and the Liens thereon) in the ordinary course of business of the Debtor (including, without limitation, security deposits for leases, indemnity bonds, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, contracts (other than for the repayment or guarantee of borrowed money or purchase money obligations), statutory obligations and other similar obligations arising as a result of progress payments under government contracts; easements (including, without limitation, reciprocal easement agreements and utility agreements), encroachments, minor defects or irregularities in title, variation and other restrictions, charges or encumbrances (whether or not recorded) affecting the Real Estate, if applicable, and which in the aggregate (A) do not materially interfere with the occupation, use or enjoyment by the Debtor of its business or property so encumbered and (B) in the reasonable business judgment of the Lender do not materially and adversely affect the value of such Real Estate; Liens granted to the Lender by the Debtor securing DIP Loan Obligations; [intentionally omitted]; Liens for Taxes which are not yet due and payable or which are being diligently contested in good faith by the Debtor by appropriate proceedings and for which adequate reserves have been made in accordance with appropriate accounting principles; any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (j).Liens securing judgments for payment of money not yet constituting an Event of Default and described on Schedule 4 hereto; and Liens granted under the Financing Orders. Permitted Indebtedness shall mean: current Indebtedness maturing in less than one year and incurred in the ordinary course of business for raw materials, supplies, equipment, services, Taxes or labor; Indebtedness of the Debtor incurred to ?nance or refinance the acquisition, leasing, construction or improvement of fixed or capital assets (whether pursuant to a loan, a capital lease or otherwise) as set forth on Schedule 4 hereto, or otherwise permitted pursuant to this Agreement, including for the Lab Purchase Transaction; [Intentionally Omitted]; [Intentionally Omitted]; and other Indebtedness existing on the date of execution of this Agreement and listed in the most recent financial statement delivered to the Lender or otherwise disclosed in writing to the Lender in writing prior to the Closing Date. Person shall mean any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, governmental authority or other entity. Petition Date shall have the meaning provided for in the recitals of this Agreement. Pre-Petition Collateral shall mean any assets of the Debtor constituting Collateral under Section 6.5 (other than clause thereof) owned by the Debtor as of the Petition Date. Prepetition Liens shall mean (1) the tax liens in favor of the United States of America, assessed by the District Director of Internal Revenue, in the amount of $406,836.96, recorded with the County on February 22, 2016 as instrument 2016?0000785?00, (ii) in the amount of $142,170.27, recorded with the County on May 3, 2016 as instrument 2016?0001288?00 and filed with the Secretary of State of the State of California on May 10, 2016 as document 16?7526277215, in 8 Page 40 Doc 71 Filed 04/18/18 Case 18-20070 the amount of $143,401.57, recorded with the County on September 20, 2016 as instrument 2016- 0002600?00 and filed with the Secretary of State of the State of California on September 22, 2016 as document 16-7547664743, and (iv) in the amount of $2,511.32, recorded November 8, 2016 as instrument 2016-0003020?00 with the Modoc County Of?cial Records and filed with the Secretary of State of the State of California on November 10, 2016 as document 16?7558253709; (2) the Deed of Trust and Assignment of Rents, dated November 16, 2015, between the Debtor, as trustor, Modoc County Title Co., as Trustee, and Gary L. Odgers and Ann Wylie Odgers, Trustees of The Odgers Family Trust dated November 20, 2006, and recorded with the County on November 19, 2015 as instrument 2015-0002986-00 and (3) Abstract of Support Judgment in favor of Medliant, in an amount of $128,702.14, entered on August 8, 2017 and recorded on September 18, 2017 with the County as instrument 2017?0003058-00, relating to Case No. 17?515708, Superior Court of California, County of San Francisco. Promissory Note shall mean the note, if any, in the form of Exhibit A attached hereto, delivered by the Debtor to the Lender to evidence the DIP Loans pursuant to, and repayable in accordance with, the provisions of Section 3 of this Agreement. Real Estate shall mean the Debtor's fee interests in real property. Real Estate Leases shall mean the Debtor's leasehold interests in real property as lessee. Sale Transaction shall mean a sale of all or substantially all of the Debtor?s assets to Lender for $4,000,000 and approved by the Bankruptcy Court pursuant to the Asset Purchase Agreement. Superprioritv Claim shall mean a claim by Lender against the Debtor in the Chapter 9 Case which is an administrative expense claim having priority over any or all other administrative expenses of any kind specified in Section 503(b) of the Bankruptcy Code, subject to the Carve- Out. Taxes shall mean all federal, state, municipal and other governmental taxes, levies, charges, claims, imposts, duties, deductions, withholdings (including backup withholding), fees, assessments, including any interest, additions to tax or penalties applicable thereto which are or may be due by the Debtor with respect to its business, operations, Collateral or otherwise. Trademarks shall mean all of the Debtor's present and hereafter acquired trademarks, trademark registrations, recordings, applications, tradenames, trade styles, service marks, corporate names, company names, business names, fictitious business names, trade dress, logos, other source or business identifiers, prints and labels (on which any of the foregoing may appear), designs and general intangibles of like nature, and all registrations and recording applications filed in connection therewith, all goodwill associated therewith or symbolized thereunder, all licenses, reissues, extension, and renewals thereof, and all cash and non?cash proceeds thereof, including, but not limited to, income, fees, royalties, damagcs, claims and payments now or hereafter due and/or payable thereunder and with respect thereto including, without limitation, damages and payments for past, present and future infringements, misappropriations or other violations with respect thereto, and rights to sue or otherwise recover for past, present and future infringements, misappropriations or violations thereof. UCC shall mean the Uniform Commercial Code as the same may be amended and in effect from 9 Page 41 Doc 71 Filed 04/18/18 Case 18-20070 time to time in the state of Delaware or any other applicable jurisdiction. SECTION 2. [Intentionally Omitted] SECTION 3. DIP Loans 3.0 [Intentionally Omitted] 3.1 The Lender shall, subject to the terms and conditions of this Agreement and the Financing Orders, from time to time, make DIP Loans at the request of the Debtor; provided, however, that at the time such DIP Loan is made such DIP Loan is within the Availability and the DIP Budget set forth on Schedule 3 and that the aggregate outstanding principal amount of such DIP Loans shall not exceed the Line of Credit and the amount of DIP Loans made on or after the entry of any Financing Order shall not exceed the amount authorized by the Financing Order. For the avoidance of doubt, the parties agree that the Initial Advance shall be included as DIP Loan Obligations under this Agreement and shall be deemed to constitute a DIP Loan for all purposes hereunder. Amounts repaid at any time to Lender may not be reborrowed. To the extent a DIP Loan is made, the Debtor unconditionally agrees that it is and shall be responsible for repayment to Lender of the entire amount of all outstanding DIP Loans and all DIP Loan Obligations. Whenever the Debtor desires the Lender to make a DIP Loan pursuant to this Section 3, the Debtor shall give the Lender notice in writing or irrevocable telephonic notice con?rmed in writing, substantially in the form of borrowing notice attached hereto as Exhibit (the "Borrowing Notice?) specifying (A) the amount to be borrowed, (B) the requested borrowing date (which shall be a Business Day and shall be prior to the Maturity Date, and prior to any effective termination date of this Agreement, all as further set forth herein), and (C) the other matters set forth in the Borrowing Notice. All Borrowing Notices must be received by the Lender no later than 1:00 PM. New York time two (2) Business Days prior to the proposed borrowing date (unless otherwise agreed to by the Lender and Dehtor). The procedure for DIP Loans to be made on a requested borrowing date may be such other procedure as is mutually satisfactory to the Debtor and the Lender. Upon the request of the Lender, the DIP Loan shall be evidenced by a Promissory Note in the form of Exhibit A attached hereto. Notwithstanding any provision of this Agreement to the contrary, all payments due by the Debtor under this Agreement, whether for principal, interest, fees, costs, indemnities, expenses or otherwise, shall be payable in United States dollars at the Lender?s office specified in Section 12.6 of this Agreement without setoff, counterclaim or other deduction of any kind. 3.2 [Intentionally Omitted] 3.3 [Intentionally Omitted] 3.4 No later than 30 days following the Closing Date (or such later date as the Lender may agree in its sole discretion), the Debtor will provide to Lender one or more properly executed deposit account control agreements, in form and substance satisfactory to Lender, 10 Page 42 Doc 71 Filed 04/18/18 Case 18-20070 providing Lender with a first priority, properly perfected security interest (subject to Prepetition Liens until, and only until, a Financing Order is entered granting Lender a first priority security interest) in each of the Debtor?s deposit accounts held at Plumas Bank and any other bank or lending institution (other than deposit accounts used primarily for payroll taxes or other employee benefits and any other deposit account where applicable law prohibits the granting of "control" (as defined in the UCC) over such deposit account. 3.5 [Intentionally Omitted]. 3.6 The Lender shall maintain a single DIP Loan Account on its books in which the Debtor will be charged with all DIP Loans made by the Lender to the Debtor, and with any other DIP Loan Obligations. The Debtor will be credited with all amounts received by the Lender from the Debtor or from others for the Debtor's account, including all amounts received by the Lender in payment of Accounts, and such amounts will be applied to payment of the DIP Loan Obligations as set forth herein. In no event shall prior recourse to any Accounts or other security granted to or by the Debtor be a prerequisite to the Lender?s right to demand payment of any DIP Loan Obligation that is otherwise due in. accordance with this Agreement. Further, it is understood that the Lender shall have no obligation whatsoever to perform in any respect of the Debtor contracts or obligations relating to the Accounts. 3.7 After the end of each month, the Lender shall send the Debtor a statement showing the accounting for the DIP Loans and other DIP Loan Obligations made or incurred during that month, together with all DIP Loan Obligations paid, repaid or prepaid during that month. The statements shall be deemed correct and binding upon the Debtor and shall constitute an account stated between the Debtor and the Lender absent manifest error unless the Lender receives a written statement of the exceptions within thirty (30) days of the date of the statement. Notwithstanding the foregoing, failure by the Lender to deliver any such statement shall not affect in any manner the amount, validity or enforceability of any such charge, loan advance or other transaction. 3.8. The proceeds of the DIP Loans shall be used strictly in accordance with the DIP Budget to: finance the Lab Purchase Transaction; (ii) provide working capital to the Debtor in the Chapter 9 Case in order to maintain operations of the Hospital and Clinic and in order to facilitate a Sale Transaction; and to fund the professional fees and the US Trustee fees set forth in the DIP Budget. The proceeds of the DIP Loans shall not be used to fund the operations of, or the administration of the Chapter 9 Case of, any subsidiary or af?liate of the Debtor without the prior written consent of the Lender, except as set forth above. SECTION 4. Conditions to Effectiveness and Lending 4.1 Conditions to Funding. The obligation of the Lender to make any DIP Loans (other than the Initial Advance) is subject to the satisfaction by Debtor or waiver by Lender of the following conditions precedent: Subject to Sections 3.4 and 7.5, this Agreement and each of the other DIP Loan Documents shall be in form and substance reasonably satisfactory to the Lender, and shall have been duly executed by the Debtor and any other necessary parties (including, with respect to any deposit account control agreements, the applicable lending institution(s)) and Page 43 Doc 71 Filed 04/18/18 Case 18-20070 delivered to the Lender. A Financing Order shall have been entered and shall be in full force and effect, shall not have been vacated or reversed, shall not be subject to a stay and shall not have been modified or amended in any respect without the prior written consent of the Lender; provided however, that if the Financing Order is the subject of a pending appeal in any respect, neither the making of the DIP Loansnor the performance by the Debtor of its obligations under any of the DIP Loan Documents shall be the subject of a presently effective stay pending appeal; provided, further, that it shall not be a requirement that this clause be satisfied as a condition to the making of a DIP Loan in an amount of $2,500,000 to finance the Lab Purchase Transaction). [Intentionally Omitted]. The Debtor shall be in compliance with the provisions of Sections 3.4 and 7.5 hereof. The Lender shall have received, in a form reasonably satisfactory to it, the DIP Budget commencing with the week during which the Petition Date occurred. The definitive agreements providing for the Lab Purchase Transaction, the Lab Management Agreement and the transactions associated therewith, and the Sale Transaction shall have been executed by the applicable parties. The Debtor shall have initiated and continued, the process with the County of obtaining a waiver and ultimate removal of all deed restrictions impacting the Sale Transaction to the satisfaction of Lender in its sole and absolute discretion. All pleadings filed in the Chapter 9 Case related to the approval of significant transactions, including, without limitation, the Sale Transaction, regardless of when filed or entered, shall be reasonably satisfactory in form and substance to the Lender. [Intentionally Omitted]. [Intentionally Omitted]. The Debtor shall pay all fees and reasonable and documented Out-of-Pocket Expenses of the Lender (including the reasonable and documented fees and expenses of outside counsel and financial advisors), accrued and payable on or prior to the date of any borrowing, provided however, that neither the Lender nor its advisors shall be required to file any fee applications or otherwise seek Bankruptcy Court approval of such Out?of?Pocket Expenses. 12 Page 44 Doc 71 Filed 04/18/18 Case 18-20070 SECTION 5. [Intentionally Omitted] SECTION 6. Collateral 6.1 The Debtor hereby acknowledges, confirms and agrees that, upon the entry of a Financing Order, pursuant to Section 364(c)(1) of the Bankruptcy Code, and subject only to the Carve?Out, the DIP Loan Obligations shall at all times constitute an allowed Supeipriority Claim in the Chapter 9 Case of the Debtor. 6.2 The Debtor hereby acknowledges, confirms and agrees that, upon entry of a Financing Order, pursuant to Section 364(c)(2) of the Bankruptcy Code, and subject only to the Carve?Out, the DIP Loan Obligations shall at all times be secured by first priority, valid, binding, enforceable and perfected security interests in, and Liens upon, all unencumbered tangible and intangible property of the Debtor, including such property that is subject to valid and perfected Liens in existence on the Petition Date, which Liens are thereafter released or otherwise extinguished in connection with the satisfaction of the obligations secured by such Liens. 6.3 Other than with respect to the DIP Loans, Permitted Encumbrances, and the Prepetition Liens, none of the Debtor?s assets is subject to any Liens. 6.4 The Debtor hereby acknowledges, confirms and agrees that, upon the entry of a Financing Order, pursuant to Section 364(d)(1) of the Bankruptcy Code and subject only to the Carve?Out, the DIP Loan Obligations shall at all times be secured by first priority, priming, valid, binding enforceable and perfected security interests in, and Liens upon, the Pre?Petition Collateral and all other assets of the Debtor (the ?Priming Liens?) to the extent the Pre? Petition Collateral and any other assets of the Debtor are subject to Liens existing on the Petition Date (including the Prepetition Liens), and to any setoff, recoupment or off set rights of any governmental agency with respect to Medicare provider payments or CMS accounts receivable (the ?Primed Liens?). Upon the entry of a Financing Order, the Priming Liens shall be senior in all respects to the interests in such property of any lender holding a Primed Lien and any other Person and shall also be senior to any Liens granted to provide adequate protection in respect of any of the Primed Liens. 6.5 As security for the prompt payment in full of all DIP Loan Obligations, the Debtor hereby pledges and grants to the Lender a continuing, valid, perfected, priming, first priority and senior general Lien upon, and security interest in (subject to the Carve?Out and Prepetition Liens until, in the case of Prepetition Liens, a Financing Order is entered granting Lender a priming, first priority and senior security interest over the Prepetition Liens, at which point such Lien shall be subject only to the Carve?Out), all right, title and interest in and to all of the assets of the Debtor, whether now existing or hereafter arising or acquired and wherever located, including without limitation any such in which a Lien is granted to Lender pursuant to any DIP Loan Document, any Financing Order or any other order entered or issued by the Bankruptcy Court, and including, but not limited to, the following (collectively, the "Collateral"): Accounts, including aceounts receivable; Cash and cash collateral as de?ned in Section 363(a) of Bankruptcy Code; 13 Page 45 Doc 71 Filed 04/18/18 Case 18-20070 Inventory; General Intangibles; Intellectual Property; Investment Property Documents of Title; (II) Other Collateral; Equipment; Real Estate and Real Estate Leases (including security deposits); the Pre?Petition Collateral; (1) all present and future claims, rights, interests, assets and properties recovered by or on behalf of the Debtor or any trustee of the Debtor, but excluding property recovered as a result of transfers or obligations avoided or actions maintained or taken pursuant to, inter alia, Sections 542, 545, 547, 548, 549, 550, 552 and 553 of the Bankruptcy Code, subject to the terms of any applicable order of the Bankruptcy Court; and all products and proceeds of the foregoing, including all additions, attachments, substitutions, replacements, accessions and accessories, and all insurance policies and Insurance Pinceeds relating in whole or part to the foregoing; provided, however, that in no event shall Collateral include, nor shall the security interest granted under this Section 6.5 attach to: any lease, license, contract, property rights or agreement to which the Debtor is a party (or to any of its rights or interests thereunder) if and only to the extent that the grant of such security interest would constitute or result in either the abandonment, invalidation or unenforceability of any right, title or interest of the Debtor therein or in a breach or termination pursuant to the terms of, or a default under, any such lease, license, contract, property rights or agreement (other than, in each case, to the extent that any such term would be rendered ineffective pursuant to Sections 9406, 9?407, 9?408 or 9?409 of the UCC or otherwise (including any debtor relief law or principle of equity?, provided, however, that the Collateral shall include (and such security interest shall attach) immediately at such time as the contractual or legal provisions referred to above shall no longer be applicable and to the extent severable, and shall attach immediately to any portion of such permit, lease, license, contract or agreement not subject to the provisions speci?ed in clause above, (ii) any intent?to?use Trademark applications to the extent that, and solely during the period in which, the grant of a security interest therein word impair the validity or enforceability of such intent-to?use Trademark applications and any specifically identified asset with respect to which the Lender has con?rmed in writing to the Debtor its determination that the costs or other consequences (including adverse tax consequences) of providing a security interest is excessive in view of the benefits to be provided to the Lender. 14 Page 46 Doc 71 Filed 04/18/18 Case 18-20070 6.6 As additional security for the prompt payment in full of all DIP Loan Obligations, the Debtor shall execute pledge agreements on equity interests (including interests acquired in the Lab Purchase Transaction) and mortgages and deeds of trust on all Real Estate and/or Real Estate Leases, all in form and substance satisfactory to the Lender, and such equity interests and Real Estate and/or Real Estate Leases shall constitute Collateral for all purposes of this Agreement and the DIP Loan Documents. The Debtor hereby confirms that it shall deliver, or cause to be delivered, any pledged equity interests issued subsequent to the Closing Date to the Lender and prior to such delivery, shall hold any such equity interests in trust for the Lender. 6.7 The Debtor agrees to safeguard, protect and hold all Inventory for the Lender?s account and make no disposition thereof except in the ordinary course of business of the Debtor. Upon the request of the Lender at any time, the Debtor hereby agrees to immediately forward any and all proceeds of Collateral sold outside of the ordinary course of business to the Lender, and to hold any such proceeds in trust for the Lender pending delivery to the Lender. 6.8 The Debtor agrees at its own cost and expense to'keep the Equipment in as good condition as the same is now or at the time the Lien and security interest granted herein shall attach thereto, reasonable wear and tear excepted, making any and all repairs and replacements when and where necessary in its reasonable discretion. Absent the prior written consent of the Lender, the Debtor shall not make any sale, exchange or other disposition of any Equipment, other than through a Sale Transaction. 6.9 The rights and security interests granted to the Lender hereunder are to continue in full force and effect, notwithstanding the termination of this Agreement, until the final payment in full to the Lender of all DIP Loan Obligations (other than indemni?cation obligations that expressly survive pursuant to the terms of this Agreement). Any delay, or omission by the Lender to exercise any right hereunder shall not be deemed a waiver thereof, or be deemed a waiver of any other right, unless such waiver shall be in writing and signed by the Lender. A waiver on any occasion shall not be construed as a bar to, or waiver of, any right or remedy on any future occasion. 6.10 Notwithstanding any other provision of this Agreement or any other DIP Loan Document, and notwithstanding the Lender?s security interest in the Collateral and the extent to which the DIP Loan Obligations are now or hereafter secured by any assets or property other than the Collateral or by any security interest, guarantee, endorsement, assets or property of any other Person or in favor of the Lender, the Lender shall have the sole right in its sole discretion to determine which rights, Liens, security interests or remedies the Lender shall at any time pursue, foreclose upon, relinquish, subordinate, modify or take any other action with respect to all or any of the Collateral, without in any way modifying or affecting any of them or any of the Lender?s rights as against the Debtor. 6.11. Except for the Carve?Out, upon the entry of 3 Financing Order, no costs or expenses of administration shall be imposed against the Lender or any of the Collateral under Sections 105 or 506(c) of the Bankruptcy Code, or otherwise, and the Debtor hereby waives for itself and on behalf of its estate in bankruptcy, any and all rights under Sections 105 or 506(c) of the Bankruptcy Code, or otherwise, to assert or impose to assert or impose, any such costs or expenses of administration against the Lender. 15 Page 47 Doc 71 Filed 04/18/18 Case 18-20070 6.12 Except for the Carve-Out, upon the entry of a Financing Order, the Superpriority Claims shall at all times be senior to the rights of the Debtor, any chapter 9 trustee (including, without limitation, post-petition counterparties and other post-petition creditors) in the Chapter 9 Case or any subsequent proceedings under the Bankruptcy Code. 6.13 [Intentionally Omitted]. 6.14 The Debtor owns or validly licenses all Intellectual Property and rights thereto necessary to conduct its business as conducted as of the Closing Date and the Debtor shall maintain its rights in, and the value of, the foregoing in the ordinary course of its business, including, without limitation, by making timely payment with respect to any applicable licensed rights. The Debtor shall deliver to the Lender, and/or shall cause the appropriate party to deliver to the Lender, from time to time such security agreements with respect to Intellectual Property of the Debtor registered at the United States Patent and Trademark Office and/or the United States Copyright Office as applicable, as the Lender shall require to obtain valid first priority Liens thereon (subject to Permitted Encumbrances until, and only until, a Financing Order is entered granting Lender a first priority security interest). In furtherance of the foregoing, the Debtor shall provide timely notice to the Lender of any additional Patents and/or Trademarks registered with the USPTO, and any additional Copyrights registered with the USCO, in each case, acquired or applied for subsequent to the Closing Date and the Debtor shall execute such documentation as the Lender may reasonably require to obtain and perfect its Lien thereon. Debtor hereby irrevocably grants to the Lender, to the extent assignable, subject, in the case of Trademarks, to sufficient rights to quality control and inspection in favor of the Debtor to avoid the risk of invalidation of said Trademarks, a royalty-free, non-exclusive license in the Intellectual Property to use, assign, license or sublicense any of the Intellectual Property for the sole purpose, upon the occurrence and continuance of an Event of Default, of enabling Lender to exercise its rights and remedies under Section 10 hereof, irrespective of the Lender's Lien and perfection in such Intellectual Property. SECTION 7. Representations, Warranties and Covenants 7.1 The Debtor warrants and represents that: Schedule 1 hereto correctly and completely sets forth the Debtor's (A) chief executive office, (B) Collateral locations, (C) tradenames, and (D) exact legal name and jurisdiction of formation; (ii) after filing of a ?nancing statement in the applicable filing clerk?s office at the location set forth in Schedule 1, this Agreement creates a valid, perfected and first priority security interest (subject to Prepetition Liens until, and only until, a Financing Order is entered granting Lender a first priority security interest) in the Collateral that can be perfected by the filing of a financing statement and the security interests granted herein constitute and shall at all times constitute the ?rst and only Liens on such Collateral; upon the execution of any deposit account control agreement by all required parties, such deposit account control agreement shall create a valid, perfected and first priority security interest (subject to Prepetition Liens until, and only until, a Financing Order is entered granting Lender a first priority security interest) in the Collateral constituting deposit account(s) covered thereunder and the security interests granted herein and therein constitute and shall at all times constitute the first and only Liens on such deposit account(s), (iv) after filing of mortgages or deeds of trust in the applicable filing clerks' of?ces at the loeations set forth in Schedule 1, each mortgage or deed of trust executed in favor of the 16 Page 48 Doc 71 Filed 04/18/18 Case 18-20070 Lender creates shall create a valid, perfected and first priority security interest in and lien on (subject to Prepetition Liens until, and only until, a Financing Order is entered granting Lender a first priority security interest) the Real Estate and/or Real Estate Lease covered thereunder and the security interests and liens granted thereunder constitute and shall at all times constitute the ?rst and only Liens on such Real Estate and/or Real Estate Leases, (V) except for the Permitted Encumbrances, the Debtor is, or will be, at the time additional Collateral is acquired by it, the absolute owner of the Collateral with full right to pledge, sell, consign, transfer and create a security interest therein, free and clear of any and all claims or Liens in favor of others; (vi) the Debtor will, at its expense, forever warrant and, at the Lender?s request, defend the Collateral from any and all claims and demands of any other Person other than a holder of a Permitted Encumbrance; (Vii) the Debtor will not grant, create or permit to exist, any Lien upon, or security interest in, the Collateral, or any proceeds thereof, in favor of any other Person other than the holders of the Permitted Encumbrances; and the Equipment is and will only be used by the Debtor in its business and will not be held for sale or lease, or removed from its premises, or otherwise disposed of by the Debtor except as otherwise permitted in this Agreement. 7.2 The Debtor agrees to maintain books and records pertaining to the Collateral in accordance with appropriate accounting principles and in such additional detail, form and scope as the Lender shall reasonably require. The Debtor agrees that the Lender or its agents may enter upon the Debtor?s premises at any time during normal business hours, and from time to time in its reasonable business judgment, for the purpose of inspecting the Collateral and any and all records pertaining thereto, so long as such inspections do not unreasonably interfere with the Debtor?s ability to conduct its business. The Debtor is also to advise the Lender in sufficient detail, of any material adverse change relating to the type, quantity or quality of the Collateral or on the security interests granted to the Lender therein. 7.3 The Debtor agrees to execute and deliver to the Lender, from time to time, solely for the Lender?s convenience in maintaining a record of the Collateral, such written statements, and schedules as the Lender may reasonably require, designating, identifying or describing the Collateral. Any failure, however, to give the Lender such statements, or schedules shall not affect, diminish, modify or otherwise limit the Lender?s security interests in the Collateral. 7.4 The Debtor agrees to take such additional actions as the Lender may reasonably request to comply with the requirements of all state and federal laws in order to grant to the Lender valid and perfected first security interests in and liens on the Collateral subject only to the Permitted Encumbrances. The Lender is hereby authorized by the Debtor to file (including pursuant to the applicable terms of the UCC) from time to time any financing statements, continuation statements or amendments covering the Collateral (including, without limitation, ?nancing statements describing the Collateral as "all assets" or "all personal property") and such mortgages, deeds of trust or documents relating thereto with respect to the Real Estate and/or Real Estate Leases. The Debtor hereby consents to and ratifies any and all execution and/or filing of financing statements on or prior to the Closing Date by the Lender. The Debtor agrees to do whatever the Lender may reasonably request, from time to time, by way of: ?ling notices of Liens, financing statements, amendments, renewals and continuations thereof; coopcrating with the Lender's agents and employees; keeping Collateral records; 17 Page 49 Doc 71 Filed 04/18/18 Case 18-20070 transferring proceeds of the Collateral to the Lender?s possession in accordance with Section 6.7; and performing such further acts as the Lender may reasonably require in order to effect the purposes of this Agreement and the mortgages with respect to the Real Estate and/or Real Estate Leases, including but not limited to obtaining control agreements with respect to deposit accounts (subject to Section 3.4) and/or Investment Property. 7.5 The Debtor agrees to maintain insurance on its Real Estate, Real Estate Leases, Equipment, Inventory and other Collateral, together with comprehensive general liability insurance, director and officer insurance and other insurance, in each case on a "all-risk" basis under such policies of insurance, with such insurance companies, in such reasonable amounts and covering such insurable risks as are at all times reasonably satisfactory to the Lender. Upon the request of the Lender, and in any event, no later than 30 days following the Closing Date (or such later date as the Lender may agree in its sole discretion), all policies covering the Real Estate, Equipment and Inventory are to be made payable to the Lender in case of loss, under a standard non?contributory "mortgagee", "Lender", or "secured party" clause. Upon the request of the Lender, and in any event, no later than 30 days following the Closing Date (or such later date as the Lender may agree in its sole discretion), all original policies or true copies thereof are to be delivered to the Lender, with the loss payable endorsement in the Lender's favor. Debtor will provide, or shall cause to be provided to, Lender immediate written notice of the exercise by any insurer of any right of cancellation under such policies. At the Debtor's request, or if the Debtor fails to maintain such insurance, the Lender may arrange for such insurance, but at the Debtor's expense and without any responsibility on the Lender's part for: obtaining the insurance; (ii) the solvency of the insurance companies; the adequacy of the coverage; or (iv) the collection of claims. The full amount of any premiums paid by the Lender shall be payable by the Debtor on demand. Upon the occurrence of an Event of Default which is not waived in writing by the Lender, the Lender shall have the sole right and at its option, in the name of the Lender or the Debtor to file claims under any insurance policies, to receive, receipt and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies. In the event of any loss or damage by fire or other casualty, Insurance Proceeds shall be delivered to Lender and applied to reduce the DIP Loan in accordance with the provisions of Paragraph 10.4 of Section 10 of this Agreement unless otherwise agreed to by the Lender. 7.6 The Debtor has filed all federal, state and local tax or information returns and other reports each is required by law to ?le and has paid all Taxes that are due and payable, except for those claims of the State of California in the amount of $171,313.83. From and after the Petition Date, the Debtor agrees to pay, when due, all Taxes, unless such Taxes are being diligently contested in good faith by the Debtor by appropriate proceedings and adequate reserves are established in accordance with appropriate accounting principles. 7.7 The Debtor: represents that it is in compliance with, and agrees to comply with, all acts, rules, regulations and orders of any legislative, administrative or judicial body or official, which the failure to comply with would have a material and adverse impact on the Collateral, or any material part thereof, or on the business or operations of the Debtor, provided 18 Page 50 Doc 71 Filed 04/18/18 Case 18-20070 that the Debtor may contest any acts, rules, regulations, orders and directions of such bodies or officials in any reasonable manner which will not, in the Lender's reasonable opinion, materially and adversely affect the Lender?s rights or priority in the Collateral; and represents that it is in compliance with, and agrees to comply with, all environmental statutes, acts, rules, regulations or orders as presently existing or as adopted or amended in the future, applicable to the Collateral, the ownership and/or use of its Real Property and operation of its business, which the failure to comply with would have a material and adverse impact on the Collateral, or any material part thereof, or on the operation of the business of the Debtor. 7.8 If requested by Lender, until termination of this Agreement and payment and satisfaction of all DIP Loan Obligations (other than indemnification obligations that expressly survive pursuant to the terms of this Agreement), the Debtor will furnish to the Lender such financial reports and information in such detail as shall be reasonably satisfactory to the Lender. 7.9 Until termination of this Agreement and payment and satisfaction of all DIP Loan Obligations (other than indemnification obligations that expressly survive pursuant to the terms of this Agreement), the Debtor agrees that, without the prior written consent of the Lender, the Debtor will not: Mortgage, assign, pledge, transfer or otherwise permit any Lien, charge, security interest, encumbrance or judgment, (whether as a result of a purchase money or title retention transaction, or other security interest, or otherwise) to exist on any of the Debtor?s Collateral or any other assets, whether now owned or hereafter acquired, except for the Permitted Encumbrances; Incur or create any Indebtedness other than the Permitted Indebtedness; Incur any expenditure or withdraw any funds from any bank account other than in accordance with the DIP Budget; Sell, lease, assign, transfer or otherwise dispose of Collateral or (ii) any of the Debtor's assets which do not constitute Collateral, in each case, other than Inventory used in the treatment of patients or other provisions of services to patients and other de minus asset dispositions in the ordinary course of business and in the Debtor?s exercise its Put Option (as defined in the Lab Purchase Agreement); Merge, consolidate, amalgamate or otherwise alter or modify its organizational name, principal places of business, structure, or existence, reincorporate or re-organizc, or enter into or engage in any operation or activity materially different from that being conducted by the Debtor on the Closing Date; Assume, guarantee, endorse, or otherwise become liable upon the obligations of any Person (other than in furtheranee of or in connection with, the Lab Purchase Transaction); Make any advance or loan to, or any investment in, any Person (other than in furtherance of, or in connection with, the Lab Purchase Transaction) or purchase or acquire all or substantially all of the stock or other equity interests in or assets of any Pcrson (other than in furtherance of, or in connection with, the Lab Purchase Transaction); 19 Page 51 Doc 71 Filed 04/18/18 Case 18-20070 Form or acquire any subsidiary other than in connection with the Lab Purchase Transactions, provided that the Debtor shall cause any subsidiary formed or acquired in the Lab Purchase Transactions to execute a joinder agreement to this Agreement in form and substance satisfactory to the Lender pursuant to which such subsidiary agrees to be bound by the terms of this Agreement and the other DIP Loan Documents and the Debtor shall execute such other documents and take such other actions as are deemed necessary 0r dcsirable by Lender to create and perfect Lender's Lien in the Collateral of such subsidiary, and (ii) the Debtor shall take all actions deemed necessary or desirable by Lender to cause the stock of or other equity interests in such subsidiary formed or acquired in the Lab Purchase Transaction to be pledged to Lender as Collateral for the DIP Loan Obligations in accordance with Section 6.6; or Pay any principal on any Indebtedness other than in accordance with the DIP Budget. 7.10 The Debtor shall provide to the Lender such due diligence information regarding the Debtor (including, without limitation, access to the Debtor's of?ces, personnel and files during regular business hours, so long as such access does not unreasonably interfere with the Debtor?s ability to conduct its regular operations) as the Lender shall request. 7.11 The Debtor agrees to advise the Lender in writing of any notices received from any local, state or federal authority advising of any environmental liability (real or potential) stemming from the Debtor's operations, its premises, its waste disposal practices, or waste disposal sites used by the Debtor and to provide the Lender with copies of all such notices if so required. 7.12 The Debtor hereby agrees to indemnify and hold harmless the Lender, and the officers, directors, members, managers, employees, attorneys and agents of the Lender (each an "Indemnified Party") from, and holds each of them harmless against, any and all losses, liabilities, obligations, claims, actions, damages, costs and expenses (including reasonable attorney's fees) insofar as such losses, liabilities, obligations, claims, actions, damages, costs, fees or expenses are with respect to the DIP Loan and DIP Loan Documents, except and to the extent that the same results solely and directly from the gross negligence or willful misconduct of such Indemnified Party as finally determined by a court of competent jurisdiction. The Debtor hereby agrees that this indemnity shall survive termination of this Agreement, as well as payments of the DIP Loan Obligations. 7.13 [Intentionally Omitted]. 7.14 [Intentionally Omitted]. 7.15 [Intentionally Omitted]. 7.16 The Dethr hereby represents and warrants to the Lender that: The Debtor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the 20 Page 52 Doc 71 Filed 04/18/18 Case 18-20070 aggregate, could not reasonably be expected to result in a material adverse effect in the financial condition, business, profitability assets or operations of the Debtor taken as a whole, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. The transactions contemplated by this Agreement and the other DIP Loan Documents are within the Debtor's organizational powers and have been duly authorized by all necessary organizational actions. The DIP Loan Documents have been duly executed and delivered by the Debtor and constitute a legal, valid and binding obligation of the Debtor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. The transactions contemplated by this Agreement and the other DIP Loan Documents do not require any consent or approval of, registration or filing with, or any other action by, any governmental authority, except such as have been obtained or made and are in full force and effect (including, without limitation, any Financing Orders) and except for filings necessary to perfect Liens created pursuant to this Agreement and the other DIP Loan Documents, (ii) will not violate any applicable requirement of law or any governmental authority applicable to the Debtor, will not violate or result in a default under any indenture, agreement or other instrument binding upon the Debtor or its assets, or give rise to a right thereunder to require any payment to be made by the Debtor, and (iv) will not result in the creation or imposition of any Lien on any asset of the Debtor, except Liens created pursuant to the DIP Loan Documents and Permitted Encumbrances. There are no actions, suits or proceedings by or before any arbitrator or governmental authority pending against or, to the knowledge of the Debtor, threatened against or affecting the Debtor except the Chapter 9 Case and as set forth on Schedule 2 hereto. There is no reasonable likelihood of an adverse determination with respect to any such action, suit or proceeding that could reasonably be expected, individually or in the aggregate, to result in a material adverse effect in the financial condition, business, prospects, profitability assets or operations of the Debtor taken as a whole, and no such action, suit or proceeding involves this Agreement or the transactions contemplated hereby, or any of the other DIP Loan Documents. As of the Closing Date, Debtor has no subsidiaries and does not own equity interests of any other Person. SECTION 8. Interest, Fees and Expenses 8.1 DIP Loans shall bear interest at a ?xed rate per annum of five percent The rate hereunder for DIP Loans shall be calculated based on a 365?day year. Upon the occurrence and during the continuance of an Event of Default and the giving of any required notice by the Lender in accordance with the provisions of Section 10, Paragraph 10.2 hereof, all DIP Loan Obligations shall bear interest at the Default Rate of Interest. 21 Page 53 Doc 71 Filed 04/18/18 Case 18-20070 8.2 The Debtor shall reimburse or pay the Lender for all Out?of-Pocket Expenses, provided however, that neither Lender nor its advisors shall be required to file fee applications or otherwise seek Bankruptcy Court approval for the payment of such Out?of?Pocket Expenses. 8.3 Notwithstanding any provision herein or in any other DIP Loan Document to the contrary, interest on the DIP Loans and all Out?of-Pocket Expenses shall be payable in kind by capitalizing the outstanding principal amount of the DIP Loans. All interest accrued and capitalized on the outstanding principal amount of the DIP Loans shall be cancelled and deemed paid, and, for the avoidance of doubt, shall no longer constitute part of the DIP Loan Obligations if and to the extent Lender cancels such DIP Loan Obligations as a component of the purchase price payable to complete the Sale Transaction in accordance with the Asset Purchase Agreement. SECTION 9. Releases 9.1 [Intentionally Omitted] 9.2 This Agreement and the other DIP Loan Documents shall terminate immediately and without need for further action upon the payment in full in cash or other immediately available funds of all DIP Loan Obligations (other than indemni?cation obligations that expressly survive pursuant to the terms of this Agreement). 9.3 Upon the termination of this Agreement in accordance with Section 9.2, the Lender hereby covenants and agrees to execute and deliver in favor of the Debtor a valid and binding termination and release agreement, evidencing the payment in full of all DIP Loan Obligations (other than indemni?cation obligations that expressly survive pursuant to the terms of this Agreement) and the termination of this Agreement and the other DIP Loan Documents, in form and substance reasonably satisfactory to Lender, including, for the avoidance of doubt, a release of the Lender of its obligations hereunder and under the other DIP Loan Documents in form and substance reasonably satisfactory to the Lender, together with all documents, instruments or filings as the Debtor may request to evidence the release and termination of the Lender?s Lien on the Collateral. 9.4 The Debtor understands, acknowledges and agrees that the releases set forth above in Section 9.3 hereof may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such releases. SECTION 10. Events of Default and Remedies 10.1 Notwithstanding anything hereinabove to the contrary, each of the following shall constitute an "Event of Default": [Intentionally Omitted]; [Intentionally Omitted]; (C) [Intentionally Omitted]; 22 Page 54 Doc 71 Filed 04/18/18 Case 18-20070 breach by the Debtor of any warranty, representation or covenant contained herein (other than those referred to in sub-paragraph below), provided that such default by the Debtor of any of the warranties, representations or covenants referred in this clause shall not be deemed to be an Event of Default unless and until such Default shall remain unremedied to the Lender?s satisfaction for a period of thirty (30) days from the date of such breach; breach by the Debtor of any warranties, representations or covenants made in any of the other DIP Loan Documents or any of the definitive agreements executed in connection with the Lab Purchase Transactions, the Lab Management Agreement and the transactions associated therewith, or the Sale Transaction. failure of the Debtor to pay any of the DIP Loan Obligations on the Maturity Date or any other date of termination of this Agreement within thirty (30) Business Days of the due date thereof; the Debtor shall engage in any "prohibited transaction" as defined in ERISA, (ii) have any "accumulated funding deficiency" as defined in ERISA, terminate any "plan", as de?ned in ERISA or (iv) be engaged in any proceeding in which the Pension Benefit Guaranty Corporation shall seek appointment, or is appointed, as trustee or administrator of any "plan", as defined in ERISA, and with respect to this sub-paragraph such event or condition remains uncured for a period of thirty (30) days from date of occurrence and could, in the reasonable opinion of the Agent, subject the Debtor to any tax, penalty or other liability that is material to the business, operations or financial condition of the Debtor; [Intentionally Omitted]; the occurrence after the Closing Date of any default or event of default (after giving effect to any applicable grace or cure periods) by the Debtor under any instrument or agreement evidencing any other Indebtedness of the Debtor having a principal amount in excess of $25,000; the failure of the Debtor to meet the following milestones (?Milestones?) for the Chapter 9 Case (unless otherwise consented to or waived by Lender): The Debtor shall have filed a motion seeking approval of the DIP Loans on or before ten (10) days following the Closing Date, and a Financing Order shall be entered by the Bankruptcy Court in the Chapter 9 Case no later thirty (30) days thereafter. (ii) The Debtor shall have filed a motion seeking approval of the Asset Purehase Agreement and the Sale Transaction) on or before March 31, 2018; The Bankruptcy Court shall enter an order in form and substance acceptable to Lender approving the sale of substantially all the assets of the Debtor to Lender (?Sale Order?) on or before April 30, 2018, and such Sale Order shall not be stayed; 23 Page 55 Doc 71 Filed 04/18/18 Case 18-20070 (iv) The Debtor shall submit to the County the election ballot for the approval of the Sale Transaction on or before March 9, 2018; The approval of the Sale Transaction in a duly held election by the County shall occur on or before June 5, 2018; or (vi) Any sale of substantially all the assets of the Debtor shall close and be effective no later than June 30, 2018; Any government or governmental or regulatory body thereof or any court or arbitrator effects an administrative freeze, setoff, or recoupment against any Medicare provider payments or CMS accounts receivable due to Debtor, and such freeze, setoff, or recoupment is not reversed or otherwise rescinded or stayed by the Bankruptcy Court within ten (10) Business Days; (1) the occurrence of any condition or event which permits Lender to exercise any of the remedies set forth in any Financing Order including, without limitation, any "Event of Default" (as de?ned in the Financing Order); the Debtor suspends or discontinues or is enjoined by any court or governmental agency from continuing to conduct all or any material part of its business; The failure by the Debtor to obtain a waiver by the County of the reversionary rights affecting Debtor's title in the Real Estate in form satisfactory to Lender in its sole discretion; (0) dismissal of the Chapter 9 Case either voluntarily or involuntarily; the grant of a Lien on or other interest in any property of the Debtor (other than a Permitted Encumbrance or by any Financing Order) or an administrative expense claim (other than such administrative expense claim permitted by any Financing Order or this Agreement), including by the grant of or allowance by the Bankruptcy Court of a Lien or other interest which is superior to or ranks in parity with Lender's and security interest in or Lien upon the Collateral or its Superpriority Claim (as defined in the Financing Order, if any); any Financing Order, if obtained, shall be modified, reversed, revoked, remanded, stayed, rescinded, vacated or amended on appeal or by the Bankruptcy Court without the prior express written consent of Lender; or the filing or confirmation of a plan of adjustment by or on behalf of Debtor, to which Lender has not consented in writing or which does not provide for the payment in full of all DIP Loan Obligations if such DIP Loan Obligations remain outstanding (other than indemnification obligations that expressly survive pursuant to the terms of this Agreement). 10.2 Subject to any Financing Orders, upon the oceurrence and during the continuance of an Event of Default which has not been waived by the Lender, in its discretion the Lender may declare to Debtors by written notice that the Lender shall make no further DIP Loans unless such Default or Event of Default is cured to the satisfaction of the Lender. Upon the occurrence of an Event of Default, the Lender may declare that all DIP Loan Obligations are immediately due 24 Page 56 Doc 71 Filed 04/18/18 Case 18-20070 and payable; and immediately terminate this Agreement upon notice to the Debtor. Upon the occurrence and during the continuance of an Event of Default, the Lender may charge the Debtor the Default Rate of Interest on all then outstanding or thereafter incurred DIP Loan Obligations, in lieu of the interest provided for in Section 8 of this Agreement, provided that the Lender has given the Debtor written notice of the Event of Default. The exercise of any option is not exclusive of any other option, which may be exercised at any time by the Lender in its discretion and is in addition to any other rights granted to the Lender under any other agreement. 10.3 Except to the extent otherwise provided in any Financing Order, immediately upon the occurrence and during the continuance of any Event of Default, notwithstanding any other provision of this Agreement, any DIP Loan Document or any document, agreement or instrument, the Lender may, to the extent permitted by law: remove from any premises where same may be located any and all books and records, computers, electronic media and software programs associated with any Collateral or Real Estate (including any electronic records, contracts and signatures pertaining thereto), documents, instruments, files and records, and any receptacles or cabinets containing same, relating to the Accounts, or the Lender may use, at the Debtor's expense, such of the Debtor?s personnel, supplies or space at the Debtor?s places of business or otherwise, as may be necessary to properly administer and control the Accounts or the handling of collections and realizations thereon; bring suit, in the name of the Debtor or the Lender, and generally shall have all other rights respecting said Accounts, including without limitation the right to: accelerate or extend the time of payment, settle, compromise, release in whole or in part any amounts owing on any Accounts and issue credits in the name of the Debtor or the Lender; sell, assign and deliver the Collateral or any Real Estate and any returned, reclaimed or repossessed Inventory, with or withOut advertisement, at public or private sale, for cash, on credit or otherwise, and the Lender may bid or become a purchaser at any such sale, free from any right of redemption, which right is hereby expressly waived by the Debtor; foreclose the security interests in the Collateral or the Real Estate created herein by any available judicial procedure, or to take possession of any or all of the Collateral or the Real Estate, including any equity interests, Inventory, Equipment and/or Other Collateral without judicial process, and to enter any premises where any Inventory and Equipment and/or Other Collateral may be located for the purpose of taking possession of or removing the same; and exercise any other rights and remedies provided in law, in equity, by contract or otherwise. Upon the occurrence and during the continuance of an Event of Default, the Lender, in its discretion, shall have the right, without notice or advertisement, to sell, lease, or otherwise dispose of all or any part of the Collateral, the Real Estate or any other property securing the DIP Loan Obligations, whether in its then condition or after further preparation or processing, in the name of the Debtor or the Lender, or in the name of such other party as the Lender may designate, either at public or private sale or at any broker's board, in lots or in bulk, for cash or for credit, with or without warranties or representations (including but not limited to warranties of title, possession, quiet enjoyment and the like), and upon such other terms and conditions as the Lender may deem advisable, and the Lender, in its discretion, shall have the right to purchase at any such sale. If any Inventory and Equipment shall require rebuilding, repairing, maintenance or preparation, the Lender, in its discretion, shall have the right, at its option, to do such of the aforesaid as is necessary, for the purpose of putting the Inventory and Equipment in such saleable form as the Lender shall deem appropriate and any such costs shall be deemed a DIP Loan Obligation hereunder. Any action taken by the Lender pursuant to this paragraph shall not affect commercial reasonableness of the sale. The Debtor agrees, at the request of the Lender, to 25 Page 57 Doc 71 Filed 04/18/18 Case 18-20070 assemble the Inventory and Equipment and to make it available to the Lender at premises of the Debtor or elsewhere and to make available to the Lender the premises and facilities of the Debtor for the purpose of the Lender's taking possession of, removing or putting the Inventory and Equipment in saleable form. If notice of intended disposition of any Collateral is required by law, it is agreed that ten (10) days' notice shall constitute reasonable notification and full compliance with the law. The net cash proceeds resulting from the Lender?s exercise of any of the foregoing rights, (after deducting all charges, costs and expenses, including reasonable attorneys' fees) shall be applied by the Lender to the payment of the DIP Loan Obligations, whether due or to become due, in such order as is set forth in Section 10.4 and the Debtor shall remain liable to the Lender for any deficiencies, and the Lender in turn agrees to remit to the Debtor or its successors or assigns, any surplus resulting therefrom. The enumeration of the foregoing rights is not intended to be exhaustive and the exercise of any right shall not preclude the exercise of any other rights, all of which shall be cumulative. The Debtor hereby indemnifies the Lender and holds the Lender harmless from any and all costs, expenses, claims, liabilities, Out?of?Pocket Expenses or otherwise, incurred or imposed on the Lender by reason of the exercise of any of its rights, remedies and interests hereunder, including, without limitation, from any sale or transfer of Collateral or Real Estate, preserving, maintaining or securing the Collateral or Real Estate, defending its interests in Collateral and Real Estate (including pursuant to any claims brought by the Debtor, any secured or unsecured creditors of the Debtor, any trustee or receiver in bankruptcy, or otherwise), and the Debtor hereby agrees to pay any such amount to Lender upon demand (and hereby authorizes the Lender to add such amount to the DIP Loan Obligations) and to so indemnify and hold the Lender harmless, absent the gross negligence or willful misconduct of the Lender as finally determined by a non-appealable judgment of a court of competent jurisdiction. The foregoingindemnification shall survive termination of this Agreement until such time as all DIP Loan Obligations (including the foregoing costs, expenses, claims, liabilities, and Out?of?Pocket Expenses) have been ?nally and indefeasibly paid in full. In furtherance thereof the Lender may establish such reserves for DIP Loan Obligations (including any contingent DIP Loan Obligations) as it may deem advisable in its reasonable business judgment. Any applicable mortgage(s), deed(s) of trust or assignment(s) issued to the Lender on the Real Estate or the Real Estate Leases shall govern the rights and remedies of the Lender thereto. 10.4 After the occurrence of an Event of Default (or after the DIP Loan Obligations have automatically become immediately due and payable), any amounts received on account of the DIP Loan Obligations shall be applied by Lender in the following order: First, to payment of that portion of the DIP Loan Obligations constituting fees, indemnification claims, expenses and other amounts including fees (other than the Election Termination Fee, if applicable), charges and disbursements of counsel, to Lender; Second, to payment of that portion of the DIP Loan Obligations constituting accrued and unpaid interest on the DIP Loans and, if applicable, the Election Termination Fee, arising under the DIP Loan Documents, to Lender; Third, to payment of that portion of the DIP Loan Obligations constituting unpaid principal of the DIP Loans and, if applicable, the Election Termination Fee, to Lender; and 26 Page 58 Doc 71 Filed 04/18/18 Case 18-20070 Last, the balance, if any, after all of the DIP Loan Obligations (other than indemnification obligations that expressly survive pursuant to the terms of this Agreement) have been indefeasibly paid in full, to Debtor?s bankruptcy estate or as otherwise required by law; provided, however, that notwithstanding anything in the foregoing to the contrary, if the Lender shall exercise its rights under any equity pledge delivered by the Debtor in favor of the Lender on, or otherwise exercise its rights and remedies under any security interest in or lien on, the Debtor?s equity interest in Serodynamics, LLC (as acquired pursuant to the Lab Purchase Transaction) or the Debtor shall exercise its Put Option (as de?ned in the Lab Purchase Agreement) so that the Lender acquires such equity interest from the Debtor, then such action, in each case, shall be deemed to be a payment in full of the then outstanding balance of the $2,500,000 DIP Loan used to finance the Lab Purchase Transaction in accordance with the terms of this Agreement. 10.5 Subject to the provisions of any Financing Orders, during the period that any DIP Loan Obligations remain outstanding, the automatic stay imposed under Section 362(a) of the Bankruptcy Code by the filing of the Chapter 9 Case shall not apply to the Lender, or any actions that may be taken by Lender, to enforce the rights and remedies granted the Lender by the DIP Loan, the DIP Loan Documents or any Financing Orders. SECTION 11. Termination 11.1 Notwithstanding any other provision herein to the contrary, the Lender may terminate this Agreement immediately upon the occurrence of an Event of Default, and (ii) on the Maturity Date. 11.2 In the event Lender terminates this Agreement upon the occurrence of an Event of Default under Section and notwithstanding any other provision herein to the contrary, the Debtor will pay the Lender the Election Termination Fee, and the Election Termination Fee shall be deemed to constitute part of the DIP Loan Obligations for all purposes hereunder. 11.3 [Intentionally Omitted]. 11.4 All DIP Loan Obligations shall become immediately due and payable as of any termination of this Agreement, whether under this Section 11 or under Section 10 hereof. Notwithstanding any other provision of this Agreement, all of the Lender?s rights, Liens and security interests shall continue for the benefit of the Lender after any termination until all DIP Loan Obligations (other than indemni?cation obligations that expressly survive pursuant to the terms of this Agreement) have been paid and satis?ed in full. SECTION 12. Miscellaneons 12.1 The Debtor hereby waives diligence, notice of intent to accelerate, notice of acceleration, demand, presentment and protest and any notices thereof as well as notice of nonpayment. No delay or omission of the Lender to exercise any right or remedy hereunder, whether before or after the happening of any Event of Default, shall impair any such right or shall operate as a waiver thereof or as a waiver of any such Event of Default. No single or partial 27 Page 59 Doc 71 Filed 04/18/18 Case 18-20070 exercise by the Lender of any right or remedy precludes any other or further exercise thereof, or precludes any other right or remedy. 12.2 This Agreement and the other DIP Loan Documents constitute the entire agreement between the Debtor and the Lender with respect to the matters contained herein and therein; supersede any prior agreements; can be waived or changed only by a writing signed by each party hereto or thereto, and shall bind and benefit each party hereto or thereto and their respective successors and assigns, and any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 12.3 In no event shall the Debtor, upon demand by the Lender for payment of any DIP Loan Obligations, by acceleration of the maturity thereof or otherwise, be obligated to pay interest and fees in excess of the amount permitted by law. Regardless of any provision herein or in any agreement made in connection herewith, the Lender shall never be entitled to receive, charge or apply, as interest on any DIP Loan Obligations, any amount in excess of the maximum amount of interest permissible under applicable law. If the Lender ever receives, collects or applies any such excess, it shall be deemed a partial repayment of principal and treated as such; and if principal is paid in full, any remaining excess shall be refunded to the Debtor. This paragraph shall control every other provision hereof and each other DIP Loan Document. 12.4 If any provision hereof or of any other agreement made in connection herewith is held to be illegal or unenforceable, such provision shall be fully severable, and the remaining provisions of applicable agreement shall remain in full force and effect and shall not be affected by such provision's severance. Furthermore, in lieu of any such provision, there shall be added automatically as a part of the applicable agreement a legal and enforceable provision as similar in terms to the severed provision as may be possible. 12.5 EACH OF THE DEBTOR AND THE LENDER EACH HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THE DIP LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREUNDER. THE DEBTOR HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED. IN NO EVENT WILL THE AGENT BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES. EACH OF THE DEBTOR AND THE LENDER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA AND THE CALIFORNIA STATE COURTS TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR THE DIP LOAN DOCUMENTS OR TO ANY MATTER ARISING THEREFROM. THE DEBTOR HERETO EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURT, 12.6 Except as otherwise herein provided, any notice or other communication required - hereunder shall be in writing (provided that, any electronic communications from the Debtor with respect to any request, transmission, document, electronic signature, electronic mail or 28 Page 60 Doc 71 Filed 04/18/18 Case 18-20070 facsimile transmission shall be deemed binding' on the Debtor for pmposes of this Agreement, provided further that any such transmission shall not relieve the Debtor from any other obligation hereunder to communicate further in writing), and shall be deemed to have been validly served, given or delivered when hand delivered, in the case of any electronic communications, the day sent, one (1) Business Day after deposit with a nationally recognized overnight delivery service, or (iv) three Business Days after deposit in the United States mails, with proper ?rst class postage prepaid, return receipt requested, and addressed to the party to bc noti?ed or to such other address as any party hereto may designate for itself by like notice, as follows: (A) if to the Lender, at: Cadira Group Holdings, LLC 4789 Tejon Street, Suite 100 Denver, Colorado 80211 Attn: Mr. Beau Gertz beau@perseverancemcd.com With copies to: Paul Epner, Esq. 17705 Jessie James Lane Ramona, California 92065 Daul@cadiramd.com And Edward T. Laborde, Jr., Esq. Dentons US LLP 1221 McKinney, Suite 1900 Houston, Texas 77010 edwardlaborde@dentons.com (B) if to the Debtor, to Surprise Valley Healthcare District 741 North Main Street Cedarville, CA 96104 Attn: Jennifer Hanor Jhanor@svhospita1.org With a copy to: Catherine M. Castaldi Brown Ruddick LLP 2211 Michelson Drive, Seventh Floor 29 Page 61 Doc 71 Filed 04/18/18 Case 18-20070 Irvine, CA 92612 ccastaldi brownrudnickcom 12.7 THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT AND THE OTHER DIP LOAN DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, EXCEPT TO THE EXTENT THAT ANY OTHER DIP LOAN DOCUMENT INCLUDES AN EXPRESS ELECTION TO BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION, AND EXCEPT TO THE EXTENT THAT THE PROVISIONS OF THE BANKRUPTCY CODE ARE APPLICABLE AND SPECIFICALLY CONFLICT WITH THE FOREGOING. 12.8 In the event of any inconsistency between the terms of any Financing Orders, on the one hand, and this Agreement and the other DIP Loan Documents, on the other hand, the terms of the Financing Orders shall control. 12.9 The Lender shall have the absolute right to credit bid (pursuant to 363(k) of the Bankruptcy Code or otherwise) a portion of or all of the DIP Loan and DIP Loan Obligations at any proposed sale of substantially all of the assets of the Debtor, in its sole discretion. 12.10 The relationship between Debtor and Lender is solely that of debtor and creditor, and not that of ?duciary or other special relationship with Debtor, and no term or condition of any of the DIP Loan Documents shall be construed so as to deem the relationship between Debtor and Lender to be other than that of debtor and creditor. PAGES 30 Page 62 Doc 71 Filed 04/18/18 Case 18-20070 Doc 71 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be effective. executed, accepted and delivered as of the date first set forth above by their proper and duly authorized of?cers as of the date set forth above. SURPRISE VALLEY HEALTH CARE DISTRICT By: Mmmfua?w WW Nammlo?nifer Hanor Title: Chief Executive Of?cer as Debtor CADIRA GROUP HOLDINGS, LLC 13y: 41' gm Name: Title: MANAWER as Lender 31 Page 63 Filed 04/18/18 Case 18-20070 Doc 71 DIP LOAN NOTE 4,000,000.00 Dated: 2018 FOR VALUE RECEIVED, the undersigned (the "Debtor") hereby absolutely and unconditionally promises to pay to the order of Cadira Group Holdings, LLC and its assigns (hereinafter "Payee") at the of?ces of Cadira Group Holdings, 4789 Tejon Street, Suite 100, Denver, Colorado 80211 in lawful money of the United States of America and in immediately available funds, the principal amount of Four Million Dollars or if different from such amount, the unpaid principal balance of DIP Loans advanced by Payee pursuant to Section 3.1 of the DIP Financing Agreement (as herein de?ned) as may be due and owing from time to time under the DIP Financing Agreement. A ?nal balloon payment in an amount equal to the entire outstanding aggregate balance of principal and interest remaining unpaid, if any, under this Note as shown on the books and records of the Lender, including any outstanding Out-of?Pocket Expenses, including, but not limited to, reasonable attorneys? fees and expenses, shall be due and payable on the earlier of the Maturity Date or (ii) termination of the Agreement, as set forth in Section 11 thereof. The Debtor further absolutely and unconditionally promise to pay to the order of the Payee and its assigns at said of?ce, interest on the unpaid principal amount owing hereunder in accordance with and at the rates speci?ed in Section 8 of the DIP Financing Agreement. If any payment on this Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day, and with reSpect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. All payments hereunder shall be made without setoff, counterclaim or deduction of any kind. This Note is the Promissory Note referred to in the Superpriority Senior Secured Credit Agreement, dated as of February 26, 2018, as the same may be amended, restated, supplemented or otherwise modi?ed and in effect from time to time, among the Debtor, as borrower, and the Payee (the Financing Agreement"), and is subject to, and entitled to, all of the terms, provisions and bene?ts thereof and is subject to optional and mandatory prepayment, in whole or in part, as provided therein. All capitalized terms used herein shall have the meaning provided therefor in the DIP Financing Agreement, unless otherwise de?ned herein. The date and amount of the DIP Loans made hereunder may be recorded on the grid page or pages which are attached hereto and hereby made part of this Note or the separate ledgers maintained by the Lender. The aggregate unpaid principal amount of all advances made pursuant hereto may be set forth in the balance column on such grid page or such ledgers maintained by 33 15 Page 64 Filed 04/18/18 Case 18-20070 Doc 71 the Lender. All such advances, whether or not so recorded, shall be due as part of this Note. The Debtor confirms that any amount received by or paid to the Lender in connection with the DIP Financing Agreement and/or any balances standing to its credit on any of its account on the Lender?s books under the DIP Financing Agreement may in accordance with the terms of the DIP Financing Agreement be applied in reduction of this Note, but no balance or amounts shall be deemed to effect payment in whole or in part of this Note unless the Lender shall have actually charged such account or accounts for the purposes of such reduction or payment of this Note. Upon the occurrence of any one or more of the Events of Default specified in the DIP Financing Agreement or upon termination of the DIP Financing Agreement, all amounts then remaining unpaid on this Note may become, or be declared to be, immediately due and payable as provided in the DIP Financing Agreement. DEBTOR: Surprise Valley Health Care District By: Its: 33 Page 65 Filed 04/18/18 SCHEDULE TO GRID [Complete Information for Advances prior to execution] Case 18-20070 DATE AMOUNT BALANCE 34' Page 66 Doc 71 Filed 04/18/18 Case 18-20070 Doc 71 Form of Borrowing Notice ,2018 Cadira Group Holdings, LLC Attn.: Ladies and Gentlemen: The undersigned authorized representative of the Surprise Valley Health Care District (the ?Debtor?), refers to the Superpriority Senior Secured Credit Agreement dated as of February 26, 2018 (as amended, supplemented or otherwise modi?ed from time to time, the Financing Agreement"; capitalized terms used and not otherwise de?ned herein shall have the meanings given such terms in the DIP Financing Agreement) among Cadira Group Holdings, LLC as lender and secured party and the Debtor, as borrower,, and, on behalf of the Debtor, hereby gives you irrevocable notice, pursuant to Section 3.1 of the DIP Financing Agreement, that the Debtor hereby requests a DIP Loan as set forth below. 1. Requested DIP Loan. The undersigned authorized representative of the Debtor requests that the requested DIP Loan be in the aggregate amount of The undersigned authorized representative of the Debtor requests that the requested DIP Loan be made on the following Business Day: 2018, which day is at least two (2) Business Days following the date of this notice. 2. Certi?cations. The undersigned authorized representative of the Debtor hereby certi?es to the Lender that the following statements will be true and correct on the date that the requested DIP Loan is made: a) All DIP Loans previously requested by the Debtor have been applied in accordance with the DIP Budget and uses for such DIP Loans previously presented to the Lenders. The DIP Loans requested in this Borrowing Notice shall be used in accordance with the DIP Budget and uses set forth on the attached Schedule 3. The representations and warranties contained in the DIP Financing Agreement and the other DIP Loan Documents are true and correct in all material respects, other than representations and warranties that expressly relate solely to an earlier date (in which case they were true and correct on and as of such earlier date). No Default or Event of Default has occurred and is continuing or would result from the requested DIP Loan. 36 106084424W-l Page 67 Filed 04/18/18 Case 18-20070 Doc 71 The undersigned understands that the Lender is relying on the foregoing certi?cation in making the requested DIP Loan to the Debtor and to induce the Lender to make the requested DIP Loan. By: Name: Title: 37 15 Page 68 Filed 04/18/18 Surprise Valley Health Care District State of California Case 18-20070 Schedule 1 Collateral Information Main Street, Cedarville California 96104 or Main Street, Cedarville California 96104 Community Hospital "calmer" 691 North Main Street, Cedarville California 96104 745 North Main Street, Cedarville California 96104 Surprise Valley Clinic Secretary of State MotiocmCounty Recorder Modoc County, California 106084424W- 15 37 Page 69 Doc 71 Filed 04/18/18 Balboa Capital Corp. v. Surprise Valley Health Care District Balboa Capital C01p. Case 18-20070 Schedule 2 - Litigation Superior Court of California, Orange County Case No. 30201700945725? Di strict Medical Solutions, LLC v. Surprise Valley Health Care Medical Solutions, LLC Delaware Court of Chancery, Case No. 2-021 Nurses and Professions Healthcare v. Surprise Valley Health Nurses and Professions Care District, et al. Healthcare Superior Court of California, Modoc County Case No. 7?076 Prime Time Health Care Prime Time Health Care Superior Court of California, Modoc County Case No. 106084424W-15 Page 70 Triage, LLC v. Surprise Valley Health Care District Triage, LLC District Court of Nebraska, Case No. 17-8971 ERX, LLC v. Surprise Valley Health Care District ERX Chancery court for Knox County, Tennessee No. 194022?2 Medliant v. Surprise Valley Health Care District Medliant Superior Court of California, San Francisco County Case No. 38 Doc 71 Filed 04/18/18 Case 18-20070 Doc 71 Schedule 3 DIP Budget DIP Loans See attached. 39 1 5 Page 71 Doc 71 Case 18-20070 Filed 04/18/18 Amman-.5 Payable Uii??u Misc. Ma'niananu Necessary Rtpzirs {Mfr} Maintenawe 5m: Fin: thuired Liana] PM Sanka: Raven?! EuFlc?ne Sule?es insular-u REMIM maze Hyman! Plapeny Taxes FIN Me! Sam M: 5 Fe 00ml Tm: to 0mm": 0min: Health manta Parkman: (Imp Va?alAFLAC/Gamishmmu unl Fun/swan (nutrition wawannmey/Ganml Curuel 5020122: Adviser Wip?f Tm Waldth Operating Cad. 90040110001100 N01) MediCalE 56350010405050 0200:2500 CMS LIE: C057 39? Pmnershi: 5: ?5,000.00 [Ml am: Insurance/Private Fiy/ Madicai $100,000.00 TGT Tax Asses meat Medicare Cm 50 I?Jlml?l FY 20151007 74ml 500qu With 1 2 11400 19-ng 53.85530 3.1.6030 50000 52000 1,513.03 21,000.00 40,000.00 5,050.07 705.35 05,000.00 5,000.00 25,00000 25,000.00 7,049.00 2.45000 30,000.00 30,000.00 25,000.00 5,000.00 553,314.12 50,100.00 15.00000 50.00000 50.00000 555,324.12) 54,900.00 Wain 2&Feb 55,555.05 500.00 5131:? 20,000.00 35,000.00 5,000.00 25,000.00 75,000.00 30.00". 00 5,0000: 500000 2921105.? 125200545) ?4 5m: 2,503.00 500.00 506.00 25,000.00 7,045.00 30,000.00 55.55500 50,000.00 (7,540.00) 22-Maf 12,151.30 12,500.00 50000 50000 13000.00 45.03177 1 5.00100 50,000.00 18,163.23 Wake 19-00:! 2.100% 500.00 50000 79935 05,000.00 5,000.00 25,000.00 70,000.00 2,450.00 15,000.00 207,349.55 53.00000 51430200 355,532.55 Will? 226-er 3,011.05 500.00 500.00 15.00000 0,000.00 32,920.45 15,000.00 32,070.55 Will 500.00 5111.00 600.60 05,000.00 57100.00 25,000.00 70000.00 3.500013 MSSESID 177,?. 30 (3,555.00; WIDE 5 5-59 5,660.30 12,500.00 500.00 50000 5,020.07 750.55 7,04 5 .00 77.15512 15000.00 50000.00 (12,150.22! Uni 15-h?! 5WD) 50000 35,000.00 5,000.00 25,0000: 7003000 7.45000 1500000 2%,75011} 15,000.00 53,00000 (133,756.00) Wank 5370.00 500.00 500.00 0,000.00 50,000.00 50,000.00 Wink 12 304;): 34355.45 50000 50000 25.00000 5,000.00 25,00000 70.00000 15. 00000 500000 244. 305.45 15,000.00 50,0000: ?17:,505051 Wank 13 7-MBV 2,400.00 1250000 50000 500.00 5,020.47 25,000.00 7.04500 15,000.00 55,325.67 l15.219.?7l mu 1mm 3,540.1! SEDDO 500.00 155.35 05,000.00 5,000.00 25,000.00 70.00000 1500000 214,589. 65 15,000.03 53,000.00 Ila-589.55! Wink 15 21-May 6,000.80 506.00 SILDO 15,000.00 Ilm?d 27,411.00 ulna 15 2&May 5,020.45 500.00 500.00 35,000 .00 500000 25,000.00 70.00000 2,650.00 15.00000 5,000.00 212,37005 55.00650 5500000 155,370.45) MU Hun 33,535.00 1 2,000.00 580.00 500.00 15,000.00 52,135.00 (47,155.00; Wall 15 ll-lun 9,540.30 500 .80 50000 6,080.47 25,000.00 7,049.00 8,759.71 50mm (13,750.77; lamina 5,500.00 5mm 500.00 75935 05,000.00 5,000.00 25,000.00 70,000.00 2,450.00 25,000.00 21124935 15JZXMO 5 0000.00 (138,849.35) 20 25-1151 3,020.05 5mm 500.00 15.00000 5,000.00 20,420? 50.00000 25,579.55 25155075 59.50000 3150000 00000 30,402.35 3.90575 755,000.00 45,000.00 234,000.00 63000000 22,050.00 350,000.00 50,000.00 32,000.00 2,779,343 .35 135. 00000 52.2, 00000 050000.00 17100000 55,00000 4,982? Page 72 Doc 71 Case 18-20070 Filed 04/18/18 Alsco American Solutions for Business Corner Store - ing Connecting to Care Cl Fkher Horiba lmmucore Juniper Paper and Lahcore McKesson Medline Mercedes MIT Modoc Co Sheriff Modoc Steel 81 Supply Ortho Owens Pages Market Pepsl Public Safety Relay Health Sterlecle U5 Foods Wells Fargo Misc AP/Petty Cash Auto mbit AP HIS Maintenance DELL Lease Merchant sank Discount Fuel Cards Totals Week 1 12-Feb 200.00 700.00 220.00 3,000.00 375.00 7,000.00 1,500.00 1,000.00 2,000.00 500.00 700.00 900.00 7,000.00 3,000.00 500.00 2,000.00 700.00 100.00 9,000.00 700.00 3, 500.00 7,240.30 51,835.30 Week 2 19?Feb 4,500.00 100.00 2,000. 00 6,600.00 Week 3 26-Feb 100.00 110.00 1,500.00 375.00 2,000.00 500.00 1,500.00 2,000.00 200.00 1,500.00 2,000.00 1,000.00 500.00 350.00 3,000.00 5,000.00 500.00 200.00 1,000.00 700.00 1,000.00 5,000.00 700.00 3,500.00 1,320.45 35,555.45 2,600.00 Week 4 Week 5 Week 5 Week 7 Week 8 Week 9 Week 10 Week 11 Week 12 5-Mar 12-Mar 19Mar 26-Mar Z-Apr Q-Apr 16-Apr 23-Apr 30-Apr 4,500.00 4,500.00 200.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 110.00 110.00 1,500.00 1,500.00 375.00 375.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2.00000 2,000.00 2,811.00 500.00 500.00 1,500.00 1,500.00 2,000.00 2,000.00 200.00 200.00 1,500.00 1,500.00 2,000.00 2,000.00 1,000.00 1,000.00 1,000.00 500.00 500.00 350.00 350.00 3,000.00 3,000.00 5,000.00 5,000.00 500.00 500.00 200.00 200.00 1,000.00 1,000.00 700.00 700.00 100.00 100.00 5,000.00 5,000.00 700.00 700.00 3,500.00 3,500.00 7,240.30 7,240.30 1,320.45 1,320.45 200.00 200.00 200.00 300.00 300.00 12,151.30 2,100.00 8,920.45 33,535.00 9,640.30 2,300.00 6,500.00 34,855.45 l24995bvl Week 13 Week 14 7?May 14-May Week 15 Zl-May 4,500.00 Week 16 28?May Week 17 4dun 100.00 100.00 100.00 100.00 110.00 1,500.00 375.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 500.00 1,500.00 2,000.00 200.00 1,500.00 2,000.00 1,000.00 500.00 350.00 3,000.00 5,000.00 500.00 200.00 1,000.00 700.00 100.00 5,000.00 700.00 3,500.00 7,240.30 1,320.45 200.00 300.00 2,400.00 9,340.30 6,500.00 3,420.45 33,535.00 Week 18 Week 19 Week 20 11010 18?Jun 25-Jun 4.500.00 100.00 100.00 100.00 2,000.00 2,000.00 2,000.00 7,240.30 1,320.45 300.00 9,540.30 5,600.00 3,420.45 Week 21 2?Jul 100.00 110.00 1,500.00 375.00 2,000.00 500.00 1,500.00 2,000.00 200.00 1,500.00 2,000.00 1,000.00 500.00 350.00 3,000.00 5,000.00 3, 500 .0 0 200.00 33,535.00 Week 22 Week 23 Week 24 9-Jul 16-Jul 23-JLII 4,500.00 100.00 100.00 100.00 2,000.00 2,000.00 2,000.00 7,240 .30 1,320.45 300.00 9,640.30 2,100.00 27,000.00 400.00 3,000.00 770.00 10,500.00 2,250.00 53,000.00 2,311.00 2,500.00 7,500.00 10,000.00 1,000.00 9,000.00 11,000.00 7,000.00 1,000.00 3,000.00 2,450.00 15,900.00 32,000.00 5,500.00 1,500.00 7,000.00 4,200.00 1,500.00 34,000.00 4,200.00 21,000.00 43,441.30 7,922.70 1,000.00 1,500.00 7,920.45 231,549.75 Page 7 Doc 71 Payables Accounts Payable Utilities Misc. Maintenance Insurance Rent/Mortgage Payment Total Automatic Bank Deductions DELL FINANCIAL PMT MERCHANT ED STAUB - PROPANE ED STAUB - FUEL CARDS COMPUTER PROGRAM CASH IRS Total PayroEl - Apx Net State Taxes Federal Taxes Contractors Missed Travelers Payments Total Benefits Health Insurance Workmans Comp Vaiic/AFLAC/Garnishrnents Total Case 18-20070 Total Anticipated Expences Bank Balance General Operating Account Bank Balance Expected Revenue MediCaI Partnership Health Share of Cost - Anticipated SHIP Totai Revenue Shortage DIP Loan Advance Filed 04/18/18 Week 1 l-la 10,000.00 3,000.00 500.00 6,080.47 799.35 20,379.82 1,320.45 120.60 3,500.00 4,941.05 85,000.00 20,000.00 26,000.00 70,000.00 18,897.37 209,897.37 24,741.97 7,049.00 2,450.00 34,240.97 269,459.21 27,383.40 5,896.21 44,704.66 10,000.00 7,254.62 67,855.49 174,220.32 145,794.38 Week 2 8-Ja linens, food, medicine, medical supplies trash, water, geothermal 500.00 there is always a little something to ?x that requires supplies liability 500.00 lease payment for computers credit card machine fee propane 173.90 fueifortransportvan/ambulances 7,240.30 maintenance on our HIS/centrix system 10,000.00 back payroll tax collection (this can be postponed) 17,414.20 for November services billed in' December (contracted staff} we need to remain in good standing with this company almost alt others have lawsuits against us. We cannot exist withour a few travelers. Nonpayment=pulled staff=no hospital 17,914.20 36,576.54 9,763.60 46,340.14 (28,425.94) could be $135,000 without back tax payment ($10,000) 1249956 V1 Page 74 Filed 04/18/18 Case 18-20070 Doc 71 Schedule 4 Indebtedness None. 40 15 Page 75 Filed 04/18/18 Case 18-20070 Doc 71 EXHIBIT Page 76 Filed 04/18/18 Case 18-20070 Authorizing Resolutions RESOLUTION OF THE BOARD OF DIRECTORS OF SURPRISE VALLEY HEALTH CARE DISTRICT Resolution 121817 The Board of Directors of the Surprise Valley Health Care District hereby: l. Declare a state of Fiscal Emergency, such term is de?ned pursuant to California, Assembly Bill 506 due to the fact that the ?nancial state of the Surprise Valley Health Care District jeopardizes the health, safety, and/or well?being of the residents of the local public entity?s jurisdiction or service area absent protections of Chapter 9 of the bankruptcy code and it will be unable to meet its ?nancial obligations on a date that is within a period of 60 days from the date hereof. Authorize the proposed actions to declare bankruptcy and partner with CadiraMD, its a?iliates and subsidiaries and assigns (?Cadira?). Authorize entering into a lending arrangement with Cadira, whereby Cadira will lend up to and including $l.5 million (the Loan Amount?) pursuant to a loan and security agreement to be negotiated by and between the District and Cadira, which will include, at minimum, the following milestones: a. The Purchase of the Cadira owned Laboratory in Denver, CO (?SeroDynamies?) at a purchase price of no more than its existing fair market value to be ?nanced by entering into a Promissory Note (the ?Lab Note?) for the purchase price; b. Take all reasonable steps to request super priority treatment for repayment of the Dll? Loan Amount and the Lab Note to Cadirz-L and that request Bankruptcy Court approval for any and all milestones agreed to in the negotiated loan and security agreement; The Sale and Purchase of the Surprise Valley Community HOSpital at its current fair market value pursuant to a purchase and sale agreement to be entered post filing subject to the vote of the voters of the District as otherwise required by law Page 77 Doc 71 Filed 04/18/18 Case 18-20070 Doc 71 The Administrator, Jennifer R. Hanor, is; hereby authorized to obtain legal counsel to represent the District and take any and all action needed to effectuate the terms of this resolution. DULY ADOPTED this 28th Day of December 20} 7, by the Board of Directors of the Surprise Valle.)r Health Care District by the following vote. AYES: N01553: ABSENT: 94m Erquiaga, President Board of Director Surprise Valley Health Care District Page 78 Filed 04/18/18 Case 18-20070 Wgw??zxa u) Susan Bunyard, Secretary Board of Direcmrs Surprise Valley Health Care District 1243006 Page 79 Doc 71 Filed 04/18/18 WHEREAS: WHEREAS: WHEREAS: WHEREAS: WHEREAS: WHEREAS: Case 18-20070 RESOLUTION 022018 RESOLUTION OF THE BOARD OF DIRECTORS OF THE SURPRISE VALLEY HEALTH CARE DISTRICT Resolution 022018 On January 4, 2018, Surprise Valley Hospital District (the ?District?) ?led a voluntary case under Chapter 9 of the Bankruptcy Code pending in the United States Bankruptcy Court for the Eastern District of California, Case No. 18-20070 (the ?Chapter 9 Case?). In connection with the Chapter 9 Case, the District is proposing to enter into ?nancing arrangements contemplated by the proposed Superpriority Senior SeCUred Credit Agreement between the District, as borrower, and Cadira Group Holdings, LLC (?Cadira?), as lender (the Credit Agreement?; capitalized terms not otherwise de?ned herein shall have the meanings ascribed thereto in the DIP Credit Agreement) in substantially the form presented to the Board of Directors, pursuant to which the Lender will provide the District with a senior secured superpriority term loan facility in an aggregate principal amount not to exceed $4,000,000; The District, in connection with the DIP Credit Agreement, is also proposing to enter into certain related DIP Loan Documents to which it is a party; The District is also proposing to enter into the Limited Liability Company Purchase Agreement (the ?Lab Purchase Agreement?), between the District, as buyer, and Cadira, as seller, in substantially the form presented to the Board of Directors, pursuant to which the District shall purchase 100% of the membership interests in SeroDynamics, LLC for a purchase price of $2,500,000 and to be funded from the proceeds of the DIP Loans made under the DIP Credit Agreement; In connection with the Lab Purchase Agreement, the District is also proposing to enter into a Lab Management Agreement (the ?Lab Management Agreement?) between the District and Cadira, in substantially the form presented to the Board of Directors, pursuant to which the District shall employ Cadira to provide certain management services; In furtherance of the Chapter 9 Case, the District is also proposing to enter into that certain Asset Purchase Agreement (the between the District, as seller, and Cadira, as buyer, in substantially the form presented Page 80 Doc 71 Filed 04/18/18 WHEREAS: Case 18-20070 to the Board of Directors, pursuant to which Cadira shall buy substantially all of the assets of the Distriet for a purchase price not to exceed $4,000,000; The District believes that it will materially bene?t from the DIP Credit Agreement, the related DIP Loan Documents to which it is a party, the Lab Purchase Agreement, the Lab Management Agreement and the APA, and that it is in its best interest to execute and deliver the DIP Credit Agreement, the related DIP Loan Documents to which it is a party, the Lab Purchase Agreement, the Lab Management Agreement and the APA, and to assume and perform the obligations of the District contemplated therein. NOW THEREFORE BE IT: RESOLVED: RESOLVED: The Board of Directors deems it advisable and in the best interest of the District to enter into the DIP Credit Agreement and the other DIP Loan Documents to which the District is a party and that the form, terms and conditions of the DIP Credit Agreement and the DIP Loan Documents, and the transactions contemplated thereby, including without limitation the borrowing from the Lender of such amount or amounts of money or to request letters of credit or other ?nancial accommodations as contemplated by the DIP Loan Documents, the extension or renewal of any loan or loans or any installment of principal or interest thereof, or any indebtedness owing to the Lenders or Agent, and the assignment of, mortgage of, pledge of or grant of the security interests in the Collateral, be, and they hereby are, adopted and approved in all respects; and that any of?cer (each, an ?Authorized Of?cer?) be, and each of them acting singly hereby is, authorized and directed to negotiate, execute, deliver and perform the DIP Credit Agreement and any related DIP Loan Documents to which the District is a party, including, without limitation, the Notes, any deposit account control agreements, any mortgages and/or deeds of trust, and any pledge agreements, together with such modi?cations, amendments, deletions, corrections and/or waivers as any Authorized Of?cer shall determine to be necessary or advisable (such determination to be conclusively, but not exclusively, evidenced by the taking of Such action or the execution and delivery thereof by such Authorized Of?cer); The Board of Directors deems it advisable and in the best interest of the District to enter into the Lab Purchase Agreement and that the form, terms and conditions of the Lab Purchase Agreement and the transactions contemplated thereby, and any other agreements, documents or certi?cates contemplated thereby, be, and they hereby are, adopted and approved in all respects; and that any Authorized Of?cer of the District be, and each of them acting singly hereby is, authorized and directed to negotiate, execute, deliver and perform the Lab Purchase Agreement and any related agreements, documents or certi?cates to which the District is a party, together with such modi?cations, amendments, deletions, corrections Page 81 Doc 71 Filed 04/18/18 RESOLVED: RESOLVED: RESOLVED: Case 18-20070 and/or waivers as any Authorized Of?cer shall determine to be necessary or advisablc (such determination to be conclusively, but not exclusively, evidenced by the taking of such action or the execution and delivery thereof by such Authorized Of?cer); The Board of Directors deems it advisable and in the best interest of the District to enter into the Lab Management Agreement and that the form, terms and conditions of the Lab Management Agreement and the transactions contemplated thereby, and any other agreements, documents or certi?cates contemplated thereby, be, and they hereby are, adopted and approved in all respects; and that any Authorized Of?cer of the District be, and each of them acting singly hereby is, authorized and directed to negotiate, execute, deliver and perform the Lab Management Agreement and any related agreements, documents or certi?cates to which the District is a party, together with such modi?cations, amendments, deletions, corrections and/or waivers as any Authorized Of?cer shall deteimine- to be necessary or advisable (such determination to be conclusively, but not exclusively, evidenced by the taking of such action or the execution and delivery thereof by such Authorized Of?cer); The Board of Directors deems it advisable and in the best interest of the District to enter into the APA and that the form, terms and conditions of the APA and the transactions contemplated thereby, including the sale of substantially all of the District?s assets to Cadira and any other agreements, documents or certi?cates contemplated thereby, be, and they hereby arc, adopted and approved in all respects; and that any Authorized Of?cer of the District be, and each of them acting singly hereby is, authorized and directed to negotiate, execute, deliver and perform the APA and any related agreements, documents or certi?cates to which the District is a party, together with such modi?cations, amendments, deletions, corrections and/or waivers as any Authorized Of?cer shall determine to be necessary or advisable (such determination to be conclusively, but not exclusively, evidenced by the taking of such action or the execution and delivery thereof by such Authorized Of?cer); That any Authorized Officer be, and each of them acting singly hereby is, authorized and directed, in the name and on behalf of the District, and with the corporate seal as necessary or desirable, to take all such other actions, and to negotiate, execute, make oath to, acknowledge, deliver, perform and ?le any and all such other agreements, documents, UCC ?nancing statements, documents, instruments, certi?cates, supplements, amendments, agreements, demands, directions, consents, approvals, orders, applications, undertakings, further assurances or other agreements or communications of any kind, in the name and on behalf of the company or otherwise, and to take such other actions and to to pay or cause to be paid on behalf of the District all related costs and expenses, including any Page 82 Doc 71 Filed 04/18/18 RESOLVED: AYES: NOES: ABSENT: ATTEST: Case 18-20070 consent fees, in each case, as may be determined by any such Authorized Of?cer to be necessary, advisable or appropriate in connection with the DIP Credit Agreement, the related DIP Loan Documents, the Lab Purchase Agreement, the Lab Management Agreement or the APA, or any of the transactions contemplated thereby (such determination to be conclusively, but not exclusively, evidenced by the taking of such action or the execution and delivery thereof by such Authorized Of?cer), and each such Authorized Of?cer is hereby authorized and directed to employ such agents, and to pay such expenses as such Authorized Of?cer may deem necessary or appropriate in order to fully carry out the intent and accomplish the purpose of the foregoing resolutions. That the authority granted to the Authorized Of?cers in the name and on behalf of the District under the foregoing resolutions shall be deemed to include the authority to negotiate, execute, deliver and perform such further acts and deeds as may be necessary, convenient or appropriate, in the judgment of any such Authorized Of?cer, to carry out the transactions contemplated by, and the purposes and intent of, the foregoing resolutions, including, without limitation, any ?lings with or notices to, any supranational, national, federal, provincial, state or local government or governmental authority, department, commission, board, bureau, agency or instrumentality, any self-regulatory organization or any stock, commodities, options or other exchange, and all acts and deeds previously performed by the Authorized Officers of, or counsel for, the District prior to the date of these resolutions that are within the authority conferred hereby are hereby rati?ed, approved and con?rmed in all respects as the authorized acts and deeds of the District. 01111 Erquiaga, Prcsi nt Board of Directors Surprise Valley Health Care District Page 83 Doc 71 Filed 04/18/18 Case 18-20070 Doc 71 I . [Susan Bunyard, Secre?ny Board of Directors Surprise Valley Health Care District 1249513 v1 Page 84 Filed 04/18/18 Case 18-20070 Doc 71 EXHIBIT Page 85 Filed 04/18/18 Case 18-20070 Doc 71 EXTENSION of the Lease between the SURPRISE VALLEY HEALTH CARE DISTRICT andthe SURPRISE VALLEY MEDICAL BUILDING BOARD ASSOCIATION Reference: Lease dated December 11, 1984, between the Surprise Valley Healthcare District and the Surprise Valley Medical Building Association for the building and real property located at 745 N. Main Street, Cedarville, CA. 96104. As provided in the Lease Term, the lease is hereby renewed for an additional five years. LEASE TERM: Five (5) years, renewable for an additional five years at Lessee?s option. COMMENCEMENT DATE: November 1, 2016 TERMINATION DATE: October 31, 2021 ANNUAL RENTAL: One Dollar per year. In Witness Whereof, Lessor and Lessee have executed this Lease extension on the date and year as noted below. Lessor: Lessee: Surprise Valley Medical Building Surprise Valley Health Care Dist. Association, a California nonprofit a political subdivision of the Corporation State of California MI (I By 417': 4/ A President . President S.V. Medicai Building Board S.V. Health Care District Board of Directors Board of Directors Date: ID 3 I Date:_/ Q3 z? 4" 0259/ [72! Page 86 Filed 04/18/18 Case 18-20070 Doc 71 000063 ENDO FILED In the on" a! live is I 5 e! we State a! 5 1973 EDMUND 6. BROWN, Secmtaw of State ByiNM?i?f?mms Deputy RSED ARTICLES OF INCORPORATION OF SURPRISE MEDICAL BUILDING ASSOCIATION FIRST: The name of the corporation is Surprise v,lley Medicel Building'?ssocistion. SECOND: The purposes for which this corporation is formed ere: The specific and primary purpose is the construction, Operation, and maintenance of a community owned medical building for the purpose of keeping and attracting qualified doctors to the Surpriee Vslley area. The general purpoees end pOWers are to have and exercise all rights and powers conferred on nonprofit corporations rent under the laws of California, including the power to contracL. buy or sell personal or real property: provided. however, that this corporation shall not, except to an insubstantial degree, engage in any activities or exerciae any powers that are not in furtherance of the primary purposes of this corporation. THIRD: This corporation is organized pursuant to the General Nonprofit Corporation Law of the State of Caliroruia. FOURTH: The county in this etate where the principal office for the transaction of the buaineas of this corporation is located in Modoc County. The names and address of the persons who are to act in the capacity of Directors until the selection of their are NAME H. E. "Gene" Scott Cedarville. California Buddy M. Lsxegue Cedarville. California 1 . i? Berrvs so a Page 87 Filed 04/18/18 Case 18-20070 Doc 71 SIXTH: The authorized number end qualifications of members of the corporation. the dittsrent classes of membership, it any. the property, voting other rights and privileges of members and their liability to dues and and the method of collection thereof. shall be as set forth in the Bylaws. Members of this corporation sre not personally liable for the debts, liabilities. or obligations of the corporation. This corporation is one which does not contemplate pecuniary gain or profit to the members thereof and it is organized solely for nonprofit purposes.? Upon the winding up and dissolution or thie corporation, after paying or adequately providing tor the debt. and obligatione of the corporation, the remaining assets shall be distributed to a nonprofit fund, foundation or corporation which is organized and operated exclusively for charitable. religious and/or scientific purposes and which has established its tax?exempt ststus under Section 501 (3) of the Internal Revenue Code. If this corporation holde any assets on trust, such assets snail be disposed of in such manner ae may be directed by decree of the superior court of the county in which this corporation?s principal office is located, upon petition therefor by the Attorney General or by any person concerned in the liquidation. Noni of the sctivitiee of this corporation ohall consist of the carrying on of propaganda. or otherwise attempting, to influence legislation. RINTH: This corporation ie not authorizsd. nor shall it heve the power, to issue capitsl etock. 1N WITRESS WHEREOF. the undereigned. being the persons hereinebove named es the first directore. have executeo these . Articlee or Incorporetion. this?;?8 dsy of iil3 judgment creditor assignee of ronord applies for an abstract of judgment and moments the fotlowing: a. Judgment debtct?s Lorey A and but known addmsa 4 [421 Patterson Street Cedawiilo. CA 96104 t. ?0 b. Dntver's license No. and state: A0096268 Unknown 191C- 17297 .51 o. Social security No: ?-4255 Unknown 6&9 sac?- d. Motion tor summary wdgmant was personme sowed or ?354?. 8? matted to (nuns and address): John D. Witter. Law Of?ces at John D. ther Attomoy tor (may summer. The Building. 1 Kat?; Ptaza. Ste. 1450. Oswend. GA 94612 e. Originat abstract recanted in this county: (1) Data! t. tntormatlon on additional judgment debtors Is (2) Instrument No.: shown on page two. MW LAURA .3. FOWLER A (tween mm we: tstounwtta on mm on ATTORNEY) 2. 3- I Gently that the toltowlng is a true and oormct abstract 6. Tots! amount at ludgmant entered or test renewed: at the untamed In this action. 3 4,175.70 b. A certified copy at the iudgmont is attached. 7. An executton Hon attachment tan 3. Judgment creditor (name and . Surptisa tram Hum": moat. Joyce and Uta Wood. do Waugh 3 "mm ?Wm? . Amount: Holland 3. Men PG. 555 Capitol Matt. 9th ?oor. CA 95814 Judgment debtor (full name as ?appears injudgment): -. 0 (mm a a ms) LOREY CARPENTER . . ism? 5 a 8. A stay of entomoment has b. entered on a been the mun. b. [3 of )mdamd by the court effective untu to m? mm" 9. [3 that judgment Is Installment Judgment. 12 Clemby .09pr mum?, I ?Tidal Count! n! awn-mt?. ABSTRAWBJUDGMENT 7? (3ch at Own 9W0. EJ-DOI um. am 1. zoom 674. 700390 Page 289 Filed 04/18/18 Case 18-20070 Doe 71 LOREY CARPENTER CASE CW 8 02-0062 FCD DAD -DEFENDANT: SURPRISE VALLEY HEALTHCARE DISTRICT. et al. ON ADDITIONAL JUDGMENT DEBTOR 10. Name and last known address .7 1 Name and last known address L. .1 L. .J Driver?s license No. state: I Unknown Driver's license No. 8. aisle: [3 Unknown Social security No.: Unknown Soclel security No.: [3 Unknown Summons was personally served at or mailed to (address): was personally served at or mailed to (address): 1 1 . Mums and known sddress 1 5. Name and last known address Drlvor?s license No. state: Unknown Drillers license No. state: Unknown Social 39011111): No.: Unknown Social secumy No.: Unknown Summons was personally served at or mailed to (address): Summons was personally served at or mailed to (address): 1 2. Name and last known address 16. Name and last known address Driver?s license No. suns: Unknown Driver?s license No. stale: Social security No.: Unknown Social socunly No.: Summons was personally served at or malled to (address): Unknown Unknown Summons was personally served a! or mailed to (address): 13. New.? and last known address Name and last known address ?1?71? ?1 L. 11 Driver?s license No. 8: state: Unknown Driver?s llcense No. state: El Unknown Social security No: [3 Unknown Social seounty No.: [3 Unknown Summons was personally served a! or mslled to (address): Summons was personally served at or malted to (address): 18. ContinuedonAltaohmean. 9401mm ?My 1. 2003: ABSTRACT OF JUDGMENT m. (own) I . I Page 290 Filed 04/18/18 Case 18-20070 Doc CASE TITLE: Laney Carpenter Surprise Valley Ilealtlicare District. at at. NO: USDC. Eastern District. No. CIV 8-02-0062 FCD DAD k) am employcd in the County of Sacramento: my business address is 555 Capitol Mall. 91h . Floor, Sacramento. California. I am over the age of eighteen years and not a party to the foregoing action. 4 5 6 On March 12, 2004. I served the within: 7 ABSTRACT OF JUDGMENT 9 thy mail) on all parties in said action by placing a true copy thereof enclosed in a sealed envelope in a desi hated area for outgoing mail. addressed as set forth below. At McDonough Hollan 3: Allen PC. mail placed in that designated area is given the correct . amount of postage and is deposited that same day. in the ordinary course of business. in a - 10 United States mailbox in the City of Sacramento. California. (by personal delivery) by personally delivering a true copy thereof to the personts) and at I the addresstes) sot fonh below: Ell] 12 (by overnight delivery) on the following partyties) in said action by placing a true copy 13 thereof enclosed in a sealed envelope, with delivery fees paid or provided for, in it designated area for outgoing overnight mail. addressed as set forth below. In the ordinary 14 course of business at McDonough Holland 8: Allen PC, mail placed in that designated area . is picked up that same day for delivery the following business day. 15 (by facsimile) by transmitting a true copy thereof to the persons at the following telecopier 16 numbers and obtaining electronic continuation that the transmissions have been received: 17 John D. Winer. Esq. Attorneys for Plaintiff Felicia C. Curran. Esq. is Kevin C. Cronin. Esq. Law Offices Of John D. Wine: 19 The 0rdway Building 1 Kaiser Plaza, Suite 1450 20 Oakland, CA 94612 21 Lorcy Ca nter Lorcy Carpenter 955 W. 9t Street. Apt. 8 421 Patterson Street 22 Pomona, CA 91766 Cedarville. CA 96104 23 I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. 24 Executed on March 12. 2004. at SacramentoMi-Hv 4- um'm 3365mm: Page 291 Filed 04/18/18 Case 18-20070 Doc 71 EXHIBIT Page 292 Filed 04/18/18 Case 18-20070 Name ERX IRS UHC E.H.R. Loan BNY Mellon T?age Medical Solutions Walter Sphar Loan State of California Medliant PrimeTime Odgers Note (w/o Interest) Blue Shield of California PACIFIC POWER NPH LOZANO HOSPITAL COUNCIL OF CA FRONTIER DIAGNOSTICS, INC. READY LINK RITE AID Dell Lease (Computers) ANTHEM BLUE CROSS BalBoa ?Tamco (Phone System) SUNRISE MOTEL AND RV PARK CPAS ARCHER NORRIS US FOODS CACAHN CTN CMS ALSCO MOORE MEDICAL PROVIDER REIMBURSEMENT SNELLING AMERIGAS PROPANE MODOC COUNTY SHERIFFS OFFICE RELAY HEALTH FISHER SCIENTIFIC LAKE DISTRICT HOSPITAL AND LTC NORCAL EMS ACCORD FINANCIAL SVJUSD TALENT ACQUISITION ASSOCIATES, INC. MASTERCARD MEDLINE INDUSTRIES STERICYCLE MONICA DERNER CPA PC BLOOD CENTERS OF THE PACIFIC HORIBA INFINITE CONSULTING SERVICES WELLS FARGO VENDOR FIN SERV BRIGGS CHA Page 293 BalanceDue 815,340.00 572,484.08 400,000.00 293,192.97 224,533.69 214,000.00 171,313.83 128,702.14 84,667.50 60,826.53 36,756.00 42,804.07 42,055.57 34,003.21 32,933.73 31,357.63 31,077.53 26,298.25 25,193.63 24,167.57 22,447.65 21,777.63 16,313.96 15,575.40 15,226.01 14,374.50 13,158.57 11,000.00 12,623.67 9,883.25 8,718.34 8,670.67 8,502.12 8,500.00 6,356.97 6,314.00 5,743.50 5,473.17 5,025.74 5,022.09 4,777.95 4,620.20 4,250.00 3,906.31 3,370.05 3,226.59 3,180.00 2,990.00 2,811.00 2,802.64 2,775.00 2,736.87 2,712.08 2,555.66 1253441 v1 Doc 71 Filed 04/18/18 Case 18-20070 OWENS LONG TERM CARE PAGES MARKET LINKUS ENTERPRISES, LLC EAGLE SECURITY SYSTEMS QUILL CORPORATION MIT LLC NEVADA ENERGY SYSTEMS MCKESSON MEDICAL SURGICAL AMERICAN RIVER BENEFIT ADMIN AND PRODUCE PROHEALTH CAPITAL SYMETRA EDI MEDIA INC. LAB CORP OF AMERICA IMMUCOR JUNIPER PAPER SUPPLY RAY GORZELL CANON SOLUTIONS AMERICA, INC. MODOC STEEL AND SUPPLY WASTE MANAGEMENT ANDY WERKING MIKE MURRAY PLUMBING AND FIRE DXE MEDICAL CONEXIS LAKE HEALTH MEDICAL SUPPLY PATTERSON MEDICAL DEMSHER CONSULTING CORNER STORE GE CAPITAL WAYNE BETHEL BLOOD SOURCE ALTURAS AUTO PARTS PEPSI COLA BOTTLING COMPANY MERCEDES MEDICAL AMERICAN SOLUTIONS FOR BUSINESS SOUTH FORK ELECTRIC FOUR SEASONS SUPPLY CENTER ED STAUB AND SONS ELISABETH HARMON CASTLE BRANCH, INC Page 294 2,411.29 2,329.34 2,305.74 2,016.00 1,913.53 1,850.00 1,757.33 1,579.98 1,500.50 1,479.30 1,461.58 1,360.00 1,300.00 1,278.26 1,270.52 1,216.28 1,096.00 1,093.10 1,051.53 1,047.52 900.00 900.00 821.01 674.79 650.00 642.16 615.00 370.71 333.13 273.00 248.00 235.84 202.71 140.00 115.33 110.00 95.39 71.64 32.50 9.95 1253441 v1 Doc 71 Filed 04/18/18 Case 18-20070 Doc 71 EXHIBIT Page 295 PREPARED HARPP PROPERTY SCHEDULE Alliant Insurance Services, Inc. Page 1 130100149 3m; SURPRISE VALLEY HEALTH CARE DISTRICT Includes 3 50/119 200 IV #59 fr, 61492660 949 756-027? 9W0 ac I January 22,2018 Loc 2nd Auto Year Year Real Pars Bu Real Personal Id Address, City, Zip Occupancy Construction Built Apprs Zone Prop Prop Rents Year Property Property Rents 1 HOSPITAL BUILDING 9,630 SQ. FT. Class: 0 Yes E0: 11?? FW NEW 70?} $233129? arm/32 53.371259 741 N. MAIN STREET MASONRYCONSTANOOD ROOF Floodzx No No No CEDARVILLE CA 95104 MAIN AND WASH Notes: 100 DP 100% 2018 $2,980,387 $188,127 $9,311,289 Rent Notes: Lat 41.532205 Lng. ?120171903 6?2308 Per lMIliam Bastic, revised RP value based on minimum Repl 0051 Guide of $25213qft Alarms; Real Property Trend Factor: Personal Property Trend Factor: 2.33% 3.66% Totals $6,962, 475 37,085,803 2 ADDITION 3,713 SQ. FT Class: 741 N. MAIN INCL IN LOC. 1 MASONRY CONSTIWOOD ROOF Flood:X No No No CEDARVILLE CA 96104 MAIN WASH Notes: 6-23-08 PerlMIliarn Boslic, revised Rent Notes: PC1- 100 RP value based on minimum Repl Cost Lat 41.532205 Lng. 420171903 Guide 013252}qu Alarms: Yes 1994 0 E0: No No No 2077 57, 7 70, F95 5237,6739 $0 2018 $1,151,450 5243.155 30 Page 296 3713463474 $1,394,606 3 CLINIC BUILDING 4,032 SQ. FT. Class: No 1975 EEO: No No No 2077 577016? ?622,335 741 N. MAIN RPIPP INCL IN L00. 1 MASONRY CONSTIWOOU ROOF FloodIX No No No CEDARVILLE CA 96104 Notes: 1-3000 Per Bill 8050c, Ibis is 3 Rent Notes: Pcl. 0% leased loci for $1 a year but they may purchaseit soon. They are reponsible to insured the building. 2018 $798,851 3636.835 30 Lat: 41.532205 Lng..120.171903 6-23-08 Per lMlliam Bostic, revised RF value based on minimum Repl Cost Guide of $2525th Alarms: $7,392,980 $1,435,686 4 MOBILE OFFICE 1,066 80. FT. Class: No 1978 EQ: No No No 2077 $92 555 578, 705 50 741 N. MAIN RPIINCL IN L00. 1 EQUIP (CONTRACT OR MOBILE) Flood: No No No CEDARVILLE CA 96104 Notes: 1-30-08 Per Bill Bos?c, this is a Rent Notes: Stories; 1 0% leased be for $1 a year but they may Lat 41.532205 Lng. -120.171903 purdiase it soon. They are reponsibleio 2018 $95,943 $18,527 50 ?le above location it; cont/Medan ?re next/rage. $770, 660 $114,470 Filed 04/18/18 Case 18-20070 Doc 71 Page 297 PREPARED Allian! Insurance Services, Inc. 7307 Dove Sfreel 311/78 200 Newport Beat/7, CA 92060 {949/ 755-027 7 Loc 2nd #31. Lat 41.532205 6 Lat 41.532205 7 lat: 41.532205 8 Lat 41532205 Address, City, Zip 741 N. MAIN CEDARVILIE CA 96104 Stones: 1 Lng. ?120171903 741 N. MAIN CEDARVILLE CA 96104 Stories: 1 L119. ~1 20.1 71903 741 N. MAIN CEDARVILLE CA 96104 Stories: 1 [no-120171903 741 N. MAIN CEOARVILLE CA 96104 Stones: 1 Lng. ?1 20171903 Occupancy 690 SQ. FT. SHOP BUILDING RPIPP INCL LOC. 1 0% 178 SQ. FT. GENERATOR BUILDING RPIPP INCL IN LOC. 1 0% 210 SQ. FT. PUMP HOUSE RPIPP INCL. IN LOC. 1 PCL 0% 681 80. FT. AMBULANCE GARAGE RPIPP INCL. IN L00. 1 Pet. 0% HARPP PROPERTY SCHEDULE SURPRISE VALLEY HEALTH CARE DISTRICT January 22, 2018 Auto Year Year Constructmn Built Apprs insured the building. 62308 Per Bostic, revised RP value based on minimum Repl Cost Guide. This mobile home previou?y used as physician?s residence, now is mainly a storage area. Alarms; Class: C8 No 1965 CONCRETE BLOCK Notes: Alarms: Class: CB No 1965 CONCRETE BLOCK Nota: Alarms: Class: No 1955 ALL COMB FRAME) Notes: Alarms: Class: No 1972 ALL COMB (WOOD FRAME) Real Pers BII Zone Prop Prop Rents Year EQ: No Flood: No Rent Notes: EQ: No Flood: No Rent N016: EQ: No Flood: No Rent Notes: EQ: No Flood: No Notes: 2506 Per erliam Bos?c - Personal Rent Notes: Property does NOT include the ambulance replacemenl at $130,000 each. Alarms2017 2018 2077 2018 2077 2018 20/7 2018 Real Property 359, 7.97 $61,906 575, 425 515.990 5/8, 7.98 $18,854 $59,078 $61,178 Page 2 Includes 8: Real Property Trend Factor: Personal Property Trend Factor: 3.66% 2.33% Personal Bl I Property Rents Totals 362, 23? 50 363.684 $0 3722, 037 $125,570 550, 020 $0 352.105 $6 $66 345 $63,095 $76, .973 .30 $17,368 $5 335, I77 538.232 $20 367 50 520,542 $6 370,385 362.020 Filed 04/18/18 Case 18-20070 Doc 71 PREPARED Alliant Insurance Services, Inc. 7307 Dove .S?rireef Suite 200 Newporf 3860/7, CA 92660 {.949} 756-0277 HARPP PROPERTY SCHEDULE Page a SURPRISE VALLEY HEALTH CARE DISTRICT Indudea Real Property Trend Factor: 3.55% Personal Prope Trend Factor: 2.33% January 22, 2018 ?y Auto Year Year Construction Built .Apprs Loc 2nd Real Pers arr Roal 1 Address, City, Zip Personal Zone Prop Prop Rents Year Property Occupancy Property Rents Totals Real Personal Bl I Real Year Property Property Rents Totals Yea? Properly GRAND TOTALS: 2017 $5,007,377 $7,79a735 ?377,289 $5,190,649 $1,649,645 $0,311,209 $10,342,533 SPRINKLERED: 2917 ?9,997,739 $7,007,507 333112019 2010 $4,137,037 $1,031,203 $3,311,209 $3,430,409 2017 $7,075,733 $790,934 $0 $7,306, 572 2010 $1,052,812 $809,382 $0 $1,002,174 EARTHQUAKE: 2017 $0 $0 $77 $0 EARTHQUAKE: 2010 So so So so FLOOD: 2017 $0 $0 $0 $0 FLOOD: 2010 $0 $0 So so Personal BI Properly Rents Totals GRAND TOTALS: 2010 370, 52.9 SIGNED IACCEPTED BY: Filed 04/18/18 Page 298 Ear: Case 18-20070 Doc 71 Filed 04/18/18 Case 18-20070 Doc 71 EXHIBIT Page'299 Filed 04/18/18 Case 18-20070 Doc 71 Surprise Valley Health Care District 04/09/18 Pagezl Income Statement 12:59 Application Code GL User Login Name:jmcgarva Through JUNE 2017 Current Current Period YTD Operating Revenues Room and Board Acute 5 Swing 5,382.37 371,552.77 Room and Board SNF 196,950.60 2,348,102.46 Inpatient Ancillary 204.92 92,169.13 Total Inpatient Revenues 202,537.89 2,811,824.36 Outpatient 113,029.34 1,357,555.70 Total Patient Revenues 315,567.23 4,169,380.06 other Operating Revenues 149,591.57 557,463.36 Total Operating Revenues 465,158.80 4,726,843.42 Less Revenue Deductions Provision for Bad Debts 0.00 53,626.94 Administrative Adjustments 11,585.73 38,008.31 Contractual Adjustments 0.00 ?160,403.56 Total Revenue Deductions 11,585.73 ?68,768.31 Net Revenues 453,573.07 4,795,611.73 Operating Expenses Salaries and wages 202,350.32 2,299,490.33 Employee Benefits 9,080.65 532,409.59 Professional Fees 45,565.13 613,191.57 Purchased Services 22,321.64 267,540.16 Supplies 24,142.52 357,695.35 Leases 646.33 15,049.79 Minor Equipment 16.00 3,286.69 Utilities 7,617.97 123,070.16 Registry 73,229.23 977,035.79 Insurance 14,511.26 84,757.98 Recruiting 22.00 1,500.27 Repairs and Maintenance 8,221.26 150,067.93 Taxes and Licenses 2,105.39 27,036.49 Travel and Training 0.00 4,057.52 Depreciation and amort. 0.00 130,000.10 Other 3,550.76 115,638.05 Total Expenses 413,380.46 5,701,827.77 Operating Income/(Loss) 40,192.61 ?906,216.04 Page 300 Filed 04/18/18 Case 18-20070 Doc 71 Non?Operating Income Grants and contributions 2,500.00 112,405.23 Debt Forgiveness 0.00 171,527.50 District tax revenues 0.00 161,028.65 Investment income 0.21 30.47 Total Non?Operating Income 2,500.21 444,991.85 Less: Interest Expense ?4,795.21 -34,406.35 Net Income/(Loss) 37,897.61 ~495,630.54 Page 301 Filed 04/18/18 Case 18-20070 Doc 71 EXHIBIT Page 302 Filed 04/18/18 Case 18-20070 Audited Financial Statements SURPRISE VALLEY HEALTH CARE DISTRICT June 30, 2011 TCA Partners, LLP Certi?ed Public Accountants Page 303 Doc 71 Filed 04/18/18 Case 18-20070 Doc 71 Audited Financial Statements SURPRISE VALLEY HEALTH CARE DISTRICT June 30, 2011 Supplementary Information Management?s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audited Financial Statements Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Statements of Revenues, Expenses and Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Page 304 Filed 04/18/18 Case 18-20070 Doc 71 Management?s Discussion and Analysis SURPRISE VALLEY HEALTH CARE DISTRICT June 30, 2011 The management of the Surprise Valley Health Care District (the Hospital) has prepared this annual discussion and analysis in order to provide an overview of the Hospital?s performance for the ?scal year ended June 30, 2011 in aecordance with the Governmental Accounting Standards Board Statement No. 34, Basic Financials Statements; Management ?3 Diseussz'on and Analysis for State and Local Governments. The intent of this document is to provide additional information on the Hospital?s historical ?nancial performance as a whole in addition to providing a prospective look at revenue growth, operating expenses, and capital development plans. This discussion should be reviewed in conjunction with the audited ?nancial statements for the ?scal year ended June 30, 201 1 and accompanying notes to the ?nancial statcments to enhance one?s understanding of the Hospital?s ?nancial performance. Financial Highlights Operations: For FY 20] l, Revenues exceeded expenses by $375,379, an improvement of $2 1 8,239 compared to FY 2010. This gain is primarily attributable to a $745,278 increase in net patient revenue, which is comprised of a $398,972 increase from outpatient and clinic services, a $139,689 increase from hospital and inpatient services and a $206,616 favorable change in contractual allowances. These gains were largely offset by the $552,590 increase in operating expenses, primarily from professional fees (up $288,809), supplies (up $79,636) and purchased services (up $76,469). Cash Flows: For FY 201 1, the net cash increase was $81,524, down from the prior year ?gure of 1 I 1,982. Hospital tax revenues of $153,012 and non capital grants and contributions of $34,445 provided the funding to cover the ($72,072) of cash used in operating activities and the ($34,308) used in capital and ?nancing activities. Balanee Sheet: For FY 2011, working capital improved by $361,384, as the $375,379 increase in net assets was largely retained as working capital. Distriet Tax Revenues: The Hospital?s tax revenues represented about 4% of the 201 1 annual operating expenses. In 2010, the voters passed a permanent tax assessment. Risk aetors: Financial performance continues to be impacted by these factors, which normally result in increased costs: (1) mandated government regulations seismic retro?t), (2) employee health insurance, (3) worker?s compensation insurance premiums, (4) unexpected recruitment fees, (5) registry staffing expenses, (6) unexpected Medicare paybacks, (7) unfavorable trends in Medicare and Medi?Cal reimbursement rates, (8) downward trend in grant funding from State and Federal sources and (9) under utilization of hospital facilities. Medieal staff: The Hospital currently has four contracted physicians and also employs a family nurse practitioner. The Critical Access Hospital and the Rural Hcalth Clinic are fully staffed with experienced nurses. In addition, the Page 305 Filed 04/18/18 Case 18-20070 Doc 71 Hospial makes space availabie for medical specialists practicing cardiology, podiatry and audiology. Recruitment for certi?cated staff is an ongoing challenge because of the Hospital?s rural location and limited employment opportunities for spouses. In the past two years, the stabilized physician/F NP staf?ng has improved the continuity of patient care and has increased the utilization of the clinic, radiology and lab services. Strategic Initiatives: During FY 2011, the Hospital began the planning and initial implementation for both Telemedicine and an Electronic Health Records system. The ?nancial impact of these key initiatives will begin to re?ect on the ?nancial statements in FY 2012. Page 306 Filed 04/18/18 Case 18-20070 Doc 71 TCA Partners, LLP A Certi?ed Public Accountancy Limited Liability Partnership 1 1 E. Hemdon Avenue, Suite 2] 1 Fresno, CA 93720 Phone (559) 431-7708 Fax (559) 431?7685 Report of Independent Auditors The Board of Directors Surprise Valley Health Care District Cedarville, California We have audited the accompanying balance sheets of Surprise Valley Health Care District (the Hospital) as of June 30, 201 1 and 2010 and the related statements of revenues, expenses and changes in net assets, and cash ?ows for the years then ended. These ?nancial statements are the responsibility of the Hospital's management. Our responsibility is to express an opinion on these ?nancial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the ?nancial audits contained in GovernmentAuditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the ?nancial statements are free of material misstatement. An audit includes consideration of internal control over ?nancial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Hospital?s internal control over ?nancial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the ?nancial statements, assessing the accounting principles used and signi?cant estimates made by management, as well as evaluating the overall ?nancial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the ?nancial statements referred to above present fairly, in all material respects, the ?nancial position of Surprise Valley Health Care District at June 30, 201 and 2010, and the results of its operations and its cash ?ows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note A to the ?nancial statements, effective July 1, 2002, the Hospital adopted the provisions of Governmental Standards Board (GASB) Statement 34, Basic Financial Statements and Management ?s Discussion and Analysis - for State and Local Governments, GASB Statement 37, Basic Financial Statements - Management?s Discussion and Analysis for State and Local Governments: Omnibus, and GASB Statement 38, Certain Financial Statement Note Disclosures. Page 307 Filed 04/18/18 Case 18-20070 Doc 71 Management?s discussion and analysis is not a required part of the ?nancial statements but is supplementary information required by accounting principies generally accepted in the United States of America. We have applied limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. 7&4 Part/(ens; April 25, 2012 Page 308 Filed 04/18/18 Case 18-20070 Balance Sheets SURPRISE VALLEY HEALTH CARE DISTRICT Assets Current assets: Cash and cash equivalents Patient accounts receivable, net of allowances Inventories Grant and other receivables Estimated third party payor settlements Total current assets Capital assets: Land Buildings and improvements Equipment Construction in Progress Total capital assets Less accumulated depreciation Total net capital assets Total assets Liabilities and Net Assets Current liabilities: Current maturities of debt borrowings Accounts payable and accrued expenses Accrued payroll and related liabilities Refundable advances Total current liabilities Debt borrowings, net of current maturities Total liabilities Net assets: Invested in eapital assets, net of related debt Unrestrieted Total net assets Total liabilities and net assets See aecompanying notes and auditor?s report Page 309 June 30 2011 2010 333,823 252,299 281,872 270,423 72,544 79,366 68,966 17,030 94,618 22,516 851,823 641,634 50,000 - 2,295,037 2,295,037 1,377,906 1,348,728 4,950 - 3,727,893 3,643,765 (3,391,627) (3,321,494) 336,266 322,271 1,188,089 963,905 25,985 46,045 87,652 232,371 194,040 164,756 - 15,700 307,677 458,872 307,677 458,872 310,281 276,226 570,131 880,412 1,188,089 228,807 505,033 Filed 04/18/18 Case 18-20070 Statements of Revenues, Expenses and Changes in Net Assets SURPRISE VALLEY HEALTH CARE DISTRICT Operating revennes Net patient service revenue Other operating revenue Total operating revenues Operating expeuses Salaries and wages Employee bene?ts Professional fees Supplies Purchased services Utilities Building and equipment rent Repairs and Maintenance Insurance Depreciation and amortization Other operating expenses Total operating expenses Operating income (loss) Nonoperating revenues (expenses) District tax revenues Investment income Interest expense Grants and eontributions Total nonoperating revenues (expenses) Excess (de?cit) of revenues over expenses Net assets at beginning of the year Net assets at end of the year See accompanying notes and auditor ?5 report 6 Page 310 Year Ended June 30 2010 8 4,155,190 3,409,912 53,418 4,228,741 3,463,330 1,684,570 1,637,968 532,955 565,126 870,577 581,768 413,945 334,309 98,791 22,322 94,821 75,734 71,581 8,320 81,572 59,067 67,279 77,973 70,133 74,581 _1_2.43_9_22 121,388 4,111,146 3,558,556 1 17,595 (95,226) 153,012 164,350 447 31 (5,434) (7,997) 95,982 252,366 375,379 157,140 505,033 880,412 347,893 Mia?922 Doc 71 Filed 04/18/18 Case 18-20070 Statements of Cash Flows SURPRISE VALLEY HEALTH CARE DISTRICT Cash ?ows from operating activities: Cash received from patients and third?parties on behalf of patients Cash received from operations, other than patient services Cash payments to suppliers and contractors Cash payments to employees and bene?t programs Net cash provided by (used in) operating activities Cash ?ows from noneapital ?nancing activities: District tax revenues Non capital grants and contributions Net cash provided by (used in) noncapital ?nancing activities Cash ?ows from capital and related ?nancing aetivities: Purchase and donation of capital assets Capital grants and contributions Principal payments net proceeds from debt borrowings Interest payments on debt borrowings Net cash provided by (used in) capital ?nancing activities Cash flows from investing activities: Intercst and dividends received from investments Net cash provided by (used in) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year See accompanying notes and auditor ?5 report Page 311 Year Ended June 30 2011 2010 4,071,639 3,424,670 5,915 26,259 (1,961,385) (1,289,388) (2,188,241) (2,211,603) (72,072) (50,062) 153,012 164,350 34,445 43,556 187,457 207,906 (84,128) (8,186) 75,314 52,426 (20,060) (82,136) (5,434) (7,997) (34,308) (45,893) 447 31 447 31 81,524 111,982 252,299 140,317 333,823 W2 Filed 04/18/18 Statements of Cash Flows (continued) Case 18-20070 SURPRISE VALLEY HEALTH CARE DISTRICT Reconciliation of operating income to net cash provided by operating activities: Operating income (loss) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization Provision for bad debts Changes in operating assets and liabilities: Patient accounts and other receivables Other receivables Inventories Accounts payable and accrued expenses Accrued payroll and related liabilities Refundable advances Estimated third party payor settlements Net cash provided by (used in) operating activities See accompanying notes and auditor ?s report Page 312 Year Ended June 30 201 1 2010 1 17,595 (95,226) 70,133 74,581 238,982 130,537 (250,431) (151,189) (51,936) (17,030) 6,822 1 1,198 (144,719) (19,705) 29,284 (8,509) (15,700) (10,129) (72,102) 35,410 (72,072) (50,062) Filed 04/18/18 Case 18-20070 Doc 71 Notes to Financial Statements SURPRISE VALLEY HEALTH CARE DISTRICT June 30, 2011 NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Reporting Entity: Surprise Valley Healthcare District, (the Hospital) is a public entity organized under Local Hospital District Law as set forth in the Health and Safety Code of the State of California. The Hospital is a political subdivision of the State of California and is generally not subject to federal or state income taxes. The Hospital is governed by a ?ve~member Board of Directors, elected from within the district to speci?ed terms of of?ce. The Hospital is located in Cedarville, California and operates a 26?bed acute and long?term care facility, and other patient services. The Hospital provides health care services primarily to individuals who reside in the local geographic area. Basis of Preparation: The accounting policies and ?nancial statements of the Hospital generally conform with the recommendations of the audit and accounting guide, Health Care Organizations, published by the American Institute of Certi?ed Public Accountants. The ?nancial statements are presented in accordance with the pronouncements of the Governmental Accounting Standards Board (GASB). For purposes of presentation, transactions deemed by management to be ongoing, major or central to the provision of health care services are reported as operational revenues and expenses. The Hospital uses enterprise fund accounting. Revenues and expenses are recognized on the accrual basis using the economic resources measurement focus. Based on GASB Statement Number 20, Accounting and Financial Reporting for PrOprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, as amended, the Hospital has elected to apply the provisions of all relevant pronouncements as the Financial Accounting Standards Board (FASB), including those issued after November 30, 1989, that do not conflict with or contradict GASB pronouncements. Changes in Financial Statement Presentation: Effective July I, 2002, the Hospital adopted the provisions of GASB 34, Basic Financial Statements and Management?s Discussion and Analysis for State and Local Governments (Statement 34), as amended by GASB 37, Basic Financial Statements and Management ?s Discussion and Analysis for State and Local Governments: Omnibus, and Statement 38, Certain Financial Statement Note Disclosures. Statement 34 established ?nancial reporting standards for all state and local governments and related entities. Statement 34 primarily relates to presentation and disclosure requirements. impact of this change was related to the format of the ?nancial statements; the inclusion of management?s discussion and analysis; and the preparation of the statement of cash ?ows on the direct method. The application of these accounting standards had no impact on the total net assets. Page 313 Filed 04/18/18 Case 18-20070 Doc 71 Notes to Financial Statements (continued) SURPRISE VALLEY HEALTH CARE DISTRICT NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) Management?s Discussion and Analysis: Statement 34 requires that ?nancial statements be accompanied by a narrative introduction and analytical overview of the Hospital?s ?nancial activities in the form of ?management?s discussion and analysis? This analysis is similar to the analysis provided in the annual reports of organizations in the private sector. Use of Estimates: The preparation of ?nancial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the ?nancial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents and Investments: The Hospital considers cash and cash equivalents to include certain investments in highly liquid debt instruments, when present, with an original maturity of a short?term nature or subject to withdrawal upon request. Exceptions are for those investments which are intended to be continuously invested. Investments in debt securities are reported at market value. Interest, dividends and both unrealized and realized gains and losses on investments are included as investment income in nonoperating revenues when earned. PatientAccounts Receivable: Patient accounts receivable consist of amounts owed by various governmental agencies, insurance companies and private patients. The Hospital manages its receivables by regularly reviewing the accounts, inquiring with respective payors as to collectibility and providing for allowances on their accounting records for estimated contractual adjustments and uncollectible accounts. Signi?cant concentrations of patient accounts receivable are discussed further in the footnotes. Inventories: Inventories are consistently reported from year to year at cost determined by average costs and replacement values which are not in excess of market. The Hospital does not maintain levels of inventory values such as those under a ?rst-in, ?rst out or last-in, ?rst out method. Assets Limited as to Use: Assets limited as to use may include contributor restricted funds, amounts designated by the Board of Directors for replacement or purchases of capital assets, and other speci?c purposes, and amounts held by trustees under speci?ed agreements. Assets limited as to use eonsist primarily of deposits on hand with local banks. 10 Page 314 Filed 04/18/18 Case 18-20070 Doc 71 Notes to Financial Statements (continued) SURPRISE VALLEY HEALTH CARE DISTRICT NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (contiuued) Capital Assets: Capital assets consist of property and equipment and are reported on the basis of cost, or in the case of donated items, on the basis of fair market value at the date of donation. Routine maintenance and repairs are charged to expense as incurred. Expenditures which increase values, change capacities, or extend useful lives are capitalized. Depreciation of property and equipment and amortization of property under capital leases are computed by the straight-line method for both ?nancial reporting and cost reimbursement purposes over the estimated useful lives of the assets, which range ?om 10 to 30 years for buildings and improvements, and 3 to 10 years for equipment. The Hospital periodically reviews its capital assets for value impairment. As of une 30, 201 and 2010, the Hospital has determined that no capital assets are signi?cantly impaired. Compensated Absences: The Hospital?s employees earn paid?time?off (PTO) bene?ts at varying rates depending on years of service. Bene?ts can accumulate up to speci?ed maximum levels. Employees are paid for accumulated PTO if they leave either upon termination or retirement. Accrued PTO liabilities as of June 30, 2011 and 2010 were $77,538 and $74,468, respectively. Risk Management: The Hospital is exposed to various risks of loss from torts; theft of, damage to, and destruction of assets; business interruption; errors and omissions; employee injuries and illnesses; natural disasters; and medical malpractice. Commercial insurance coverage is purchased for claims arising from such matters. Net Assets: Net assets are presented in three categories. The ?rst category is net assets ?invested in capital assets, net of related debt?. This category of net assets consists of capital assets (both restricted and unrestricted), net of accumulated depreciation and reduced by the outstanding principal balances of any debt borrowings that were attributable to the acquisition, construction, or improvement of those capital assets. The second category is ?restricted? net assets. This category consists of externally designated constraints placed on those net assets by creditors (such as through debt covenants), grantors, contributors, law or regulations of other governments or government agencies, or law or constitutional provisions or enabling legislation. The third category is ?unrestricted? net assets. This category consists of net assets that do not meet the de?nition or criteria of the previous two categories Net Patient Service Revenues: Net patient service revenues are reported in the period at the estimated net realized amounts from patients, third?party payors and others including estimated retroactive adjustments under reimbursement agreements with third?party programs. Normal estimation differences between ?nal reimbursement II Page 315 Filed 04/18/18 Case 18-20070 Doc 71 Notes to Financial Statements (continued) SURPRISE VALLEY HEALTH CARE DISTRICT NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continncd) and amounts accrued in previous years are reported as adjustments of current year's net patient servicc revenues. Charity Care: The Hospital accepts all patients regardless of their ability to pay. A patient is classi?ed as a charity patient by reference to certain established policies of the Hospital. Essentially, these policies de?ne charity services as those services for which no payment is anticipated. Because the Hospital does not pursue collection of amounts determined to qualify as charity care, they are not reported as net patient service revenues. Services provided are recorded as gross patient service revenues and then written off entirely as an adjustment to net patient service revenues. District Tax Revenues: The Hospital receives approximately 4% of its ?nancial support from property taxes. These funds are used to support operations and meet required debt service agreements. They are classi?ed as non?operating revenue as the revenue is not directly linked to patient care. Property taxes are levied by the District at a ?at rate of $225 per household per year, and are intended to help ?nance the Hospital?s activities during the same year. The County has established certain dates to levy, lien, mail bills, and receive payments from property owners during the year. Property taxes are considered delinquent on the day following each payment due date. Grants and Contributions: From time to time, the Hospital receives grants from various governmental agencies and private organizations. The Hospital also receives contributions from related foundation and auxiliary organizations, as well as from individuals and other private organizations. Revenues from grants and contributions are recognized when all eligibility requirements, including time requirements are met. Grants and contributions may be restricted for either speci?c operating purposes or capital acquisitions. These amounts, when recognized upon meeting all requirements, are reported as components of the statement of revenues, expenses and changes in net assets. Operating Revenues and Expenses: The Hospital?s statement of revenues, expenses and changes in net assets distinguishes between operating and nonoperating revenues and expenses. Operating revenues result from exchange transactions associated with providing health care services, which is the Hospital?s principal activity. Operating expenses are all expenses incurred to provide health care services, other than ?nancing costs. Nonoperating revenues and expenses are those transactions not considered directly linked to providing health care services. Reelassi?cations: Certain ?nancial statement amounts as presented in the prior year ?nancial statements have been reclassi?ed in these, the current year ?nancial statements, in order to conform to the current year ?nancial statement presentation. 12 Page 316 Filed 04/18/18 Case 18-20070 Doc 71 Notes to Financial Statements (continued) SURPRISE VALLEY HEALTH CARE DISTRICT NOTE - CASH AND CASH EQUIVALENTS As of June 30, 2011 and 2010, the Hospital had deposits invested in various ?nancial institutions in the form of operating cash and cash equivalents that amounted to $333,823, and $252,299. Generally, funds in deposit are collateralized in accordance with the California Government Code (CGC), except for $250,000 per account that is federally insured. Under the provisions of the CGC, California banks and savings and loan associations are required to secure governmental deposits by pledging government securities as collatcral. The market value of pledged securities must equal at least 110% of the goverrunental entity?s deposits. California law also allows ?nancial institutions to secure govermnent deposits by pledging first trust deed mortgage notes having a value of 150% of the governments?s total deposits. NOTE - FAIR VALUE OF ASSETS AND LIABILITIES The Hospital adopted Statement 'of Financial Accounting standards No. 157, Fair Value Measurements (FAS 157). FAS 157 fair value establishes a framework for measuring fair value and expands disclosures about fair value measurements. AS de?nes fair value as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. AS 157 cstablishes a fair value hierarchy which requircs an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes thrce levels of inputs that may be used to measure fair value: Level 1: Quoted prices in active markets for identical assets or liabilities; Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or othcr inputs that are observablc or can be corroborated by observable market data for substantially the full term of the assets or liabilities; Level 3: Unobservable inputs for the assets or liabilities that are supported by little or no market activity and that are significant to the fair value of the underlying assets or liabilities. The following is a description of the valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the Hospital?s balance sheets, as well as the classification pursuant to the valuation hierarchy. 13 Page 317 Filed 04/18/18 Case 18-20070 Doc 71 Notes to Financial Statements (continued) SURPRISE VALLEY HEALTH CARE DISTRICT NOTE - FAIR VALUE OF ASSETS AND LIABILITIES (continued) Financial Instruments: Where quoted market prices are available in an active market, investments are classi?ed within Level I of the valuation hierarchy. Level 1 instruments include a variety of ?nancial instruments as listed below. There are no Level 2 or Level 3 types within the balance sheet of the Hospital. The following table summarizes the ?nancial instruments measured at fair value on a recurring basis in accordance with FAS 157 as of June 30, 201 1: Quoted Prices Signi?cant Signi?cant in Active Other Other Markets for Observable Observable Identical Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Savings short term cash 333,823 Totals of ?nancial instruments 333,823 I 4 Page 318 Filed 04/18/18 Case 18-20070 Doc 71 Notes to Financial Statements (continued) SURPRISE VALLEY HEALTH CARE NOTE - NET PATIENT SERVICE REVENUES Gross and net patient service revenues summarized by payor are as follows: 201 1 2010 Daily hospital services and other inpatient services 39 2,511,763 2,372,074 Outpatient and clinic services 1,575,514 1,176,541 Gross patient service revenues 4,087,277 3,548,615 Less contractual allowances 67,913 138,703 Net patient service revenues 4,155,190 3,409,912 The Hospital has agreements with third-party payors that provide for payments to the Hospital at amounts different from its established rates. A summary of the payment arrangements with major third-party payors follows: Merlieare: As a designated critical access hospital, Medicare reimbursement is generally settled with the Hospital on cost-based formulas. Interim payments for inpatient and outpatient care services rendered to Medicare program bene?ciaries are based on estimated determined rates throughout the year. After year end and the submission of an annual cost report, program expenses are audited by the Medicare ?scal intermediary and settlements are reached to ?nalize the reimbursement of Medicare program expenses for the year. At June 30, 201 1, cost reports through June 30, 2010 have been audited or otherwise ?nal settled. Medi?Cal: For traditional Medi?Cal and CMSP services, payments for inpatient services rendered to patients are made based on reasonable costs while outpatient payments are based on pre?determined charge screens. The Hospital is paid for cost reimbursement services at an interim rate with ?nal settlement determined after submission of annual cost reports and audits thereof by Medi-Cal. At June 30, 201 1, cost reports through unc 30, 2010, have been audited or otherwise ?nal settled. Other: Payments for services rendered to other than Medicare, Medi-Cal and CMSP patients are based on established rates or on agreements with certain commercial insurance companies, health maintenance organizations and preferred provider organizations which provide for various discounts from established rates. 15 Page 319 Filed 04/18/18 Case 18-20070 Doc 71 Notes to Financial Statements (eontinued) SURPRISE VALLEY HEALTH CARE DISTRICT NOTE - CONCENTRATION OF CREDIT RISK The Hospital grants credit without collateral to its patients and third-party payors. Patient accounts receivable from government agencies represent the only concentrated group of eredit risk for the Hospital and management does not believe that there are any credit risks associated with these governmental agencies. Contracted and other patient accounts receivable consist of various payors including individuals involved in diverse activities, subject to differing economic conditions and do not represent any concentrated credit risks to the Hospital. Concentration of patient accounts receivable at June 30, 201 1 and 2010 were as follows: 201 1 2010 Medicare 74,407 70,545 Medi?Cal 140,470 127,889 Other third party payors 60,581 49,562 Self pay and other 149,383 149,330 Gross patient accounts receivable 424,841 397,326 Less allowances for contractual adjustments and bad debts (140,000) (115,158) Less credit balances ?2,969) $11,745) Net patient accounts receivable 281,872 270,423 NOTE - RETIREMENT PLANS The Hospital has available to its employees a 403(b) annuity plan (the Plan). Employees eligible to participate in the Plan have reached the age of 21 and have completed one year of service. Plan assets are held by an administrator and are under individual control of the Plan participant. The Hospital makes no contributions to the Plan. 16 Page 320 Filed 04/18/18 Case 18-20070 Doc 71 Notes to Financial Statements (continued) SURPRISE VALLEY HEALTH CARE DISTRICT NOTE - CAPITAL ASSETS Capital assets as of June 30, 2011 and 2010 were comprised of the following: Balance at Transfers Transfers Balance at June 30, 2010 Additions Retirements June 30, 2011 Land and land improvements :3 - 50,000 - 50,000 Buildings and improvements 2,295,037 - - 2,295,037 Equipment 1,348,728 29,178 - 1,377,906 Construction-in?progress 4,950 - 4,950 Totals at historical cost 3,643,765 84,128 - 3,727,893 Less accumulated depreciation for: Land and land improvements - - - - Buildings and improvements (2,031,744) (45,699) (2,077,443) Equipment (1,289,750) (24,434) - (1,314,184) Total accumulated depreciation (3,321,494) (70,133) - (3,391,627) Capital assets, net 39 322,271 336,266 Balance at Transfers Transfers Balance at June 30, 2009 Additions Retirements June 30, 2010 Land and land improvements ?3 - - - - Buildings and improvements 2,295,037 - - 2,295,037 Equipment 1,340,542 8,186 - 1,348,728 Construction-in-progress - - - Totals at historical cost 3,635,579 8,186 - 3,643,765 Less accumulated depreciation for: Land and land improvements - - - - Buildings and improvements (1,985,321) (46,423) - (2,031,744) Equipment 1,261,592) (28,158) - (1 ,289,750) Total accumulated depreciation (3,246,913) (74,581) - (3,321,494) Capital assets, net 519 388,666 322,271 17 Page 321 Filed 04/18/18 Case 18-20070 Doc 71 Notes to Financial Statements (continued) SURPRISE VALLEY HEALTH CARE DISTRICT NOTE DEBT BORROWINGS As of June 30, 2011 and 20 10, the Hospital was indebted to various creditors and in different forms of debt instruments as follows: 2011 2010 Bank line of credit; principal due December 31, 2009; interest due at 10.25%; collateralized by patient accounts receivable - - Note payable to a bank; due in principal installments; interest paid at 6.00%; matures June 30,2011; maturity date was subsequently renewed to April 30, 2012 25,985 46,045 Total debt borrowings 25,985 46,045 Less current maturities of debt borrowings (25,985) (46,045) NOTE I - COMMITMENTS AND CONTINGENCIES Operating Leases: The Hospital leases various equipment and facilities under operating leases expiring at various dates. Total building and equipment rent expense for the years ended June 30, 2011 and 2010, were $71,581 and $8,320, respectively. Lease expenses for June 30, 201 1 included payments of $62, 1 64 to a joint venture partner in connection with the CT scanner. Future minimum lease payments for the succeeding years under operating leases as of June 30, 201 1, that have initial or remaining lease terms in excess of one year are not considered material. Litigation: The Hospital may from time-to-timc be involved in litigation and regulatory investigations which arise in normal course of doing business. After consultation with legal counsel, management estimates that matters existing as of June 30, 201 1 will be resolved without material adverse effect on the Hospital?s future ?nancial position, results from operations or cash ?ows. Medical Malpractice Claims: The Hospital purchases professional and general liability insurance to cover medical malpractice claims under a ?claims-made?policy. There are no known incidents that may result in the assertion of additional claims, as well as claims from unknown incidents that may be asserted in the future arising from services already provided to patients as of June 30, 201 1. The Hospital?s coverage includes various levels of deductibles for claims for which the Hospital becomes liable. 18 Page 322 Filed 04/18/18 Case 18-20070 Doc 71 Notes to Financial Statements (continued) SURPRISE VALLEY HEALTH CARE DISTRICT NOTE I - COMMITMENTS AND CON TINGEN CIES (continued) Workers Compensation Program: The Hospital is a participant in the Association of California Hospital District?s ALPHA Fund which administers a self?insured worker?s compensation plan for participating hospital employees of its member hospitals. The Hospital pays premiums to the ALPHA Fund which are adjusted annually. If participation in the ALPHA Fund is terminated by the Hospital, the Hospital would be liable for its share of any additional premiums necessary for final disposition of all claims and losses covered by the ALPHA Fund. There was no longer a deficit balance as of June 30, 2008. The Hospital?s share of the balance for both June 30, 2010 and 2011, is considered immaterial. Health Insuranee Portability and Accountability Act: The Health Insurance Portability and Accountability Act (HIPAA) was enacted August 21, 1996, to ensure health insurance portability, reduce health care fraud and abuse, guarantee security and privacy of health information, and enforce standards for health information. Organizations regulations. The Hospital has designated a Privacy and Security Of?cer, has evaluated the HIPAA impact on the organization and has complied with all required deadlines. In addition, the Hospital will be compliant for the October l6 Transaction and Code Set section of HIPAA. Health Care Reform: The health care industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government health care program participation requirements, reimbursement for patient services, and Medicare and Medi?Cal fraud and abuse. Govermnent activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statues and regulations by health care providers. Violations of these laws and regulations could result in expulsion from government health care programs together with the imposition of significant ?nes and penalties, as well as significant repayments for patient services previously billed. Management believes that the Hospital is in compliance with fraud and abuse as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations ean be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time. 19 Page 323 Filed 04/18/18 Case 18-20070 Doc 71 EXHIBIT Page 324 Page 325 Filed 04/18/18 Case 18-20070 Doc 71 04/ 12/ 1 8 Surprise Vallev Health Care District P212 1 10:21 Balaucc Sheet Ouarterlv Comparisou Annlication Code: GL User Login bbostic Quarter Ouartcr Account# Accouut JUN 2017 JUN 2017 Assets Current Assets Cash 1002?100 Cash Ambulance Fund 2,606.12 2,606.12 1003-100 Cash Savings 32,505.68 32,505.68 1004-100 Cash General Fund ?43,857.24 -43,857.24 1006?200 Petty Cash Hospital 200.00 200.00 1007w200 Petty Cash Clinic 150.00 150.00 1008-200 Certificate of Deposit 0.00 0.00 Total Cash -8,395.44 8,395.44 Accounts Receivable 1020?001 Patient Receivable Cadira Lab 0.00 0.00 1022-001 Accounts Receivable Hospital 279,137.56 279,137.56 1022?500 Accounts Receivable Clinic 59,597.16 59,597.16 1029?600 Bad Debt Hospital 0.00 0.00 1029?610 Bad Debt Clinic 0.00 0.00 Total Accounts Receivable 338,734.72 338,734.72 Contractuals 1041?001 Allowance For Bad Debt ~39,559.70 ~39,559.70 1042?001 Cont Allowance Medicare OP 2,707.66 2,707.66 1042-100 Cont Allowance Medicare IP 2,092.80 2,092.80 1042-500 Cont Allowance Medicare Clinic 13,391.05 13,391.05 1043-001 Cont Allowance MediCal OP 16,801.27 16,801.27 1043-100 Cont Allowance MediCal IP 996.25 996.25 1043~500 Cont Allowance MediCal Ciinic 4,964.92 4,964.92 1044-001 Cont Allowance Insurance OP ?459.98 ?459.98 1044?100 Cont Allowance Insurance IP 11,215.16 11,215.16 1044-500 Cont Allowance Insurance Clinic 8,102.48 8,102.48 1045?001 Cont Allowance No Insurance OP ?39.15 ?39.15 1045400 Cont Allowance No Insurance IP 0.00 0.00 1045600 Cont Allowance No Insurance 31.53 31.53 1045?900 Medicare Pass Thru 0.00 0.00 Total Contractuals 20,244.29 30,244.29 Filed 04/18/18 1065-001 1066-001 1067-001 1067-050 1068?001 1070?001 1081?500 1082-001 1083-001 1084-001 1085-001 1089-900 1101-001 1102-001 1108-001 1200-001 1210-001 1221-001 1221-100 1221-500 1225-001 1235-001 1240-001 1241-001 1241-500 1250-001 1250?002 1250-010 1260-001 1271-001 1271-500 1291?001 1291?500 Case 18-20070 Other Receivables Accounts Receivable Employees Tax Assessment Receivable Grant Receivable IGT Receivable Accounts Receivable Meaningful Cost Report Reimbursement Total Other Receivables Inventory Inventory Clinic Inventory Pharmacy Inventory Central Supply Inventory Dietary Inventory Lab Inventory Clearing Total Inventory Prepaid Expenses Prepaid Insurance Prepaid Interest Prepaid Expenses Other Total Prepaid Expenses Total Current Assets Property Plant and Equipment Land Land Improvements Buildings Hospital 691 N. Main Street Buildings Clinic Fixed Equipment Healthland Centriq EHR Phase I Property Plant and Equipment Moveable Equipment Hospital Moveable Equipment Clinic Seismic Retrofit Healthland Centriq EHR Construction In Progress Total Property Plant and Accumulated Depreciation Accum Depr Land Improv Accum Depr Hospital Accum Depr Clinic Accum Depr Hospital Equip Accum Depr Clinic Equip Total Accumulated Depreciation Net Plant Property and Equipment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 14,017.50 14,017.50 14,017.50 14,017.50 0.00 0.00 29,703.76 29,703.76 73,696.91 73,696.91 5,416.53 5,416.53 0.00 0.00 -77,589.88 -77,589.88 31,227.32 31,227.32 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 393,222.27 393,222.27 57,000.00 57,000.00 0.00 0.00 2,104,843.93 2,104,843.93 115,310.97 115,310.97 194,273.47 194,273.47 50,637.09 50,637.09 0.00 0.00 5,273.77 5,273.77 1,294,695.07 1,294,695.07 232,346.74 232,346.74 52,760.64 52,760.64 1,105,292.64 1,105,292.64 0.00 0.00 5,212,434.32 5,212,434.32 0.00 0.00 2,143,644.00 2,143,644.00 190,193.00 190,193.00 1,448,381.46 1,448,381.46 219,823.00 219,823.00 -4,002,041.46 -4,002,041.46 1,210,392.86 Page 326 1,210,392.86 Doc 71 Filed 04/18/18 Case 18-20070 Doc 71 Other Assets 1930?001 Donated Property, Plant, and 0.00 0.00 Total Other Assets 0.56 0.00 Total Assets ?$666353? Liabilities and Equity, Liabilities Accounts Payable 2021?001 Accounts Payable 1,240,305.23 1,240,305.23 2022?001 LDH Rx Loan 0.00 0.00 2023?001 Patient Refunds Payable 0.00 0.00 2026?001 Settlement Due Medicare ?15,415.00 ?15,415.00 2027-001 Settlement Due MediCal ~3,163.69 ?3,163.69 Total Accounts Payable 1,221,726.54 1,221,726.54 Accrued Payroll 2031?001 Accrued Payroll 101,910.52 101,910.52 2032-120 Accrued Vacation 104,404.96 104,404.96 2032-125 Accrued Physician Compensation 0.00 0.00 2035-001 Federal Income Tax Withheld 175,397.00 175,397.00 2036-001 FICA Taxes Withheld and Accrued 262,393.54 262,393.54 2036?100 IRS Payments 50,000.00 60,000.00 2037-001 State Income Tax Withheld 29,966.87 29,966.87 2037?010 Calif Non Resident Withheld 0.00 0.00 2038?010 SUTA Payable 70,960.13 70,960.13 2038?100 EDD Payments ~35,000.00 -35,000.00 2039-001 SDI Withheld 26,097.36 26,097.36 2039?010 Workers Comp Payable -5,849.00 ?5,849.00 2039?020 Health Insurance Payable ?85,632.84 -85,632.84 2039-030 Garnishments -75.00 ?75.00 2039?040 4038 Payable ~325.00 ?325.00 2039?050 AFLAC -1,718.84 ?1,718.84 2039?055 HSA Health Savings 0.00 0.00 Total Accrued Payroll 592,529.70 592,529.70 Other Current Liabilities 2040-001 Accrued Interest Payable 21,250.00 21,250.00 2055?001 Deferred Revenue 39,797.00 39,797.00 Total Other Current Liabilities 61,047.00 61,047.00 Long Term Debt 2242?500 Plumas Bank Line Of Credit 50,000.00 50,000.00 2244?001 Notes Payable Plumas Bank 0.00 0.00 2244-100 Notes Payable Dr Roberts Fund 0.00 0.00 2244?200 Note Payable Odgers 63,265.88 63,265.88 2244?250 Dell Capital Lease 28,646.23 28,646.23 2244?300 Notes Payable Sphar 2015 0.00 0.00 2244?350 Note Payable Sphar 2017 214,000.00 214,000.00 2244?400 Notes Payable UHC Loan 400,000.00 400,000.00 Page 327 Filed 04/18/18 Case 18-20070 Doc 71 Total Long Term Debt 755,912.11 755,912.11 Total Liabilities 2,631,215.35 2,631,215.35 Equity 2910-001 Fund Balance -529,363.56 ?529,363.56 2940?900 Current Year Retained Earnings -495,630.54 "495,630.54 Total Equity -1,024,994.10 ?1,024,994.10 Total Liabilities and Equity 1,606,221.25 1,606,221.25 Suppress Printing Accounts with Zero Balances: N0 Suppress Printing Account No Page 328