VVCH Emerg Motion

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Samuel R. Maizel (CA Bar No. 189301) Scotta E. McFarland (CA Bar No. 165391) Mary D. Lane (CA Bar No. 71592) PACHULSKI STANG ZIEHL & JONES LLP 10100 Santa Monica Blvd., 13th Floor Los Angeles, California 90067-4100 Telephone: 310/277-6910 Facsimile: 310/201-0760 E-mail: smaizel@pszjlaw.com smcfarland@pszjlaw.com mlane@pszjlaw.com Attorneys for Victor Valley Community Hospital, Debtor and Debtor in Possession UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA RIVERSIDE DIVISION In re: Case No.: 6:10-39537 CB Chapter 11
NOTICE OF EMERGENCY MOTION EMERGENCY MOTION OF DEBTOR FOR ORDER (A) AUTHORIZING DEBTOR TO OBTAIN POSTPETITION FINANCING AND GRANTING LIENS AND SUPERPRIORITY ADMINISTRATIVE EXPENSE STATUS PURSUANT TO 11 U.S.C. 364; (B) SCHEDULING A FINAL HEARING AND ESTABLISHING RELATED NOTICE REQUIREMENTS; AND (C) AUTHORIZING DEBTOR TO ENTER INTO CONSULTING SERVICES AGREEMENT; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF [Declaration of Edward Matthews in Support Thereof]
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The Debtor is a California nonprofit public benefit corporation, Fed. Tax I.D. No. 95-2475762. The Debtors address is 15248 Eleventh Street, Victorville, CA 92395.
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VICTOR VALLEY COMMUNITY HOSPITAL,1
Interim Hearing: Date: October 20, 2011 Time: 10:00 a.m. Place: Courtroom 303 U.S. Bankruptcy Court 3420 Twelfth Street Riverside, CA 92501-3819 Judge: Catherine E. Bauer
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TO THE HONORABLE CATHERINE BAUER, THE OFFICE OF THE UNITED STATES TRUSTEE, DEBTORS SECURED CREDITORS, THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS, AND OTHER PARTIES IN INTEREST: PLEASE TAKE NOTICE that Victor Valley Community Hospital, the above-captioned debtor and debtor in possession (the Debtor or VVCH), through its undersigned counsel, hereby moves (the Motion) the Court for the entry of an interim order substantially in the form attached to the Motion as Exhibit A (the Interim Order) and setting a hearing on approval of a final order (the Final Order), pursuant to sections 105(a) and 364 of title 11 of the United States Code (the Bankruptcy Code) and Rules 4001(c) and 9014 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules), (i) authorizing the Debtor to incur up to $6 million in postpetition indebtedness (the DIP Financing or DIP Facility), (ii) approving the Postpetition Revolving Credit and Security Agreement between the Debtor and Prime Healthcare Management, Inc. (Prime Management) dated as of October 14, 2011 (the DIP Loan Agreement)2 substantially in the form attached to the Motion as Exhibit B, and authorizing the Debtor to enter into the DIP Loan Agreement and to execute any other reasonable and necessary documents in order to implement the terms of the DIP Loan Agreement, (iii) granting subordinate liens in the Debtors assets securing the DIP Facility, and superpriority administrative expense claim status to the DIP Facility, and (iv) granting related relief as further set forth in the Interim Order. The Motion further requests entry of an order authorizing the Debtor, pursuant to section 363(b) of the Bankruptcy Code, to enter into a Consulting Services Agreement substantially in the form attached to the Motion as Exhibit C (the Consulting Agreement). with Prime Management. PLEASE TAKE FURTHER NOTICE that, as set forth in the attached Memorandum, the Debtor has limited operating funds and is losing money at a burn rate of almost $1.2 million per month on a cash basis. Its daily census continues to decline and its staff is failing to appear for work with increasing regularity resulting in greatly increased labor costs. Further, the Debtor has suffered attrition of key personnel, including the retirement of its Chief Executive Officer.3
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All capitalized terms not otherwise defined herein shall have the meaning given them in the DIP Loan Agreement. The Debtor and Catherine M. Pelley, the Debtors former CEO, have entered into a Consulting Agreement, subject to the approval of this Court, whereby Ms. Pelley will continue to perform the functions of the CEO, pending the Debtor making other arrangements for the management of its hospital.
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Although the Debtor has on two occasions sought and obtained Bankruptcy Court approval to sell substantially all of its assets, both sales have failed to close. The first approved sale failed to close because the buyer, Victor Valley Hospital Acquisition and another related entity (collectively, VVHA) declined to close on the terms that had been approved by this Court. The second approved sale failed to close as scheduled because the Attorney General for the State of California (the AG) denied consent to the sale of the Debtors assets to PHSF Victor Valley, LLC, an affiliate of Prime Healthcare Services Foundation, Inc. (collectively, Prime).4 The Debtor is at this point in urgent need of stable management of its hospital (the Hospital) and financing in order to continue to operate, pay its critical expenses and preserve and maximize its value for the benefit of the estate and its creditors until it is able to close the sale to Prime or to otherwise reorganize. After arms length negotiations undertaken in good faith by the Debtor and Prime Management, the Debtor has determined that the terms and conditions of the Consulting Agreement and the DIP Financing are fair, reasonable and appropriate and that approval of the DIP Financing is in the best interest of its estate. PLEASE TAKE FURTHER NOTICE that, pursuant to Bankruptcy Rule 4001(c)(1)(B), the following chart summarizes certain material provisions of the DIP Financing.5
DIP Facility: A revolving credit facility in an aggregate amount of up to $6,000,000.00 secured by liens on all the assets of the Debtor and granted a superpriority claim status. Prime Healthcare Management, Inc. The DIP Facility will be used to pay the Debtors operating losses through consummation of the sale of Debtors asset or until the Debtor confirms a plan of reorganization or liquidation. Operating losses is the difference between actual cash collected by Borrower during the Advance Period and Borrowers cash operating expenses attributable to the Advance Period. Operating expenses include, but are not limited to, wages, employee benefits, professional fees, utilities, supplies and other general and administrative expenses. No interest will be charged.
DIP Lender: Purpose:
Interest:
The Debtor and Prime are continuing their efforts to obtain the AGs consent to the sale of the Debtors assets to Prime.
This section contains a summary of the principal provisions of the DIP Facility; the Court and other parties in interest, however, are respectfully referred to the DIP Loan Agreement and the Interim Order, attached hereto as Exhibits B and A, respectively, for a more extensive recitation of the terms and conditions of the DIP Facility.
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Events of Default Liens/Superpriority Administrative Claim
The Events of Default are rather lengthy and can be found in Article VIII of the DIP Loan Agreement. Subject and subordinate to all existing, valid and perfected security interests and liens, a continuing security interest in and lien upon all of the Debtors right, title and interest in and to all of its assets of any nature whether now owned or hereafter acquired. Amounts owed under the DIP Facility shall be an allowed superpriority administrative expense claim with priority (except as otherwise provided in the Interim Order) in Debtors case under sections 364(b), 503(b), and 507(b) and otherwise over all administrative expense claims and unsecured claims against Debtor and its estate, now existing or hereafter arising, of any kind or nature whatsoever including, without limitation, except as otherwise provided in the Interim Order, administrative expenses of the kinds specified in, arising, or ordered pursuant to sections 105, 326, 328, 330, 331, 503(a), 503(b), 506(c) (subject to entry of the Final Order), 507(a), 507(b), 546(c), 546(d), 726(b), 1113, and 1114, whether or not such expenses or claims may become secured by a judgment lien or other nonconsensual lien, levy or attachment. Subject to the provisions of Section 2.6 and Section 2.9 of the DIP Loan Agreement, all Advances and all other outstanding Obligations under the DIP Facility shall be immediately due and payable in full in cash, if not earlier in accordance with the terms of DIP Loan Agreement, the Interim Order and the Final Order, without further application to or order of the Bankruptcy Court, on the earlier of (i) acceleration of maturity of the Obligations upon the occurrence of an Event of Default; (ii) twenty (20) days after the Bankruptcy Court enters an order (a) confirming a chapter 11 plan for the Borrower that does not provide for the payment of the Obligations in full no later than 30 days from entry of the confirmation order ; or (b) granting a motion to sell substantially all of Borrower's assets pursuant to a transaction that does not provide for the Obligations to be paid in full at closing of the sale transaction; (iii) upon termination of the Consulting Agreement; (iv) if an order is entered confirming a chapter 11 plan that is not based upon a sale of the Debtors assets to Prime and that Prime Management consents to in writing, then the date which is seven years from entry of such confirmation order; or (v) March 1, 2012 (the date upon which the first of the foregoing occurs is referred to herein as the Maturity Date) If an order is entered confirming a chapter 11 plan which does not contemplate a sale of substantially all of the Debtors assets and that Prime Management consents to in writing, then the Debtor shall repay the outstanding Obligations in quarterly payments based on a ten (10) year amortization schedule, with payments to commence on the first business day following the first quarter in which Debotr has experienced Positive Cash Flow. Nothing in this section shall modify the Maturity Date. Notwithstanding anything in this Section to the contrary, repayment of the Obligations shall not commence until such time as general unsecured creditors of the Debtor holding allowed claims receive collectively $2 million.
Term:
Payment in the Event That a Plan Is Confirmed That Does Not Provide for the Sale of the Hospital but that is approve by Prime and Prime Management
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Forgiveness in Event of Sale of Hospital to Prime
Other provisions of the DIP Loan Agreement Disclosed Pursuant to Bankruptcy Rule 4001(c):
In the event that the Debtor sells substantially all of its assets to Prime Healthcare Services Foundation, Inc., or PHSF Victor Valley, LLC, or any Affiliate of either one, pursuant to a sale transaction approved of in writing by Lender and by Prime Healthcare Services Foundation, Inc., Lender shall release the Debtor of its duty to pay the remaining balance of the Obligations to Prime Management under this Agreement as of the date of closing of the sale transaction. Unless otherwise agreed to in writing by Lender, all other rights of Lender under the DIP Facilily and the Financing Orders shall survive the closing of the sale transaction. In the event of such acquisition by a party other than Prime Management or an affiliate or an affiliate, successor or assignee of Prime Management, the Obligations hereunder are required to be paid in full at the time of and as part of such acquisition. Sections 2.10(b) and 7.1 contain certain limits on the Debtors ability to obtain financing pursuant to section 364 of the Bankruptcy Code. Section 2.1(b) contains a waiver of nonbankruptcy law regarding the perfection of liens and security interests. Section 12.4 contains indemnity provisions.
PLEASE TAKE FURTHER NOTICE that the Consulting Agreement specifically lists the tasks related to the day-to-day operations of the Hospital that Prime Management, as an independent contractor, will perform and oversee during the term of the Consulting Agreement. The Consulting Agreement also authorizes Prime Management to implement Major Decisions (as defined in the Consulting Agreement) as approved by the Debtors Board of Directors. The management fee to be paid to Prime Management by the Debtor under the Consulting Agreement is $10,000 per month. PLEASE TAKE FURTHER NOTICE that this Motion is brought on an emergency basis pursuant to Local Bankruptcy Rule (LBR) 9075-1 because the Debtor cannot continue to operate without prompt relief as requested herein. PLEASE TAKE FURTHER NOTICE that pursuant to LBR 9075-1, the Court has scheduled a hearing on this Motion on an emergency basis for October 20, 2011 at 10:00 a.m. Counsel for the Debtor has served this Motion (and thereby notice of the hearing) by email, facsimile, personal delivery, or overnight delivery on the counsel for the Official Committee of Unsecured Creditors (the Committee), the Debtors prepetition and post-petition secured lenders,
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the Office of the United States Trustee and those parties entitled to notice pursuant to the Courts order limiting notice in this chapter 11 case (the Case). PLEASE TAKE FURTHER NOTICE that, pursuant to Local Bankruptcy Rule 9075-1, any party in interest intending to oppose the relief sought in this Motion or the adequacy of the notice of the hearing must attend the scheduled hearing and either file a written opposition or orally raise the opposition at the hearing. Failure to respond in opposition to the Motion or to appear at the scheduled hearing may constitute consent to the relief requested herein. PLEASE TAKE FURTHER NOTICE that the Motion is based on and supported by this Notice, the attached Memorandum of Points and Authorities, the Declaration of Edward Matthews, Chief Financial Officer of the Debtor filed concurrently herewith, and the extensive record in this Case. WHEREFORE, the Debtor respectfully requests that the Court (ii) enter the Interim Order; (iii) schedule a final hearing on the Motion (the Final Hearing) on or about October __, 2011; (iv) grant the Motion on a final basis at the Final Hearing, (v) approve the Consulting Agreement and authorize the Debtor to enter into and to take all reasonable and necessary actions to implement the Consulting Agreement, and (vi) grant such other and further relief as the Court deems just and proper. PACHULSKI STANG ZIEHL & JONES LLP Dated: October 17, 2011 By /s/ Samuel R. Maizel Samuel R. Maizel (CA Bar No. 189301) Attorneys for Victor Valley Community Hospital, Debtor and Debtor in Possession
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 IX. VII. VIII. V. VI. IV. I. II. III.
Page SUMMARY OF RELIEF REQUESTED .......................................................................... 8 JURISDICTION .............................................................................................................. 10 BACKGROUND ............................................................................................................. 11 A. The Bankruptcy Case Background ...................................................................... 11 B. General Description of the Debtor ....................................................................... 11 C. The Debtors Physical Plant................................................................................. 11 D. The Debtors Staff at the Petition Date ................................................................ 12 E. The Hospitals Current Situation ......................................................................... 12 F. The Debtors Board of Directors ......................................................................... 14 G. The Debtors Secured Debt .................................................................................. 14 1. The Desert Community Bank Obligations............................................... 14 2. The PHM Obligations .............................................................................. 15 3. The Corwin Medical Group Obligations ................................................. 15 4. VVHA ...................................................................................................... 16 H. The Debtors Unsecured Debt ............................................................................. 16 I. Events Related to the Sale of the Hospital ........................................................... 16 PROPOSED DEBTOR IN POSSESSION FINANCING ............................................... 18 A. The Critical Need for Postpetition Financing ...................................................... 18 B. Overview of the DIP Facility ............................................................................... 18 C. Current Alternative to the DIP Financing ............................................................ 20 D. The DIP Facility Is the Best Alternative for the Debtor ...................................... 21 PROPOSED CONSULTING SERVICES AGREEMENT ............................................. 22 BASIS FOR APPROVAL OF THE DIP FACILITY AND THE GRANTING OF SUPERPRIORITY ADMINISTRATIVE CLAIMS IN CONNECTION THEREWITH .................................................................................................................. 25 A. Section 364(c) of the Bankruptcy Code Is Satisfied ............................................ 25 B. The Debtor Has Exercised Its Reasonable Business Judgment .......................... 25 C. Provisions that Potentially Implicate Local Bankruptcy Rule 4001-2................. 27 REQUEST FOR IMMEDIATE INTERIM APPROVAL OF RELIEF REQUESTED HEREIN ........................................................................................................................... 27 NOTICE WITH RESPECT TO EMERGENCY INTERIM FINANCING REQUEST AND FINAL HEARING ................................................................................................. 28 THE DEBTORS ENTRY INTO THE CONSULTING AGREEMENT HAS A SOUND BUSINESS PURPOSE AS REQUIRED BY SECTION 363 OF THE BANKRUPTCY CODE................................................................................................... 28 CONCLUSION ................................................................................................................ 29 i
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TABLE OF AUTHORITIES Page CASES Bray v. Shenandoah Fed. Sav. & Loan Assn (In re Snowshoe Co.), 789 F.2d 1085 (4th Cir. 1986) ............................................................................................... 25 In re Ames Dept Stores, Inc., 115 B.R. 34 (Bankr. S.D.N.Y. 1990) .................................................................................... 26 In re Canyon Partnership, 55 B.R. 520 (Bankr. S.D. Cal. 1985)..................................................................................... 29 In re Moore, 110 B.R. 924 (Bankr. C.D. Cal. 1990)................................................................................. 29 In re WPRV-TV, Inc., 143 B.R. 315 (D.P.R. 1991), affd in relevant part, ............................................................. 29 STATUTES 28 U.S.C. 1334 ................................................................................................................... 10, 17 28 U.S.C. 1408 ......................................................................................................................... 10 28 U.S.C. 1409 ......................................................................................................................... 10 28 U.S.C. 157(b)(2)(A) ............................................................................................................ 10 28 U.S.C. 157(b)(2)(D) ............................................................................................................ 10
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MEMORANDUM OF POINTS AND AUTHORITIES The Debtor, by the Emergency Motion of Debtor for Order (a) Authorizing Debtor to Obtain
Postpetition Financing and Granting Liens and Superpriority Administrative Expense Status Pursuant to 11 U.S.C. 364; (b) Scheduling a Final Hearing and Establishing Related Notice Requirements; and (c) Authorizing Debtor to Enter Into Consulting Services Agreement (the Motion), requests entry of an
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interim order substantially in the form annexed hereto as Exhibit A and thereafter a final order, approving the DIP Facility and authorizing the Debtor to enter into the DIP Loan Agreement, a copy of which is attached hereto as Exhibit B and an order authorizing the Debtor to enter into the Consulting Agreement in order to avoid immediate and irreparable harm to the Debtor and its creditors that would result from the Debtors failure to obtain financing and stable management for the Hospital. This Motion seeks authority for the Debtor to incur up to $6 million in postpetition indebtedness in exchange for (1) continuing security interests in and liens upon all of the Debtors right, title and interest in and to all of its assets of every kind and nature, whether now owned or hereafter acquired (the Collateral), which security interest and liens shall be subject and subordinate to all existing valid and perfected security interests and liens upon the Collateral, and (2) superpriority administrative expense claim status pursuant to sections 364(b), 503(b) and 507 as more fully described below and in the Interim Order. It also seeks authorization for the Debtor to enter into the Consulting Agreement whereby Prime Management will manage the Hospital under the direction of the Debtors Board of Directors. As set forth in the Declaration of Edward Matthews, the Debtor is losing on an accrual basis almost $2 million per month and its efforts to sell the Debtors assets have been unsuccessful thus far. Further, the Debtor is facing attrition of its key personnel, including the retirement of its CEO. The Debtor is continuing with its efforts to consummate its Court-approved sale to Prime. In addition, the Debtor is working on legal challenges to the AGs recent denial of consent of the sale to Prime. In the meantime, if the Debtor is to keep the Hospital open and preserve the value of the estate for its creditors, it needs funds to cover its operating losses. The Consulting Agreement will
Capitalized terms not otherwise defined in this Memorandum of Points and Authorities shall have the meaning given them in the Motion.
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result in the Debtor obtaining valuable advice on the management of the Hospital at a time that the Debtor has been suffering from personnel attrition and it should enable the Debtor to realize savings based on Primes experience in similar situations with distressed hospitals. The terms of the DIP Facility are extremely beneficial to the Debtor and its estate. If the Debtor and Prime are able to consummate the court-approved sale of the Debtors assets, all of the funds advanced by Prime Management under the DIP Facility (i.e., potentially a $6 million benefit) will be forgiven by Prime Management and shall not count as a credit against the purchase price or serve in any other way to deplete estate resources. In the event that the sale to Prime is not consummated and the Debtor must repay the DIP Financing, the terms of repayment are also beneficial to the Debtor in that the DIP Financing is interest free and, if the Debtor confirms a plan approved by Prime and Prime Management, the DIP Financing can be repaid over a seven (7) year period. In addition, the Debtor will have had the benefits of the Consulting Agreement. In light of the Debtors current operating and financial condition and the existing encumbrances on its assets, the Debtor does not believe that it could obtain such favorable terms from any other source. I. SUMMARY OF RELIEF REQUESTED By this Motion, the Debtor seeks an order: a. Authorizing, on an interim and permanent basis, the Debtor to: (i) obtain, pursuant to Sections 364(b), (c) and (e) of the Bankruptcy Code,7
postpetition financing in the form of a $6 million debtor in possession revolving credit facility pursuant to the terms of the DIP Loan Agreement, a copy of which is attached hereto as Exhibit B; (ii) grant to Prime Management, as security for repayment of all obligations
arising under the DIP Facility, (1) subject and subordinate to all existing valid and perfected security interests and liens, a continuing security interest in and liens upon all of the Debtors right, title and interest in and to all of all of its assets of any
Unless otherwise noted, all references to Section refer to a section of the Bankruptcy Code. All references to Rule refer to the Federal Rules of Bankruptcy Procedure. All references to LBR refer to the local rules of this Court.
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nature, whether now owned or hereafter acquired, and (2) superpriority administrative expense claim status pursuant to sections 364(b), 503(b) and 507 as more fully described below and in the Interim Order; Approving the terms and conditions of the DIP Loan Agreement and the documents to be executed in connection therewith, and authorizing the Debtor to execute and deliver, from time to time, all such documents, instruments and agreements and perform such other acts as may be required, necessary or desirable in connection with the DIP Loan Agreement; Authorizing, pursuant to the Interim Order, the Debtor to borrow funds under the DIP Facility on an interim basis through and including the date of a final hearing regarding the Motion (the Final Hearing); Authorizing the Debtor, after entry of a Final Order, to borrow funds under the DIP Facility on a permanent basis including to fund the Debtors working capital needs and for other purposes as provided in the DIP Facility; Modifying the automatic stay under section 362 to the extent necessary to permit the DIP Lender to implement the terms and other provisions of the DIP Loan Agreement and the Financing Order; Scheduling and approving the form and manner of notice of the Final Hearing; Approving the Consulting Agreement; and Authorizing the Debtor to enter into the Consulting Agreement and to take all reasonable and necessary actions to implement said agreement. The Debtor submits that the requested relief is critical to its ability to preserve its estate for the benefit of its creditors while it continues to attempt to complete the sale of its assets to Prime. If the Debtor can consummate its sale to Prime, Prime Management will waive the obligations under the DIP Facility and the Debtor will be able to pay secured creditors the full amount of their prepetition secured claims, fund its administrative expenses and make a substantial distribution to unsecured creditors, which the Debtor believes will be considerably more than any distribution that would result from any other outstanding offer. If it is impossible for the Debtor to close the sale to 9
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Prime, the DIP Facility and the Consulting Agreement will enable the Debtor to operate until it can determine how to maximize the recovery of its creditors. If it is to maximize the recovery to creditors and ensure the safety of its patients, the Debtor must remain open. As set forth in the Matthews Declaration filed concurrently herewith, funds advanced under the DIP Facility will allow Debtor to remain open through consummation of the sale or confirmation of a reorganization plan, either of which the Debtor projects will be completed within 90 days. Absent the DIP Facility, Debtor could be forced to close, putting hundreds of employees out of work, putting patients at risk, and destroying the potential value to creditors from the proceeds of the sale as a going concern. The Debtor requires immediate access to working capital to fund and support ordinary business expenditures, including payroll and employee benefits, professional fees, utilities, and other overhead expenses. Absent immediate and uninterrupted access to adequate financing, Debtor will have insufficient liquidity to sustain any level of business activity. Debtor requires immediate funding specified in the DIP Facility to preserve and maximize the value of its assets. Further, the Debtor has been suffering the loss of key personnel and other staff members. The Consulting Agreement will ease the stress put on the Debtor caused by these losses. In addition, it is expected that Prime Management will help the Debtor stabilize and perhaps increase the Hospitals daily patient census and achieve meaningful cost savings based on Prime Managements experience and negotiating power. As more fully set forth below, the Debtor submits that the financing and consulting arrangements proposed herein are reasonable and necessary, serve the best interests of the Debtors creditors and estate, and should be approved in all respects. II. JURISDICTION The Court has jurisdiction over this Motion under 28 U.S.C. 1334. This is a core proceeding within the meaning of 28 U.S.C. 157(b)(2)(A) and (D). Venue of these proceedings is proper pursuant to 28 U.S.C. 1408 and 1409.
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The Bankruptcy Case Background On September 13, 2010, (the Petition Date), the Debtor filed a voluntary petition for relief
under chapter 11 of the Bankruptcy Code. The Debtor continues to operate its business and manage its affairs as a debtor in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. An official committee of unsecured creditors was appointed on September 28, 2010. No trustee or examiner has been appointed in this chapter 11 case. B. General Description of the Debtor The Debtor, a California nonprofit public benefit corporation, was founded in 1967 and operates a non-profit community hospital in the California High Desert, a service area that includes the communities of Adelanto, Apple Valley, Hesperia and Victorville, serving a population of over 300,000 people. The High Desert communities served by the Debtor are culturally and ethnically diverse. They also are economically depressed, and suffer under unemployment rates that are higher than 20%. The Debtor, therefore, serves a high volume of medically underserved and indigent patients and has been designated as a Disproportionate Share Hospital. C. The Debtors Physical Plant The Hospital is located at 15248 Eleventh Street, Victorville, California 92392. The facility was designed and constructed as an acute care hospital, and over the years it has been renovated and expanded to accommodate the needs of its patients and the communities it serves. Originally the facility was operated as a 115 bed facility, but the capacity was reduced in the mid-2000s to approximately 106 beds, and subsequently further reduced to its current 101 bed capacity. The Debtor owns the main, two-story, hospital building and its adjacent modular office complex which houses its administrative offices. The Debtor also leases two other facilities: (a) the Womens Center and Outpatient Imaging facility, along with the Debtors human resources department, at 15203 Eleventh Street in Victorville, and (b) the Education Center, at 15366 Eleventh Street, Suite R, in Victorville.
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D.
The Debtors Staff at the Petition Date As of the Petition Date, the Hospital was staffed to operate approximately 65 beds on a
normal day, although it has access to visiting nurse registries, which allow it to quickly albeit expensively increase its staff to meet patient needs. As of the Petition Date, the Debtor employed approximately 572 people and approximately 257 doctors from the local community had privileges at the Hospital. E. The Hospitals Current Situation The Hospital is in serious financial and operational decline. First, the average daily patient census for the month continues to decline; on Friday, October 14, 2011, the month to date ADC was only 41.1 patients. Second, doctors conduct fewer and fewer procedures at the Hospital every day. Third, because of statutory nurse staffing ratios, the Debtor is compelled to hire visiting nurses from nurse registries at approximately twice the cost on an hourly basis as its regular staff nurses. For this, and other reasons, the burn rate of the hospital is increasing. The hospitals CFO estimates that to maintain sufficient cash to properly close the Hospital and transfer its patients, it will have to cease operations no later than November 23, 2011. Additionally, the Federal Government has revoked the Hospitals CLIA License necessary to operate the laboratory, and has granted an extension, allowing the Hospital to operate with its existing CLIA License only through October 31, 2011. Without a CLIA License, the Debtor will have to close the Hospital.8 That the sale has failed to close on several occasions and with different buyers since September, 2010 has caused the employees great concern and apprehension. Therefore, many have left and the Debtor cannot staff the hospital appropriately. Many registered nurses (RN) have left and this coming week the Hospital is short up to eight RNs per day depending on the census. The Debtor may be able to replace these missing RNs with visiting nurses from a nurse registry service, but at much higher costs. The Hospital has reduced from five operating rooms to three and has notified the California Department of Public Health of its voluntary reduction of beds by 38. If more
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If the DIP Facility and the Consulting Agreement are approved, Prime Management has offered to provide laboratory services to the Hospital, upon the Debtors request, if the Federal Government does not extend the CLIA certificate revocation date.
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nurses and other clinical staff depart, the Hospital will have to close more operating rooms and suspend more beds. Further, California has regulations regarding nursing ratios and the Hospital is struggling to stay compliant. The Hospital has had no success hiring RNs due to the uncertainty of its situation and most of the nurse registries will not provide the Hospital with nurses if someone else more reliable needs them. Several of the Hospitals managers are being provided by agencies, and nonclinical staff are leaving. The Hospitals CEO retired as of September 30, 2011, and the Hospital had to enter into a consulting agreement (subject to this Courts approval) with the former CEO so that she could continue to perform the duties of the CEO until other arrangements can be made. To summarize, the following are the main points in the acceleration of the cash burn rate: (1) The average daily census (ADC) is approaching the lowest levels in several years due to lack of physician support. This month the ADC will be 41 and the prior year to date average was 58. Additionally, the decrease in census has been from payors that reimburse at levels above the Hospitals cost and the Hospital is left with Medi-Cal, Medi-Cal managed care, Medicare managed care and self pay as major payors and all reimburse at less than cost. (2) Clinical staff voluntary terminations have increased due to uncertainty and capacity increases at St. Mary's Hospital and Kaiser Hospitals. This has given opportunities to RNs to increase their hourly pay by $5 to $12 per hour. The vacancies created by these terminations are being filled by registries. However, registries are having increased difficulty finding staff to meet the Debtors needs, which is due, at least in part, to the uncertainty of the Hospital and the stability of facilities such as St. Mary's and Kaiser. The result is a 20% reduction in full time RN staff in the last four weeks, and the cost to replace with registry RNs, when available, is $60 hour compared to $32 hour for full time employees. (3) Loss of staff has created potential staffing ratio issues which has necessitated the Chief Nursing Officer/Chief Operating Officer to reevaluate the level of services offered. To be compliant with required staffing ratios and to ensure good patient care, the Hospital will have to reduce beds and operating rooms, but once that has been done, the Hospital reduces its up-side potential for the ADC, which will dampen revenue potential.
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(4) The "ripple effect" of reducing beds and operating rooms will suggest staff reductions in the non-clinical areas of the Hospital as well. But some of these areas will be unable to reduce staff below fixed levels required to operate, and therefore, the positive economic effect of staff reductions will be less than one would expect and insufficient to make up for lost revenue. All of these factors have created an accelerated cash burn rate. This year the largest contributor to cash has been the Quality Assurance Funds (QAF) paid to the hospital. The slowness of the CMS approval for the current six-month plan and ADC below break-even requirements (breakeven ADC is 63) has showcased the extreme vulnerability of the facility to the poor patient mix. The Debtor does not expect any material payments of QAF or SB 90 payments until the end of this year or thereafter. The result is that the current cash burn rate of $1 million a month will increase to $1.2 million a month and absent QAF monies the cash will be depleted between the end of October, 2011 and the middle of November, 2011. F. The Debtors Board of Directors The Debtor is governed by a Board of Directors (the Board) that is comprised of six members who are leaders in the High Desert community: Kathy Davis, Chair (retired political consultant); Dennis G. Killion, Vice-Chair (educator);Thomas Brown (retired bank president); Michael Fermin (Deputy District Attorney); Tim Jasper (local business owner); and Herbert Williamson, III (Public Defender). G. The Debtors Secured Debt 1. The Desert Community Bank Obligations
In 2007 the Debtor desired to establish a revolving line of credit with Desert Community Bank, now a division of East West Bank (the Bank) in the maximum amount of $4.9 million (the Bank Loan), which line of credit was authorized pursuant to a Note dated August 27, 2007 and a Loan Agreement, also dated August 27, 2007, between the Debtor and the Bank. The Bank and the Debtor asked OSHPD to insure the Debtors obligations to the Bank, and on or about August 30, 2007, the Debtor entered into an Amendment to Regulatory Agreement with OSHPD and HFFA under which Debtor obtained permission to enter into the line of credit with the Bank to finance
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working capital and pay expenses related to the execution and issuance of the line of credit and related documents. On or about August 27, 2007, the Debtor executed for the benefit of OSHPD a Deed of Trust with Fixture Filing and Security Agreement (OSHPD Trust Deed) which was duly recorded on August 30, 2007. The OSHPD Trust Deed conveyed a security interest to secure both the HFFA Loan and the Bank Loan, in, among other things, all of Debtors land, improvements, fixtures, equipment, leases, rentals, accounts, accounts receivable, and inventory, and replaced the earlier Deed of Trust which related only to the HFFA Loan. After the Petition Date, OSHPD paid the Bank the amount owned and was subrogated to the Banks claim. The Debtor owes OSHPD approximately $4.26 million on account of this obligation. This obligation is paid at the rate of approximately $82,000 monthly from the Hospitals general account. 2. The PHM Obligations
On or about February 2, 2005, the Debtor entered into a Loan Agreement with Physicians Hospital Management, LLC (PHM) that provided for a loan of $6 million, some funds of which had been previously provided and previously evidenced by other notes. Interest accrues and was to be paid monthly and the principal is due to be paid in 2012 in a balloon payment. The Debtor has not made a payment on this obligation since prior to the Petition Date. The Loan Agreement is secured by a trust deed on Debtors real estate subordinate to the OSHPD Deed of Trust. 3. The Corwin Medical Group Obligations
On or about September 1, 2010, Debtor borrowed $700,000.00 from Corwin Medical Group, Inc., IPA in order to pay its September 3, 2010 payroll (the Corwin Loan). The promissory note evidencing the Corwin Loan provides that (a) the principal amount of the note will be due and payable on December 1, 2010, with interest at 5.00% annually; (b) that it is secured by the DSH adjustment receivable and by Medicare Settlement receivables; and (c) that the proceeds of either or both of these receivables shall be used to repay this note prior to satisfying other obligations of the Hospital.
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Doc 1836 Filed 10/17/11 Entered 10/17/11 18:15:25 Main Document Page 18 of 118 VVHA
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4.
VVHA, was the second post-petition lender to the Debtor, replacing Prime after VVHA submitted the winning bid to purchase the Debtors assets at the November 5, 2010 auction. Pursuant to the terms of the debtor in possession financing agreement with VVHA (the VVHA DIP Facility), the Debtor borrowed approximately $4.5 million, all of which was advanced to the Debtor from the good faith deposit VVHA had delivered to the Debtor pursuant to the sale agreement between the Debtor and VVHA. The advances under the VVHA DIP Facility are secured by liens on substantially all of the Debtors assets. The Debtor disputes that it owes VVHA any amount under the VVHA DIP Facility because it alleges that VVHA breached its sale agreement with the Debtor by refusing to close the sale and, thereby, caused the Debtor substantial damage (VVHA strongly disputes this asserting). Nonetheless, the Debtor is holding in an escrow account $4.5 million that is earmarked for payment to VVHA in the event that the dispute over the amount owed under the VVHA DIP Facility is resolved in VVHAs favor. This Motion does not in any way affects the rights and obligations of the Debtor or VVHA regarding the VVHA DIP Facility or the failed sale of the Debtors assets to VVHA and the proposed DIP Facility from Prime Management is to be secured by a lien junior in priority to that of VVHA. H. The Debtors Unsecured Debt On the Petition Date, the Debtor estimated that it had approximately $16.5 million in total unsecured debt, comprised of obligations to vendors of goods and services, employees, and a significant obligation to Medi-Cal, which is being paid off over 40 years pursuant to an agreement with Medi-Cal. As a result of paying various priority claims pursuant to orders of this Court, numerous claims objections and settlements the Debtor believes the current estimate of unsecured claims is $9,382,703.45, however, this estimate does not include any valid damage claims resulting from the eventual rejection of contracts and leases. I. Events Related to the Sale of the Hospital Prior to the Petition Date, the Debtors Board, Chief Executive Officer, and Chief Financial Officer concluded that the Debtor could not survive at its then current cash flow levels and would have to close absent drastic measures. In order to avoid closure, the Debtor negotiated the Asset Sale 16
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Agreement with Prime which was presented as part of the initial bankruptcy filings. Shortly after the Petition Date, the Court approved sale procedures and an auction took place on November 5, 2010 at which VVHA was the prevailing bidder. Shortly after the auction, the Court approved the sale of substantially all of the Debtors assets to VVHA. The Debtor and VVHA worked to obtain the AGs approval of the sale on original terms approved by this Court, however, the eventual approval of the sale by the AG was conditional. Despite various concessions made by the Debtor in an attempt to satisfy the AGs conditions and the approval of such concessions by the Attorney General, VVHA declined to close the sale. Because Primes bid at the auction had been approved by the Court as the back-up bid, the Debtor immediately started to negotiate with Prime regarding a sale of the Debtors assets on the terms of the back-up bid. Although Prime was no longer bound by its back-up bid, it agreed to proceed on those terms with a few minor changes. On or about July 5, 2011, the Debtor moved for the approval of this Court to sell the Hospital to Prime. This Court granted the Debtors motion and on July 29, 2011, the Court entered an order approving the sale [Docket No. 1612]. Once again, the Debtor and the purchaser of its assets, this time Prime, worked to obtain the consent of the AG to the sale to Prime. On September 20, 2011, three days after the statutory deadline, the AGs office delivered its letter denying its consent to the sale of the Hospital to Prime (the AG Denial Letter). The AG Denial Letter merely stated that the proposed sale was not in the public interest but did not set forth findings for its ultimate decision. On September 23, 2011, the Debtor filed its Emergency Motion of Debtor for a Writ of Mandamus to Compel Attorney General to Vacate Her Determination Denying Sale of Assets to PHSF Victor Valley, LLC or, Alternatively, to State Her Findings and the Evidence Supporting Them Regarding Her Denial of Consent to the Sale and for Order Authorizing Debtor to Consummate Sale of Assets (the Writ Motion) (Docket No. 1770). On October 7, 2011, the Court entered an order pursuant to 28 U.S.C. 1334(c)(1) abstaining from hearing the Writ Motion. Based upon further negotiations and discussions between the Debtor and Prime, the Debtor and Prime determined that they will continue their efforts to obtain the AGs consent to the sale of the Hospital to Prime. However, in order keep the Hospital operating during the time it will take to 17
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attempt to obtain such approval and to preserve the value of the Debtors assets for its creditors, the Debtor needs financial and management assistance. As a result, the Debtor and Prime Management negotiated the terms to the DIP Facility and the Consulting Agreement that are the subject of this Motion. IV. PROPOSED DEBTOR IN POSSESSION FINANCING A. The Critical Need for Postpetition Financing The Debtor needs immediate postpetition financing under the DIP Facility to continue to pay its postpetition operations and to preserve the value of its assets for its creditors. The DIP Facility will preserve Debtors going concern value, and will enable the Hospital to remain open long enough to either complete the sale of its assets as a going concern, thereby maximizing the returns to all creditors and stakeholders, or propose a alternate chapter 11 plan. The Debtors operations are dependent upon uninterrupted access to necessary working capital. In light of the Debtors cash situation, immediate access to the DIP Facility will prevent irreparable harm to Debtors estate and allow it to remain operating while it attempts to consummate the sale of its assets for the benefit of the community, employees and creditors. The DIP Facility also is necessary to provide assurance to employees, utilities and other parties that they will be paid on a timely basis for post-petition services. Without the DIP Facility, Debtors day-to-day operations would soon come to a halt, a result that would be devastating as the Debtor attempts to maximize the value of its assets. B. Overview of the DIP Facility The principal terms of the DIP Facility are as follows: 9
DIP Facility: A revolving credit facility in an aggregate amount of up to $6,000,000.00 secured by liens on all the assets of the Debtor and granted a superpriority claim status. Prime Healthcare Management, Inc.
DIP Lender:
This section contains a summary of the principal provisions of the DIP Facility; the Court and other parties in interest, however, are respectfully referred to the Interim Order and the DIP Loan Agreement, attached hereto as Exhibits A and B, respectively, for a more extensive recitation of the terms and conditions of the DIP Facility.
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Purpose:
Interest: Events of Default Liens/Superpriority Administrative Claim
The DIP Facility will be used to pay the Debtors operating losses through consummation of the sale of Debtors asset or until the Debtor confirms a plan of reorganization or liquidation. Operating losses is the difference between actual cash collected by Borrower during the Advance Period and Borrowers cash operating expenses attributable to the Advance Period. Operating expenses include, but are not limited to, wages, employee benefits, professional fees, utilities, supplies and other general and administrative expenses. No interest will be charged. The Events of Default are rather lengthy and can be found in Article VIII of the DIP Loan Agreement. Subject and subordinate to all existing, valid and perfected security interests and liens, a continuing security interest in and lien upon all of the Debtors right, title and interest in and to all of its assets of any nature whether now owned or hereafter acquired. Amounts owed under the DIP Facility shall be an allowed superpriority administrative expense claim with priority (except as otherwise provided in the Interim Order) in Debtors case under sections 364(b), 503(b), and 507(b) and otherwise over all administrative expense claims and unsecured claims against Debtor and its estate, now existing or hereafter arising, of any kind or nature whatsoever including, without limitation, except as otherwise provided in the Interim Order, administrative expenses of the kinds specified in, arising, or ordered pursuant to sections 105, 326, 328, 330, 331, 503(a), 503(b), 506(c) (subject to entry of the Final Order), 507(a), 507(b), 546(c), 546(d), 726(b), 1113, and 1114, whether or not such expenses or claims may become secured by a judgment lien or other nonconsensual lien, levy or attachment. Subject to the provisions of Section 2.6 and Section 2.9 of the DIP Loan Agreement, all Advances and all other outstanding Obligations under the DIP Facility shall be immediately due and payable in full in cash, if not earlier in accordance with the terms of DIP Loan Agreement, the Interim Order and the Final Order, without further application to or order of the Bankruptcy Court, on the earlier of (i) acceleration of maturity of the Obligations upon the occurrence of an Event of Default; (ii) twenty (20) days after the Bankruptcy Court enters an order (a) confirming a chapter 11 plan for the Borrower that does not provide for the payment of the Obligations in full no later than 30 days from entry of the confirmation order ; or (b) granting a motion to sell substantially all of Borrower's assets pursuant to a transaction that does not provide for the Obligations to be paid in full at closing of the sale transaction; (iii) upon termination of the Consulting Agreement; (iv) if an order is entered confirming a chapter 11 plan that is not based upon a sale of the Debtors assets to Prime and that Prime Management consents to in writing, then the date which is seven years from entry of such confirmation order; or (v) March 1, 2012 (the date upon which the first of the foregoing occurs is referred to herein as the Maturity Date)
Term:
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Payment in the Event That a Plan Is Confirmed That Does Not Provide for the Sale of the Hospital but that is approve by Prime and Prime Management
Forgiveness in Event of Sale of Hospital to Prime
Other provisions of the DIP Loan Agreement Disclosed Pursuant to Bankruptcy Rule 4001(c):
If an order is entered confirming a chapter 11 plan which does not contemplate a sale of substantially all of the Debtors assets and that Prime Management consents to in writing, then the Debtor shall repay the outstanding Obligations in quarterly payments based on a ten (10) year amortization schedule, with payments to commence on the first business day following the first quarter in which Debotr has experienced Positive Cash Flow. Nothing in this section shall modify the Maturity Date. Notwithstanding anything in this Section to the contrary, repayment of the Obligations shall not commence until such time as general unsecured creditors of the Debtor holding allowed claims receive collectively $2 million. In the event that the Debtor sells substantially all of its assets to Prime Healthcare Services Foundation, Inc., or PHSF Victor Valley, LLC, or any Affiliate of either one, pursuant to a sale transaction approved of in writing by Lender and by Prime Healthcare Services Foundation, Inc., Lender shall release the Debtor of its duty to pay the remaining balance of the Obligations to Prime Management under this Agreement as of the date of closing of the sale transaction. Unless otherwise agreed to in writing by Lender, all other rights of Lender under the DIP Facilily and the Financing Orders shall survive the closing of the sale transaction. In the event of such acquisition by a party other than Prime Management or an affiliate or an affiliate, successor or assignee of Prime Management, the Obligations hereunder are required to be paid in full at the time of and as part of such acquisition. Sections 2.10(b) and 7.1 contain certain limits on the Debtors ability to obtain financing pursuant to section 364 of the Bankruptcy Code. Section 2.1(b) contains a waiver of nonbankruptcy law regarding the perfection of liens and security interests. Section 12.4 contains indemnity provisions.
C.
Current Alternative to the DIP Financing As part of its revised offer to purchase the Hospital for $30 million, VVHA, has agreed to
fund the Debtors operating losses until AG approval of the sale (if such approval is forthcoming) to VVHA is obtained and the sale closes. Although the Debtor will not be required to repay to VVHA the funds advanced for the operating losses, VVHA has reduced its purchase offer of $35 million10 to reflect these advances. The Debtor, in its reasonable business judgment and based upon all of the facts and circumstances of this Case, has determined that the offer from VVHA for the funding of the Debtors operating losses, although appealing on its face, is not as beneficial to the Debtor as the offer of the DIP Facility from Prime Management. First, based upon a $30 million sale price, and
10
VVHA has stated publically and to the AG on various occasions that it would pay $35 million for the Hospital.
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assuming that the AG (if she approved the new sale to VVHA) would still require $6 million in funds to be escrowed as she did in her previous approval of VVHA as the purchaser of the Hospital, the Debtor would be left with insufficient funds to pay even the administrative expenses of the Case, and unsecured creditors, who would not be assured of receiving any distribution due to the terms of the escrows accounts holding the $6 million, would have to wait for that ethereal distribution for as much as 5 years. Second, there is no assurance that the AG will approve the new sale terms offered by VVHA. Finally, a sale to VVHA would entail a release by the Debtor of any claims against VVHA resulting from its declining to close a sale at $37 million that was approved by the AG and which the Debtor was ready, willing and able to close. D. The DIP Facility Is the Best Alternative for the Debtor The Debtor is well aware of the risks involved regarding being able to close a sale of the Hospital to Prime and the resulting additional postpetition debt that will be due to Prime Management if the sale to Prime does not close. However, based upon a reasoned consideration of all of the facts and risks involved with both transactions, the Debtor determined that the best opportunity to maximize the value of the estate for its creditors was to seek approval of the DIP Facility and the Consulting Agreement. The Debtor submits that the DIP Facility, under which (i) only a subordinate lien in the Debtors assets and a superpriority administrative expense claim is granted to the Prime Management, (ii) the DIP Financing being interest free, (iii) the principal balance is forgiven if the Debtors assets are eventually sold to Prime, (iv) the potential sale of the assets to Prime for an amount that would result in the full satisfaction of the Debtors secured debt and administrative claims and a substantial distribution to unsecured creditors, which would not be possible absent approval of the DIP Facility and the Consulting Agreement, and (v) if a plan that does not provide for the sale of the Hospital is confirmed with the consent of Prime and Prime Management, repayment is subordinated to payments to creditors holding allowed unsecured claims until they have received $2 million, is on favorable and advantageous terms to the Debtor and its estate. Based on its previous attempts to obtain financing, the Debtor asserts that is cannot obtain unsecured financing. The Debtor, in the exercise of its considered business judgment and in consultation with 21
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its professional advisors, has determined that the DIP Facility provides the most favorable financing alternative available under the circumstances. The DIP Facility pursuant to the DIP Loan Agreement is reasonable and fair under the circumstances and, therefore, the financing provided under the DIP Facility serves the best interests of the Debtor, its creditors and its estate. V. PROPOSED CONSULTING SERVICES AGREEMENT The principal terms of the Consulting Agreement are as follows:11 Consultant shall be an independent contractor. Consultant is being engaged to perform the following tasks: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) Contract development and maintenance; Materials and supplies cost sourcing and management; Accreditation; Risk management credentialing; Physician relations; Oversight of day-to-day management; Cash and revenue cycle management; Continuing education for staff; Utilization review; Vendor contracting; Regulatory compliance and auditing; and Preparation of financial statements.
The following actions shall require the prior written authorization of the Board prior to being undertaken by Prime Management: (1) The sale of assets of VVCH not in the ordinary course of business; (2) A material change of the business of VVCH, or in the scope of services offered at the Hospital, including the material modification of any material license, permit or contract of VVCH (expressly including the Consulting Agreement); (3) Engaging in any transaction that could result in the termination or reorganization of VVCH or the partial or total dissolution of VVCH; (4) The purchase of assets for VVCH; (5) The incurrence of debt or leases by the Hospital; (6) Any real property lease or modification of such a lease for the Hospital; and (7) The implementation of any policy or the taking of any action that could involve the violation of federal or state fraud or abuse laws, or similar laws, rules or regulations.
This section contains a summary of the principal provisions of the Consulting Agreement. Please refer to the Consulting Agreement attached hereto as Exhibit C for the complete terms of the Consulting Agreement.
11
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VVCH and its Board shall at all times retain control and governance over the assets and operation of the Hospital, subject to the rights and obligations of Consultant under the Consulting Agreement. By entering into the Consulting Agreement, VVCH does not delegate to Consultant any of the powers, duties and responsibilities required to be retained by VVCH under law (including all certificates and licenses issued under authority of law for operation of the Hospital by VVCH). VVCH may, according to the terms of the Consulting Agreement, direct Consultant to implement existing policies and may adopt policy recommendations or proposals made by Prime Management.
All medical and professional matters shall be the responsibility of the Debtor and its Board. The Debtor shall have authority and responsibility to oversee the provision of services for the Hospital and to conduct, supervise and direct the day-to-day operations of the Hospital.
As compensation for the management services to be rendered under the Consulting Agreement, the Debtor will pay Prime Management a monthly management fee of $10,000.
VVCH also shall pay (in addition to the Management Fee as described above) all of Prime Managements reasonable out-of-pocket costs and expenses directly and necessarily related to the performance of services Prime Management pursuant to the Consulting Agreement, any third party vendors or contractors paid for directly by Prime Management for the benefit of the Hospital, any supplies, utilities, insurance or other costs incurred by Prime Management for the benefit of the Hospital, and all transportation and related travel costs and expenses incurred by Prime Management in the course and scope of its performance of services rendered by Prime Management pursuant to the Consulting Agreement. Any such out-of-pockets costs and expenses or additional fees and expenses paid for or incurred by Prime Management shall not exceed $25,000 in any calendar month without the prior, written authorization of the Board Representative or the Board.
The term of the Consulting Agreement shall commence upon the date it is approved by the Court, and terminate on September 30, 2013, except that either party may terminate the Consulting Agreement for cause upon deliver of a written notice.
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Either party may terminate the Consulting Agreement without cause on one hundred and eighty (180) days notice or thirty (30) days after the occurrence of any of the following events: the dismissal of or conversion to a case under chapter 7 of the Case pursuant to 11 U.S.C. section 1112; the appointment of a chapter 11 trustee pursuant to 11 U.S.C. section 1104; the confirmation of a plan of reorganization for VVCH in the Bankruptcy Court that does not include a provision for continuation of the Consulting Agreement; or the sale by the Debtor of substantially all of its assets to another person or entity pursuant to an order of the Bankruptcy Court. Notwithstanding any other provision of the Consulting Agreement, it shall terminate immediately if separate debtor in possession financing for VVCH by Prime Management is not approved by the Court by a final order.
To the extent not covered by insurance, VVCH shall defend, indemnify and hold harmless Prime Management and Prime Managements officers, agents, and employees from and against liability for any and all costs (including court costs), expenses, fees (including reasonable attorneys fees) and payments by, and losses and damages that arise out of, or are in any way connected with, the grossly negligent or intentional acts or omissions of VVCH, its directors, employees, members, officers, agents or subcontractors (excepting Prime Management), or any member of the medical staff at the Hospital, unless such act or omission is caused by the negligence or willful misconduct of Prime Management or one of its consultants, members, officers, employees, subcontractors or agents.
To the extent not covered by insurance, Prime Management shall defend, indemnify and hold harmless VVCH, its directors, officers, consultants, members, officers, agents, and employees from and against liability for any and all costs (including court costs), expenses, fees (including reasonable attorneys fees) and payments by, and losses and damages that arise out of, or are in any way connected with, the grossly negligent or intentional acts or omissions of Prime Management or its officers, agents, employees or subcontractors in the performance of Prime Managements duties under the Consulting Agreement unless such act or omission is caused by the negligence or willful misconduct of VVCH or its directors, officers, consultants, members, officers, agents, or employees.
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BASIS FOR APPROVAL OF THE DIP FACILITY AND THE GRANTING OF SUPERPRIORITY ADMINISTRATIVE CLAIMS IN CONNECTION THEREWITH Section 364(c) of the Bankruptcy Code Is Satisfied Section 364 authorizes the Court to allow Debtor to obtain postpetition financing from the Prime Management as proposed herein. Section 364(c) that provides [i]f the trustee is unable to obtain unsecured credit allowable under section 503(b)(1) of this title as an administrative expenses, the court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt-(1) with priority over any and all administrative expenses of the kind specified in section 503(b) and 507(b) of this title; (2) secured by a lien on property of the estate that is not otherwise subject to a lien; or (3) secured by a junior lien on property of the estate that is subject to a lien. Section 364(c) of the Bankruptcy Code is satisfied because Debtor cannot obtain unsecured credit sufficient to sustain its day-to-day business operations or to maintain the going concern value of its assets. It could not do so at the start of the Case when the Hospital was generating more revenue and its assets were less encumbered and it cannot do so now. Further, no priming lien is granted. As security for all borrowings under the DIP Facility, Debtor proposes to grant the DIP Lender a subordinate lien in the Debtors assets and a superpriority administrative expense claim. B. The Debtor Has Exercised Its Reasonable Business Judgment Further, the Debtor negotiated the DIP Loan Agreement at arms length and in good faith. In the exercise of its business judgment and in consultation with its professional advisors, it has determined, based upon all of the facts and circumstances of this Case (of which this Court is well aware) and the potential sale to Prime with the resultant benefit to the Debtors creditors, that the DIP Facility provides the most favorable financing alternative available. In fact, approval of the DIP Facility and the related Consulting Agreement is the only available method of the Debtor having any chance to sell its assets for a sufficient amount to pay administrative and secured creditors in full and to make a substantial distribution to its unsecured creditors. Courts grant a debtor considerable deference in acting in accordance with its business judgment. See, e.g., Bray v. Shenandoah Fed. Sav. & Loan Assn (In re Snowshoe Co.), 789 F.2d 1085, 1088 (4th Cir. 1986); In re Ames Dept 25
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Stores, Inc., 115 B.R. 34, 40 (Bankr. S.D.N.Y. 1990) (cases consistently reflect that the courts discretion under section 364 is to be utilized on grounds that permit reasonable business judgment to be exercised so long as the financing agreement does not contain terms that leverage the bankruptcy process and powers or its purpose is not so much to benefit the estate as it is to benefit parties in interest). The provisions described in Bankruptcy Rule 4001(c)(1)(B)(i)-(xi) are set forth at the following sections of the DIP Loan Agreement and/or Interim Order, as applicable: a. Grant of priority or a lien on property of the estate: DIP Loan Agreement 2.10; Interim Order H and 8. b. Adequate protection for a claim that arose before the commencement of the Case: Not applicable. c. Determination of the validity, enforceability, priority, or amount of a claim that arose before the commencement of the case, or of any lien securing the claim: Not applicable. d. e. Waiver or modification of the automatic stay: Interim Order 14. Waiver or modification of debtors authority to file a plan, request use of cash collateral or request authority to obtain credit under section 364 of the Bankruptcy Code: DIP Loan Agreement 2.10(b) and 7.1 (modification of the right to obtain credit under section 36). f. The establishment of deadlines to file a plan, get a disclosure statement approved, have a confirmation hearing or get an order entered confirming a plan: Not applicable. g. Waiver or modification of the applicability of nonbankruptcy law related to the perfection of a lien on property of the estate, or on the foreclosure or other enforcement of the lien: DIP Loan Agreement 2.1(b) (waiver of nonbankruptcy law regarding the perfection of liens and security interests). h. Release, waiver or limitation on any claim or other cause of action belonging to the estate: Not applicable. 26
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Doc 1836 Filed 10/17/11 Entered 10/17/11 18:15:25 Main Document Page 29 of 118 The indemnification of an entity: DIP Loan Agreement 12.4.
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i. j. k.
Release, waiver, or limitation on rights under section 506(c): Not applicable. Lien granted on claims arising under Chapter 5: Not applicable.
Provisions that Potentially Implicate Local Bankruptcy Rule 4001-2 LBR 4001-2(b) requires that certain provisions contained in the DIP Loan Agreement be
identified in this Motion, including provision granting cross-collateralization, binding parties to the validity and amount of a prepetition lien or debt or waiver of claims against the lender, waiving or limiting the estates rights under section 506(c), granting liens on avoidance actions, deeming prepetition secured debt to be postpetition secured debt or paying prepetition loans with postpetition advances, providing disparate treatment for the professionals, proving for a priming lien. The only one of the listed provisions that is contained in the DIP Loan Agreement is a provision granting a lien on the proceeds of avoidance actions, as discussed above. Thus, for all of the reasons set forth above, the Debtor submits that the circumstances of this case require the Debtor to obtain financing pursuant to Sections 364(b). The Debtor further submits that the terms of the DIP Facility and the Interim Order are fair, reasonable and necessary under the circumstances, and should be approved in their entirety. VII. REQUEST FOR IMMEDIATE INTERIM APPROVAL OF RELIEF REQUESTED HEREIN Pursuant to Rule 4001(c)(2), a minimum of fourteen (14) days notice is required before a final hearing on this Motion may commence. Upon request, however, the Court may conduct a preliminary expedited hearing on the Motion to the extent necessary to avoid immediate and irreparable harm to the estate pending a final hearing. Fed. R. Bankr. P. 4001(c)(2). In accordance with Rule 4001(c), the Debtor respectfully requests that the Court conduct an emergency preliminary hearing on the Motion and authorize the Debtor to borrow under the DIP Facility on an interim basis by entry of the Interim Order, pending entry of a Final Order. Debtor submits that such relief is vital in order to maintain and finance its ongoing operations, preserve the going concern value of Debtors assets pending the conclusion of the
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proposed sale process, and, therefore, to prevent immediate and irreparable harm to the Debtors estate. Debtor further requests that the Court schedule a hearing to consider entry of a Final Order. As discussed above, it is essential to the continued operation of its business that the Debtor be authorized to obtain emergency financing under the DIP Facility on an interim basis pending the Final Hearing. Funds are urgently needed to meet Debtors immediate and considerable working capital and other liquidity needs, and to attempt to consummate the proposed sale. In the absence of emergency access to interim financing, Debtors sale efforts would be immediately and irreparably jeopardized, resulting in significant harm to the Debtors estate and creditors. Furthermore, to successfully implement the foregoing, the Debtor requests a waiver of the ten day stay under Bankruptcy Rule 6004(h). VIII. NOTICE WITH RESPECT TO EMERGENCY INTERIM FINANCING REQUEST AND FINAL HEARING Debtor has or will give notice of this Motion and the interim relief sought herein, by hand delivery, email, fax or overnight delivery to (a) the Office of the United States Trustee; (b) all Secured Creditors or their respective counsel; (c) Prime; (d) counsel to the Creditors Committee; (e) the AG and her counsel; and (f) all persons requesting notice under Rule 2002 (collectively, the Initial Notice Parties). In light of the nature of the relief requested, the Debtor submits that no other or further notice need be provided. The Debtor further requests that the Court schedule the Final Hearing and authorize it to mail copies of the signed Interim Order, which fixes the time, date and manner for the filing of objections, to the Initial Notice Parties and (i) any party that has filed prior to such date a request for notices with this Court; (ii) the Securities and Exchange Commission, and (iv) the Internal Revenue Service.
IX. THE DEBTORS ENTRY INTO THE CONSULTING AGREEMENT HAS A SOUND BUSINESS PURPOSE AS REQUIRED BY SECTION 363 OF THE BANKRUPTCY CODE Pursuant to section 363(b)(1) of the Bankruptcy Code, the Debtor, after notice and a hearing, 28
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may use, sell, or lease property, other than in the ordinary course of business. A debtor must demonstrate a sound business justification for the use of assets outside the ordinary course of business. However, the debtors application of its sound business judgment in this context is subject to great judicial deference. In re WPRV-TV, Inc., 143 B.R. 315 (D.P.R. 1991), affd in relevant part, 983 F.2d 336 (1st Cir. 1993); In re Moore, 110 B.R. 924 (Bankr. C.D. Cal. 1990); In re Canyon Partnership, 55 B.R. 520 (Bankr. S.D. Cal. 1985). A sound business justification exists for entering into the Consulting Services Agreement with Prime. Primes knowledge of the Debtor, the community served by the Debtor, and of hospital operations in the State of California are valuable to the successful operations and management of the Debtor at this critical juncture of the Case, when the Debtors daily patient census is declining, it is losing its key personnel and is faced with serious financial challenges. The Debtor anticipates that Prime Management will help it stabilize and perhaps increase its daily patient census and achieve meaningful cost savings based on its experience and negotiating power. The Consulting Agreement specifically lists the tasks that Prime Management is to perform regarding the day-to-day operations of the Hospital and requires approval of the Debtors Board for any Major Decisions (as defined in the Consulting Agreement). The Board, therefore, will remain actively involved in the management of the Debtor. Further, the management fee of $10,000 per month is well below market for managers performing the same tasks. As this Court may recall, when this Case was filed, the Debtor was party to a management agreement with Physicians Hospital Management, LLC, which it immediately rejected. The fee under that agreement was approximately $30,000 per month. The terms of the Consulting Services Agreement are reasonable and are not duplicative of other services being provided by the Debtor. Thus, the Debtor respectfully submits that its entry into the Consulting Services Agreement should be approved. X. CONCLUSION WHEREFORE, Debtor respectfully requests that the Court (i) enter the Interim Order authorizing, inter alia, the Debtor to obtain financing pursuant to the DIP Facility on an emergency 29
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interim basis through the conclusion of the Final Hearing on the terms set forth herein and in the DIP Loan Agreement, (ii) set the date for a final hearing on the relief sought herein; (iii) enter a Final Order authorizing the Debtor to obtain financing under the DIP Facility on a permanent basis on the terms set forth herein and in the DIP Loan Agreement, (iv) grant all related relief requested in this Motion, (v) approve the Consulting Services Agreement, and (vi) grant the Debtor such other or further relief as may be just and proper. PACHULSKI STANG ZIEHL & JONES LLP By /s/ Samuel R. Maizel Samuel R. Maizel (CA Bar No. 189301) Attorneys for Victor Valley Community Hospital, Debtor and Debtor in Possession
Dated:
17 October __, 2011
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EXHIBIT A
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1 Samuel R. Maizel (CA Bar No. 189301) Mary D. Lane (CA Bar No. 71592) 2 Scotta E. McFarland (CA Bar No. 165391) PACHULSKI STANG ZIEHL & JONES LLP 3 10100 Santa Monica Blvd., 11th Floor Los Angeles, California 90067-4100 4 Telephone: 310/277-6910 5 Facsimile: 310/201-0760 E-mail: smaizel@pszjlaw.com smcfarland@pszjlaw.co, 6 mlane@pszjlaw.com 7 Attorneys for Debtor and Debtor in Possession 8 Victor Valley Community Hospital 9 10 11 12 13 In re 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Hearing: Date: October 20, 2011 Time: 10:00 a.m. Final Hearing: Date: Time: Place: Courtroom 303 U.S. Bankruptcy Court 3420 Twelfth Street Riverside, CA 92501-3819 Judge: Honorable Catherine E. Bauer VICTOR VALLEY COMMUNITY Chapter 11 HOSPITAL, a California nonprofit public benefit corporation., INTERIM ORDER GRANTING DEBTORS EMERGENCY MOTION FOR ORDERS (A) Debtor. AUTHORIZING DEBTOR TO OBTAIN POSTPETITION FINANCING AND GRANTING LIENS AND SUPERPRIORITY ADMINISTRATIVE EXPENSE STATUS PURSUANT TO 11 U.S.C. 364; (B) SCHEDULING A FINAL HEARING AND ESTABLISHING RELATED NOTICE REQUIREMENTS; AND (C) APPROVING CONSULTING SERVICES AGREEMENT Case No. 6:10-39537 CB UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA RIVERSIDE DIVISION
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This matter came before the Court on the Emergency Motion of Debtor for Order (a)
5 Authorizing Debtor to Obtain Postpetition Financing and Granting Liens and Superpriority 6 Administrative Expense Status Pursuant to 11 U.S.C. 364; (b) Scheduling a Final Hearing and 7 Establishing Related Notice Requirements; and (c) Authorizing Debtor to Enter Into Consulting 8 Services Agreement (the "Motion")1 [Docket No. ___] filed by debtor and debtor in possession, 9 Victor Valley Community Hospital (the "Debtor"). Appearances are as reflected on the Courts 10 record. 11 Having reviewed the Motion, the concurrently filed Declaration of Edward T. Matthews
12 Filed In Support Of Emergency Motions [Docket No. __], all matters brought to the Court's 13 attention at the above referenced hearing (the Interim Hearing), after hearing arguments of 14 counsel for and against the Motion, the Court makes the following findings of fact and 15 conclusions of law: 16 17 THE COURT HEREBY FINDS AND DETERMINES AS FOLLOWS: A. The Court has jurisdiction over the Case, the parties and the Debtor's property
18 pursuant to 28 U.S.C. 157(b) and 1334. This is a core proceeding pursuant to 28 U.S.C. 19 157(b)(2). Venue for the Case and the Motion is proper under 28 U.S.C. 1408 and 1409. 20 B. An ongoing need exists for the Debtor to obtain financing of the type sought in
21 the Motion, to continue the operation of its business as debtor in possession under chapter 11 of 22 the Bankruptcy Code, to minimize the disruption of its operations as a "going concern," and to 23 reassure its vendors, patients, employees and other constituents, including physicians, of the 24 Debtor's continued viability. 25 C. Debtor has been unable to obtain financing in the form of unsecured credit
26 allowable under section 503(b)(1) of the Bankruptcy Code as an administrative expense, or 27 solely in exchange for the grant of a administrative expense priority pursuant to section 364(c)(1) 28
1
All capitalized terms not otherwise defined herein shall have the meaning given to them in the Motion.
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1 of the Bankruptcy Code. Considering all of the circumstances of this Case and the history of the 2 Debtors attempts to sell its assets, the financing offered by Prime Healthcare Management, Inc. 3 (DIP Lender) is on the best terms available to the Debtor at this time. 4 D. The Debtor has requested that DIP Lender make available to the Debtor a
5 revolving credit facility (the DIP Facility) in a maximum principal amount at any time 6 outstanding of up to Six Million Dollars ($6,000,000), the proceeds of which shall be used by the 7 Debtor only to the extent that the Debtors receipts are insufficient to pay operating expenses of 8 the Debtor and only to the extent permitted under that certain Post-Petition Revolving Credit and 9 Security Agreement, a copy of which is attached to this Order. That agreement, together with all 10 schedules, exhibits and annexes thereto, and as at any time amended or restated, is referred to 11 herein as the "DIP Loan Agreement." 12 E. A condition to the willingness of DIP Lender to establish the DIP Facility, Debtor
13 shall provide DIP Lender with: 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (i) A security interest in and lien upon, and pledge to DIP Lender of,
all of Debtors right, title and interest in and to all of its real and personal property assets, whether now owned or hereafter acquired, including, without limitation, all of the Debtors interest in any real property or leases of real property, tangible personal property, all present and future Goods, Inventory, Equipment (including items of Equipment which are or become Fixtures), Computer Hardware and Software, now owned or hereafter acquired; all of the Debtors intangible personal property, including, without limitation all present and future Accounts, securities, contract rights, Permits, General Intangibles, Intellectual Property, Chattel Paper, Documents, Instruments, Deposit Accounts, Investment Property, Letter-of-Credit Rights and Supporting Obligations, rights to the payment of money or other forms of consideration of any kind, tax refunds and insurance proceeds (including, without limitation, the proceeds of any life insurance policy), now owned or hereafter acquired, all rights and interests in Distressed Hospital Funds, all rights and interests in Quality Assurance Fee funds; any and all
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additions and accessions to any of the foregoing, and any and all replacements, products and proceeds (including insurance proceeds) of any of the foregoing and all intangible and tangible personal property relating to or arising out of any of the foregoing; all of the Debtor's present and future Government Contracts and rights thereunder and the related Government Accounts and proceeds thereof, now or hereafter owned or acquired by the Debtor; provided, however, that DIP Lender shall not have a security interest in any rights under any Government Contract of the Debtor or in the related Government Account where the taking of such security interest is a violation of an express prohibition contained in the Government Contract (for purposes of this limitation, the fact that a Government Contract is subject to, or otherwise refers to, Title 31, 3727 or Title 41, 15 of the United States Code shall not be deemed an express prohibition against assignment thereof) or is prohibited by applicable law, unless in any case consent is otherwise validly obtained. The foregoing collectively referred to as the
Collateral. The liens granted by this paragraph shall be subordinate to any existing valid and perfected liens as of the entry of this Order. (ii) An allowed super-priority administrative expense claim (the DIP Super-Priority Claim) with priority in the Debtors case under sections 364(b), 503(b), and 507(b) of the Bankruptcy Code and otherwise over all administrative expense claims and unsecured claims against the Debtor and its estate, now existing or hereafter arising, of any kind or nature whatsoever including, without limitation, administrative expenses of the kinds specified in, arising, or ordered pursuant to sections 105, 326, 328, 330, 331, 503(a), 503(b), 506(c) (subject to entry of the Final Order), 507(a), 507(b), 546(c), 546(d), 726(b), 1113, and 1114 of the Bankruptcy Code, whether or not such expenses or claims may become secured by a judgment lien or other non-consensual lien, levy or attachment, provided, that the DIP Super-Priority Claim shall not extend to any proceeds of Avoidance Claims.
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The Debtor has a need for and will benefit from receiving consulting services from Prime Healthcare Management, Inc., as detailed in the Consulting Services Agreement attached to this order. The terms of the Consulting Services Agreement are reasonable.
NOW, THEREFORE, IT IS HEREBY ORDERED, ADJUDGED AND DECREED,
6 as follows: 7 1. Disposition. The DIP Financing Motion is hereby granted on an interim basis to
8 the extent and subject to the terms set forth herein, with the foregoing findings incorporated 9 herein by reference. Any objections raised prior to the Interim Hearing to the DIP Financing 10 Motion that have not previously been withdrawn or resolved are hereby overruled. This Order 11 shall be valid and binding on all parties-in-interest and fully effective immediately upon entry. 12 2. Good Cause. The ability of the Debtor to obtain sufficient working capital and
13 liquidity under the DIP Loan Agreement is vital to the Debtor's estate, the physicians and 14 patients that the Debtor serves, and the Debtor's creditors, so that the Debtor can continue to 15 operate its business in the ordinary course. The preservation of the going concern value of the 16 Debtor's business is critical to any successful reorganization. The continued operation of the 17 Debtor's hospital facility and emergency room benefits the community in which the Debtor 18 operates, as well as the physicians and patients that the Debtor serves. The Debtor's estate will 19 be immediately and irreparably harmed if this Order is not promptly entered. Accordingly, good 20 cause has been shown for the granting of the final relief sought in the Motion. 21 3. Good Faith. Based upon the record before the Court, the DIP Loan Agreement
22 and this Order have been negotiated in good faith and at arm's-length between the Debtor and 23 DIP Lender. Any loans and/or other financial accommodations made to the Debtor by DIP 24 Lender thereunder shall be deemed to have been extended by DIP Lender in good faith, as that 25 term is used in section 364(e) of the Bankruptcy Code, and DIP Lender shall be entitled to all 26 protections afforded by section 364(e) of the Bankruptcy Code. 27 4. Authorization of Interim Borrowing. The Debtor's execution of the DIP Loan
28 Agreement is hereby authorized. Upon entry of this Order, the Debtor is immediately authorized
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1 to (a) obtain credit extensions pursuant to the DIP Loan Agreement and to incur any and all 2 liabilities and obligations thereunder and to pay all fees, costs, expenses (including reasonable 3 attorneys' fees) and other obligations provided for under the DIP Loan Agreement, and (b) 4 satisfy all conditions precedent and perform all obligations hereunder and thereunder in 5 accordance with the terms hereof and thereof. The Debtor is authorized and directed to comply 6 with the terms of the DIP Loan Agreement and this Order, without the necessity of the Debtor or 7 DIP Lender filing with the Court any further motion, notice or application for approval or 8 payment thereof. Upon payment of such fees, such fees shall be deemed fully earned. 9 5. Authority to Execute and Deliver Necessary Documents. The DIP Loan
10 Agreement constitutes a valid and binding obligation of the Debtor, enforceable against the 11 Debtor in accordance with its terms. The Debtor is authorized to do and perform all acts, to 12 make, execute and deliver all instruments and documents (including, without limitation, the 13 execution of security agreements pledge agreements, mortgages, deeds of trust, financing 14 statements and intellectual property filings), and to pay all filing and recording fees, in each case 15 as may be necessary to give effect to any of the terms and conditions of the DIP Loan 16 Agreement, to perfect the DIP Liens (as hereinafter defined) and as otherwise required or 17 contemplated by the DIP Loan Agreement. 18 6. Amendments. The Debtor and DIP Lender are authorized to implement, in
19 accordance with the terms of the DIP Loan Agreement, any amendments to and modifications of 20 any of the DIP Loan Agreement without further order of the Court, subject to the following 21 conditions: (a) the amendment or modification must not constitute a material change (as 22 hereinafter defined) to the terms of the DIP Loan Agreement, (b) copies of the amendment or 23 modification must be served upon counsel for the Committee (if any), the U.S. Trustee, and other 24 interested parties that specifically make a written request for such notice to counsel for DIP 25 Lender, and (c) notice of the amendment must be filed with the Court. Any amendment or 26 modification that constitutes a material change must be approved by the Court (and, for purposes 27 hereof, a "material change" shall mean a change that operates to shorten the maturity of the DIP 28 Facility, increase the aggregate amount of the commitments under the DIP Facility, increase the
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1 rate of interest other than as currently provided in or contemplated by the DIP Loan Agreement, 2 add specific Events of Default or enlarge the nature and extent of default remedies available to 3 DIP Lender following an Event of Default). 4 7. Reimbursement of Expenses. All reasonable costs and expenses incurred by
5 DIP Lender in connection with the negotiation and drafting the DIP Loan Agreement or any 6 amendments or modifications thereto, the preservation, perfection, protection and enforcement of 7 DIP Lender's rights hereunder or under the DIP Loan Agreement, including, without limitation, 8 all filing and recording fees or taxes and fees and expenses of attorneys, accountants, appraisers 9 and other professionals incurred by DIP Lender in connection with any of the foregoing, whether 10 any of the foregoing were incurred prior to or after the Petition Date, shall be paid by the Debtor 11 in accordance with the terms of the DIP Loan Agreement and this Order. No reasonable costs, 12 fees or expenses of the DIP Lender's professionals shall be subject to Court approval or U.S. 13 Trustee guidelines, and no recipient of any payment thereof shall be required to file with respect 14 thereto any interim or final fee application with the Court. 15 8. DIP Liens. All credit extensions, together with all interest, fees, expenses
16 (including attorneys' fees) and other charges, at any time or times payable by the Debtor to DIP 17 Lender in connection therewith or otherwise pursuant to the DIP Loan Agreement (collectively, 18 "Obligations,) shall be, and hereby are, secured by security interests and liens in favor of DIP 19 Lender with respect to all of the Collateral, as set forth in Section H above. Pursuant to section 20 364(c)(3) of the Bankruptcy Code, DIP Lender shall have perfected security interests in and liens 21 upon all Collateral as defined above, subordinate to all existing security interests as of the 22 Petition Date. All of the security interests and liens referred to above, together with those 23 granted and conveyed pursuant to the DIP Loan Agreement, are referred to herein as, the "DIP 24 Liens." 25 26 9. (a) Super Priority Claim. DIP Lender shall be deemed to have the allowed administrative expense Super-
27 Priority Claim pursuant to section 364(c) of the Bankruptcy Code having priority over all other 28 administrative expenses in the Case of the kind specified in or arising or ordered pursuant to
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1 sections 105(a), 326, 328, 330, 331, 503(a), 503(b), 506(c) (upon entry of final order with respect 2 to the DIP Financing Motion), 507(a), 507(b), 546(c), 726 or 1114 of the Bankruptcy Code, 3 whether or not such expenses or claims may become secured by a judgment lien or other non4 consensual lien, levy, attachment or otherwise, provided, that the DIP Super-Priority Claim shall 5 not extend to any proceeds of Avoidance Claims. 6 (b) No lien or security interest granted to DIP Lender hereunder, including the DIP
7 Liens, shall (i) be subject to any postpetition lien or security interest that is (A) avoided and 8 preserved for the benefit of the Debtor's estate under section 551 of the Bankruptcy Code, or (B) 9 subject to subordination under section 510 of the Bankruptcy Code, or (ii) hereafter be 10 subordinated to or made pari passu with any other lien or security interest under section 364(d) 11 of the Bankruptcy Code. 12 (c) The DIP Liens and the Super-priority Claim and other rights and remedies granted
13 to DIP Lender under this Order shall continue in this Case notwithstanding any conversion 14 thereof, and such liens and security interests shall maintain their priority as provided in this 15 Order until the DIP Lender has been indefeasibly satisfied in full in cash and the commitment is 16 terminated in accordance with the terms of the DIP Loan Agreement. 17 10. No Surcharge. Subject to entry of a final order, in no event shall any costs or
18 expenses of administration be imposed upon DIP Lender or any of the Collateral pursuant to 19 sections 506(c), 105(a), or otherwise of the Bankruptcy Code, without the prior written consent 20 of DIP Lender, and no such consent shall be implied from any action, inaction or acquiescence 21 by DIP Lender. DIP Lender shall not be subject to the equitable doctrine of "marshaling" or any 22 similar doctrine with respect to the Collateral. 23 11. Repayment. The Debtor may pay the outstanding balance of the DIP Facility
24 and thereafter terminate the DIP Facility at any time and for any reason in its discretion. 25 26 12. (a) Preservation of Rights Granted Under This Order. There shall not be entered any order that authorizes the obtaining of credit or the
27 incurrence of indebtedness by the Debtor (or any trustee or examiner) that is (i) secured by a 28 security, mortgage or collateral interest or lien on all or any part of the Collateral, that is equal or
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1 senior to the DIP Liens, or (ii) entitled to priority administrative status that is equal or senior to 2 the Super-priority Claim granted to DIP Lender herein. 3 (b) The Debtor shall not seek, and it shall constitute an Event of Default if the Debtor
4 seeks, or if there is entered, any order dismissing this Case. If an order dismissing this Case is at 5 any time entered then such order shall provide that the liens and security interests granted to DIP 6 Lender hereunder and in the DIP Loan Agreement, as the case may be, shall continue in full 7 force and effect, shall remain binding on all parties-in-interest and shall maintain their priorities 8 as provided in this Order. 9 (c) The provisions of this Order, and any actions taken pursuant hereto, shall survive
10 the entry of any order confirming any plan of reorganization for the Debtor or converting the 11 Case to chapter 7. This Court shall not enter a confirmation order or dismissal order that shall 12 alter the terms of repayment from those set forth in the DIP Loan Agreement and this Order, 13 unless otherwise agreed to in writing by the DIP Lender. 14 (d) The obligations under the DIP Facility shall not be discharged by the entry of any
15 order confirming a plan of reorganization in the Case and, pursuant to section 1141(d)(4) of the 16 Bankruptcy Code, the Debtor has waived such discharge. 17 18 13. (a) Automatic Perfection of Liens. The DIP Liens shall be deemed valid, binding, enforceable and perfected upon
19 entry of this Order. DIP Lender shall not be required to file any UCC-1 financing statements 20 notices of lien or any similar document or take any other action (including possession of any of 21 the Collateral in order to perfect any of the DIP Liens. If DIP Lender chooses, in its discretion, 22 to file any such UCC-1 financing statements, or take any other action to perfect any part of the 23 DIP Liens, the Debtor and its officers shall cooperate by executing any documents or instruments 24 that DIP Lender shall reasonably request, and all such documents and instruments shall be 25 deemed to have been filed or recorded at the time and on the date of entry of this Order. DIP 26 Lender may, in its sole discretion, file a certified copy of this Order in any filing office in each 27 jurisdiction in which the Debtor is organized or has or maintains any Collateral or an office, and 28 each filing office is directed to accept such certified copy of either or both of such Order for
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1 filing and recording without the imposition of any stamp, intangibles, recording or similar tax in 2 accordance with the provisions of Bankruptcy Code section 1146. 3 (b) To the extent permitted by applicable law, upon entry of this Order, pursuant to
4 sections 363(b)(1) and 364(c)(2) of the Bankruptcy Code, any provisions in any of the leases of 5 nonresidential real property under which the Debtor is a lessee (each, a "Lease" and collectively, 6 the "Leases") and any provisions in any of the license agreements under which the Debtor is a 7 licensee, that require the consent or approval of one or more of the Debtor's landlords or 8 licensors, as the case may be, in order for the Debtor to pledge or mortgage its interest in such 9 Lease or other agreement, are and shall be deemed inconsistent with the provisions of the 10 Bankruptcy Code and are and shall have no force and effect with respect to the transactions 11 granting liens, security interests and mortgages by the Debtor in accordance with the DIP Loan 12 Agreement. 13 14. Modification of Automatic Stay. The automatic stay provisions of section 362
14 of the Bankruptcy Code, to the extent applicable, are hereby lifted, vacated, modified and/or 15 terminated as to DIP Lender to the extent necessary to implement the provisions of this Order 16 and the DIP Loan Agreement. 17 15. Subsequent Reversal or Modification. Notwithstanding any reversal, stay,
18 modification or vacatur of this Order, any post-petition indebtedness, obligation or liability 19 incurred by the Debtor to DIP Lender under the DIP Loan Agreement prior to the effective date 20 of such action shall be governed in all respects by the original provisions of this Order, and DIP 21 Lender shall be entitled to all of the rights, remedies, privileges, benefits and priorities granted 22 herein and pursuant to the DIP Loan Agreement, with respect to any such indebtedness, 23 obligation or liability. 24 16. Successors and Assigns. The provisions of this Order shall be binding upon all
25 parties-in-interest in this Case, including, without limitation, DIP Lender, the Debtor and their 26 respective successors and assigns and shall inure to the benefit of DIP Lender, the Debtor and 27 their respective successors and assigns, including, without limitation, any trustee, examiner, 28 responsible officer, estate administrator or representative, or similar person appointed in a case
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1 for the Debtor under any chapter of the Bankruptcy Code or in any successor proceeding, 2 whether under the Bankruptcy Code or otherwise. In no event shall DIP Lender have any 3 obligation to make credit extensions to any trustee appointed for the estate. 4 17. Priority of Terms. To the extent of any conflict between or among the express
5 terms or provisions of the DIP Loan Agreement, the Motion, any order of this Court, or any other 6 agreements, the terms and provisions of this Order shall govern and control. 7 18. Entry of Order. This Order shall take effect immediately upon execution hereof,
8 notwithstanding the possible application of Bankruptcy Rules 4001(a)(3), 6004(g), 7062. 9014, 9 or otherwise, and the Clerk of the Court is hereby directed to enter this Order on the Court's 10 docket in this Case. 11 19. Final Hearing. The Debtor is authorized to obtain financing pursuant to this
12 Order through ________________, 2011. The hearing to consider the entry of a Final Order 13 authorizing and approving the Debtors financing pursuant to this Order is hereby scheduled for 14 ___________, 2010 at __:_0 _.m. All objections to the entry of such Final Order authorizing 15 the Debtors financing pursuant to this Order shall be filed and received no later than _________, 16 2011, by counsel to the Debtor, counsel to the Committee, the Office of the United States 17 Trustee and counsel for Prime Management (collectively, the Notice Parties). Any reply by 18 the Debtor or other interested party shall be filed and served no later than ____________, 2011 19 on the objecting party and the Notice Parties. 20 20. Consulting Services Agreement. The Consulting Services Agreement is
21 reasonable and is in the best interest of the Debtor, is creditors and its estate. The Debtor is 22 hereby authorized to enter into the Consulting Services Agreement and to take all other actions 23 that are reasonable and necessary to implement the terms of the Consulting Services Agreement. 24 25 26 27 28 ###
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EXHIBIT B
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POSTPETITION REVOLVING CREDIT AND SECURITY AGREEMENT
between
VICTOR VALLEY COMMUNITY HOSPITAL, a California nonprofit public benefit corporation as BORROWER
and
Prime Healthcare Management, Inc. as LENDER
Dated as of October 14, 2011
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POSTPETITION REVOLVING CREDIT AND SECURITY AGREEMENT TABLE OF CONTENTS Page(s) I. II. DEFINITIONS.
ADVANCES, PAYMENT AND INTEREST................. 2.1 The Revolving Facility...... 2.2 Maturity..... 2.3 2.4 Revolving Facility Disbursements; Requirement to Deliver Borrowing Certificate.. 2.5 Borrower Reorganization.. 2.6 Promise to Pay; Manner of Payment..... 2.7 Repayment of Excess Advances 2.8 Payments by Lender.. 2.9 [Intentionally Deleted] ..... 2.10 Grant of Security Interest; Collateral. 2.11 Collateral Administration... 2.12 Purchase by Prime Healthcare Services Foundation . 2.13 Evidence of Loans. III. IV. CONDITIONS PRECEDENT.. 4.1 Conditions Precedent to Initial Advance and Closing....... 4.2 Post-Closing Conditions 4.3 Conditions Precedent to Each Advance. REPRESENTATIONS AND WARRANTIES 5.1 Organization and Authority....... 5.2 DIP Loan Documents. 5.3 Subsidiaries, Capitalization and Ownership Interests 5.4 Properties... 5.5 Other Agreements.. 5.6 Litigation....... 5.7 Hazardous Materials. 5.8 Potential Tax Liability; Tax Returns; Governmental Reports....... 5.9 Medicare Cost Reports....... 5.10 Compliance with Law 5.11 Intellectual Property....... 5.12 Licenses and Permits; Labor..
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5.13 5.14 5.15 5.16 5.17 5.18 5.19 5.20 5.21 5.22 5.23 VI.
No Default.. No Withholding of Reimbursements. [Intentionally Deleted]... Healthcare Matters..................... Hospital Operations/Litigation... Insurance.................................... Names; Location of Offices, Records and Collateral [Intentionally Deleted] Accounts .............. [Intentionally Deleted] .............. Survival......................................
AFFIRMATIVE COVENANTS........... 6.1 Financial Statements, Borrowing Certificate, Financial Reports and Other Information.. 6.2 Payment of Obligations.............. 6.3 Conduct of Business and Maintenance of Existence and Assets... 6.4 Compliance with Legal and Other Obligations. 6.5 Insurance.................................... 6.6 [Intentionally Deleted] 6.7 Inspection; Periodic Audits........ 6.8 Further Assurances; Post Closing.. 6.9 Payment of Indebtedness........... 6.10 Lien Searches............................. 6.11 Use of Proceeds ...................... 6.12 Collateral Documents; Security Interest in Collateral... 6.13 [Intentionally Deleted] .............. 6.14 Taxes and Other Charges........... 6.15 [Intentionally Deleted] .............. 6.16 Payroll Taxes............................. 6.17 [Intentionally Deleted] .. 6.18. [Intentionally Deleted] ..................... NEGATIVE COVENANTS.................. 7.1 Financial Covenants... 7.2 Permitted Indebtedness.. 7.3 Permitted Liens.. 7.4 Investments; New Facilities or Collateral; Subsidiaries 7.5 [Intentionally Deleted] 7.6 [Intentionally Deleted] ... 7.7 Charter Documents; Fiscal Year; Name; Jurisdiction of Organization; Dissolution; Use of Proceeds.. 7.8 Truth of Statements 7.9 IRS Form 7.10 Transfer of Assets.. 7.11 Modification of Agreements..
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7.12 Payment on Permitted Subordinated Debt. 7.13 Chapter 11 Claims.. 7.14 Filing of Motions and Applications... 7.15. [Intentionally Deleted] ... VIII. IX. EVENTS OF DEFAULT RIGHTS AND REMEDIES AFTER DEFAULT.. 9.1 Rights and Remedies.. 9.2 Application of Proceeds. 9.3 Rights and Remedies not Exclusive...
X.
WAIVERS AND JUDICIAL PROCEEDINGS 10.1 [Intentionally Deleted] .. 10.2 Delay; No Waiver of Defaults... 10.3 Jury Trial Waiver... XL EFFECTIVE DATE AND TERMINATION 11.1 Termination and Effective Date Thereof... 11.2 Survival.. MISCELLANEOUS... 12.1 Governing Law; Jurisdiction; Service of Process; Venue. 12.2 Successors and Assigns; Participations; New Lenders.. 12.3 Application of Payments 12.4 Indemnity... 12.5 Notice. 12.6 Severability; Captions; Counterparts; Facsimile Signatures.. 12.7 Expenses 12.8 Entire Agreement.. 12.9 [Intentionally Deleted] .. 12.10 Confidentiality and Publicity. 12.11 Release of Lender.. 12.12 Acknowledgements 12.13 Bankruptcy Court Orders Paramount.
XII.
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POSTPETITION REVOLVING CREDIT AND SECURITY AGREEMENT THIS POSTPETITION REVOLVING CREDIT AND SECURITY AGREEMENT (the Agreement) dated as of October 11, 2011 is entered into by and between VICTOR VALLEY COMMUNITY HOSPITAL, a California nonprofit public benefit corporation as debtor and debtor in possession (the Borrower), and Prime Healthcare Management, Inc., a California corporation (the Lender). WHEREAS, on the Petition Date Borrower commenced a case (the Bankruptcy Case) under Chapter 11 of Title 11, United States Code (as amended, the Bankruptcy Code) in the United States Bankruptcy Court for the Central District of California (together with any other court having Jurisdiction over the Bankruptcy Case or any proceedings therein from time to time, the Bankruptcy Court) and Borrower is continuing to operate its business and manage its properties as a debtor and debtor-in-possession under sections 1107 and 1108 of the Bankruptcy Code; WHEREAS, Borrower has requested that Lender make available to Borrower a revolving credit facility (the Revolving Facility) in a maximum principal amount at any time outstanding of up to Six Million Dollars ($6,000,000) (the Facility Cap), the proceeds of which shall be used by Borrower, and Borrower alone, exclusively to fund Borrowers Operating Losses during the Advance Period and for other lawful purposes as permitted under this Agreement; WHEREAS, Lender is willing to make the Revolving Facility available to Borrower upon the terms and subject to the conditions set forth in this Agreement, and subject to the terms and conditions set forth in the Financing Order. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which hereby are acknowledged, Borrower and Lender hereby agree as follows: I. DEFINITIONS For purposes of this Agreement, in addition to the definitions above and elsewhere in this Agreement, the terms listed in Appendix B hereto shall have the meanings given such terms in Appendix B, which is incorporated herein and made a part hereof. All capitalized terms used herein that are not specifically defined herein (including, without limitation, Goods, Fixtures, General Intangibles, Chattel Paper, Investment Property, Documents, Commercial Tort Claims, Instruments, Deposit Accounts, Letter-of-Credit Rights and Supporting Obligations) shall have the meanings therefore provided in Article 9 of the UCC in effect on the date hereof (or as amended and in effect from time to time as approved by Lender) to the extent the same are used or defined therein. Unless otherwise specified herein or in Appendix B, any agreement or contract referred to herein or in Appendix B shall mean such agreement as it may be, or have been modified, amended or supplemented from time to time in accordance with its terms. Unless
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otherwise specified, as used in the DIP Loan Documents or in any certificate, report, instrument or other document made or delivered pursuant to any of the DIP Loan Documents, all accounting terms not defined in Appendix B or elsewhere in this Agreement shall have the meanings given to such terms in and shall be interpreted in accordance with GAAP. II. ADVANCES, PAYMENT AND INTEREST 2.1 The Revolving Facility
Subject to the provisions of this Agreement and the Financing Orders, Lender shall make Advances to Borrower under the Revolving Facility from time to time during the Advance Period, provided that, notwithstanding any other provision of this Agreement and the Financing Orders, the aggregate amount of all Advances at any one time outstanding under the Revolving Facility shall not exceed (a) the Facility Cap or (b) Borrowers Operating Losses during the Advance Period. The Revolving Facility is a revolving credit facility, which may be drawn, repaid and redrawn, from time to time as permitted under this Agreement and the Financing Orders. This Revolving Facility is for the purpose of meeting the shortfall between Borrowers receipts and the Borrowers expenses. 2.2 Maturity
Subject to the provisions of Section 2.6 and Section 2.9, all Advances and all other outstanding Obligations under the Revolving Facility shall be immediately due and payable in full in cash, if not earlier in accordance with the terms of this Agreement and the Financing Orders, without further application to or order of the Bankruptcy Court, on the earlier of (i) acceleration of maturity of the Obligations upon the occurrence of an Event of Default; (ii) twenty (20) days after the Bankruptcy Court enters an order (a) confirming a chapter 11 plan for the Borrower that does not provide for the payment of the Obligations in full no later than 30 days from entry of the confirmation order ; or (b) granting a motion to sell substantially all of Borrower's assets pursuant to a transaction that does not provide for the Obligations to be paid in full at closing of the sale transaction; (iii) upon termination of the Consulting Services Agreement; (iv) if an order is entered confirming a chapter 11 plan that Lender consents to in writing, then the date which is seven years from entry of such confirmation order provided there has not been a prior Event of Default; or (v) March 1, 2012 (the date upon which the first of the foregoing occurs is referred to herein as the Maturity Date). Borrower expressly acknowledges and agrees that under no circumstances shall Lender have any obligation to extend, and Lender has made no commitment to extend, the Maturity Date beyond the deadlines set forth herein. 2.3 Interest on the Advances
[INTENTIONALLY BANK] 2.4 Revolving Facility Disbursements; Requirement to Deliver Borrowing Certificate
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So long as no Default or Event of Default shall have occurred and be continuing, Borrower may give Lender irrevocable written notice requesting an Advance under the Revolving Facility by delivering to Lender not later than 11:00 a.m. (California time) at least one week prior to the Business Day for which such requested Advance is to be made (the Borrowing Date), a completed Borrowing Certificate and relevant supporting documentation satisfactory to Lender, which shall (i) specify the proposed Borrowing Date of such Advance which shall be a Business Day, (ii) specify the principal amount of such requested Advance and (iii) certify the matters contained in Section 4.2. On each Borrowing Date, Borrower irrevocably authorizes Lender to disburse the proceeds of the requested Advance to the Borrower's account(s) as set forth on Schedule 2.4, in all cases for credit to the Borrower (or to such other account as to which the Borrower shall instruct Lender) via Federal funds wire transfer no later than 3:00 p.m. (California time). 2.5 Repayment in Event of Borrower Reorganization
If an order is entered confirming a chapter 11 plan which does not contemplate a sale of substantially all of the Borrowers assets and that Lender consents to in writing, then the Borrower shall repay the outstanding Obligations in quarterly payments based on a ten (10) year amortization schedule, with payments to commence on the first business day following the first quarter in which Borrower has experienced Positive Cash Flow. Nothing in this section shall modify the Maturity Date. Notwithstanding anything in this Section to the contrary, repayment of the Obligations shall not commence until such time as general unsecured creditors of the Borrower holding allowed claims receive collectively $2 million. 2.6 Promise to Pay; Manner of Payment
Borrower absolutely and unconditionally promises to pay principal and all other amounts and Obligations payable hereunder, or under any other DIP Loan Document, without any right of rescission and without any deduction whatsoever, including any deduction for any setoff, counterclaim or recoupment, and notwithstanding any damage to, defects in or destruction of the Collateral or any other event, including obsolescence of any property or improvements. All payments made by Borrower, shall be made only by wire transfer on the date when due, without offset or counterclaim, in U.S. Dollars, in immediately available funds to such Account as may be indicated in writing by Lender to Borrower from time to time. Any such payment received after 2:00 p.m. (California time) on the date when due shall be deemed received on the following Business Day. Whenever any payment hereunder shall be stated to be due or shall become due and payable on a day other than a Business Day, the due date thereof shall be extended to, and such payment shall be made on, the next succeeding Business Day. 2.7 Repayment of Excess Advances
Any balance of Advances under the Revolving Facility outstanding at any time in excess of the Facility Cap then in effect, shall be immediately due and payable by Borrower without the necessity of any demand, at the Payment Office, whether or not a Default or Event of Default has occurred or is continuing and shall be paid in the manner specified in Section 2.6.
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2.8
Payments by Lender
Should any amount required to be paid under any DIP Loan Document be unpaid when due, such amount may be paid by Lender, which payment shall be deemed a request for an Advance under the Revolving Facility as of the date such payment is due, and Borrower irrevocably authorizes disbursement of any such funds to Lender by way of direct payment of the relevant amount, interest or Obligations without necessity of any demand. No payment or prepayment of any amount by Lender or any other Person shall entitle any Person to be subrogated to the rights of Lender under any DIP Loan Document unless and until the Obligations have been fully performed and paid irrevocably in cash and this Agreement has been terminated. Any sums expended by Lender as a result of any Borrower's failure to pay, perform or comply with any DIP Loan Document or any of the Obligations may be charged to Borrower's account as an Advance under the Revolving Facility and added to the Obligations. 2.9 Purchase by Prime Healthcare Services Foundation]
In the event that the Borrower sells substantially all of its assets to Prime Healthcare Services Foundation, Inc., or PHSF Victor Valley, LLC, or any Affiliate of either one, pursuant to a sale transaction approved of in writing by Lender and by Prime Healthcare Services Foundation, Inc., Lender shall release Borrower of its duty to pay the remaining balance of the Obligations to Lender under this Agreement as of the date of closing of the sale transaction. Unless otherwise agreed to in writing by Lender, all other rights of Lender under this Agreement and the Financing Orders shall survive the closing of the sale transaction. In the event of such acquisition by a party other than Lender or an affiliate or an affiliate, successor or assignee of Lender, the Obligations hereunder are required to be paid in full at the time of and as part of such acquisition.
2.10
Grant of Security Interest; Collateral; Superpriority Claim
(a) To secure the payment and performance of the Obligations, the Borrower, upon entry of the Final Financing Order, as applicable, by the Bankruptcy Court, hereby grants to Lender: (i) a continuing subordinate security interest in and Lien upon, and pledges to Lender, all of its right, title and interest in and to all of its personal and Real Property and assets whether now owned or hereafter acquired, including, without limitation, the following which Liens and security interests shall have the priorities set forth in the Financing Orders: (A) all of Borrower's tangible personal property, including, without limitation, all present and future Goods, Inventory, Equipment (including items of Equipment which are or become Fixtures), Real Property and Computer Hardware and Software, now owned or hereafter acquired; (B) all of Borrower's intangible personal property, including, without limitation all present and future Accounts, securities, contract rights, Permits, General Intangibles, Intellectual Property, Chattel Paper, Documents, Instruments, Deposit Accounts
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(including the Lockbox Account), Investment Property, Letter-of-Credit Rights and Supporting Obligations, rights to the payment of money or other forms of consideration of any kind, tax refunds and insurance proceeds (including, without limitation, the proceeds of any life insurance policy), now owned or hereafter acquired, and all intangible and tangible personal property relating to or arising out of any of the foregoing; (C) all of Borrower's present and future Government Contracts and rights thereunder and the related Government Accounts and proceeds thereof, now or hereafter owned or acquired by Borrower; provided, however, that Lender shall not have a security interest in any rights under any Government Contract of Borrower or in the related Government Account where the taking of such security interest is a violation of an express prohibition contained in the Government Contract (for purposes of this limitation, the fact that a Government Contract is subject to, or otherwise refers to, Title 31, 3727 or Title 41, 15 of the United States Code shall not be deemed an express prohibition against assignment thereof) or is prohibited by applicable law, unless in any case consent is otherwise validly obtained; (D) all other rights and interests in property of the estate (within the meaning of the Bankruptcy Code) except as otherwise set forth in the Financing Orders; provided, however, that the liens and security interests conveyed pursuant to the DIP Loan Documents shall not attach to Avoidance Claims or Avoidance Claim Proceeds; (E) (F) all other rights and interests in Distressed Hospital Funds; all other rights and interests in Quality Assurance Fee funds; and
(G) any and all additions and accessions to any of the foregoing, and any and all replacements, products and proceeds (including insurance proceeds) of any of the foregoing. The foregoing collectively referred to as the Collateral. (b) As to all Collateral, including without limitation, all cash, cash equivalents and Commercial Tort Claims the title to which is held by Borrower, or the possession of which is held by Borrower in the form of a leasehold interest, Borrower hereby assigns and conveys as security, grants a security interest in, hypothecates, mortgages, pledges and sets over unto Lender all of the right, title and interest of Borrower in all of such Collateral, including without limitation, all cash, cash equivalents and Commercial Tort Claims and in all such leasehold interests; together in each case with all of the right, title and interest of Borrower in and to all, any lease or sublease thereof, all general intangibles relating thereto and all proceeds thereof, Borrower acknowledges that, pursuant to the Financing Orders, the Liens granted in favor of Lender in all of the Collateral shall be perfected without the recordation of any UCC financing statements, notices of Lien or other instruments of mortgage or assignment. Borrower further agrees that Lender is authorized to file or record financing statements with respect to the Collateral without the signature of Borrower in such Form and in such offices as Lender reasonably determines appropriate to further evidence the perfection of the security interests of
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Lender under this Agreement and to use the collateral description all assets of the Debtor in any such financing statements. Borrower shall promptly notify Lender of any Commercial Tort Claims arising after the Closing Date in which it has an interest and shall provide all necessary information concerning each such Commercial Tort Claim, or upon any and all Commercial Tort Claims upon request by Lender, and make all necessary filings with respect thereto to perfect Lender's security interest therein. The Liens, lien priority, administrative priorities and other rights and remedies granted to Lender in the Financing Orders and the other DIP Loan Documents (specifically including, but not limited to, the existence, perfection and priority of the Liens and security interests provided therein, and the administrative priority provided therein) shall not be modified, altered or impaired in any manner by another financing or extension of credit or incurrence of debt by Borrower (pursuant to section 364 of the Bankruptcy Code or otherwise), or by any other act or omission whatsoever until the full performance and irrevocable payment in full in cash of the Obligations and termination of this Agreement. (d) Upon the entry of the Interim Financing Order and the Final Financing Order by the Bankruptcy Court, the Obligations of the Borrower will constitute allowed administrative expenses in the Bankruptcy Case, having priority in payment over all other administrative expenses and unsecured claims against the Borrower now existing or hereafter arising, of any kind or nature whatsoever, including without limitation, all administrative expenses of the kind specified in, or arising or ordered under, sections 105, 326, 328, 503(b), 506(c),507(a), 507(b), 546(c), 726 and 1114 of the Bankruptcy Code; provided, that no administrative claim of Lender shall extend to the proceeds of Avoidance Claims. 2.11 Collateral Administration
(a) All tangible Collateral granted by Borrower to Lender (except Deposit Accounts) will at all times be kept by Borrower at one of the locations set forth on Schedule 5.19B hereto and shall not, without thirty (30) calendar days prior written notice to Lender, be moved therefrom, and in any case shall not be moved outside the State of California. (b) Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit such records to Lender on such periodic bases as Lender may request. (c) Whether or not an Event of Default has occurred, any of Lender's officers, employees, representatives or agents shall have the right, at any time during normal business hours, and upon reasonable notice, in the name of Lender, any designee of Lender or Borrower, to verify the validity, amount or any other matter relating to any Accounts of Borrower. Borrower shall cooperate fully with Lender in an effort to facilitate and. promptly conclude- such verification process.
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(d) As and when determined by Lender in its reasonable discretion, Lender will perform the searches described in clauses (i) and (ii) below against each Borrower (the results of which are to be consistent with Borrower's representations and warranties under this Agreement), all at Borrowers' expense: (i) UCC searches with the Secretary of State of the Jurisdiction of organization of Borrower , the Secretary of State and local filing offices of each jurisdiction where Borrowers maintain their respective executive offices, a place of business or assets; and (ii) judgment, federal tax lien and state tax lien searches, in each jurisdiction searched under clause (i) above. (f) Borrower, upon Lender's request, shall: (1) take all actions that may be lawfully required by Lender to create and perfect Lender's Lien on any Collateral and effectuate the intentions of the DIP Loan Documents; and (ii) immediately deliver to Lender all items for which Lender must receive possession to obtain a perfected security interest and all notes, certificates, and documents of title, Chattel Paper, warehouse receipts, Instruments, and any other similar instruments constituting Collateral. 2.12 Evidence of Loans
(a) Lender shall maintain, in accordance with its usual practice, electronic or written records evidencing the indebtedness and obligations to such Lender resulting from each Loan made by such Lender from time to time, including without limitation, the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (b) The entries made in the electronic or written records maintained pursuant to subsection (a) of this Section 2.12 (the Register) shall be prima facie evidence of the existence and amounts of the obligations and indebtedness therein recorded; provided, however, that the failure of the Lender to maintain such records or any error therein shall not in any manner affect the obligations of the Borrower to repay the Loans or Obligations in accordance with their terms. (c) Lender will account to Borrower monthly with a statement of Advances under the Revolving Facility, and any charges and payments made pursuant to this Agreement. (d) Borrower agrees that:
(i) upon written notice by Lender to the Borrower that a promissory note or other evidence of indebtedness is requested by Lender to evidence the Loans and other Obligations owing or payable to, or to be made by, such Lender, the Borrower shall promptly (and in any event within three (3) Business Days of any such request) execute and deliver to Lender an appropriate promissory note or notes in form and substance reasonably acceptable to the Lender and Borrower, payable to the order of Lender or in a principal amount equal to the amount of the Loans owing or payable to Lender; (ii) all references to Notes in the DIP Loan Documents shall mean Notes, if any, to the extent issued (and not returned to the Borrower for cancellation) hereunder, as the same may be amended, modified, divided, supplemented and/or restated from time to time; and
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(iii) upon Lenders written request, and in any event within three (3) Business Days of any such request, Borrower shall execute and deliver to Lender new Notes and/or divide the Notes in exchange for the existing Notes in such smaller amounts or denominations as Lender shall specify in its sole and absolute discretion (including, without limitation, new Notes as a result of the mutilation, destruction, loss or theft of any Notes); provided, that the aggregate principal amount of such new Notes shall not exceed the aggregate principal amount of the Notes outstanding at the time such request is made; and provided, further, that such notes that are to be replaced shall then be deemed no longer outstanding hereunder and replaced by such new notes and returned to the Borrower within a reasonable period of time after Lender's receipt of the replacement notes. III. [INTENTIONALLY BLANK] IV. CONDITIONS PRECEDENT 4.1 Conditions Precedent to Initial Advance and Closing
The obligations of Lender to make any advances are subject, in each case, to the reasonable satisfaction of Lender, of the following: (a) Borrower shall have delivered to Lender: (i) the DIP Loan Documents to which it is a party, including all Schedules thereto), each duly executed by an authorized officer of Borrower and the other parties thereto, and (ii) a Borrowing Certificate for the each Advance under the Revolving Facility executed by an authorized agent of Borrower; (b) Lender shall have received all in form and substance satisfactory to Lender in its sole discretion; (i) each document (including, without limitation, any Uniform Commercial Code financing statement) required by any DIP Loan Document or under law or requested by Lender to be filed, registered or recorded to create in favor of Lender, a perfected security interest upon the Collateral and (ii) evidence of each such filing, registration or recordation and of the payment by Borrower of any necessary fee, tax or expense relating, thereto; (c) The Bankruptcy Court shall have entered the Interim Financing Order, and such order shall be in full force and effect and shall not have been vacated, reversed, modified or stayed in any respect and, if such order is the subject of a pending appeal, motion for reconsideration, motion for rehearing, etc., then no further performance of any obligation of any party to the order shall have been stayed pending the disposition of such appeal or motion; (d) No current principal or key management personnel of any such Person shall have been indicted or be under active investigation by any Governmental Authority for a felony crime;
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(e) Borrower shall have executed and filed IRS Form 8821 in favor of Lender with the appropriate office of the Internal Revenue Service; (f) Lender shall have received a certificate of the corporate secretary or assistant secretary of Borrower (as applicable) dated as of the Closing Date, as to the incumbency and signature of the Persons executing the DIP Loan Documents, in form and substance acceptable to Lender; (g) Lender shall have received such other DIP Loan Documents, certificates, or information as Lender may reasonably request, all in form and substance reasonably satisfactory to Lender; (h) Borrower shall be in compliance with Section 6.5 hereof, and Lender shall have received copies of Borrower's insurance declarations or other such evidence to establish to Lender's reasonable satisfaction that all required insurance policies are in place in sufficient amounts, and that Lender has been named as loss payee or additional insured, as appropriate. 4.2 Post-Closing Conditions
On or before the date that is fifteen (15) days after the Closing Date the following conditions subsequent shall be satisfied, in the sole judgment of Lender: (a) Lender shall have received (i) the Charter and Good Standing Documents, all in form and substance acceptable to Lender, and (ii) a certificate of the corporate secretary or assistant secretary of Borrower (as applicable) dated as of the date of the Charter and Good Standing Documents, as to the incumbency of and signature of the Persons executing the Charter and Good Standing Documents, all in form and substance acceptable to Lender; (b) Borrower shall be in compliance with Section 6.5, and Lender shall have received original certificates of all insurance policies of Borrower confirming that they are in effect and that the premiums due and owing with respect thereto have been paid in full and naming Lender a-s loss payee or additional insured, as appropriate; (c) Lender shall have received copies of all Permits required for Borrower to conduct the business in which it is currently engaged or is contemplated pursuant to the DIP Loan Documents; (d) On or before the tenth (10th) day after the Closing Date, Borrower shall have delivered to Lender Schedules 5.4 and 5.11 to this Agreement, which shall be subject to Lender's review and approval, in its Permitted Discretion. 4.3 Conditions Precedent to Each Advance
The obligations of Lender to make any Advance are, in each case, subject to the satisfaction, in the sole judgment of Lender, of the following additional conditions precedent:
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(a) In the case of an Advance, Borrower shall have delivered to Lender a Borrowing Certificate for the Advance executed by an authorized agent of Borrower, which shall constitute a representation and warranty by Borrower as of the Borrowing Date of such Advance that the conditions contained in this Section 4.3 have been satisfied; (b) Each of the representations and warranties made by Borrower in or pursuant to this Agreement shall be accurate, before and after giving effect to such Advance and no Default or Event of Default shall have occurred or be continuing or would exist after giving effect to the Advance under the Revolving Facility on such date; (c) Immediately after giving effect to the requested Advance, the sum of the aggregate outstanding principal amount of Advances under the Revolving Facility shall not exceed the lesser of (i) Facility Cap or (ii) Borrowers Operating Losses during the Advance Period.
V. REPRESENTATIONS AND WARRANTIES Borrower represents and warrants as of the date hereof, the Closing Date, and each Borrowing Date as follows: 5.1 Organization and Authority
Borrower is a corporation duly organized, validly existing and in good standing under the laws of its state of formation. Borrower (i) has all requisite corporate or entity power and authority to own its properties and assets and to carry on its business as now being conducted and as contemplated in the DIP Loan Documents, (ii) and (ii) subject to the entry of the Financing Orders, has all requisite power and authority (A) to execute, deliver and perform the DIP Loan Documents to which it is a party, (B) to borrow hereunder, (C) to consummate the transactions contemplated under the DIP Loan Documents, and (D) to grant the Liens with regard to the Collateral pursuant to the DIP Loan Documents and the Financing Orders. Borrower is not an investment company registered or required to be registered under the Investment Company Act of 1940, as amended, or is controlled by such an investment company. 5.2 DIP Loan Documents
Upon entry of the Interim Financing Order, the execution, delivery and performance by Borrower of the DIP Loan Documents to which it is a party, and the consummation of the transactions contemplated thereby, (i) have been duly authorized by all requisite action of Borrower and have been duly executed and delivered by or on behalf of Borrower; (ii) do not violate any provisions of (A) applicable law, statute, rule, regulation, ordinance or tariff, (B) any order of any Governmental Authority binding on Borrower or its properties, or (C) the certificate of incorporation or bylaws (or any other equivalent governing agreement or document) of
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Borrower; (iii) are not in conflict with, and do not result in a breach or default of or constitute an event of default, or an event, fact, condition or circumstance which, with notice or passage of time, or both, would constitute or result in a conflict, breach, default or event of default under, any indenture, agreement or other instrument to which Borrower is a party(other than conflicts, breaches, and defaults the enforcement of which is stayed by virtue of the filing of the Bankruptcy Case, or the Financing Orders); (iv) except as set forth herein and in the Financing Orders, will not result in the creation or imposition of any Lien of any nature upon any of the properties or assets of any such Borrower and (v) do not require the consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person, except for the entry of the Interim Financing Order. When executed and delivered, and upon entry of the Interim Financing Order, each of the DIP Loan Documents to which Borrower is a party will constitute the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms. 5.3 Subsidiaries, Capitalization and Ownership Interests
Borrower has no Subsidiaries. Borrower does not own an interest in, participates in or engages in any joint venture, partnership or similar arrangements with any Person. 5.4 Properties
Borrower (i) is the sole owner and has good, valid and marketable title to, or a valid leasehold interest in, all of its properties and assets, including the Collateral, subject to no transfer restrictions or Liens of any kind except for Permitted Liens; and (ii) except as set forth on Schedule 5.4, is in compliance in all material respects with each lease to which it is a party or otherwise bound (other than breaches and defaults the enforcement of which is stayed by virtue of the filing of the Bankruptcy Case or leases for locations which will be rejected in the Bankruptcy Case). Schedule 5.4 lists all real properties (and their locations) owned or leased by or to, and all other assets or property that are leased or licensed by, Borrower and all leases (including leases of leased real property) covering or with respect to such properties and assets. Borrower enjoys peaceful and undisturbed possession under all such leases and such leases are all the leases necessary for the operation of such properties and assets, are valid and subsisting and are in full force and effect. 5.5 Other Agreements
Except as set forth on Schedule 5.5, Borrower is not (i) a party to any judgment, order or decree or any agreement, document or instrument, or subject to any restriction, which would affect its ability to execute and deliver, or perform under, any DIP Loan Document or to pay the Obligations (other than restrictions the enforcement of which is stayed by virtue of the filing of the Bankruptcy Case or the Financing Orders), or (ii) in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any agreement, document or instrument to which it is a party or to which any of its properties or assets are subject, the enforcement of which default is not stayed by virtue of the filing of the Bankruptcy Case. 5.6 Litigation
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Excluding pre-Petition Date litigation which is stayed by the provisions of Section 362 of the Bankruptcy Code and other than the settlement CLIA/CMS and the CMS Settlement Agreement, there is no action, suit, proceeding or investigation pending against Borrower that (i) will prevent the validity of any of the DIP Loan Documents or the right of Borrower to enter into any DIP Loan Document or to consummate the transactions contemplated thereby, (ii) (ii) would reasonably be likely to result in any Change of Control or other change in the current ownership, control or management of Borrower. Borrower is not aware that there is any basis for the foregoing. Other than in connection with the Bankruptcy Case, Borrower is not a party or subject to any order, writ, injunction, Judgment or decree of any Governmental Authority. 5.7 Hazardous Materials
Borrower is in compliance in all material respects with an applicable Environmental Laws. Borrower has not been notified of any action, suit, proceeding or investigation (i) relating in any way to compliance by or liability of Borrower under any Environmental Laws, (ii) which otherwise deals with any Hazardous Substance or any Environmental Law, or (iii) which seeks to suspend, revoke or terminate any license, permit or approval necessary for the generation, handling, storage, treatment or disposal of any Hazardous Substance. 5.8 Potential Tax Liability; Tax Returns; Governmental Reports
(a) Except as set forth in Schedule 5.8, Borrower has not (i) has received any oral or written communication from the Internal Revenue Service with respect to any investigation or assessment relating to Borrower directly, or relating to any consolidated tax return which was filed on behalf of such Person, (ii) is not aware of any year which remains open pending tax examination or audit by the IRS (other than as automatically set forth under applicable regulations), and (iii) is not aware of any information that could give rise to an IRS tax liability or assessment. (b) Borrower (i) has filed all federal, state, foreign (if applicable) and local tax returns and other reports which are required by law to be filed by Borrower, (ii) has paid all taxes, assessments, fees and other governmental charges, including, without limitation, payroll and other employment related taxes, in each case that are due and payable, except only for items that Borrower is currently contesting in good faith with adequate reserves under GAAP, which contested items are described on Schedule 5.8, and (iii) are not aware of any information that could give rise to a tax assessment or Lien in favor of any Governmental Authority for delinquent taxes, assessments, fees or other governmental charges. 5.9 Medicare Cost Reports
Borrower has timely filed all Cost Reports required by third party payors, including, but not limited, to Medicare, Medi-Cal, and such other commercial payors, as applicable. 5.10 Compliance with Law
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Except for those matters which are the subject of the CMS/CLIA settlement and the CMS Settlement Agreement, Borrower has been and is currently in compliance, and is presently taking and will continue to take all actions necessary to assure that it shall, on or before each applicable compliance date and continuously thereafter, comply with Public Law 104191 of August 21, 1996, known as the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and its implementing regulations, including without limitation, the Standards for Electronic Transaction and Code Set (45 CFR Parts 160 and 162), the Standards for Privacy of Individually Identifiable Health Information (45 CFR Parts 160 and 164), and the Security Standards for the Protection of Electronic Protected Health Information (45 CFR Parts 160 and 164) and such other regulations that may, from time to time, be promulgated thereunder (collectively, the Standards), except for any noncompliance or violation that could not reasonably be expected to subject Borrower to penalties, monetary or otherwise, or other sanctions under or pursuant to HIPAA, the Standards or other applicable law. As of the Closing Date, Borrower has not received any notice from any Governmental Authority that such Governmental Authority has imposed or intends to impose any enforcement actions, fines or penalties for any failure or alleged failure to comply with HIPAA or its implementing regulations. Borrower (i) is in compliance with all laws, statutes, rules, regulations, ordinances and tariffs of any Governmental Authority applicable to Borrower and/or Borrower's business, assets or operations, including, without limitation, the Worker Adjustment and Retraining Act (or similar law), ERISA and Healthcare Laws and any applicable requirements promulgated under any such law, and (ii) is not in violation of any order of any Governmental Authority or other board or tribunal, except in the case of clauses (i) and (ii), above. Borrower has not received any notice that Borrower is not in compliance in any respect with any of the requirements of any of the foregoing. Borrower has (a) not engaged in any Prohibited Transactions as defined in Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, (b) not failed to meet any applicable minimum funding requirements under Section 302 of ERISA in respect of its plans and no funding requirements have been postponed or delayed, (c) no knowledge of any amounts due but unpaid to the Pension Benefit Guaranty Corporation, or of any event or occurrence which would cause the Pension Benefit Guaranty Corporation to institute proceedings under Title IV of ERISA to terminate any of the employee benefit plans, (d) fiduciary responsibility under ERISA for investments with respect to any plan existing for the benefit of Persons other than its employees or former employees, or (e) withdrawn, completely or partially, from any multi-employer pension plans so as to incur liability under the Multiemployer Pension Plan Amendments of 1980. With respect to Borrower, there exists no event described in Section 4043 of ERISA, excluding Subsections 4043(b)(2) and 4043(b)(3) thereof, for which the thirty (30) day notice period contained in 12 C.F.R. 2615.3 have not been waived. Borrower has maintained in all material respects all records required to be maintained by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), the Food and Drug Administration, Drug Enforcement Agency and State Boards of Pharmacy, all applicable federal and state licensing authorities and the Medicare, Medi-Cal and CHAMPUS/TRICARE programs as required by the Healthcare Laws, and there are no presently existing circumstances which likely would result in material violations of the Healthcare Laws. 5.11 Intellectual Property
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Except as set forth on Schedule 5.11, Borrower does not own, licenses or utilizes, and is not a party to, any patents, patent applications, trademarks, trademark applications, service marks, registered copyrights, copyright applications, copyrights, trade names, trade secrets, software, licenses or other Intellectual Property. 5.12 Licenses and Permits; Labor
Except for those matters which are the subject of the CLIA/CMS settlement and the CMS Settlement Agreement, Borrower is in compliance with and has all Permits and Intellectual Property necessary or required by applicable law or Governmental Authority for the operation of Borrower's business. All of the foregoing are in full force and effect and not in known conflict with the rights of others. Borrower is NOT: (i) in breach of or default under the provisions of any of the foregoing.. 5.13 No Default
No Default or Event of Default exists. 5.14 No Withholding of Reimbursements
Except for those matters which are the subject of the CMS Settlement Agreement, no third-party payor, including any Governmental Authority, or any financial intermediary for any Governmental Authority, including, but not limited to, CMS, Medicare, Medicaid and Medi-Cal, is, or has in any way indicated in writing that it may begin, withholding, setting-off, recouping, or attempting to withhold, set-off, or recoup, any amounts alleged to be owed to such payor by the Borrower, against any amounts alleged to be due to the Borrower. 5.15 Healthcare Matters
(a) Borrower has obtained from the (i) Medicare program, the provider numbers which will permit Borrower to bill the Medicare program with respect to the provision of general acute care and skilled nursing services to patients insured under the Medicare program, and (ii) Medi-Cal program, the provider numbers and in-patient service contracts which will permit Borrower to bill the Medi-Cal program with respect to the provision of general acute care and skilled nursing services to patients insured under the Medi-Cal program. Except for those matters which are the subject of the CLIA/CMS settlement and the CMS Settlement Agreement, Borrower is in material compliance with the conditions of participation in the Medicare and Medi-Cal programs. (b) Except for those matters which are the subject of the CLIA/CMS settlement and the CMS Settlement Agreement,, there is no pending, there is no pending or threatened, proceeding or investigation of Borrower relative to the Emergency Medical Treatment or Active Labor Act (EMTALA) nor are there any investigations or proceedings pending, or threatened by any Governmental Authority with respect to the Medicare, Medi-Cal or CHAMPUS/TRICARE programs.
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5.16
Hospital Operations/Litigation
Neither Borrower nor any of its respective directors, officers or management employees (in their respective capacities as directors, officers or management employees of Borrower) has been, (i) a party to a Corporate Integrity Agreement with the Office of Inspector General of the Department of Health and Human Services; (ii) subject to reporting obligations pursuant to any settlement agreement entered into with any Governmental Authority; (iii) the subject of any government payor program investigation conducted by any federal or state enforcement agency; (iv) a defendant in any qui tam/False Claims Act litigation; (v) the subject of any search warrant in any qui tam/False Claims Act litigation; (vi) the subject of any search warrant, subpoena, civil investigative demand, contact letter, or telephone or personal contact by or from any federal or state enforcement agency relating to an investigation; or (vii) to the Borrower's Knowledge, since the Petition Date, subject of any writing received by Borrower from any independent contractor, employee, vendor, physician, or any other person alleging that Borrower has violated any law or regulation in a material manner. 5.17 Insurance
Borrower has in full force and effect such insurance policies as are customary in its industry and as may be required pursuant to Section 6.5 hereof. All such insurance policies are listed and described on Schedule 5.18. 5.18 Names; Location of Offices, Records and Collateral
During the preceding five years, Borrower has not conducted business under or used any name (whether corporate, partnership or assumed) other than as shown on Schedule 5.18(a). Borrower is the sole owner of all of its names listed on Schedule 5.18(a), and any and all business done and invoices issued in such names are such Person's sales, business and invoices. Each trade name of Borrower or, represents a division or trading style of Borrower. Borrower maintains its places of business and chief executive offices only at the locations set forth on Schedule 5.18(b), and all Accounts of Borrower arise, originate and are located, and all of the Collateral granted by Borrower and all books and records in connection therewith or in any way relating thereto or evidencing such Collateral are located and shall only be located, in and at such locations of Borrower. All of the Collateral is located only in the continental United States. 5.19 Survival
Borrower makes the representations and warranties contained herein with the knowledge and intention that Lender is relying and will rely thereon. All such representations and warranties will survive the execution and delivery of this Agreement, the making of the Advances under the Revolving Facility. VI. AFFIRMATIVE COVENANTS
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Borrower covenants and agrees that, until full performance and satisfaction, and indefeasible payment in full in cash, of all the Obligations and termination of this Agreement: 6. 1 Financial Statements, Borrowing Certificate, Financial Reports and Other Information
(a) Financial Reports. In addition to providing the Borrowing Certificate in accordance with Section 2.4, Borrower shall furnish to Lender as soon as available and in any event within thirty (30) calendar days after the end of each calendar month, unaudited consolidated financial statements of Borrower, consisting of a balance sheet and statements of income, retained earnings, cash flows and owners' equity as of the end of the immediately preceding calendar month. With each such financial statement, Borrower shall also deliver a certificate of its chief financial officer stating that (A) such person has reviewed the relevant terms of the DIP Loan Documents and the condition of Borrower, and (B) no Default or Event of Default has occurred or is continuing, or, if any of the foregoing has occurred or is continuing, specifying the nature and status and period of existence thereof and the steps taken or proposed to be taken with respect thereto. (b) Other Materials. Borrower shall furnish to Lender as soon as available, and in any event within ten (10) calendar days after the preparation or issuance thereof or at such other time as set forth below: (i) copies of such financial statements (other than those required to be delivered pursuant to Section 6.1(a) prepared by, for or on behalf of Borrower and any other notes, reports and other materials related thereto, including, without limitation, any pro forma financial statements) as may be reasonably requested by Lender, (ii) copies of licenses and permits required by any applicable federal, state, foreign or focal law, statute ordinance or regulation or Governmental Authority for the operation of its business, (iii) promptly upon receipt thereof, copies of any reports submitted to Borrower by its independent accountants in connection with any interim audit of the books of Borrower and copies of each management control letter provided by such independent accountants, and (iv) copies of all reports and/or financial information provided to the Bankruptcy Court, the United States Trustee and any statutorily appointed or ad hoc committee in the Bankruptcy Case, and (v) such additional information, documents, statements, reports and other materials as Lender may reasonably request from a credit or security perspective or otherwise from time to time. (c) Consents. Borrower shall use commercially reasonable efforts to obtain and deliver from time to time all required consents, approvals and agreements from such third parties as required, with respect to effectuating the DIP Loan Documents and the transactions contemplated thereby. 6.2 Payment of Obligations
Borrower shall make full and timely indefeasible payment in cash of the principal of and interest on the Loans, Advances and all other Obligations.
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6.3
Conduct of Business and Maintenance of Existence and Assets
Except with respect to rejections of leases or executory contracts, Borrower shall (i) conduct its business in accordance with good business practices customary to the industry, (ii) engage principally in the same or similar lines of business substantially as heretofore conducted, (iii) collect its Accounts in the ordinary course of business, (iv) maintain all of its material properties, assets and equipment used or useful in its business in good repair, working order and condition (normal wear and tear excepted and except as may be disposed of in the ordinary course of business and in accordance with the terms of the DIP loan Documents and otherwise as determined by Borrower using commercially reasonable business judgment), (v) from time to time to make all necessary or desirable repairs, renewals and replacements thereof, as determined by Borrower using commercially reasonable business judgment, (vi) maintain and keep in full force and effect its existence and all material Permits and qualifications to do business and good standing in each jurisdiction in which the ownership or lease of property or the nature of its business makes such Permits or qualification necessary and (vii) remain in good standing and maintain operations in all jurisdictions in which currently located. 6.4 Compliance with Legal and Other Obligations
Borrower shall (a) comply with all laws, statutes, rules, regulations, ordinances and tariffs of all Governmental Authorities applicable to it or its business, assets or operations, including applicable requirements of the Healthcare Laws, the Standards for Privacy of Individually Identifiable Health information which were promulgated pursuant to HIPAA,(b) maintain and comply with all Permits necessary to conduct its business and comply with any new or additional requirements that may be imposed on it or its business, and (c) properly file all Medicare, MediCal and, as applicable, CHAMPUS/TRICARE cost reports. Without limiting the foregoing, the Borrower is, and while this Agreement shall remain in effect shall remain, qualified for participation in the Medicare and Medi-Cal programs; Borrower has, and while this Agreement shall remain in effect shall maintain, a current and valid provider contract with such programs; Borrower is, and while this Agreement shall remain in effect shall remain, in compliance with the conditions of participation in such programs; Borrower has, and while this Agreement shall remain in effect shall maintain, all approvals or qualification necessary for capital reimbursement for the Hospital; and Borrower has obtained, and while this Agreement shall remain in effect shall maintain, accreditation of the Hospital by JCAHO applicable to all of its patient care facilities/services. While this Agreement shall remain in effect, all billing practices of the Borrower with respect to the Hospital and all third party payors, including the Medicare, MediCal and CHAMPUS/TRICARE programs and private insurance companies, shall remain in compliance with all applicable laws, regulations and policies of such third party payors and the Medicare, Medi-Cal and CHAMPUS/TRICARE programs. 6.5 Insurance
Borrower shall (i) keep all of its insurable properties and assets including without limitation Inventory that is in transit (whether by vessel, air or land) adequately insured in all material respects as at present against losses, damages and hazards as are customarily insured
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against by businesses engaging in similar activities or owning similar assets or properties and at least the minimum amount required by applicable law (and with respect to Inventory that is in transit, maintain insurance covering the same for its full replacement cost under all risk marine insurance policies endorsed to cover all risks and with such amounts of coverage and deductibles as at present, issued by such insurance carriers at present or as are reasonably acceptable to Lender), including, without limitation, professional liability insurance, as applicable; (ii) maintain general public liability insurance at all times against liability on account of damage to persons and property having such limits, deductibles, exclusions and co-insurance and other provisions as are customary for a business engaged in activities similar to those of Borrower; and (iii) maintain insurance under all applicable workers' compensation laws. 6.6 Inspection; Periodic Audits
Borrower shall permit the representatives of Lender, from time to time during normal business hours upon reasonable notice, to (i) visit and inspect any of its offices or properties or any other place where Collateral is located to inspect the Collateral and/or to examine or audit all of its books of account, records, reports and other papers, (ii) make copies and extracts therefrom, and (iii) discuss its business, operations, prospects, properties, assets, liabilities, condition and/or Accounts with its officers and independent public accountants (and by this provision such officers and accountants are authorized to discuss the foregoing). 6.7 Further Assurances; Post Closing
At Borrower's sole cost and expense, Borrower shall take such further actions, obtain such consents and approvals and duly execute and deliver such further agreements, assignments, instructions or documents as Lender may reasonably request with respect to the purposes, terms and conditions of the DIP Loan Documents and the consummation of the transactions contemplated thereby. 6.8 Payment of Indebtedness
Except as otherwise prescribed in the DIP Loan Documents, or to the extent excused pursuant to the Bankruptcy Code, and, with respect to Subordinated Debt, subject to any applicable Subordination Agreement or subordination provisions, Borrower shall pay, discharge or otherwise satisfy at or before maturity (subject to applicable grace periods and, in the case of trade payables, to ordinary course payment practices) all of its material obligations and liabilities, except when the amount or validity thereof is being contested in good faith by appropriate proceedings and such reserves as Lender may deem proper and necessary in its sole discretion shall have been made. 6.9 Lien Searches
If Liens other than Permitted Liens exist, Borrower immediately shall take, execute and deliver all actions, documents and instruments necessary to release and terminate or subordinate such Liens.
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6.10
Use of Proceeds
Borrower shall use the proceeds from the Revolving Facility only for the purposes provided in the Financing Orders. 6.11 Collateral Documents; Security Interest in Collateral
Borrower shall (i) execute, obtain, deliver, file, register and/or record any and all financing statements, continuation statements, stock powers, instruments and other documents, or cause the execution, filing, registration, recording or delivery of any and all of the foregoing, that are necessary or required under law or otherwise or reasonably requested by Lender to be executed, filed, registered, obtained, delivered or recorded to create, maintain, perfect, preserve, validate or otherwise protect the pledge of the Collateral to Lender and Lender's perfected Lien on the Collateral, and Borrower irrevocably grants Lender the right, at Lender's option, to file any or all of the foregoing, (ii) immediately upon learning thereof, report to Lender any reclamation, return or repossession of goods in excess of $10,000 (individually or in the aggregate), and (iii) defend the Collateral and Lenders perfected Lien thereon against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to Lender, and pay all reasonable costs and expenses (including, without limitation, in-house documentation and diligence fees and legal expenses and reasonable attorneys' fees and expenses) in connection with such defense, which may at Lender's reasonable discretion be added to the Obligations. 6.12 Taxes and Other Charges
Borrower shall promptly, and in any event within five (5) Business Days after Borrower or any authorized officer of Borrower obtains knowledge thereof, notify Lender in writing of any oral or written communication from the Internal Revenue Service or otherwise with respect to any (i) tax investigations, relating to the Borrower directly, or relating to any consolidated tax return which was filed on behalf of Borrower, (ii) notices of tax assessment or possible tax assessment, (iii) years that are designated open pending tax examination or audit, and (iv) information that could give rise to an IRS tax liability or assessment. 6.13 Payroll Taxes
Without limiting or being limited by any other provision of any DIP Loan Document, Borrower at all times shall process, manage and pay its Postpetition Date payroll taxes and shall cause to be delivered to Lender within ten (10) business days after the end of each calendar month a report of its Postpetition Date payroll taxes for the immediately preceding calendar month and evidence of payment thereof.
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VII. NEGATIVE COVENANTS Borrower covenants and agrees that, until full performance and satisfaction, and indefeasible payment in full in cash, of all of the Obligations and termination of this Agreement:
7.1
Permitted Indebtedness
Borrower shall not create, incur, assume or suffer to exist any Postpetition Date Indebtedness, except the following (collectively, Permitted Indebtedness): (i) Indebtedness under the DIP Loan Documents, (ii) any Indebtedness not otherwise described in this Section 7.1 and set forth on Schedule 7.1; (iii) accounts payable to trade creditors and current operating expenses (other than for borrowed money) incurred after the Petition Date which are not aged more than sixty (60) calendar days from the billing date or more than thirty (30) days from the due date, in each case incurred in the ordinary course of business and paid within such time period, unless the same are being contested in good faith and by appropriate and lawful proceedings and such reserves, if any, with respect thereto as are required by GAAP and deemed adequate by Borrower's independent accountants shall have been reserved; and (iv) Permitted Subordinated Debt. Borrower shall not make prepayments on any existing or future Indebtedness to any Person other than to Lender or to the extent specifically permitted by this Agreement or any subsequent agreement between Borrower and Lender. 7.2 Permitted Liens
Borrower shall not create, incur, or assume any Lien upon, in or against, or pledge of, any of the Collateral or any of its properties or assets or any of its shares, securities or other equity or ownership or partnership interests, whether now owned or hereafter acquired, except the following (collectively, Permitted Liens): (i) Liens under the DIP Loan Documents or otherwise arising in favor of Lender, (ii) Liens imposed by law for taxes (other than payroll taxes), assessments or charges of any Governmental Authority for claims not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained by such Person in accordance with GAAP to the satisfaction of Lender in its sale discretion, (iii) (A) statutory Liens of landlords and of carriers, warehousemen, mechanics or materialmen, and (B) other Liens imposed by law or that arise by operation of law in the ordinary course of business from the date of creation thereof, in each case only for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained by such Person in accordance with GAAP to the satisfaction of Lender in its sole discretion, (iv) Liens (A) incurred or deposits made in the ordinary course of business (including, without limitation, 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, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations, or (B) arising as a result of
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progress payments under government contracts, and (v) other Liens in existence as of the Petition Date not otherwise described above and disclosed on Schedule 7.2 . 7.3 Investments; New Facilities or Collateral; Subsidiaries
Borrower, directly or indirectly, shall not (i) merge with, purchase, own, hold, invest in or otherwise acquire obligations or stock or securities of, or any other interest in, or all or substantially all of the assets of, any Person or any joint venture or (ii) make or permit to exist any Postpetition Date loans, advances or guarantees to or for the benefit of any Person or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any Postpetition Date obligation of any Person (other than those created by the DIP Loan Documents and Permitted Indebtedness and other than (A) trade credit extended in the ordinary course of business, (B) advances for business travel and similar temporary advances made in the ordinary course of business to officers, directors and employees, (C) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business), and (D) indebtedness and other obligations in the ordinary course of Borrowers business. Borrower, directly or indirectly, shall not purchase, own, operate, hold, invest in or otherwise acquire any facility, property or assets or any Collateral that is not located at the locations set forth on Schedule 5.18B unless Borrower shall provide to Lender at least thirty (30) Business Days prior written notice. Borrower shall have no Subsidiaries. 7.4 Charter Documents; Fiscal Year; Name; Jurisdiction of Organization; Dissolution; Use of Proceeds
Borrower shall not (i) amend, modify, restate or change its certificate of incorporation or formation or bylaws or similar charter documents in a manner that would be adverse to Lender, (ii) change its fiscal year unless Borrower demonstrates to Lender's satisfaction compliance with the covenants contained herein for both the fiscal year in effect prior to any change and the new fiscal year period by delivery to Lender of appropriate interim and annual pro forma, historical and current compliance certificates for such periods and such other information as Lender may reasonably request, (iii) change its name or change its jurisdiction of organization; (iv) amend, alter or suspend or terminate or make provisional in any material way, any Permit without the prior written consent of Lender, which consent shall not be unreasonably withheld, (v) other than the fi1ing of the Bankruptcy Case or commence or suffer any proceedings seeking or that would result in any of the foregoing, or (vi) use any proceeds of any Advance for purchasing or carrying margin stock as defined in Regulations U, T or X of the Board of Governors of the Federal Reserve System. 7.5 Truth of Statements
Borrower shall not after the date hereof, furnish to Lender any certificate or other document that contains any untrue statement of a material fact or that omits to state a material fact necessary to make it not misleading in light of the circumstances under which it was furnished.
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7.6
IRS Form 8821
Borrower shall not alter, amend, restate, or otherwise modify, or withdraw, terminate or re-file the IRS Form 8821 required to be filed pursuant to the Conditions Precedent in Section 4.1 hereof. 7.7 Transfer of Assets
Except as otherwise consented to in writing by Lender, Borrower shall not sell, lease, transfer, assign or otherwise dispose of any interest in any properties or assets (other than (x) sales of Inventory in the ordinary course of business), (y) sales of excess, obsolete, unused or redundant assets in the aggregate amount not to exceed $25,000, regardless of the number of such sale transactions without Lender's express written consent, and (z) rejections of leases and executory contracts), or agree to do any of the foregoing at any future time, except that: (a) Borrower may lease (as lessee) real or personal property or surrender all or a portion of a lease of the same, in each case in the ordinary course of business (so long as such lease does not create or result in and is not otherwise a Capitalized Lease Obligation prohibited under this Agreement), provided that a Landlord Waiver and Consent and such other consents as are reasonably required by Lender are signed and delivered to Lender with respect to any lease of real or other property, as applicable; and (b) Borrower may license or sublicense Intellectual Property or customer lists from third parties in the ordinary course of business, provided, that such licenses or sublicenses shall not interfere with the business or other operations of such Person and such Person's rights, title and/or interest in or to such Intellectual Property and customer lists and interests therein are pledged to Lender as further security for the Obligations and included as part of the Collateral. 7.8 Modification of Agreements
Except with respect to rejected leases and executory contracts, Borrower shall not make, or agree to make, any modification, amendment or waiver of any of the terms or provisions of, and will not fail to enforce or diligently pursue its remedies under any and all agreements, documents, instruments and/or certificates executed in connection with any Permitted Subordinated Debt. 7.9 Chapter 11 Claims
Borrower shall not incur, create, assume, suffer to exist or permit any administrative expense or any Claim (now existing or hereafter arising, of any kind or nature whatsoever) which is superior to or pari passu with those granted to Lender by this Agreement or the Financing Orders.
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7.10
Filing of Motions and Applications
Borrower shall not apply to the Bankruptcy Court for authority to (a) take any action that is prohibited by the terms of any of the DIP Loan Documents, (b) refrain from taking any action that is required to be taken by the terms of any of the DIP Loan Documents or the Financing Orders, or (c) seek or consent to any amendment, supplement, or any other modification of any terms of the Financing Orders. VIII. EVENTS OF DEFAULT 8.1 The occurrence of anyone or more of the following shall constitute an Event of Default: (a) Borrower shall fail to pay when due any amount on the Obligations or provided for in any DIP Loan Document (whether on any payment date, at maturity, by reason of acceleration, by required prepayment or otherwise); (b) any representation, statement or warranty made or deemed made by Borrower or any other Person (other than Lender) in any DIP Loan Document or in any other certificate, document, report or opinion delivered in conjunction with any DIP Loan Document to which it is a party, shall not be true and correct in all material respects or shall have been false or misleading in any material respect on the date when made or deemed to have been made (except to the extent already qualified by materiality, dollar thresholds or Material Adverse Effect qualifiers, in which case it shall be true and correct in all respects and shall not be false or misleading in any respect); (c) Borrower or any other party thereto other than Lender, shall be in violation, breach or default of, or shall fail to perform, observe or comply with any covenant, obligation or agreement set forth in any DIP Loan Document or the Financing Orders, and such violation, breach, default or failure shall not be cured within the applicable period set forth in any DIP Loan Document or the Financing Orders, if any, provided that, with respect to the affirmative covenants set forth in Article VI (other than Sections 6.1, 6.2, 6.5, 6.7, 6.8, 6.10 and 6.13 for which there sha1l be no cure period), there shall be a five (5) Business Day cure period commencing from the earlier of (i) Receipt by such Person of written notice of such breach, default, violation or failure, and (ii) the time at which such Person or any authorized officer thereof knew or became aware, or should have known or been aware, of such failure, violation, breach or default, but no Advances will be made during the cure period; (d) any of the DIP Loan Documents ceases to be in full force and effect, or (ii) any Lien created thereunder ceases to constitute a valid perfected Lien on the Collateral having the priority set forth in the Financing Orders in accordance with the terms thereof, or Lender ceases to have a valid perfected security interest in any of the Collateral or any securities pledged to Lender pursuant to the Security Documents, or the Financing Orders having the priority set forth in the Financing Orders;
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(e) one or more tax assessments, judgments or decrees for post-Petition Date obligations is rendered against Borrower in an amount in excess of $10,000 individually or $10,000 in the aggregate, which is/are not satisfied, vacated or discharged of record within thirty (30) calendar days of being rendered and due and payable; (f) an order is entered by the Bankruptcy Court in the Bankruptcy Case appointing, or the Borrower files a motion or application for an order seeking the appointment of, in either case, without express prior written consent of the Lender (i) a trustee under Section 1104 of the Bankruptcy Code, or (ii) an examiner with enlarged powers relating to the operation of the business (i.e., powers beyond those set forth in Section 1106(a)(3) and (4) of the Bankruptcy Code) under Section 1106(b) of the Bankruptcy Code; (g) without the prior written consent of the Lender, an order shall be entered by the Bankruptcy Court converting the Bankruptcy Case to a Chapter 7 case; (h) an order is entered by the Bankruptcy Court approving a disclosure statement or confirming a plan of reorganization or liquidation in the Bankruptcy Case that does not (i) contain a provision for termination of the Agreement and payment in full in cash of all Obligations of the Borrower hereunder and under the other DIP Loan Documents on or before the effective date of such plan, or (ii) provide for the continuation of the Liens and security interests granted to Lender and priorities until the effective date of such plan unless the Obligations have been paid in full and the Agreement has been terminated; (i) an order is entered by the Bankruptcy Court dismissing the Bankruptcy Case, which order does not contain a provision for termination of the Agreement, and payment in full in cash of all Obligations of the Borrower hereunder and under the other DIP Loan Documents prior to entry thereof; (j) an order is entered by the Bankruptcy Court in the Bankruptcy Case, without the prior written consent of the Lender (i) to revoke, reverse, stay modify, supplement or amend the Financing Orders, (ii) to permit any administrative expense or any claim (now existing or hereafter arising, of any kind or nature whatsoever) to have administrative priority as to the Borrower equal or superior to the priority of the Lender in respect to the Obligations, or (iii) to grant or permit the grant of a Lien on the Collateral other than a Permitted Lien; (k) an order is entered by the Bankruptcy Court that is not stayed pending appeal granting relief from the automatic stay allowing secured creditor of Borrower to enforce its remedies to liquidate or obtain possession of the Collateral; (l) any action is commenced by Borrower that contests the validity, perfection, priority or enforceability of any of the Liens and security interests of the Lender; (m) without the prior written consent of the Lender, the determination of Borrower, whether by vote of Borrowers Board of Directors or otherwise, to suspend the operation of such Borrowers business in the ordinary course sell substantially all of either
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Borrower's assets, unless the proceeds of such sale will pay the Obligations in full, or the filing of a motion or other application in the Bankruptcy Case, seeking authority to do any of the foregoing; (n) (o) Borrower ceases its business operations as currently conducted; an Event of Default occurs under any other DIP Loan Document;
(p) Borrower is determined to have engaged in fraud in connection with the operation of Borrower's business, including, but not limited to, any matters relating to any of Borrower's Government Accounts, Government Contracts, or any Governmental Authority. (q) Borrower enters into or becomes a party to any agreement or commitment to do, or cause to be done, any of the things described in this Article VIII or otherwise prohibited by any DIP Loan Document (subject to any cure periods set forth therein); (r) (i) the subordination provisions of any Subordination Agreement and/or the subordination provisions contained in or otherwise pertaining to any other agreement or instrument governing any Subordinated Debt shall for any reason be revoked or invalidated, or otherwise cease to be in full force and effect, or (ii) the Obligations for any reason shall not have the priority contemplated by this Agreement; (s) reserved;
(t) the healthcare facility operated by Borrower, or any material portion thereof, (i) become the subject of any proceedings by any Governmental. Authority for condemnation, seizure, appropriation, or similar action; or (ii) ceases operations, including the admission of patients, for a continuous period of more than five (5) days or, more than ten (10) days in the aggregate following the Closing Date. then, and in any such event, notwithstanding any other provision of any Loan Document, Lender, on five (5) business days notice to Borrower, in which period Borrower may contest the existence of any such Event of Default, may do any of the following: (i) terminate its obligations to make Advances hereunder, whereupon the same shall immediately terminate and (ii) declare all or any of the Notes, all interest thereon and all other Obligations to be due and payable immediately IX. RIGHTS AND REMEDIES AFTER DEFAULT 9.1 Rights and Remedies (a) In addition to the acceleration provisions set forth in Article VIII above, upon the occurrence and continuation of an Event of Default, subject to the Financing Orders, Lender shall have the right to exercise any and all rights, options and remedies provided for in the DIP Loan Documents, under the UCC, the Bankruptcy Code, the Financing Orders or at law or in
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equity, including, without limitation, the right to in accordance with the procedures set forth in the Financing Orders (i) apply any property of Borrower held by Lender to reduce the Obligations, (ii) foreclose the Liens created under the Security Documents, (iii) realize upon, take possession of and/or sell any Collateral or securities pledged with or without Judicial process, (iv) exercise all rights and powers with respect to the Collateral as Borrower might exercise, (v) collect and send notices regarding the Collateral, with or without judicial process, (vi) by its own means or with Judicial assistance, enter any premises at which Collateral and/or pledged securities are located, or render any of the foregoing unusable or dispose of the Collateral and/or pledged securities on such premises without any liability for rent, storage, utilities, or other sums, and Borrower shall not resist or interfere with such action, (vii) require that all or any of the Collateral be assembled and made available to Lender at any place designated by Lender, (viii) reduce or otherwise change the Facility Cap, and/or (ix) relinquish or abandon any Collateral or securities pledged or any Lien thereon. Notwithstanding any provision of any DIP Loan Document, upon the occurrence and continuation of an Event of Default, subject to the Financing Orders, Lender, in its sole discretion, shall have the right, at anytime that Borrower fails to do so, and from time to time, without prior notice, to: (i) obtain insurance covering any of the Collateral to the extent required hereunder; (ii) pay for the performance of any of Obligations; (iii) to the extent not stayed by the filing of the Bankruptcy Case, discharge taxes or Liens on any of the Collateral that are in violation of any DIP Loan Document unless Borrower is in good faith with due diligence by appropriate proceedings contesting those items; and (iv) pay for the maintenance and preservation of the Collateral. Such expenses and advances shall be added to the Obligations until reimbursed to Lender and shall be secured by the Collateral, and such payments by Lender shall not be construed as a waiver by Lender of any Event of Default or any other rights or remedies of Lender. (b) Borrower agrees that notice received by it at least ten (10) calendar days before the time of any intended public sale, or the time after which any private sale or other disposition of Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by applicable law, any perishable Collateral which threatens to speedily decline in value or which is sold on a recognized market may be sold immediately by Lender without prior notice to Borrower. At any sale or disposition of Collateral or securities pledged, Lender may (to the extent permitted by applicable law) purchase all or any part thereof free from any right of redemption by any Borrower which right is hereby waived and released. Borrower covenants and agrees not to, and not to permit or cause any of its Subsidiaries to, interfere with or impose any obstacle to Lender's exercise of its rights and remedies with respect to the Collateral. 'Lender, in dealing with or disposing of the Collateral or any part thereof, shall not be required to give priority or preference to any item of Collateral or otherwise to marshal assets or to take possession or sell any' Collateral with judicial process. (c) Borrower hereby grants to Lender, after the occurrence and during the continuance of an Event of Default, an irrevocable, nonexclusive license (exercisable without payment of royally or other compensation to Borrower) to use, assign, license or sublicense any Intellectual Property now owned or hereafter acquired by Borrower, and wherever the same may be located, including in such license reasonable access as to all media in which any of the licensed items may be recorded or stored and to all computer programs and used for the compilation or printout thereof, in each case in connection with the exercise of Lender's remedies
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hereunder and under the other Loan Documents. All proceeds received by Lender in connection with such license will be used by Lender to satisfy the Obligations. (d) In addition to the acceleration provisions set forth in Article VIII above, upon the occurrence and continuation of an Event of Default, Borrower shall take any action that Lender may request in order to enable Lender to obtain and enjoy the full rights and benefits granted to Lender hereunder. Without limiting the generality of the foregoing, upon the occurrence and continuation of an Event of Default, at the request of Lender and at Borrower's sale cost and expense, Borrower shall execute all documents and take in other actions requested by Lender to enable Lender, its designee, any receiver, trustee or similar official or any purchaser of all or any part of the Collateral to obtain from any Person any required authority necessary to operate the business of Borrower. 9.2 Application of Proceeds
In addition to any other rights, options and remedies Lender has under the DIP Loan Documents, the Bankruptcy Code, the UCC, the Financing Orders, at law or in equity, all dividends, interest, rents, issues, profits, fees, revenues, income and other proceeds collected or received from collecting, holding, managing, renting, selling, or otherwise disposing of all or any part of the Collateral or any proceeds thereof upon exercise of its remedies hereunder shall be applied in the following order of priority: (i) first, to the payment of all costs and expenses of such collection, storage, lease, holding, operation, management, sale, disposition or delivery and of conducting Borrower's business and of maintenance, repairs, replacements, alterations, additions and improvements of or to the Collateral, and to the payment of all sums which Lender may be required or may elect to pay, if any, for taxes, assessments, insurance and other charges upon the Collateral or any part thereof, and all other payments that Lender may be required or authorized to make under any provision of this Agreement (including, without limitation, in each such case, in-house documentation and diligence fees and legal expenses, search, audit, recording, professional and filing fees and expenses and reasonable attorneys' fees and all expenses, liabilities and advances made or incurred in connection therewith); (ii) second, to the payment of all Obligations as provided herein; (iii) third, to the satisfaction of the Prepetition Debt; (iv) fourth, to the satisfaction of Indebtedness secured by any subordinate security interest of record in the Collateral if written notification of demand therefor is received before distribution of the proceeds is completed, provided, that, if requested by Lender, the holder of a subordinate. security interest shall furnish reasonable proof of its interest, and unless it does so, Lender need not address its claims; and (iv) fifth, to the payment of any surplus then, remaining to Borrower, unless otherwise provided by law or directed by a court of competent jurisdiction, provided that Borrower shall be liable for any deficiency if such proceeds are insufficient to satisfy the Obligations or any of the other items referred to in this section. 9.3 Rights and Remedies not Exclusive
Lender shall have the right in its sole discretion to determine which rights, Liens and/or remedies Lender may at any time pursue, relinquish, subordinate or modify arid such determination will not in any way modify or affect any of Lenders rights, Liens or remedies under any DIP Loan Document, the Financing Orders, the Bankruptcy Code, applicable law or
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equity. The enumeration of any rights and remedies in any DIP Loan Document or the Financing Orders is not intended to be exhaustive, and all rights and remedies of Lender described in any DIP Loan Document or Financing Orders are cumulative and are not alternative to or exclusive of any other rights or remedies which Lender otherwise may have. The partial or complete exercise of any right or remedy shall not preclude any other further exercise of such or any other right or remedy. X. WAIVERS AND JUDICIAL PROCEEDINGS 10.1 Delay; No Waiver of Defaults
No course of action or dealing, renewal, release or extension of any provision of any DIP Loan Document or the Financing Orders, or single or partial exercise of any such provision, or delay, failure or omission on Lender's part in enforcing any such provision shall affect the liability of Borrower or operate as a waiver of such provision or affect the liability of Borrower or preclude any other or further exercise of such provision. No waiver by any party to any DIP Loan Document of anyone or more defaults by any other party in the performance of any of the provisions of any DIP Loan Document shall operate or be construed as a waiver of any future default, whether of a like or different nature, and each such waiver shall be limited solely to the express terms and provisions of such waiver. Notwithstanding any other provision of any DIP Loan Document, by completing the Closing under this Agreement and/or by making Advances, Lender does not waive any breach of any representation or warranty under any DIP Loan Document, and all of Lender's claims and rights resulting from any such breach or misrepresentation are specifically reserved. 10.2 Jury Trial Waiver
EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION ARISING UNDER THE DIP LOAN DOCUMENTS OR IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO THE DIP LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY.
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XI. EFFECTIVE DATE AND TERMINATION 11.1 Termination and Effective Date Thereof
Subject to Lender's right to terminate and cease making Advances upon or after any Event of Default, this Agreement shall continue in full force and effect until the full performance and indefeasible payment in cash of all Obligations, unless terminated sooner as provided in this Section 11.1. Borrower may terminate this Agreement at any time upon not less than fourteen calendar days' prior written notice to Lender and upon full performance and indefeasible payment in full in cash of all Obligations on or prior to such fourteenth calendar day after Receipt by Lender of such written notice. All of the Obligations shall be immediately due and payable upon any such termination on the termination date stated in any notice of termination (the Termination Date); provided that, notwithstanding any other provision of any DIP Loan Document, the Termination Date shall be effective no earlier than the first Business Day of the month following the expiration of the fourteen (14) calendar days' prior written notice period. Notwithstanding any other provision of any DIP Loan Document, no termination of this Agreement shall affect Lender's rights or any of the Obligations existing as of the effective date of such termination, and the provisions of the DIP Loan Documents shall continue to be fully operative until the Obligations have been fully performed and indefeasibly paid in cash in full. The Liens granted to Lender hereunder, under the Financing Orders, under the other Security Documents and the financing statements filed pursuant thereto and the rights and powers of Lender shall continue in full force and effect notwithstanding the fact that Borrower's borrowings hereunder may from time to time be in a zero credit position until all of the Obligations have been fully performed and indefeasibly paid in full in cash and all commitments to lend hereunder have terminated. 11.2 Survival All obligations, covenants, agreements, representations, warranties, waivers and indemnities made by Borrower in any DIP Loan Document and Finance Orders shall survive the execution and delivery of the DIP Loan Documents, the Closing, the making of the Advances and any termination of this Agreement until all Obligations are fully performed and indefeasibly paid in full in cash. The obligations and provisions of Sections 3, 10.2, 11.1, 11.2, 12.4, 12.5, 12.7 and 12.9 shall survive termination of the DIP Loan Documents and any payment, in full or in part, of the Obligations. XII. MISCELLANEOUS 12.1 Governing law; Jurisdiction; Service of Process; Venue The DIP Loan Documents shall be governed by and construed in accordance with the internal laws of the State of California without giving effect to its choice of law provisions and, to the extent applicable, the Bankruptcy Code. Any judicial proceeding against Borrower with
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respect to the Obligations, any DIP Loan Document or any related agreement must be brought in the Bankruptcy Court or, if the Bankruptcy Court does not have jurisdiction, any federal or state court of competent jurisdiction located in the State of California. By execution and delivery of each DIP Loan Document to which it is a party, Borrower (i) accepts the non-exclusive jurisdiction of the aforesaid courts and irrevocably agrees to be bound by any judgment rendered thereby, (ii) waives personal service of process, (iii) agrees that service of process upon it may be made by certified or registered mail, return receipt requested, pursuant to Section 12.5 hereof, (iv) waives any objection to jurisdiction and venue of any action instituted hereunder and agrees not to assert any defense based on lack of jurisdiction, venue or convenience, and (v) agrees that this loan was made in California, that Lender has accepted in California DIP Loan Documents executed by Borrower and has disbursed Advances under the DIP Loan Documents in California. Nothing shall affect the right of Lender to serve process in any manner permitted by law or shall limit the right of Lender to bring proceedings against Borrower in the courts of any other jurisdiction having jurisdiction. Any judicial proceedings against Lender involving, directly or indirectly, the Obligations, any DIP Loan Document or any related agreement shall be brought only in the Bankruptcy Court, if the Bankruptcy Court has jurisdiction, or in a federal or state court located in the State of California. All parties acknowledge that they participated in the negotiation and drafting of this Agreement and that, accordingly, no party shall move or petition a court construing this Agreement to construe it more stringently against one party than against any other. 12.2 Successors and Assigns; Participations; New Lenders
The DIP Loan Documents shall inure to the benefit of Lender, Transferees and all future holders of the Loan, any Note, the obligations and/or any of the Collateral, and each of their respective successors and assigns. Each DIP Loan Document shall be binding upon the Persons other than Lender that are parties thereto and their respective successors and assigns, and no such Person may assign, delegate or transfer any DIP Loan Document or any of its rights or obligations thereunder without the prior written consent of Lender. No rights are intended to be created under any DIP Loan Document for the benefit of any third party donee, creditor or incidental beneficiary of any Borrower , including, but not limited to, any trustee or examiner succeeding to the rights of Borrower pursuant to Chapter 11 of the Bankruptcy Code or pursuant to any conversion to a case under Chapter 7 of the Bankruptcy Code. Nothing contained in any DIP Loan Document shall be construed as a delegation to Lender of any other Person's duty of performance. BORROWER ACKNOWLEDGES AND AGREES THAT LENDER AT ANY TIME AND FROM TIME TO TIME MAY (I) DIVIDE AND RESTATE ANY NOTE, AND/OR (II) SELL, ASSIGN OR GRANT PARTICIPATING INTERESTS IN OR TRANSFER ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER ANY DIP LOAN DOCUMENT, LOANS, ANY NOTE, THE OBLIGATIONS AND/OR THE COLLATERAL TO OTHER PERSONS (EACH SUCH TRANSFEREE, ASSIGNEE OR PURCHASER, A TRANSFEREE). Each Transferee shall have all of the rights and benefits with respect to the Financing Orders, Loans, Obligations, any Notes, Collateral and/or DIP Loan Documents held by it as fully as if the original holder thereof, and either Lender or any Transferee may be designated as the sale agent to manage the transactions and obligations contemplated therein; provided that, notwithstanding anything to the contrary in any DIP Loan Document, Borrower shall not be obligated to pay under this Agreement to any Transferee any
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sum in excess of the sum which Borrower would have been obligated to pay to Lender had such participation not been effected. Notwithstanding any other provision of any DIP Loan Document, Lender may disclose to any Transferee all information, reports, financial statements, certificates and documents obtained under any provision of any DIP Loan Document. 12.3 Application of Payments
To the extent that any payment made or received with respect to the Obligations is subsequently invalidated, determined to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver, custodian, Committee or any other Person under any Debtor Relief Law, common law or equitable cause or any other law, then the Obligations intended to be satisfied by such payment shall be revived and shall continue as if such payment had not been received by Lender. Any payments with respect to the Obligations received shall be credited and applied in such manner and order as Lender shall decide in its sole discretion. 12.4 Indemnity
Other than fees and costs of Borrower incurred by Lender in connection with negotiating and drafting this Agreement and with litigating the approval of this Agreement before the Bankruptcy Court, Borrower shall indemnify Lender, its Affiliates and its and their respective managers, members, officers, employees, Affiliates, agents, representatives, successors, assigns, accountants and attorneys (collectively, the Indemnified Persons) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel and in-house documentation and diligence fees and legal expenses) which may be imposed on, incurred by or asserted against any Indemnified Person with respect to or arising out of, or in any litigation, proceeding or investigation instituted or conducted by any Person with respect to any aspect of, or any transaction contemplated by or referred to in, or any matter related to, any DIP Loan Document or any agreement, document or transaction contemplated thereby, whether or not such Indemnified Person is a party thereto, except to the extent that any of the foregoing arises out of the negligence or willful misconduct of such Indemnified Person. Lender agrees to give Borrower reasonable notice of any event of which Lender becomes aware for which indemnification may be required under this Section 12.4, and Lender may elect (but is not obligated) to direct the defense thereof, provided that the selection of counsel shall be subject to Borrower's consent, which consent shall not be unreasonably withheld or delayed. Any Indemnified Person may, in its reasonable discretion, take such actions as it deems necessary and appropriate to investigate, defend or settle any event or take other remedial or corrective actions with respect thereto as may be necessary for the protection of such Indemnified Person or the Collateral. Notwithstanding the foregoing, if any insurer agrees to undertake the defense of an event (an Insured Event), Lender agrees not to exercise its right to select counsel to defend the event if that would cause Borrower's insurer to deny coverage; provided, however, that Lender reserves the right to retain counsel to represent any Indemnified Person with respect to an Insured Event at its sole cost and expense. To the extent that Lender obtains recovery from a third party other than an Indemnified Person of any of the amounts that
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Borrower has paid to Lender pursuant to the indemnity set forth in this Section 12.4, then Lender shall promptly pay to Borrower the amount of such recovery. 12.5 Notice
Any notice or request under any DIP Loan Document shall be given to any party to this Agreement at such party's address set forth beneath its signature on the signature page to this Agreement, or at such other address as such party may hereafter specify in a notice given in the manner required under this Section 12.5. Nothing in this Agreement or in any other DIP Loan Document shall be construed to limit or affect the obligation of the Borrower or any other Person to serve upon the Lender in the manner prescribed by the Bankruptcy Code any pleading or notice required to be given to Lender pursuant to the Bankruptcy Code. 12.6 Severability; Captions; Counterparts; Facsimile Signatures
If any provision of any DIP Loan Document is adjudicated to be invalid under applicable laws or regulations, such provision shall be inapplicable to the extent of such invalidity without affecting the validity or enforceability of the remainder of the DIP Loan Documents which shall be given effect so far as possible. The captions in the DIP Loan Documents are intended for convenience and reference only and shall not affect the meaning or interpretation of the DIP Loan Documents. The DIP Loan Documents may be executed in one or more counterparts (which taken together, as applicable, shall constitute one and the same instrument) and by facsimile transmission or email transmission via .pdf format, which facsimile or .pdf signatures shall be considered original executed counterparts. Each party to this Agreement agrees that it will be bound by its own facsimile or .pdf signature and that it accepts the facsimile signature of each other party. 12.7 Expenses
Borrower shall pay whether or not the Closing occurs, all reasonable and actual costs and expenses incurred by Lender and/or its Affiliates associated with this loan, including, without limitation, documentation and diligence fees and expenses, all search, audit, appraisal, recording, professional and filing fees and expenses and all other out-of-pocket charges and expenses (including, without limitation, UCC and judgment and tax lien searches and UCC filings and fees for post-Closing UCC and judgment and tax lien searches and wire transfer fees and audit expenses), and reasonable and actual attorneys' fees and expenses, (i) in any effort to enforce, protect or collect payment of any Obligation or to enforce any DIP Loan Document or any related agreement, document or instrument in which Lender prevails, (ii) (ii) in connection with instituting, maintaining, preserving, enforcing and/or foreclosing on Lender's Liens in any of the Collateral or securities pledged under the DIP Loan Documents, whether through judicial proceedings or otherwise, in which Lender prevails, (v) in defending or prosecuting any actions, claims or proceedings arising out of or relating to Lender's transactions with Borrower, in which Lender prevails, other than seeking approval of this Agreement before the Bankruptcy Court All of the foregoing shall be charged to Borrower's account and shall be part of the Obligations. If Lender or any of its Affiliates uses in-house counsel for any purpose under any DIP Loan Document for which Borrower is responsible to payor indemnify, Borrower expressly agrees that
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its Obligations include the allocable reasonable costs of in-house counsel for the work performed. Without limiting the foregoing, Borrower shall pay all taxes (other than taxes based upon or measured by Lender's income or revenues or any personal property tax), if any, in connection with the issuance of any Note and the filing and/or recording of any documents and/or financing statements. 12.8 Entire Agreement
This Agreement, the Financing Orders and the other DIP Loan Documents to which Borrower is a party constitute the entire agreement between Borrower and Lender with respect to the subject matter hereof and thereof, and supersede all prior agreements and understandings, if any, relating to the subject matter hereof or thereof. Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing signed by Borrower and Lender. No provision of this Agreement may be changed, modified, amended, restated, waived, supplemented, discharged, canceled or terminated orally or by any course of dealing or in any other manner other than by an agreement in writing signed by Lender and Borrower. Each party hereto acknowledges that it has been advised by counsel in connection with the negotiation and execution of this Agreement and is not relying upon oral representations or statements inconsistent with the terms and provisions hereof. 12.9 Confidentiality and Publicity
Borrower hereby agrees that Lender or any Affiliate of Lender may (i) disclose a genera1 description of transactions arising under the DIP Loan Documents for advertising, marketing or other similar purposes and (ii) use Borrower's name, logo or other indicia germane to such party in connection with such advertising, marketing or other similar purposes.
12.10 Acknowledgements Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement, the other DIP Loan Documents, and the Financing Orders; (b) Lender has no fiduciary relationship to the Borrower, and the relationship between Borrower, and Lender is solely that of debtor and creditor; and (c) no joint venture exists between the Borrower and Lender.
12.11 Bankruptcy Court Orders Paramount In the event of any direct conflict between the terms and conditions of this Agreement (and/or any DIP Loan Document) and the specific terms and conditions of the Financing Order, the terms and conditions of the Financing Orders shall prevail. Nothing set forth in this Agreement shall require the Borrower to act or fail to act in a manner that would violate the
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Bankruptcy Code or any order of the Bankruptcy Court, without prejudice to Lender's ability to declare the occurrence of an Event of Default based upon such action or failure to act in the event of any inconsistency between this Agreement and any of the other DIP Loan Documents, the terms of this Agreement shall control.
SIGNATURES ON FOLLOWING PAGE
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IN WITNESS WHEREOF, each of the parties has duly executed this Postpetition Revolving Credit and Security Agreement as of the date first written above. VICTOR VALLEY COMMUNITY HOSPITAL By: Name: Its: Address for Notices: Victor Valley Community Hospital 15248 Eleventh Street Victorville, CA 92395 Attention: Catherine M. Pelley Telephone: (760) 843-6201 Fax: (760) 843-6020 Prime Healthcare Management, Inc. By: Name: Michael J. Sarrao Its: Vice President and General Counsel Address for Notices: Prime Healthcare Management, Inc. 3300 E. Guasti Road, Suite 300 Ontario, CA 91761 Attention: Michael J. Sarrao, Esq. Telephone: (909) 235-4307 Fax: (909) 464-8887
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APPENDIX B DEFINITIONS
Advance shall mean a borrowing under the Revolving Facility. Any amounts paid by Lender on behalf of Borrower under any DIP Loan Document shall be an Advance for purposes of the Agreement. Advance Period shall mean the period of time commencing on October 11, 2011 and terminating on March 1, 2012 or such later date agreed to in writing by Lender. Affiliate shall mean, as to any Person, any other Person (a) that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, (b) who is a director or officer (i) of such Person, (ii) of any Subsidiary of such Person. For purposes of this definition, the term control (and the correlative terms, controlled by and under common control with) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies, whether through ownership of securities or other interests, by contract or otherwise. Applicable Rate shall mean, with respect to any Obligation, the rate of interest applicable from time to time to such Obligation under this Agreement. Avoidance Claims shall mean any claims or causes of action arising Bankruptcy Code sections 502(d), 544, 545, 547-549, 550, or 553 in the Bankruptcy Case. Avoidance Claims Proceeds any monies recovered in connection with the successful prosecution or settlement of any Avoidance Claims. Bankruptcy Case shall have the meaning given such term in the recitals hereof. Bankruptcy Code shall have the meaning given such term in the recitals hereof. Bankruptcy Court shall have the meaning given such term in the recitals hereof. Borrower's Knowledge shall mean matters known, or to be known after reasonable inquiry, of the Borrower's CEO, CFO, COO, or Chief Nursing Officer, whether such officer is serving in a permanent or interim capacity. Borrowing Certificate shall mean a Borrowing Certificate substantially in the form of Exhibit A. Borrowing Date shall have the meaning given such term in Section 2.4. Business Day shall mean any day other than a Saturday, Sunday or other day on which the Federal Reserve or Lender is closed.
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Capital Expenditures shall mean, for any applicable period of measurement, the sum (without duplication) of all expenditures (whether paid in cash or accrued as liabilities) during such period of measurement that are or should be treated as capital expenditures under GAAP. Capital Lease shall mean, as to any Person, a lease of any interest in any kind of property or asset by that Person as lessee that is, should be or should have been recorded as a capital lease in accordance with GAAP. Capitalized Lease Obligations shall mean all obligations of any Person under Capital Leases, in each case, taken at the amount thereof accounted for as a liability in accordance with GAAP. Charter and Good Standing Documents shall mean, for the Borrower (i) a copy of the certificate of incorporation or formation (or other charter document) certified as of a date satisfactory to Lender before the Closing Date by the applicable Governmental Authority of the jurisdiction of incorporation or organization of Borrower, (ii) a copy of the bylaws or similar organizational documents certified as of a date satisfactory to Lender before the Closing Date by the corporate secretary or assistant secretary of Borrower, (iii) an original certificate of good standing as of a date acceptable to Lender issued by the applicable Governmental Authority of the jurisdiction of incorporation or organization of Borrower and of every other jurisdiction in which Borrower has an office or conducts business or is otherwise required to be in good standing, and (iv) copies of the resolutions of the Board of Directors or managers (or other applicable governing body) and, if required, stockholders, members or other equity owners authorizing the execution, delivery and performance of the DIP Loan Documents to which Borrower is a party, certified by an authorized officer of such Person as of the Closing Date. Claim shall have the meaning given such term in Section 101(5) of the Bankruptcy Code. Closing shall mean the satisfaction, or written waiver by Lender, of all of the conditions precedent set forth in the Agreement required to be satisfied prior to the consummation of the transactions contemplated hereby. Closing Date shall mean the date of this Agreement. CMS shall mean the Centers for Medicare and Medicaid Services. CMS Settlement Agreement shall mean that certain settlement agreement between Borrower and the Centers for Medicare and Medicaid Services related to cost report periods prior to October 1, 2010. Collateral shall mean, collectively and each individually, all collateral and/or security granted and/or securities pledged to Lender by Borrower and any other Person pursuant to the DIP Loan Documents including, without limitation, the items set forth or otherwise described in Section 2.10 of this Agreement.
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Computer Hardware and Software shall mean, with respect to any Person, all of suchPerson's rights (including rights as licensee and lessee) with respect to (a) computer and other electronic data processing hardware, including all integrated computer systems, central processing units, memory units, display terminals, printers, computer elements~ card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories, peripheral devices and other related computer hardware; (b) all software and all software programs designed for use on the computers and electronic data processing hardware described in clause (a) above, including all operating system software, utilities and application programs in any form (source code and object code in magnetic tape, disk or hard copy format or any other listings whatsoever) and any other software; (c) any firmware associated with any of the foregoing; (d) any other software; and (e) any documentation for or related to hardware, software and firmware described in clauses (a), (b), (c) and (d) above, including flow charts, logic diagrams, manuals, specifications, training materials, charts and pseudo codes. Consulting Services Agreement means that agreement entered into between Borrower and Lender dated October 11, 2011, pursuant to which Lender is providing consulting services to Borrower. Copyrights shall mean, with respect to any Person, all of such Person's now existing or hereafter acquired right, title, and interest in and to: (i) copyrights, rights and interests in copyrights, works protectable by copyright, all applications, registrations and recordings relating to the foregoing as may at any time be filed in the United States Copyright Office or in any similar office or agency of the United States, any State thereof, any political subdivision thereof or in any other country, and all research and development relating to the foregoing; and (ii) all renewals of any of the foregoing. Cost Report shall mean the annual financial report required by federal law (SSA 1886 et. seq.) of hospitals participating in the Medicare Program. Debtor Relief Law shall mean, collectively, the Bankruptcy Code and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency; reorganization or similar debtor relief laws from time to time in effect affecting the rights of creditors generally, as amended from time to time. Default shall mean any event, fact, circumstance or condition that, with the giving of aapplicable notice or passage of rime or both, would constitute or be or result in an Event of Default.
DIP Loan Documents shall mean, collectively and each individually, the Agreement, the Notes, the Security Documents, the Uniform Commercial Code Financing Statements, the Borrowing Certificates, the Financing Orders, and all other agreements, documents, instruments and certificates heretofore or hereafter executed or delivered to Lender in connection with any of
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the foregoing or the Loans, as the same may be a-mended, modified or supplemented from time to time. Distribution shall mean any fee, payment, bonus or other remuneration of any kind, and any repayment of or debt service on loans or other indebtedness. Environmental Laws shall mean, collectively and each individually, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendment and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, any other Superfund or Superlien law and all other federal, state and local and foreign environmental, land use, zoning, health, chemical use, safely and sanitation laws, statutes, ordinances and codes relating to the protection of the environment and/or governing the use, storage, treatment, generation, transportation, processing, handling, production or disposal of Hazardous Substances, in each case, as amended, and the rules, regulations, policies, guidelines, interpretations, decisions, orders and directives of Governmental Authorities with respect thereto. Equipment shall mean all equipment (as defined in the UCC) of Borrower (or, if referring to another Person, of such other Person), now owned or hereafter acquired, and all documents of title or other documents representing any of the foregoing, and all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder. Event of Default shall mean the occurrence of any event set forth in Article VIII. Excess Escrow Funds shall have the meaning ascribed to such term in the Financing Orders. Facility Cap shall have the meaning given such term in the recitals hereof. Fair Valuation shall mean the determination of the value of the consolidated assets of a Person on the basis of the amount which may be realized by a willing seller within a reasonable time through collection or sale of such assets at market value on a going concern basis to an interested buyer who is willing to purchase under ordinary selling conditions in an arm's length transaction. Final Financing Order shall mean an order that is entered by the Bankruptcy Court, inform and substance satisfactory to Lender, that (a) authorizes and directs Borrower to enter into and perform under the DIP Loan Documents, including the authorization to incur postpetition secured indebtedness, to grant to Lender the liens, security interests, priorities and other protections provided for under the DIP Loan Documents, and (b) affords to Lender adequate protection of the Liens in favor of Lender.
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Financing Orders shall mean collectively, the Interim Financing Order and the Final Financing Order. GAAP shall mean generally accepted accounting principles in the United States of America in effect from time to time as applied by nationally recognized accounting firms. Government Account shall be defined to mean all Accounts arising out of or with respect to any Government Contract. Government Contract shall be defined to mean all contracts with a Governmental Authority and all amendments thereto. Governmental Authority shall mean any federal, state, municipal, national, local or other governmental department, court, commission, board, bureau, agency or instrumentality or political subdivision thereof, or any entity or officer exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case, whether of the united States or a state, territory or possession thereof, a foreign sovereign entity or country or Jurisdiction or the District of Columbia, specifically including fiscal intermediaries of the Medicare Program. Hazardous Substances shall mean, without limitation, any flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous materials, hazardous wastes, hazardous or toxic substances or related materials as defined in or subject to any applicable Environmental Law. Healthcare Laws shall mean all applicable statutes, laws, ordinances, rules and regulations of any Governmental Authority, federal and state, with respect to regulatory matters primarily relating to patient healthcare, healthcare providers and healthcare services (including without limitation Section 1128B(b) of the Social Security Act, as amended, 42 U.S.C. Section 1320a-7(b) (Criminal Penalties Involving Medicare or State Health Care Programs), commonly referred to as the Federal Anti-Kickback Statute, and the Social Security Act, as amended, Section 1877, 42 U.S.C. Section 1395nn (Prohibition Against Certain Referrals), commonly referred to as the Stark Statute, California Business and Professions Code Sections 650 et seq., 31 U.S.C. Section et seq. (the False Claims Act) and HIPAA. Indebtedness shall mean, without duplication, (a) all items which, in accordance with GAAP would be included in determining total liabilities as shown on the liability side of the balance sheet of Borrower as of the date as of which Indebtedness is to be determined, including any lease which, in accordance with GAAP would constitute Indebtedness, (b) all indebtedness secured by any mortgage, pledge, security, Lien or conditional sale or other title retention agreement to which any property or asset owned or held by Borrower is subject, whether or not the indebtedness secured thereby shall have been assumed, (c) all indebtedness of others which such Person has directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), discounted or sold with recourse or agreed
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(contingently or otherwise) to purchase or repurchase or otherwise acquire, or in respect of which such Borrower has agreed to supply or advance funds (whether by way of loan, stock, equity or other ownership interest purchase, capital contribution or otherwise) or otherwise to become directly or indirectly liable. Indemnified Person shall have the meaning given such term in Section 12.4. Initial Advance shall have the meaning given such term in Section 4.1. Insured Event shall have the meaning given such term in Section 12.4. Intellectual Property shall mean all present and future: trade secrets, know-how and other proprietary information; Trademarks, internet domain names, service marks, trade dress, trade names, business names, designs, logos, slogans (and all translations, adaptations, derivations and combinations of the foregoing) indicia and other source and/or business identifiers, and the goodwill of the business relating thereto' and an registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; Copyrights (including Copyrights for computer programs) and all tangible and intangible property embodying the Copyrights, unpatented inventions (whether or not patentable); Patents; industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable code, data, databases and other physical manifestations, embodiments or incorporations of any of the foregoing; the right to sue for all past, present and future infringements of any of the foregoing; all other intellectual property; and all common law and other rights throughout the world in and to all of the foregoing. Inventory shall mean all inventory (as defined in the UCC) of Borrower (or, if referring to another Person, of such other Person), now owned or hereafter acquired, and all documents of title or other documents representing any of the foregoing, and all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. Landlord Waiver and Consent shall mean a waiver/consent in form and substance satisfactory to Lender from the owner/lessor of any premises not owned by Borrower at which any of the Collateral is now or hereafter located for the purpose of providing Lender access to such Collateral, in each case as such may be modified, amended or supplemented from time to time. Liability Event shall mean any event, fact, condition or circumstance or series thereof (a) in or for which Borrower becomes liable or otherwise responsible for any amount owed or owing to any Medicare, Medi-Cal or CHAMPUS/TRICARE program by a provider under common ownership with such Borrower or any provider owned by Borrower pursuant to any applicable law, ordinance, rule, decree, order or regulation of any Governmental Authority after the failure of any such provider to pay any such amount when owed or owing, (b) in which Medicare, Medi-Cal or CHAMPUS/TRICARE payments to any Borrower are lawfully set-off
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against payments to Borrower to satisfy any liability of or for any amounts owed or owing to any Medicare, Medi-Cal or CHAMPUS/TRICARE program by a provider under common ownership with Borrower pursuant to any applicable law, ordinance, rule, decree, order or regulation of any Governmental Authority, or (c) any of the foregoing under clauses (a) or (b) in each case pursuant to statutory or regulatory provisions that are similar to any applicable law, ordinance, rule, decree, order or regulation of any Governmental Authority referenced in clauses (a) and (b) above or successor provisions thereto. Lien shall mean any mortgage, pledge, security interest, encumbrance, restriction, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof), or any other arrangement pursuant to which title to the property is retained by or vested in some other Person for security purposes. Loan or Loans shall mean, individually and collectively, all Advances under the Revolving Facility.
Maturity Date shall have the meaning set forth in Section 2.2. Note or Notes hall mean all promissory notes issued pursuant to Section 2.13. Obligations shall mean all present and future obligations, Indebtedness and liabilities of Borrower to Lender at any time and from time to time of every kind, nature and description, direct or indirect, secured or unsecured, joint and several, absolute or contingent, due or to become due, matured or unmatured, now existing or hereafter arising, contractual or tortuous, liquidated or unliquidated, whether under any of the DIP Loan Documents or otherwise relating to the Notes, Loans and/or any other obligations of Borrower, to Lender first arising after the Petition Date, including, without limitation, all obligations, liabilities and Indebtedness owing to Lender in respect of all applicable fees, charges and expenses and/or all amounts paid or advanced by Lender on behalf of or for the benefit of any Borrower for any reason at any time after the Petition Date, including in each case obligations of performance as well as obligations of payment and interest that accrue after the commencement of any proceeding under any Debtor Relief Law by or against any such Person (other than the Bankruptcy Case). Operating Losses shall mean and refer to the negative difference, if any, between the actual cash collected by Borrower during the Advance Period and Borrowers cash operating expenses attributable to the Advance Period. Patents shall mean, with respect to any Person, all of such Person's now existing or hereafter acquired right, title and interest in and to: (i) all patents, patent applications, inventions, invention disclosures and improvements, and all applications, registrations and recordings relating to the foregoing as may at any time be filed in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof, any political subdivision thereof or in any other country, and all research and development relating to the
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foregoing; and (ii) the reissues, divisions, continuances, renewals, extensions and continuancesin-part of any of the foregoing. Payment Office shall mean initially the address set forth beneath Lender's name on the signature page of the Agreement, and thereafter, such other office of Lender, if any, which it may designate by notice to Borrower to be the Payment Office. Permit shall mean collectively all licenses, leases, powers, permits, franchises, certificates, authorizations, approvals, certificates of need, provider numbers and other rights. Permitted Discretion shall mean a determination or judgment made by Lender in good faith in the exercise of reasonable (from the perspective of a secured lender) business judgment. Permitted Indebtedness shall have the meaning given such term in Section 7.2. Permitted Liens shall have the meaning given such term in Section 7.3. Permitted Subordinated Debt shall mean any Indebtedness subordinated to the Obligations, in form and substance satisfactory to Lender. Person shall mean an individual, a partnership, a corporation, a limited liability company, a business trust, a Joint stock company, a trust, an unincorporated association, a joint venture, a Governmental Authority or any other entity of whatever nature. Petition Date shall mean September 13, 2010, the date of the Borrower's filing of its voluntary petition for relief under chapter 11 of the Bankruptcy Code. Positive Cash Flow shall mean that the actual cash collected by Borrower exceeds Borrowers cash operating expenses for the relevant quarter. Professional Persons shall mean a Person who is an attorney, accountant, appraiser, auctioneer, or other professional person and who is retained, with Bankruptcy Court approval, by (i) Borrower, pursuant to Sections 327 and 328 of the Bankruptcy Code or (ii) the Committee pursuant to Section 1103 of the Bankruptcy Code. Real Property shall mean all of Borrower's right, title and interest in and to its owned and leased premises and all buildings, fixtures and improvements situated thereon or related thereto. Receipt shall have the meaning given such term in Section 12.5. Register shall have the meaning given such term Section 2.13. Related Documents shall mean all agreements, documents and instruments pertaining to Permitted Subordinated Debt.
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Revolving Facility shall have the meaning given such term in the recitals hereof. Security Documents shall mean the Notes, this Agreement, all Guaranties, Uniform Commercial Code Financing Statements and any other agreements, documents or instruments necessary to create or perfect the Liens in the Collateral or pursuant to which any Person grants to Lender collateral in any form as security for the Obligations, as such may be modified, amended or supplemented from time to time. Subordinated Debt shall mean any Indebtedness, contingent equity, earn out or other obligations of Borrower that is unsecured and subordinated, by written contract in form and substance satisfactory to Lender, in right of repayment, Liens, security and remedies to all of the Obligations and to all of Lenders rights, Liens and remedies. Subordination Agreement shall mean, collectively and each individually, any subordination agreements to which Lender and other service providers or creditors of any Borrower are a party. Subsidiary shall mean, (i) as to Borrower, any Person in which more than 50% of all equity, membership, partnership or other ownership interests is owned directly or indirectly by Borrower or one or more of its Subsidiaries, and (ii) as to any other Person, any Person in which more than 50% of all equity, membership, partnership or other ownership interests is owned directly or indirectly by such Person or by one or more of such Person's Subsidiaries. Superpriority Claim shall mean a claim against Borrower in the Bankruptcy Case which is an administrative expense claim having priority over any and all administrative expenses of the kind specified in Sections 503(b) and 507(b) of the Bankruptcy Code, including a claim pursuant to Section 364(c)(1) of the Bankruptcy Code. Termination Date shall have the meaning given such term in Section 11.1. Trademarks shall mean, with respect to any Person, all of such Person's now existing or hereafter acquired right, title, and interest in and to: (i) trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos, other business identifiers, prints and labels on which any of the foregoing have appeared or appear, all applications, registrations and recordings relating to the foregoing as may at any time be filed in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof, any political subdivision thereof or in any other country, and all research and development relating to the foregoing; (ii) all renewals thereof; and (iii) all designs and general intangibles of a like nature. Transaction shall have the meaning given such term in Section 6.13. Transferee shall have the meaning given such term in Section 12.2. UCC shall mean the Uniform Commercial Code as in effect in the State of California from time to time.
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US Dollars and $
shall mean lawful money of the United States of America.
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EXHIBIT C
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CONSULTING SERVICES AGREEMENT

THIS CONSULTING SERVICES AGREEMENT (this Agreement) is executed and delivered effective as of 12:01 a.m. on the 1st day following approval from the Bankruptcy Court (the Effective Date), by and between Victor Valley Community Hospital, a California nonprofit public benefit corporation (VVCH) and Prime Healthcare Management, Inc. (Consultant). WHEREAS, VVCH operates a one hundred and one (101) bed acute care hospital located in Victorville, California known as Victor Valley Community Hospital (the Facility); and WHEREAS, VVCH desires to engage Consultant under the terms of this Agreement to provide its experience and certain personnel to provide consulting services to VVCH and to perform those functions and duties delegated herein to Consultant, subject to approval by the United States Bankruptcy Court in VVCHs pending Chapter 11 bankruptcy case; and WHEREAS, Consultant is desirous of performing the management services for VVCH. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants of the parties hereunder, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Services and Duties.
1.1 Independent Contractor Relationship. VVCH hereby retains Consultant and Consultant hereby agrees to provide services to the Facility, subject to all the provisions hereof. The parties hereto acknowledge that at all times during the Term hereof, Consultant shall be an independent contractor and that VVCH shall not assume any liability for the withholding or payment of any federal, state or local taxes to Consultant for Consultants services provided hereunder. Consultant shall be responsible for the payment of all wages, payroll taxes, fringe benefits and any other expenses that may become owing to or on behalf of all persons employed by Consultant in providing services under this Agreement. 1.2 Authority and Responsibility of Consultant. VVCH acknowledges that Consultant has been engaged hereunder solely to perform the tasks described on Exhibit A hereto and that Consultant is hereby authorized to implement the additional Major Decisions (as hereinafter defined) as approved by VVCHs Board of Directors. 1.3 Control Retained in VVCH and VVCHs Board of Directors. VVCH and its Board of Directors shall at all times retain control and governance over the assets and operation of the Facility, subject to the rights and obligations of Consultant under this Agreement. By entering into this Agreement, VVCH does not delegate to Consultant any of the powers, duties and responsibilities required to be retained by VVCH under law (including all certificates and licenses issued under authority of law for operation of the Facility by VVCH). VVCH may, according to the terms of this Agreement, direct Consultant to implement existing policies and may adopt policy recommendations or proposals made by Consultant. VVCH shall
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be the owner and holder of all licenses, accreditation certificates and contracts that pertain to VVCH operations and shall be the Provider within the meaning of all third party contracts. Further, the Board of Directors of VVCH (the Board) shall be the governing body of the Facility and shall be ultimately responsible for the control, policy-making and direction of the Facility. Consultant covenants that it will do nothing to jeopardize the operation of the Facility in a manner consistent with the tax-exempt status of VVCH. 1.4 Major Decisions. Notwithstanding anything to the contrary within this Agreement, the following actions shall require the prior written authorization of VVCHs Board of Directors prior to being undertaken by Consultant: (a) The sale of assets of VVCH not in the ordinary course of business;
(b) A material change of the business of VVCH, or in the scope of services offered at the Facility, including the material modification of any material license, permit or contract of VVCH (expressly including this Agreement); (c) Engaging in any transactions that could result in the termination or reorganization of VVCH or the partial or total dissolution of VVCH; (d) (e) (f) Facility; or (g) The implementation of any policy or the taking of any action that could involve the violation of federal or state fraud or abuse laws, or similar laws, rules or regulations (collectively, the Laws). 1.5 Medical and Professional Matters. All medical and professional matters shall be the responsibility of VVCH and its Board of Directors. 1.6 Authority and Responsibility of Consultant. VVCH shall have authority and responsibility to oversee the provision of services for the Facility and to conduct, supervise and direct the day-to-day operations of the Facility. In the absence of direction or written policies of VVCH, Consultant shall exercise reasonable judgment in Consultants activities. Consultant shall be obligated to perform its responsibilities and obligations under this Agreement and this Section 1.6 specifically only to the extent that VVCH makes available to Consultant adequate funds with which to perform such responsibilities and obligations where the costs thereof are required to be borne by VVCH. Consultant shall specifically have responsibility and commensurate authority for the following activities: (a) Accounting and Financial Records. Consultant shall establish and monitor accounting procedures and controls and establish and monitor systems for the -2LA #4827-0921-7292 v2
The purchase of assets for VVCH; The incurrence of debt or leases by the Facility; Any real property lease or modification of such a lease for the
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development, preparation and safekeeping of records and books of account relating to the business and financial affairs of VVCH. (b) Contracts, Leases and Purchases. Consultant shall negotiate agreements on behalf of VVCH for (i) equipment, operating supplies and other materials and supplies that may be needed for the maintenance and operation of the Facility; (ii) the furnishing of such utilities, services and concessions as may be necessary for the maintenance and operation of the Facility including but not limited to, janitorial and landscaping services; and (iii) such repairs as shall be necessary to keep and maintain the Facility in good working order and condition. Any such agreements must be approved by VVCHs Board of Directors. (c) Collection of Accounts. Consultant shall supervise the issuance of claims and statements for services furnished by VVCH at the Facility. (d) Compliance with Laws and Regulations. Consultant shall advise VVCH of the need for any changes or modifications of which Consultant becomes aware required of VVCH or the Facility in order to keep it in compliance in all material aspects with all statutes, ordinances, laws, rules, regulations, orders and determinations affecting or issued in connection with the Facility. All costs and expenses of implementing such changes or modifications shall be the sole responsibility of VVCH. (e) Other Services. Consultant shall perform other normal business functions in accordance with, and as limited by, this Agreement. 1.7 Contracts for Services. Except as otherwise specifically provided in this Agreement, Consultant is empowered to negotiate and administer on behalf of VVCH, contracts for services by medical, paramedical and other persons and organizations with VVCH approval; provided that no lease of space or equipment with any such physician, or any other person, shall be entered into without all governmental approvals required by law. 1.8 Special Projects. Consultant may, from time to time, engage consultants to perform projects and studies and to render advice in connection with the operations of the Facility. Consultants shall not be considered employees of Consultant, and all amounts of the reasonable expenses and fees of such consultants shall be reimbursed by VVCH to Consultant, or if Consultant shall so request, said amounts shall be paid directly to the consultant involved. 1.9 Force Majeure. Consultant shall not be deemed to be in violation of this Agreement if Consultant is prevented from performing any of Consultants obligations hereunder (excluding any requirement of Consultant to perform any financial obligations hereunder) for any reason beyond Consultants control, including, without limitation, strikes or civil disturbance, acts of war or terrorism, lack of VVCH financial resources, unless the lack thereof is caused by breach of any agreement to which Consultant is a party, any actions taken by VVCH (or the failure by VVCH to act), or as a result of the application of any statute, regulation or rule of the federal or any state or any local government, or any agency thereof. 1.10 Revenues and Payments. Except as otherwise provided in this Agreement, all income or other monies received from the operation of the Facility, together with all accounts and other receivables and all other assets or property generated, created or that shall accrue from -3LA #4827-0921-7292 v2
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the operation of the Facility, shall belong to VVCH and shall be its property absolutely. Except as otherwise provided in any written agreement between the parties, payment of all operating costs, wages, salaries and fees incurred or sustained in the operation of the Facility is solely the obligation and responsibility of VVCH. 1.11 Consultants Working Space. During the Term of this Agreement, VVCH shall provide Consultant and Consultants employees or subcontractors reasonable working space within the Facility as is required to perform Consultants duties as described within this Agreement. 2. Meetings of Consultant with the Board Representative and the Board. A representative of Consultant shall meet monthly, or as determined otherwise by the Board, with the Board at large, or at the Boards discretion with the Board Representative (as defined below). In addition, the Board shall be entitled to request an additional two meetings per quarter with a representative of Consultant upon ten days written notice. Throughout the Term of this Agreement, the Board shall designate a representative to communicate on behalf of the Board (the Board Representative), which person shall be a member of the Board as then constituted. In addition to the meetings described above, within ninety (90) days of the expiration of each fiscal year for the Facility, Consultant shall meet with the Board at large in order to review the results of the preceding year, set the coming years Budget and determine performance goals for Consultant and the Facility. All meetings may be held by telephone conference. 3. Facility Administrator. VVCH and Consultant shall agree upon the appointment of and salary for an administrative director of the Facility (the Facility Administrator). The salary and other costs associated with the Facility Administrator shall be borne by VVCH. The Facility Administrator will be the daily operational director of the Facility. If the Facility Administrators general performance is unacceptable to VVCH, the Facility Administrators appointment will be terminated. 4. Approval Procedure; Reports.
4.1 Authorization by the Board. In any situation that requires Board approval, action or confirmation, Consultant shall be entitled to rely upon the written statement of the Board Representative that such action or approval has been taken or given. 5. Accounting, Communications and Reports.
5.1 Fiscal Year. The fiscal year of VVCH ends on the last day of September of each year, unless the Internal Revenue Service shall require otherwise. 5.2 Books and Records. The books of account of VVCH shall be kept and maintained at all times at the offices of VVCH. The books of account shall be maintained on an accrual basis in accordance with generally accepted accounting principles, consistently applied, and shall show all items of income and expense. Consultant covenants that promptly following Consultants receipt of a written request from the Board Representative or the Board of VVCH, Consultant shall deliver copies of such books of account to VVCH.
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5.3 Financial Information. Consultant shall arrange for the audit, at VVCHs expense, of the year-end financial statements for VVCH by an independent accounting firm approved of by the Board of VVCH. Notwithstanding anything within this Agreement to the contrary, all financial books and records of the Facility prepared by or at the request of Consultant shall remain the property of VVCH. 5.4 Audits. The Board shall have the right, upon reasonable notice, to audit, examine and make copies of, or extracts from, the books of account of the VVCH during usual business hours. VVCH shall bear all expenses incurred in any such examination made. 5.5 Information for the Board. The Facility Administrator shall attend the regular meetings of the Board, and in cooperation with VVCHs Secretary and Chief Financial Officer, prior to each meeting, shall have prepared and mailed to each Board member an agenda, the minutes of the previous meeting and the monthly financial information described above, as well as such additional financial or statistical information as shall have been requested by Consultant. 6. Fees and Costs.
6.1 Fees. As compensation for the management services to be rendered hereunder, VVCH shall pay to Consultant a monthly management fee equal to Ten Thousand Dollars ($10,000) (the Management Fee). Any partial calendar month shall be prorated accordingly. The Management Fee shall be due and payable on the twentieth (20th) day of the month following the month for which the Management Fee is payable. Notwithstanding the above, Consultant may, at its sole and absolute discretion, defer, discount, donate or waive any amounts owing by VVCH under this Agreement. Except as otherwise provided herein, the Management Fee shall constitute full and complete compensation for all services rendered by Consultant pursuant to this Agreement, including the services listed in Exhibit A attached hereto. 6.2 Reimbursement of Costs. VVCH also shall pay (in addition to the Management Fee as described in Section 6.1 above) all of Consultants reasonable out-of-pocket costs and expenses directly and necessarily related to the performance of services by Consultant pursuant to this Agreement, any third party vendors or contractors paid for directly by Consultant for the benefit of the Facility, any supplies, utilities, insurance or other costs incurred by Consultant for the benefit of the Facility, and all transportation and related travel costs and expenses incurred by Consultant in the course and scope of its performance of services rendered by Consultant pursuant to this Agreement. Any such out-of-pocket costs and expenses or additional fees and expenses paid for or incurred by Consultant shall not exceed $25,000 in any calendar month without the prior, written authorization of the Board Representative or the Board. Such costs shall be separately itemized by Consultant and billed to VVCH by invoice delivered to VVCH on or before the fifteenth (15th) calendar day of each month for expenses incurred during the previous month. VVCH shall pay the amount of each such invoice on or before the tenth (10th) business days after the receipt thereof. Consultant shall use commercially reasonable efforts to be efficient and to limit the incurrence of such expenses to the extent reasonably practicable.
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7.
Term of Agreement.
7.1 Term. The term of this Agreement (the Term) shall commence on the Effective Date and shall continue in full force and effect for a period of three (3) years, and shall terminate on September 30, 2013 unless extended by VVCH and Consultant by a written amendment to this Agreement. 7.2 Termination Without Cause. Either party may terminate this Agreement without cause on one hundred and eighty (180) days notice or thirty (30) days after the occurrence of any of the following events: the dismissal of or conversion to a case under chapter 7 of VVCHs pending Chapter 11 bankruptcy case pursuant to 11 U.S.C. section 1112; the appointment of a chapter 11 trustee pursuant to 11 U.S.C. section 1104; the confirmation of a plan of reorganization for VVCH in the Bankruptcy Court that does not include a provision for continuation of this Agreement; or the sale of VVCH or substantially all of its assets to another person or entity pursuant to an order of the Bankruptcy Court. Notwithstanding any other provision of this Agreement, this Agreement shall terminate immediately if separate debtor-inpossession financing for VVCH by Prime Healthcare Management, Inc. is not approved by the United States Bankruptcy Court by a final order. 7.3 Termination for Cause. Either party may terminate this Agreement at any time for cause (as defined within this Section 7.3) upon delivery of written notice as hereinafter provided (such cause shall also constitute an Event of Default as that term is used in Section 8.) (a) termination: (i) If Consultant shall default in the performance of any material covenant, agreement, term or provision of this Agreement and such default shall continue for a period of thirty (30) days after written notice to Consultant from the Board stating the specific default (unless Consultant diligently pursues correction if such default is of a nature that cannot be reasonably corrected within said thirty (30) day period); (ii) If Consultant shall intentionally engage in any fraudulent practices or repeated negligence, omissions and intentional acts that materially affect the business or reputation of the Facility, including but not limited to conduct that evidences a willful disregard for patients treated at the Facility; or (iii) If Consultant shall apply for or consent to the appointment of a receiver, trustee or liquidator of Consultant or of all or a substantial part of its assets, file a voluntary petition for bankruptcy or admit in writing its inability to pay its debts as they come due, make a general assignment for the benefit of creditors, file a petition or an answer seeking reorganization or arrangement with creditors or to take advantage of any insolvency law, or if a creditor of Consultant files an involuntary petition under any state or federal reorganization, insolvency, arrangement, bankruptcy or other debtor relief provision, and such petition is not dismissed within thirty (30) days. Termination by VVCH. VVCH shall have cause for
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(b) termination:
Termination by Consultant.
Consultant shall have cause for
(i) If VVCH shall default in the performance of any material covenant, agreement, term or provision and such default shall continue for a period of thirty (30) days after written notice to VVCH from Consultant stating the specific default (unless VVCH diligently pursues correction if such default is of a nature that cannot be reasonably corrected within said thirty (30) day period); or (ii) If the Facility or any portion thereof shall be damaged or destroyed, or if any material assets of the Facility shall be rendered incapable of normal operation, by fire or other casualty and if VVCH fails to commence repairing, restoring, rebuilding or replacing any such damage or destruction within ninety (90) days after such fire or other casualty, or fails to complete such work within a reasonable period of time; or (iii) If VVCH shall apply for or consent to the appointment of a receiver, trustee or liquidator of VVCH or of all or a substantial part of its assets, file a voluntary petition in bankruptcy or admit in writing its inability to pay its debts as they come due, make a general assignment for the benefit of creditors, file a petition or an answer seeking reorganization or arrangement with creditors or to take advantage of any insolvency law, or if a creditor of VVCH files an involuntary petition under any state or federal reorganization, insolvency, arrangement, bankruptcy or other debtor relief provision, and such petition is not dismissed within thirty (30) days, provided, however, that this subsection shall have no application to VVCHs pending Chapter 11 bankruptcy case or any act or event that may occur in connection with such case or any conversion of such case to a case under Chapter 7; or (iv) If VVCH shall fail to make any payments or keep any material covenants owing to Consultant within ten (10) calendar days of the date on which payment is due; or (v) If VVCH shall fail to make any payments owing to any third party that would cause VVCH to lose possession of the Facilitys building, equipment or property. 7.4 Obligations Upon Termination. In the event of any termination under the terms of this Agreement, Consultant: (a) Shall cooperate and assist in the orderly and efficient transfer of all phases of the administration of the Facility to any new administrator or management firm; provided, however, that Consultant shall be entitled to reasonable and customary fees for Consultants transition services; and (b) Shall surrender to VVCH all documents and records in Consultants possession relating to the operation of the Facility.
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8.
Default.
8.1 Remedies Upon Default. If any Event of Default by either party shall occur and be continuing, each party shall have any remedy available to it in law or equity on account of such Event of Default in addition to its right to terminate this Agreement under Article 7. Upon such termination, neither party shall have further obligations whatsoever under this Agreement, except for the provisions of Sections 7.4, 9.2, 9.3, 9.4, 10 and 11 and any other provision of this Agreement that by its nature should survive the termination of the Agreement; and, in such event Consultant shall be entitled immediately to receive payment of all amounts theretofore due and unpaid pursuant to the terms hereof and to interest at the statutory legal rate on any past-due payments from the date due until paid. 8.2 Rights Cumulative, No Waiver. No right or remedy herein conferred upon or reserved to either of the parties hereto is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder, or now or hereafter legally existing upon the occurrence of an Event of Default hereunder. The failure of either party hereto to insist at any time upon the strict observance or performance of any of the provisions of this Agreement or to exercise any right or remedy as provided in this Agreement, shall not impair any such right or remedy or be construed as a waiver or relinquishment thereof. Every right and remedy given by this Agreement to the parties hereof may be exercised from time to time and as often as may be deemed expedient by the parties hereto, as the case may be. 9. Insurance and Indemnification.
9.1 Insurance. VVCH shall secure and maintain, or cause to be secured and maintained, during the Term of this Agreement, the following insurance relating to the Facility: Workers Compensation Professional/Commercial Liability General D&0 customary in the industry and locale $1,000,000 per liability occurrence; $3,000,000 aggregate $1,000,000 per liability occurrence; $3,000,000 aggregate as the parties shall agree
It is further agreed that all such policies, except workers compensation insurance policies, are to be written to include Consultant and its officers, agents, servants, and employees as additional named-insureds. 9.2 Indemnification of Consultant. To the extent not covered by insurance as provided above, VVCH shall defend, indemnify and hold harmless Consultant and Consultants officers, agents, and employees from and against liability for any and all costs (including court costs), expenses, fees (including reasonable attorneys fees) and payments by, and losses and damages that arise out of, or are in any way connected with, the grossly negligent or intentional acts or omissions of VVCH, its directors, employees, members, officers, agents or subcontractors -8LA #4827-0921-7292 v2
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(excepting Consultant), or any member of the medical staff at the Facility, unless such act or omission is caused by the negligence or willful misconduct of Consultant or one of its consultants, members, officers, employees, subcontractors or agents. 9.3 Indemnification of VVCH. To the extent not covered by insurance above, Consultant shall defend, indemnify and hold harmless VVCH, its directors, officers, consultants, members, officers, agents, and employees from and against liability for any and all costs (including court costs), expenses, fees (including reasonable attorneys fees) and payments by, and losses and damages that arise out of, or are in any way connected with, the grossly negligent or intentional acts or omissions of Consultant or its officers, agents, employees or subcontractors in the performance of Consultants duties under this Agreement unless such act or omission is caused by the negligence or willful misconduct of VVCH or its directors, officers, consultants, members, officers, agents, or employees. 9.4 Notice of Claims. If either party shall receive notice of any third-party claim, such party shall promptly provide written notice of such claim to the other party. 9.5 Procedure for Indemnification. If there is asserted any claim, liability or obligation that in the judgment of a party indemnified above (the Indemnified Party) may give rise to any indemnified losses (the Indemnified Losses), or if the Indemnified Party determines the existence of the foregoing, whether or not the same shall have been asserted, such Indemnified Party shall give the party from whom indemnity is sought (the Indemnitor) notice (a Notice of Claim) within thirty (30) business days of the assertion of any claim, liability or obligation, or within ten (10) business days of receipt of notice of the filing of any lawsuit based upon such assertion, or, with respect to a claim not yet asserted against the Indemnified Party, promptly upon the determination by an executive officer or Consultant of the Indemnified Party of the existence of the same, and shall give the Indemnitor a reasonable opportunity of assuming the defense of such claim, liability or obligation, using counsel reasonably acceptable to the Indemnified Party; provided, however, that the Indemnified Party shall have the right to participate in such defense, except that if the Indemnified Party retains separate counsel, other than in the event of a conflict of interest requiring the retention of separate counsel, the Indemnified Party shall assume the expense of the separate counsel. Failure by the Indemnified Party to give timely notice pursuant to this Section 9.5 shall not relieve the Indemnitor of its obligations except to the extent that the Indemnitor is actually prejudiced by such failure to give timely notice. No settlement or adjustment shall be made without the Indemnified Partys prior written consent, which consent shall not be unreasonably withheld. If the Indemnitor fails to contest in good faith any such claim, liability or obligation, the Indemnified Party shall have the right to defend, settle or pay the same and pursue its remedies against the Indemnitor hereunder. The Indemnified Party shall cooperate with the Indemnitor in any such defense that the Indemnitor elects to assume in the event the Indemnitor makes such request to the Indemnified Party and such request is reasonable, provided the Indemnitor shall hold the Indemnified Party harmless from all of its out-of-pocket expenses, including reasonable attorney fees, incurred in connection with the Indemnified Partys cooperation. In the event of a disagreement among the parties as to whether any claim, liability or obligation may give rise to an Indemnified Loss, then the Indemnified Party shall have the right to defend, settle or pay the same, or to pursue its remedies against Indemnitor hereunder; provided, however, that the Indemnitor shall have the
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right to participate in such defense and no settlement or adjustment shall be made without Indemnitors prior written consent, which consent shall not be unreasonably withheld. Notwithstanding anything contained elsewhere in this Section 9.5, if an offer of compromise is received by the Indemnitor with respect to a claim related to any of the Indemnified Losses, such Indemnitor may notify the related Indemnified Party in writing of the Indemnitors willingness to compromise or settle such claim on the basis set forth in such notice. If the Indemnified Party declines to accept such compromise or settlement, the Indemnified Party may continue to contest such claim, free of any participation by the Indemnitor, at the Indemnified Partys sole expense. In such event, the obligation of the Indemnitor to the Indemnified Party with respect to such claim shall be equal to the lesser of (i) the amount of the offer of compromise or settlement that the Indemnified Party declined to accept, and (ii) the actual out-of-pocket amount the Indemnified Party is obligated to pay as a result of the Indemnified Partys continuing to contest such claim. An Indemnitor shall be entitled to recover (by setoff or otherwise) from an Indemnified Party any additional expenses incurred by the Indemnitor as a result of the Indemnified Partys decision to continue to contest such claim. 10. License to Proprietary Materials. Documentation means technical, procedural and administrative manuals, training materials, standard report forms and other materials that contain information regarding the operation and management of hospitals such as the Facility, which materials Consultant may deliver to VVCH under this Agreement and which materials Consultant may use in performing services under this Agreement. Consultant hereby grants to VVCH, to the extent of Consultants rights in the Documentation, a non-exclusive and nontransferable license, or sublicense, as the case may be, without right to further sublicense, to use the Documentation in accordance with the provisions of this Agreement during its Term. VVCH is aware that this Agreement grants VVCH no title or rights of ownership in the Documentation and that the Documentation is the proprietary information, trade secret and valuable property of Consultant. VVCH shall be responsible for the payment of any and all fees, if any, associated with any and all third party documentation. Copying of the Documentation by VVCH is not permitted except with the prior written consent of Consultant. VVCH shall reproduce all copyright and other proprietary markings of Consultant and its suppliers contained in the Documentation. As provided in this Section, VVCH agrees to maintain strict confidentiality with respect to the Documentation. The grant of the license herein is expressly conditioned upon VVCHs payment of the fees specified in Section 6. All rights not specifically granted to VVCH or reasonably implied by or needed for the rights granted to VVCH under this Agreement, are retained by Consultant. 11. Non-Disclosure of Proprietary or Confidential Information.
11.1 Non-Disclosure and Non-Use. By operation of and performance under this Agreement, the parties may have access to information that is confidential or proprietary to the other party. Proprietary or Confidential Information consists of (a) the Documentation and any trade secrets related thereto; (b) any trade secrets or confidential information of VVCH, including information disclosed by VVCH to Consultant or learned by Consultant as a result of its access to the systems, data, files, documents, offices, property or personnel of VVCH; and (c) any other information or data of a party disclosed to or leased by the other party that a reasonable person in like circumstances would understand to be confidential or proprietary information of - 10 LA #4827-0921-7292 v2
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the disclosing party. A disclosing partys Proprietary or Confidential Information shall not include information that: (i) Is or becomes a party of the public domain through no act or omission of the receiving party; or (ii) Was in the receiving partys lawful possession prior to the time such information was disclosed to or learned by the receiving party from or by access to the disclosing party, and at the time of such prior possession the receiving party was not under a duty of confidentiality to the disclosing party with respect thereto; or (iii) Is lawfully disclosed to the receiving party by a third party without restriction imposed by the third party on the receiving partys further disclosure of such information; or (iv) Is independently developed by the receiving party by its personnel not having access to such Proprietary or Confidential Information. 11.2 When Required by Law. Nothing in this Agreement shall prohibit any disclosure of Proprietary or Confidential Information by the receiving party when disclosure is required by law, regulation or court order, but only to the extent so required. The receiving party shall inform the disclosing party of the requirement and shall cooperate with the disclosing party in obtaining a protective order and other reasonable protections for the Proprietary or Confidential Information subject to disclosure. 11.3 Reasonable Steps to Protect. Each party agrees, both during the term of this Agreement and after termination of this Agreement, to hold the other partys Proprietary or Confidential Information in strict confidence. Each party agrees not to make the other partys Proprietary or Confidential Information available in any form to any third party or to use the other partys Proprietary or Confidential Information for any purpose other than for the purposes explicitly permitted by this Agreement. The receiving party agrees to take all reasonable steps to ensure that Proprietary or Confidential Information of the disclosing party is not disclosed or distributed by the receiving partys employees, agents or consultants in violation of the provisions of this Agreement. 11.4 Patient Data. Consultant shall have access to patient data, which it shall hold in strict confidence and use only for the purposes of this Agreement. Consultant shall instruct its personnel concerning the requirements of this Section. Patient data shall mean any data or information concerning patients of VVCH or of independent care givers, including, without limitation, any of the treatments, procedures, medicines, drugs, diagnoses, therapies, surgeries, outcomes, histories, genetics, disclosures or behaviors of any such patients. The privacy and other rights of all patients shall be respected. 11.5 Equitable Relief. Each party acknowledges that any use or disclosure of the other partys Proprietary or Confidential Information other than as specifically provided for in this Agreement will result in irreparable injury and damage to the disclosing party not adequately compensable in monetary damages alone. Accordingly, each party hereby agrees that, in the event of use or disclosure by the receiving party of the disclosing partys Proprietary - 11 LA #4827-0921-7292 v2
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or Confidential Information (other than as specifically provided for in this Agreement or in another written agreement between the parties), the disclosing party shall be entitled to preliminary and permanent injunctive relief and other equitable relief as granted by any court of competent jurisdiction. 12. Miscellaneous.
12.1 Change in Law. If any law or governmental regulation is adopted or any court decision is promulgated after the date of this Agreement, and such law, regulation or court decision makes this Agreement or a provision hereof illegal, the parties agree to use their best efforts to restructure this Agreement in such a manner that will avoid such illegality and, to the extent practicable, will preserve the existing financial and business relationships among them. 12.2 Reasonable Care. Consultant shall not, by developing or managing the Facility, assume or become liable for any of the obligations, debts or liabilities of the Facility or VVCH. Consultant shall have an obligation to exercise reasonable care in carrying out its obligations under this Agreement, including the handling, supervision and distribution of funds. 12.3 Access to the Facility. Consultant shall, at all times during the Term hereof, have complete access to the Facility, its records, offices, and facilities, in order to carry out its obligations hereunder. 12.4 Restriction on Assignment. Consultant may assign Consultants interest in or delegate the performance of Consultants obligations under this Agreement. However, such assignment shall not release Consultant without the written release of the same from VVCH. VVCH may not assign its rights and obligations under this Agreement without the written consent of Consultant. 12.5 Successors. Except as otherwise provided herein, the provisions of this Agreement shall be binding upon and inure to the benefit of the respective lawful successors and assigns of Consultant and VVCH. 12.6 Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior understandings between the parties, whether written or oral, as to such subject matter. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by all the parties after review by the parties legal counsel. No waiver shall be binding unless executed in writing by the party making the waiver. 12.7 Headings. The headings to the various sections of this Agreement have been inserted for reference purposes only and shall not modify, define, limit or expand the expressed provisions of this Agreement. 12.8 Counterparts. This Agreement may be executed in any number of counterparts, and exchanged by fax transmission, each of which shall be an original, and such counterparts shall together constitute but one and the same Agreement.
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12.9 Notices. All notices, requests, demands, and other communications hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or three business days after deposit in the United States mail, if mailed by certified or registered mail, return receipt requested, postage prepaid and addressed as follows: If to VVCH: Victor Valley Community Hospital 15248 Eleventh Street Victorville, California 92395 Attention: Board of Directors Prime Healthcare Management, Inc. 3300 East Guasti Road, Suite 300 Ontario, California 91761 Attention: Lex Reddy
If to Consultant:
A party may change its address by giving notice in the manner provided above. 12.10 Authorization for Agreement. Agreement by VVCH and Consultant have been resolutions or corporate or partnership action, and enforceable obligations of the parties in accordance Agreement by the United States Bankruptcy Court. The execution and performance of this duly authorized by all necessary laws, this Agreement constitutes the valid and with its terms, subject to approval of this
12.11 Governing Law. This Agreement shall be deemed to have been made and shall be construed and interpreted in accordance with the laws of the State of California. 12.12 Gender and Number. As used in this Agreement, the masculine, feminine or neuter gender, and the singular or plural number, shall each include the others whenever the context so indicates. 12.13 Access to Books and Records. As and to the extent required by law, upon the written request of the Secretary of Health and Human Services, the Comptroller General or any of their duly elected representatives, Consultant, in cooperation with VVCH, shall make available those contracts, books, documents and records necessary to verify the nature and extent of those costs of providing services under this Agreement. Such inspection shall be available for up to seven (7) years after the rendering of such services. If Consultant carries out any of the duties of this Agreement through a subcontract with a value of Ten Thousand Dollars ($10,000) or more over a twelve-month period with a related individual or organization, Consultant agrees to include this requirement in any such subcontract. This section is included pursuant to and is governed by the requirements of 42 U.S.C. Section 1395x(v)(1) and the regulations thereto. No legal privilege will be deemed to have been waived by the Facility, Consultant or any contractor or subcontractor by virtue of this Agreement. 12.14 Attorneys Fees. In the event of the breach of this Agreement, the nonbreaching party shall be entitled, in addition to any other remedy provided by law, to the recovery of all costs and attorneys fees incurred in the enforcement of the non-breaching partys rights hereunder. - 13 LA #4827-0921-7292 v2
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. Victor Valley Community Hospital
By:___________________________________ ___________________, ____ Prime Healthcare Management, Inc.
By:___________________________________ _________________, _____________
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EXHIBIT A
DESCRIPTION OF CONSULTING SERVICES During the term of this Agreement, Consultant will perform and oversee the following tasks and services for the Facility consistent with the terms and conditions of this Agreement: Contract Development and Maintenance Materials and Supplies Cost Sourcing and Management Accreditation Risk Management Credentialing Physician Relations Oversight of Day-to-Day Management Cash and Revenue Cycle Management Continuing Education for Staff Utilization Review Vendor Contracting Regulatory Compliance and Auditing Preparation of Financial Statements
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NOTE: When using this form to indicate service of a proposed order, DO NOT list any person or entity in Category I. Proposed orders do not generate an NEF because only orders that have been entered are placed on the CM/ECF docket.
PROOF OF SERVICE OF DOCUMENT

I am over the age of 18 and not a party to this bankruptcy case or adversary proceeding. My business address is: 10100 Santa Monica Boulevard, 11th Floor, Los Angeles, CA 90067 A true and correct copy of the foregoing document NOTICE OF EMERGENCY MOTION EMERGENCY MOTION OF DEBTOR FOR ORDER (A) AUTHORIZING DEBTOR TO OBTAIN POSTPETITION FINANCING AND GRANTING LIENS AND SUPERPRIORITY ADMINISTRATIVE EXPENSE STATUS PURSUANT TO 11 U.S.C. 364; (B) SCHEDULING A FINAL HEARING AND ESTABLISHING RELATED NOTICE REQUIREMENTS; AND (C) AUTHORIZING DEBTOR TO ENTER INTO CONSULTING SERVICES AGREEMENT; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF will be served or was served (a) on the judge in chambers in the form and manner required by LBR 5005-2(d); and (b) in the manner indicated below: I. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF) Pursuant to controlling General Order(s) and Local Bankruptcy Rule(s) (LBR), the foregoing document will be served by the court via NEF and hyperlink to the document. On October 17, 2011 I checked the CM/ECF docket for this bankruptcy case or adversary proceeding and determined that the following person(s) are on the Electronic Mail Notice List to receive NEF transmission at the email address(es) indicated below: Service information continued on attached page II. SERVED BY U.S. MAIL OR OVERNIGHT MAIL(indicate method for each person or entity served): On October 17, 2011 I served the following person(s) and/or entity(ies) at the last known address(es) in this bankruptcy case or adversary proceeding by placing a true and correct copy thereof in a sealed envelope in the United States Mail, first class, postage prepaid, and/or with an overnight mail service addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be completed no later than 24 hours after the document is filed. By Overnight Mail Honorable Catherine Bauer United States Bankruptcy Court Central District of California 3420 Twelfth Street, Suite 365 Riverside, CA 92501-3819 Service information continued on attached page III. SERVED BY PERSONAL DELIVERY, FACSIMILE TRANSMISSION OR EMAIL (indicate method for each person or entity served): Pursuant to F.R.Civ.P. 5 and/or controlling LBR, on I served the following person(s) and/or entity(ies) by personal delivery, or (for those who consented in writing to such service method), by facsimile transmission and/or email as follows. Listing the judge here constitutes a declaration that personal delivery on the judge will be completed no later than 24 hours after the document is filed. Service information continued on attached page I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct.
October 17, 2011

Date
Myra Kulick
Type Name
/s/ Myra Kulick

Signature
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. January 2009
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I. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF)
6:10-bk-39537-CB Notice will be electronically mailed to:

Annadel A Almendras on behalf of Other Professional Person Most Knowledgeable Annadel.Almendras@doj.ca.gov Allison R Axenrod on behalf of Creditor Claims Recovery Group LLC allison@claimsrecoveryllc.com Martin R Barash on behalf of Interested Party The Senior Associates Group, Inc. mbarash@ktbslaw.com Kirk A Barber on behalf of Creditor Professional Hospital Supply, Inc. barberlawgroup@yahoo.com Manuel A Boigues on behalf of Creditor SEIU United Healthcare Workers - West bankruptcycourtnotices@unioncounsel.net Mark Bradshaw on behalf of Creditor Desert Valley Hospital, Inc. mbradshaw@shbllp.com Jeff Cohen on behalf of Interested Party Southpaw Asset Management LP JC@SouthpawAsset.com Jeffrey Lee Costell on behalf of Interested Party Deanco Healthcare, LLC jlcostell@costell-law.com, aicornelius@costelllaw.com;hnugget@costell-law.com;mharris@costelllaw.com;eglusker@costell-law.com Sanaea Daruwalla on behalf of Attorney Burke, Williams, & Sorensen, LLP sdaruwalla@bwslaw.com Richard K Diamond (TR) on behalf of Creditor Committee Committee Of Creditors, Unsecured Claims jlv@dgdk.com, rdiamond@ecf.epiqsystems.com Abram Feuerstein on behalf of U.S. Trustee United States Trustee (RS) abram.s.feuerstein@usdoj.gov H Alexander Fisch on behalf of Interested Party Victor Valley Acquisition, Inc. afisch@stutman.com Fredric Glass on behalf of Creditor Fair Harbor Capital, LLC fglass@fairharborcapital.com Matthew A Gold on behalf of Creditor Argo Partners courts@argopartners.net Everett L Green on behalf of U.S. Trustee United States Trustee (RS) everett.l.green@usdoj.gov Robert A Hessling on behalf of Interested Party Courtesy NEF rhessling@dgdk.com Lawrence J Hilton on behalf of Creditor Cerner Corporation lhilton@oneil-llp.com, ssimmons@oneil-llp.com Mark D Houle on behalf of Creditor Health Net of California, Inc. mark.houle@pillsburylaw.com Peter W Ito on behalf of Creditor St. Mary Medical Center pito@polsinelli.com, mlydick@polsinelli.com Raffi Khatchadourian on behalf of Creditor Sysco Food Services of Los Angeles, Inc. raffi@hemar-rousso.com Maya Krish on behalf of Creditor Fair Liquidity Partners, LLC mkrish@cactuscollect.com Mary D Lane on behalf of Debtor Victor Valley Community Hospital mlane@pszjlaw.com Ganna Liberchuk on behalf of Creditor Hain Capital Group, LLC gliberchuk@haincapital.com Craig A Loren on behalf of Creditor Debt Acquisition Group, LLC aloren@debtacquisitiongroup.com, bschwab@debtacquisitiongroup.com;jsarachek@debtacquisiti ongroup.com Michael B Lubic on behalf of Interested Party LabWest, Inc. michael.lubic@klgates.com Monika J Machen on behalf of Interested Party Courtesy NEF mmachen@polsinelli.com Samuel R Maizel on behalf of Attorney Pachulski Stang Ziehl & Jones LLP smaizel@pszjlaw.com, smaizel@pszjlaw.com Elmer D Martin on behalf of Creditor Desert Community Bank, a Division of East West Bank elmermartin@gmail.com Jordan D Mazur on behalf of Creditor SEIU United Healthcare Workers - West bankruptcycourtnotices@unioncounsel.net Scotta E McFarland on behalf of Debtor Victor Valley Community Hospital smcfarland@pszjlaw.com, smcfarland@pszjlaw.com Robert K Minkoff on behalf of Creditor Jefferies Leveraged Credit Products, LLC rminkoff@jefferies.com Jane Odonnell on behalf of Creditor California Health Facilities Financing Authority jane.odonnell@doj.ca.gov
Case 6:10-bk-39537-CB
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Hiren Patel on behalf of Other Professional Person Most Knowledgeable hiren.patel@doj.ca.gov, brenda.apodaca@doj.ca.gov Courtney E Pozmantier on behalf of Interested Party The Senior Associates Group, Inc. cpozmantier@ktbslaw.com Martha E Romero on behalf of Creditor San Bernardino County Tax Collector Romero@mromerolawfirm.com Terrel Ross on behalf of Interested Party TR Capital Management, LLC tross@trcmllc.com Steven J Schwartz on behalf of Attorney DANNING GILL DIAMOND & KOLLITZ, LLP sschwartz@dgdk.com David Scott on behalf of Creditor Centillion Investments LLC centillion@centillioninvest.com II. SERVED BY OVERNIGHT MAIL III. SERVED BY FACSIMILE TRANSMISSION OR EMAIL
Seth B Shapiro on behalf of Interested Party Centers for Medicare and Medicaid Services seth.shapiro@usdoj.gov Derrick Talerico on behalf of Creditor SCAN Health Plan dtalerico@loeb.com, kpresson@loeb.com;ljurich@loeb.com David P Tonner on behalf of Creditor Archon Bay Capital, LLC operations@blueheroncapital.com United States Trustee (RS) ustpregion16.rs.ecf@usdoj.gov Michael H Weiss on behalf of Interested Party Choice Medical Group mw@weissandspees.com, lm@weissandspees.com;jb@weissandspees.com Andrew F Whatnall on behalf of Creditor DACA 2010L, LP awhatnall@daca4.com
Kamala Harris kamala.harris@doj.ca.gov Peter Krause peter.krause@doj.ca.gov.
Victor Valley Community Hospital 2002 Service List (with emails, telephone and fax)
Via Email Debtor Victor Valley Community Hospital Catherine M. Pelley Chief Executive Officer 15248 Eleventh Street Victorville, CA 92395 T: (760) 843-6201 F: (760) 843-6020 Email: cpelley@vvch.org Via Email Board of Directors Kathy Davis Chair, Governing Board of Directors 17100 B Bear Valley Rd. Box 357 Victorville, CA 92395 T: (760) 427-2607 F: (760) 951-1308 Email: kathydavis49@hotmail.com Via Email Business Counsel to Debtor Charlie Slyngstad Burke Williams and Sorenson, LLP 444 S. Flower St., Ste. 2400 Los Angeles, CA 90071 T: (213) 236-0600 F: (213) 236-2700 Email: cslyngstad@bwslaw.com Via Email Office of the United States Trustee Everett Green 3685 Main St., Ste. 300 Riverside, CA 92501 T: (951) 276-6990 F: (951) 276-6973 Email: everett.green@usdoj.gov
Case 6:10-bk-39537-CB
Government Agencies Via Email Counsel for the US DHHS/CMS Phillip Seligman, Esq. US Department of Justice Commercial Litigation Branch 1100 L Street, N.W. Room 10104 Washington, DC 20005 Mail P.O. Box 875 Ben Franklin Station Washington, DC 20044-0875 T: 202-307-1105 F: 202-307-0494 Email: Phillip.Seligman@usdoj.gov Via Email Wendi A. Horwitz Deputy Attorney General California Department of Justice Office of the Attorney General 300 South Spring St., Suite 1702 Los Angeles, CA 90013 Direct Phone: 213-897-2178 Facsimile: 213-897-7605 Email: Wendi.Horwitz@doj.ca.gov
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Via Email Attorneys for Official Committee of Creditors Holding Unsecured Claims Richard K. Diamond Steven Schwartz Danning, Gill, Diamond & Kollitz, LLP 2029 Century Park East, Third Floor Los Angeles, CA 90067 P: (310) 277-0077 F: (310) 277-5735 Email: rdiamond@dgdk.com sschwartz@dgdk.com Creditors Committee Via Email Committee Member Medtronic USA, Inc. MS V215 3850 Victoria Street North Shoreview, MN 55126-2978 Representative: Steve Carlson T: (763) 514-0614 (800) 511-0934 F: (763) 367-1403 Email: Steve.j.carlson@medtronic.com Via Email Committee Member Rodney W. Brown, J.D. LabWest, Inc. 1821 E. Dyer Rd., Suite 100 Santa Ana, CA 92705 T: (949) 724-3900 Ext. 2730 C: (714) 290-7748 F: (949) 474-0940 Email: rbrown@westclifflabs.com Via Email Attorneys for LabWest, a subsidiary of LabCorp. Michael Benjamin Lubic K&L Gates 10100 Santa Monica Blvd., 7th Floor Los Angeles, California 90067 T: (310) 552-5030 F: (310) 552.5001 Email: michael.lubic@klgates.com
Via FedEx California Health Facilities Financing Authority 915 Capitol Mall, Suite 590 Sacramento, CA 95814 T: (916) 653-2799 Via Facsimile Office of Statewide Health Planning and Development Cal-Mortgage Loan Insurance Division 400 R Street, Suite 470 Sacramento, CA 95811 T: (916) 319-8800 F: (916) 445-2837 Secured Creditors Via Email Corwin Medical Group Manmohan Nayyar, MD Raman Poola, MD / Anna Sugi 18564 Hwy 18, Suite 110 Apple Valley, CA 92307 T: (760) 242-7777 F: (760) 242-0485 Email: mnayyarmd@choicemg.com ramanpoola@yahoo.com asugi@choicemg.com
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Interested Parties Via Email Thomas L. Driscoll, Esq. Attorney at Law 2002 3rd St Apt 114 San Francisco, CA 94107 T: (415) 281-0900 F: (415) 281-0903 Email: tdriscoll@tld3.com Via Email Biotronik Attention: Allen Trammell 6024 Jean Road Lake Oswego, Oregon 97035 Tel: 503-387-2549 Fax: 503-387-2623 Email: Allen.Trammell@biotronik.com Via FedEx Delta One Partners, Inc. Corporate Headquarters South 48550 North View Drive Palm Desert, CA 92260 Via Facsimile Law Offices of Leslie M. Lava 207 2nd St #A Sausalito, CA 94965 T: (415) 331-6464 F: (415) 331-6465 Via Facsimile Westhoff, Cone & Holmstedt: 500 Ygnacio Valley Road, Suite 380 Walnut Creek, CA 94596 T: (925) 472-8740 F: (925) 939-5099 Via Facsimile Davis Wright Tremaine LLP 64 Oak Knoll Drive San Anselmo, CA 94960 T: (415) 276-6500 F: (415) 276-6599 Via Email Daniel Settelmayer, Esq. Latham & Watkins LLP PO Box 894256 Los Angeles, CA 90189-4256 T: (213) 485-1234 F: (213) 891-8763 Email: daniel.settelmayer@lw.com
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Via Email Manmohan Nayyar, MD Physicians Hospital Management, LLC 18523 Corwin Rd., Suite H Apple Valley, CA 92307 T: (760) 946-3876 F: (760) 242-1936 Email: mnayyarmd@choicemg.com Via Email Attorneys for PHM Michael H. Weiss, Esq. Weiss & Spees 1925 Century Park East, Suite 650 Los Angeles, CA 90067-2701 (424) 245-3100 (Telephone) (424) 245-3199 (Fax) Email: mw@weissandspees.com Via Email BNY Mellon Trust Company NA 700 South Flower Street, Suite 500 Los Angeles, CA 90017 Attention: Aaron Masters T: (213) 630-6400 F: (213) 630-6442 Email: aaron.masters@bnymellon.com Via Email
Gregg Buxton, Vice President Desert Community Bank a Division of East West Bank 14800 La Paz Drive Victorville, CA 92395 T: (760) 241-8221 F: (760) 243-6819 Email: gregg.buxton@dcbk.org
Via Email Maita Prout, Attorney East West Bank 135 N. Los Robles Ave., Suite 600 Pasadena, CA 91101 T: (626) 768-6839 F: (626) 243-1274 Email: maita.prout@eastwestbank.com Via Email Counsel to the Indenture Trustee for the HFFA Bonds Catherine D. Meyer Pillsbury Winthrop Shaw Pittman LLP 725 South Figueroa Street, Suite 2800 Los Angeles, CA 90017-5406 T: 213.488.7362 F: 213.226.4160 Email: catherine.meyer@pillsburylaw.com
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Case 6:10-bk-39537-CB
Via Facsimile Stephen M. OHara President and CEO Angelica Textile Services (R-Colton 1105 Lakewood Parkway #210 Alpharetta, GA 30009 T: (678) 823-4100 F: (678) 823-4165 Via Email James W. Young President and CEO Platinum Health, Inc. Cell: (714) 401-5500 Email: jameswyoung@msn.com Requests for Special Notice Via Email Attorneys for Cerner Corporation Lawrence J. Hilton ONeil LLP 19900 MacArthur Boulevard; Suite 1050 Irvine, California 92612 T: (949) 798-0500 F: (949) 798-0511 Email: lhilton@oneil-llp.com Via Email Attorneys for Cerner Corporation Darrell W. Clark Stinson Morrison Hecker LLP 1150 18th Street, NW; Suite 800 Washington, DC 20036-3816 T:: (202) 728-3019 F: (202) 785-9163 Email: DClark@stinson.com Via Email Counsel for The Senior Associates Group Klee, Tuchin, Bogdanoff & Stern LLP Attn: Thomas E. Patterson, Esq. and Martin R. Barash, Esq. 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067-6049 Fax: (310) 407-9090 Email tpatterson@ktbslaw.com mbarash@ktbslaw.com Via Email Counsel for The Senior Associates Group Michael C. Kelcy, Esq. 3605 Canon Blvd. Altadena, CA 91001 Fax: (626) 345-9589 Email: mkelcy@charter.net
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Via Email Stalking Horse Bidder Prime Healthcare Services Foundation, Inc. Attn: Lex Reddy Chief Executive Officer 3300 East Guasti Road, 2nd Fl. Ontario, CA 91761 T: (909) 235-4410 F: (909) 235-4424 Email: lexreddy@dvmc.com Via Email Counsel for Prime Healthcare Services Foundation, Inc. Lee Shulman Mark Bradshaw Shulman Hodges & Bastian LLP 8105 Irvine Center Drive, Suite 600 Irvine, CA 92618 T: (949) 340-3400 F: (949) 340-3000 Email: lshulman@shbllp.com mbradshaw@shbllp.com Via Facsimile J. Raymond Elliott President and Chief Executive Officer Boston Scientific re: Guidant Corporation One Boston Scientific Place Natick, MA 01760-1537 T: (508) 650-8000 F: (508) 650-8923 Via Facsimile Johnson & Johnson Health Care Systems Inc. 425 Hoes Lane Piscataway, NJ 08854 Attention: John Shipley T: (732) 562-3000 F: (732) 562-2284 Via Facsimile Radiometer America, Inc. 810 Sharon Drive Westlake, OH 44145 T: (800) 735-0600 F: (440) 871-2510 Via Email Quadramed Attention: Penny W. Collings QuadraMed Corporation 12110 Sunset Hills Road # 600 Reston VA 20190 Attn: P.Collings T: (703) 904-5614 F: (703) 742-5399 Email: pcollings@quadramed.com
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Via Facsimile Victor Valley Hospital Real Estate, LLC 6800 Indiana Avenue, Suite 130 Riverside, CA 92506 Attention: William E. Thomas, Esq. Fax: (951) 782-8850
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Via Email Attorneys for Health Net Mark D. Houle, Esq. Pillsbury Winthrop Shaw Pittman LLP 650 Town Center Drive, Suite 700 Costa Mesa, California 92626-7122 T: (714-436-6800 F: (714) 436-2800 Email: mark.houle@pillsburylaw.com Via Email Attorneys for County of San Bernardino Martha E. Romero Romero Law Firm BMR Professional Building 6516 Bright Avenue Whittier, CA 90601 T: (562)-907-6800 F: (562) 907-6820 Email: Romero@mromerolawfirm.com Via Email Attorneys for Creditor OSHPD and the CA Health Facilities and Financing Authority Jane O'Donnell Deputy Attorney General Dept of Justice Office of the Attorney General 1300 I Street, Suite 125 P.O. Box 944255 Sacramento, CA 94244-2550 T: (916) 322-0253 F: (916) 327-2247 Email: Jane.Odonnell@doj.ca.gov Via Email Attorneys for the United States of America, on behalf of the United States Department of Health and Human Services and the Centers for Medicare and Medicaid Services Seth B. Shapiro, Trial Attorney U.S. Department of Justice - Civil Division Commercial Litigation Branch 1100 L Street, NW, Room 10012 P.O. Box 875, Ben Franklin Station Washington, D.C. 20044 Telephone: (202) 514-7164 Facsimile: (202) 307-0494 Email: seth.shapiro@usdoj.gov Via Facsimile Victor Valley Hospital Acquisition, Inc. 6800 Indiana Avenue, Suite 130 Riverside, CA 92506 Attention: William E. Thomas, Esq. Fax: (951) 782-8850
Via Email Attorneys for Victor Valley Hospital Real Estate LLC and Victory Valley Hospital Acquisition, Inc. Gary E. Klausner, H. Alexander Fisch Jeffrey A. Resler Stutman, Treister & Glatt PC 1901 Avenue of the Stars, 12th Floor Los Angeles, California 90067 Telephone: (310) 228-5600 Facsimile: (310) 228-5788 E-mails: gklausner@stutman.com aarnold@stutman.com jresler@stutman.com Via FedEx Tin Kin Lee on behalf of Creditor Inland Empire Health Plan Tin Kin Lee Law Offices 55 S Lake Ave Ste 705 Pasadena, CA 91101 Via FedEx Liquidity Solutions Inc One University Plaza Ste 312 Hackensack, NJ 07601 Via FedEx Tannor Partners Credit Fund II, LP 200 Business Park Drive, Suite 200 Armonk, NY 10504 Via Email Attorney for Creditor, Peggy Buckley Michael Grennier Law Offices of Steve Pell 2633 Loma Vista Road Ventura, CA 93003-1548 Tel: 805-653-6615 / Fax: 805-653-1055 Email: michaelgrennier@stevepell.com Via Express Mail State Board Of Equalization P O Box 942879 Sacramento, CA 94279-0055 Via FedEx Arthrocare Corporation 7500 Rialto Boulevard Building Two Suite 100 Austin, TX 78753
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Via FedEx Stephen P Grayson on behalf of Creditor Ashley Canon Law Offices of Stephen P. Grayson APC 10850 Wilshire Blvd Ste 400 Los Angeles, CA 90024-4305 Via FedEx Megan A Lewis on behalf of Creditor Molina Healthcare of California Wilke Fleury Hoffelt Gould & Birney LLP 400 Capitol Mall 22nd Fl Sacramento, CA 95814
Via FedEx Samantha F Spector on behalf of Creditor Karl Storz Endoscopy-America, Inc. 2029 Century Park East 19th Fl Los Angeles, CA 90067-3005 Via FedEx Technology Resource Center 2600 Virginia Cir Denton, TX 76209 Via FedEx Matthew Wolf on behalf of Creditor National Fire & Marine Insurance Company Inc. Sonnenschein Nath & Rosenthal LLP 601 S Figueroa St, Ste 2500 Los Angeles, CA 90017
Via FedEx Kenneth R. Reynolds on behalf of Creditor GE Medical Systems Information Technologies, Inc. Kenneth R Reynolds Inc 2020 Hurley Wy Ste 210
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DOCS_LA:225042.1 90231-002

VVCH Emerg Motion

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Case 6:10-bk-39537-CB

VICTOR VALLEY COMMUNITY HOSPITAL,1

DIP Lender: Purpose:

Events of Default Liens/Superpriority Administrative Claim

Forgiveness in Event of Sale of Hospital to Prime

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 IX. VII. VIII. V. VI. IV. I. II. III.

Interest: Events of Default Liens/Superpriority Administrative Claim

Forgiveness in Event of Sale of Hospital to Prime

17 October __, 2011

NOW, THEREFORE, IT IS HEREBY ORDERED, ADJUDGED AND DECREED,

POSTPETITION REVOLVING CREDIT AND SECURITY AGREEMENT

Prime Healthcare Management, Inc. as LENDER

Dated as of October 14, 2011

Grant of Security Interest; Collateral; Superpriority Claim

No Default or Event of Default exists. 5.14 No Withholding of Reimbursements

Conduct of Business and Maintenance of Existence and Assets

IRS Form 8821

Filing of Motions and Applications

SIGNATURES ON FOLLOWING PAGE

shall mean lawful money of the United States of America.

CONSULTING SERVICES AGREEMENT

Consultant shall have cause for

By:___________________________________ ___________________, ____ Prime Healthcare Management, Inc.

By:___________________________________ _________________, _____________

PROOF OF SERVICE OF DOCUMENT

October 17, 2011

/s/ Myra Kulick

I. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF)

6:10-bk-39537-CB Notice will be electronically mailed to:

Kamala Harris kamala.harris@doj.ca.gov Peter Krause peter.krause@doj.ca.gov.

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By:_____________________ _, Prime Healthcare Management, Inc.

By:___________________________ _, _____