Note 4 – Notes Payable Related to Acquisitions

West Mifflin Note Payable

In order to finance a portion of the purchase price for the West Mifflin facility, on September 25, 2015 the Company entered into a Term Loan and Security Agreement with Capital One (the “Lender”) to borrower $7,377,500 (the “Loan”). The Loan bears interest at 3.72% per annum and all unpaid interest and principal is due on September 25, 2020 (the “Maturity Date”). Interest is paid in arrears and interest payments begin on November 1, 2015, and on the first day of each calendar month thereafter. Principal payments begin on November 1, 2018 and on the first day of each calendar month thereafter based on an amortization schedule with the principal balance due on the Maturity Date. The Loan may not be prepaid in whole or in part prior to September 25, 2017, thereafter, the Company, at its option, may prepay the Loan at any time, in whole (but not in part) on at least thirty (30) calendar days but not more than sixty (60) calendar days advance written notice. The Loan has an early termination fee of two percent (2%) if prepaid prior to September 25, 2018.

At closing the Company paid the Lender a non-refundable commitment fee of $73,775. If any principal, interest or other sum due by the Company is not paid on the date on which it is due, the Company is obligated to pay to the Lender an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable laws. All fees hereunder are non-refundable and deemed fully earned when due and payable.

The Term Loan and Security Agreement contains covenants that are customary for similar credit arrangements. These include covenants relating to establishment of reserves for the payment of taxes, insurance and capital replacements (under certain circumstances), maintaining a collection account, financial reporting and notification, payment of indebtedness, taxes and other obligations, and compliance with certain applicable laws. There are also financial covenants that require the Company to (i) maintain a fixed charge coverage ratio (defined as the ratio of EBITDA to fixed charges) commencing December 31, 2015 of not less than 1.00 to 1.00, (ii) not permit the ratio of EBITDA to total indebtedness as of the last day of each calendar quarter, commencing December 31, 2015 and continuing thereafter to be less than 0.09 to 1.00, and (iii) maintain operator EBITDAR as of the last day of each fiscal quarter commencing December 31, 2015 of not less than $6,000,000. The Term Loan and Security Agreement also imposes certain customary limitations and requirements on the Company with respect to, among other things, the maintenance of properties, access to real property, insurance, compliance with laws, maintenance of books and records, inspection rights, environmental matters, indemnity, healthcare operations, right of first refusal for future financing, incurrence of indebtedness and liens, the making of investments, the payment of distributions or making of other restricted payments, healthcare matters, mergers, acquisitions and dispositions of assets, and transactions with affiliates.

The Term Loan and Security Agreement contains customary events of default, including, without limitation: non-payment of obligations under the Term Loan and Security Agreement when due; the material inaccuracy of any representations or warranties; a violation of covenants in the Term Loan and Security Agreement (subject, in the case of certain such covenants, to cure periods); a default related to other material debt or uninsured loss in excess of $100,000; certain events of bankruptcy or insolvency; judgments for the payment of money in excess of $100,000 in the aggregate that remains unpaid or unstayed and undischarged for a period of 30 days after the date on which the right to appeal has expired; and a change of control of the Company. The occurrence and continuance of an event of default could result in, among other things, amounts owing under the Term Loan and Security Agreement being accelerated, payment of the Early Termination Fee and the Term Loan and Security Agreement being terminated.

During the continuance of any default, the applicable interest rate on all obligations owing under the Term Loan and Security Agreement is the lesser of (a) the maximum rate permitted by applicable law; or (b) 3% per annum over the current interest rate otherwise applicable.

The Company incurred deferred financing costs of $137,735 related to this loan. No interest expense was incurred on the note during the three and nine months ended September 30, 2015 and 2014, respectively.

                As of September 30, 2015, scheduled principal payments due in each calendar year listed below are as follows:

Omaha Note Payable

In order to finance a portion of the purchase price for a 56-bed long term acute care hospital located in Omaha, Nebraska, on June 5, 2014 the Company entered into a Term Loan and Security Agreement with Capital One, National Association (the “Lender”) to borrower $15.06 million (the “Loan”). The Loan bears interest at 4.91% per annum and all unpaid interest and principal is due on June 5, 2017 (the “Maturity Date”). Interest is paid in arrears. Interest payments began on August 1, 2014 and are due on the first day of each calendar month thereafter. Principal payments began on January 1, 2015 and are due on the first day of each calendar month thereafter based on an amortization schedule with the principal balance due on the Maturity Date. For the nine months ended September 30, 2015 the Company made principal payments in the amount of $231,702. Interest expense on the Loan was $186,702 and $495,275 for the three and nine months ended September 30, 2015, respectively. Interest expense on the Loan was $191,576 and 244,980 for the three and nine months ended September 30, 2014, respectively.

 As of September 30, 2015, scheduled principal payments due in each calendar year listed below are as follows:

Asheville Note Payable

In order to finance a portion of the purchase price of an approximately 8,840 square foot medical office building known as the Orthopedic Surgery Center, located in Asheville, North Carolina, on September 15, 2014 the Company entered into a Promissory Note with the Bank of North Carolina to borrow $1.7 million. The note bears interest on the outstanding principal balance at the simple, fixed interest rate of 4.75% per annum and all unpaid principal and interest is due on February 15, 2017. Commencing on October 15, 2014, the Company will make on the 15^th of each calendar month until and including March 15, 2015, monthly payments consisting of interest only. Thereafter, commencing on April 15, 2015, the outstanding principal and accrued interest shall be payable in monthly amortizing payments of $10,986 each on the 15^th day of each calendar month, until and including January 15, 2017. For the nine months ended September 30, 2015 the Company made principal payments in the amount of $25,002. Interest expense on the note was $20,433 and $61,101 for the three and nine months ended September 30, 2015, respectively. No interest expense was incurred on the note during the three and nine months ended September 30, 2014, respectively.

                As of September 30, 2015, scheduled principal payments due in each calendar year listed below are as follows:

Deferred Financing Costs

                The Company incurred deferred financing costs related to the notes payable obtained for acquisitions. A rollforward of the deferred financing cost balance as of September 30, 2015 is as follows:

Amortization expense was $30,257 and $89,850 for the three and nine months ended September 30, 2015, respectively. Amortization expense was $28,301 and $36,077 for the three and nine months ended September 30, 2014, respectively. Amortization expense is included in the “Interest Expense” line item in the accompanying Statements of Operations.