Pacifica of the Valley Corporation - Chapter 11 DIP Terms

DIP Terms

Borrower

• Pacifica of the Valley Corporation, d/b/a Pacifica Hospital of the Valley, which filed Chapter 11 in the District of Delaware on July 4, 2026

Lender

• Axios Capital Solutions, LLC, or one or more of its designated affiliates, successors or assigns, as DIP lender; Axios bought the prepetition Main Street Priority loan from First Western Trust Bank in November 2025 and so sits as both prepetition senior lender and DIP lender, and is also the contemplated plan sponsor and asset purchaser
• The debtor stipulates that neither the DIP lender nor any prepetition secured party is a control person or insider of the debtor

DIP Commitments

• $52.5 million senior secured superpriority facility, consisting of:
  • $21 million multi-draw new money term loan
  • Up to $31.5 million roll-up of the prepetition senior loan obligations, converted automatically at 1.5x of each new money dollar funded as and when each advance is made
• The interim order authorizes $7 million of new money plus $10.5 million of roll-up; the balance becomes available only on entry of a final order.
• The term sheet fixes the new money draw schedule:
  • $7 million initial advance on entry of the interim order
  • $4 million second advance on entry of the final order
  • $3 million third advance on the debtor's filing of the plan or private sale motion
  • $7 million fourth advance on the earlier of the plan confirmation milestone and the sale closing milestone
• The roll-up is a refinancing and continuation rather than a novation, satisfaction or discharge of the prepetition secured debt, and the rolled obligations continue to count as senior indebtedness under any subordination or intercreditor agreement running to that debt. The interim order recites that the prepetition senior lender would not have extended the DIP loans without it, and treats it as consideration for the new financing rather than payment on the prepetition debt.
• Prepetition senior debt stands at approximately $50,943,321.41 as of the petition date, inclusive of accrued and unpaid interest but exclusive of fees, costs and expenses, under a Dec. 10, 2020 Main Street Priority Loan Agreement originally funded by First Western and the Federal Reserve Bank of Boston in a principal amount of $35 million.
• As a condition to the debtor's execution of the term sheet and to entry of the interim order, Axios was required to deliver proof of funds by Sept. 28, 2026, reasonably satisfactory to the debtor and the committee, showing immediately available, unrestricted funds of not less than $26 million, or a binding funding commitment from a creditworthy affiliate, on a professionals'-eyes-only basis to the debtor's and the committee's professionals.
• The lender has no obligation to fund beyond the initial advance absent an agreed DIP credit agreement; where the definitive documents and the DIP order conflict, the order controls. New York law governs.
• The initial advance is conditioned on documentation reasonably satisfactory to the lender; entry of an interim order acceptable to the lender that has not been stayed or reversed; the lender's receipt and approval of the budget; no event of default; and the lender holding its superpriority claim and perfected DIP liens. The lender may waive any condition by email.

Interest Rate

• 12% per annum, PIK monthly in arrears by capitalizing the principal amount of the DIP loan
• Default rate: an additional 4% per annum
• Interest accrues on a 360-day year for actual days elapsed

Fees

• Commitment Fee: 10% of the $21 million new-money facility, or $2.1 million, fully earned and non-refundable on entry of the interim order
• The debtor pays the DIP lender's reasonable and documented prepetition and postpetition out-of-pocket costs and expenses, including attorney fees, within 14 days of a summary invoice, without court approval, U.S. Trustee guideline review or fee applications; the debtor or the U.S. Trustee may file a fee objection within that 14-day window limited to reasonableness. Those fees are subject to challenge rights, non-refundable, irrevocable and outside the budget.
• Under the interim order, reimbursement excludes fees tied to Axios's acquisition of the hospital or the transfer of its operations, including regulatory approval, an interim management arrangement and lease negotiation with the landlord, as well as asset purchase agreement documentation and any other activity in furtherance of the acquisition, while preserving reimbursement for expenses incurred to preserve, monitor, enforce, protect or realize on collateral, including in a court-approved sale process or credit bid. The term sheet's adequate protection package instead reimburses Axios's fees for negotiating the lease principle agreement; the interim order controls over inconsistent DIP documents.
• The debtor indemnifies the DIP lender, except for actual fraud, gross negligence, bad faith or willful misconduct found by final, non-appealable judgment, and except for losses arising from a successful challenge.

Maturity

• The earliest to occur of:
  • Dec. 8, 2026, extended under the interim order to the plan effective date and sale closing if a confirmation order acceptable to the DIP lender is entered approving the plan, disclosure statement and related sale of the debtor's assets to the DIP lender or its designee
  • A missed milestone not waived by the DIP lender
  • Consummation of a 363 sale of all or substantially all assets
  • Acceleration of the DIP loans and termination of commitments following an event of default
  • The effective date of a plan of reorganization
  • Appointment of a Chapter 11 trustee
  • Conversion to Chapter 7 or dismissal of the case
• Mandatory prepayment: HQAF funds the debtor receives must first pay down the DIP loan, excepting the QAF Delta, which is an excluded asset, and HQAF Program 8 or 9 funds identified in the approved budget, which the debtor may spend per that budget.

Milestones

• Interim DIP order entered by Sept. 29, 2026 in form acceptable to the lender
• Motion to extend the deadline to assume or reject the master lease under section 365(d)(4)(B)(i) filed by Oct. 5, 2026, with an order entered by Oct. 30, 2026 extending that deadline through a date not earlier than Jan. 29, 2027
• Plan confirmation by Dec. 8, 2026 if Axios elects to buy through the plan, on terms consistent in all respects with the plan term sheet
• If Axios elects a private sale instead, an initial transition date within 30 days of the election, with the parties entering an interim management agreement while Axios pursues regulatory approvals and closing to follow
• Failure to meet a milestone is an event of default absent written waiver or extension. Separately, the debtor may not assume, reject, extend, amend or modify the master lease, or stipulate to a cure amount or adequate assurance under it, without the lender's written consent.

Carve-Out

• Post-Carve-Out Trigger Notice Cap: $200,000 for professional fees incurred after delivery of a trigger notice, styled in the term sheet as the wind-down carve-out and generating no additional funding obligation for the lender
• The carve-out also covers clerk and U.S. Trustee fees under 28 U.S.C. § 1930(a), and allowed fees and expenses of the debtor's and committee's professionals, including transaction fees but excluding success fees, accrued through delivery of a trigger notice, whether allowed before or after the notice, solely to the extent provided for in the budget.
• A carve-out trigger notice may issue during an event of default and must state that the cap is invoked, that the DIP loans are accelerated, and that the lender will not fund further advances or consent to further cash collateral use.
• Under the term sheet, the carve-out is unavailable for investigating, initiating or prosecuting claims or litigation against the debtor, the lender, L.A. Care or the landlord, or their affiliates and representatives, including any attack on the amount, validity, perfection, priority or enforceability of the lender's liens and claims, except for $50,000 of DIP proceeds; the interim order, which controls over inconsistent DIP documents, bars use of the carve-out and DIP proceeds to challenge the liens or claims of the DIP lender or the prepetition secured parties, subject to a $25,000 committee challenge budget.
• Professional Fee Escrow: the debtor wires funds weekly to an escrow account at claims agent Verita, capped at the professional fee line items under the budget's "Restructuring Disbursements" subheading for that week, with a permitted initial catch-up for amounts accrued before the initial advance; no transfer may be made after a trigger notice other than the fixed cap. The escrow sits outside the DIP lender's control and outside the DIP liens, adequate protection liens and collateral, though the DIP liens attach automatically to any residual interest and excess proceeds revert to the DIP lender until the DIP obligations are paid, then to the debtor. Payments from the escrow continue notwithstanding an event of default, trigger notice or termination of the DIP documents, without obligating the lender to advance further funds.

Use of Proceeds

• Fund hospital operations and the Chapter 11 case through the plan effective date, in accordance with the approved budget and subject to permitted variances:
  • Working capital and ordinary-course operating expenses
  • Costs of administering the case
  • Funding the professional fee escrow for court-allowed estate professional fees
  • Amounts expressly authorized under the DIP documents or by the court
  • Documented and reasonable fees and expenses of the lender's professionals in Axios's capacity as lender, including negotiating the DIP documents; all other obligations under the facility are paid in kind
  • Other purposes identified in the approved budget
• No proceeds may be used to investigate or contest the prepetition secured debt, the master lease with the landlord, or the prepetition receivable sales to L.A. Care, subject to the challenge budget and the $50,000 litigation carve-out.
• The interim order further bars, without the DIP lender's written consent, use of DIP proceeds, collateral, cash collateral or the carve-out to seek other financing that would not repay the DIP obligations in full in cash, to pay any prepetition creditor's claim over the DIP lender's written objection, or to use cash collateral or sell DIP collateral except as the order or the DIP documents permit.
• Net proceeds of any sale or disposition of DIP collateral are applied first to repay the DIP obligations in full, subject to the carve-out and challenge rights.
• The debtor may not seek, solicit or support alternative or priming financing, including any further sale or financing of HQAF receivables with L.A. Care or anyone else, or pledge cash collateral outside the approved budget, without the lender's written consent, unless the alternative repays the DIP obligations in full in cash at or before consummation.

Cash Collateral

• All of the debtor's cash, wherever located and including cash in its deposit and other accounts, is cash collateral, as are proceeds of collateral dispositions, deposits, refund claims and retainers subject to a lien or replacement lien, and cash equivalents in any depository account.
• Authority to use cash collateral terminates automatically, without further order, on the earliest of the maturity date, entry of an order denying or terminating that authority, or the occurrence or continuation of an event of default. On an event of default the lender has no obligation to make further advances or consent to further use.
• The interim DIP order controls over the debtor's first and second interim cash collateral orders [Docket Nos. 57 and 148] to the extent of any inconsistency.

Securities and Priorities

• The DIP lender receives an allowed superpriority administrative expense claim under section 364(c)(1) for all DIP obligations, including the roll-up, senior to all other superpriority claims in the case and subordinate only to prior payment of the carve-out.
• Fully perfected DIP liens attach on entry of the interim order, without any filing or recording, on substantially all assets, including cash, receivables, inventory, equipment, commercial tort claims, intellectual property, contract rights, tax refunds, general intangibles, real estate, leaseholds, intercompany claims, insurance proceeds and all proceeds and products, with the following priorities:
  • First-priority liens under section 364(c)(2) on unencumbered collateral, including all proceeds of HQAF receivables; the term sheet also lists avoidance and preference causes of action, but under the interim order the liens reach only the proceeds of avoidance actions, effective on entry of the final order, and not the actions themselves
  • Junior liens under section 364(c)(3) on collateral subject to valid, perfected, unavoidable third-party liens, the prior permitted liens
  • First-priority priming liens under section 364(d)(1) on all collateral securing the prepetition secured parties' liens, which also prime any replacement liens granted as adequate protection for the primed liens, excepting property subject to prior permitted liens
• The prepetition senior lender consented to the priming of its own liens. The landlord, Reliq Pacifica LLC and Beverly Gemini Investments, LLC, also holds prepetition liens and with the senior lender makes up the prepetition secured parties; its liens are subordinated to the senior lender's under a Dec. 17, 2020 lien subordination agreement that bars it from objecting to any financing, including a priming facility, the senior lender supports, so it is deemed to have consented. On effectiveness of the roll-up, the prepetition liens securing the rolled obligations are deemed replaced by the DIP liens, subject to challenge rights.
• The DIP liens, superpriority claim and adequate protection liens survive conversion, dismissal and the appointment of a trustee, and bind any successor estate representative; the DIP liens and superpriority claim are subject to challenge rights only to the extent of the roll-up. Neither the DIP lender nor the prepetition secured parties need file proofs of claim.

Avoidance Actions and Excluded Assets

• DIP liens reach the proceeds of Chapter 5 claims under sections 544, 545, 547, 548, 549, 550 and 553 and analogous state law, but not the causes of action themselves, and attach to those proceeds only on entry of the final order.
• On entry of the final order, a defined set of excluded assets comes out from under every Axios lien, claim and adequate protection interest and is deemed gifted to the estate for holders of allowed general unsecured claims, cannot be credit bid, and is not included in any sale under the plan or otherwise; on the plan effective date those assets are contributed to a liquidating trust free and clear. They comprise:
  • The debtor's interests in or related to Pacific Gardens Medical Center
  • Chapter 5 causes of action, though if no consensual resolution with the landlord is reached, the estate's claims against the landlord, including recharacterization of the master lease, any claim affecting title to or characterization of the site, and Chapter 5 claims against the landlord, are retained under section 1123(b)(3)(B) and prosecuted post-effective date by Newco at its option as estate representative, with net cash recovery on those Chapter 5 claims flowing into the liquidating trust waterfall and all other relief inuring to Newco
  • Other litigation causes of action, including claims against the debtor's directors, officers and affiliated parties
  • D&O insurance rights and claims
  • The QAF Delta, any excess QAF revenue from reducing asserted setoffs or recoupment below the budgeted QAF amount, provided future QAF receipts are not impaired
  • The debtor's ordinary-course cash on hand as of the earlier of the IMA transition date and the effective date, excluding cash from QAF funds not identified in the approved budget or from the QAF Delta
• Net proceeds of the excluded assets, after costs of realization, are shared: the first $1 million to the estate or liquidating trust for general unsecured claims and expenses; then 50/50 between the prepetition senior lender and general unsecured claims until the lender has received $4 million; then 75% to general unsecured claims and 25% to the lender until the lender has been paid a total of $15 million, after which all remaining proceeds go to general unsecured claims. The interim order states that this allocation is not subject to challenge, contest or revision by any party, including any successor or a Chapter 7 or Chapter 11 trustee.

Credit Bid

• In connection with any sale or disposition of DIP collateral, whether under section 363, a confirmed plan, UCC Article 9, a foreclosure or a Chapter 7 sale, the DIP lender and its affiliates, designees and acquisition vehicles may credit bid all or any portion of the DIP obligations, inclusive of the roll-up and of principal, accrued interest, fees, expenses and protective advances, and the prepetition senior lender may credit bid the full amount of the prepetition senior loan obligations against the prepetition collateral, in each case subject to challenge rights. The debtor has agreed on behalf of itself and the estate not to challenge those rights.
• No challenge limits the credit-bid right absent a final, non-appealable order expressly determining the specific amount of DIP obligations that may not be credit bid.
• The term sheet obligates the lender to credit bid not less than $40 million of outstanding DIP obligations, including the commitment fee, roll-up and operating advances, in any sale consummated through the plan or a private sale.
• Axios may elect to buy through the plan or through a private sale motion under section 363; a private sale must close by the sale closing milestone, with Axios bearing all hospital operating costs from closing. Either way, Axios and the debtor must enter a mutually acceptable interim management agreement by Nov. 10, 2026 or such later date as they agree, under which Axios retains all net operating profits of the hospital and funds operating shortfalls, during the approved budget period by DIP advances solely to the extent the budget provides and thereafter by additional advances that constitute DIP obligations, the operating advances, while assuming no professional liability, regulatory, seismic, tax or similar liability of the debtor or hospital accruing before the IMA, other than ordinary-course payables coming due after the budget period and before closing. An Axios election to proceed by private sale does not prevent the debtor from concurrently prosecuting a plan of liquidation consistent with the plan term sheet.
• Amounts not credit bid, and prepetition secured debt neither rolled up nor credit bid, are not waived, released or discharged by the credit bid, the sale or the plan; Axios may not assert more than $15 million against the estate or for purposes of sharing in excluded-asset proceeds, with remaining DIP obligations satisfied first, and allowed claims above $15 million are assumed by Newco as senior secured debt. Following consummation of either a plan or private sale, Axios may not claw back amounts paid during the case or recover more than $15 million in the aggregate from the estate or liquidating trust.

Plan Term Sheet and Related Litigation

• The plan term sheet, attached to the DIP term sheet and binding in connection with the parties' DIP obligations, contemplates a combined disclosure statement and plan selling all of the debtor's assets, including the hospital lease, to Axios or its designee, Newco, free and clear, with the excluded assets vesting in a liquidating trust; the plan is funded from DIP proceeds, excess cash under the approved budget as of the earlier of the IMA transition date and the effective date, and the excluded assets. If confirmation does not or cannot occur, the debtor must promptly execute a private sale to Axios on the same economic terms for Axios and the same excluded-asset waterfall.
• Axios's prepetition secured claim is allowed in full with full credit-bid rights. Administrative and priority tax claims are paid in full or as agreed; other secured claims, excluding Axios and the landlord, are paid in full, receive their collateral or are otherwise left unimpaired, with the subordination agreement between Axios and the landlord enforced; Axios holds a secured claim for its remaining DIP and prepetition obligations after its credit bid, capped at $15 million against the estate, with Newco assuming the excess as senior debt under the subordination agreement; general unsecured creditors receive pro rata liquidating trust interests subject to the sharing waterfall; and equity receives nothing.
• The liquidating trust has a three-member oversight committee, two members selected by the committee and one by Axios, and a trustee selected by the committee in consultation with the debtor and Axios.
• L.A. Care is a released party under the plan or a private sale, effective on the first of the plan effective date and the private sale closing, and except as the DIP term sheet provides, neither Axios, the committee nor the liquidating trust will challenge L.A. Care over the $7.5 million of QAF receivables subject to the 2026 prepetition agreements. The plan provides no release, exculpation, injunction or indemnity to Paul R. Tuft or Tuft's affiliates.
• Within five business days after entry of the interim order, the debtor agrees to the remand of the Colorado litigation to the Colorado District Court and not to object to Axios pursuing a judgment and recovery from Tuft. On remand, Axios will dismiss its Colorado complaint against the debtor without prejudice, will not seek from Tuft more than the allowed prepetition secured debt amount plus postpetition interest, fees, costs and expenses under the applicable guaranty, and will credit actual recoveries from Tuft, excluding judgment interest, fees, costs and similar recoveries, against its recovery from the estate or liquidating trust.
• Axios must vote all its claims to accept a conforming plan, may not support any inconsistent alternative transaction, and must support funding of the liquidating trust and the free-and-clear contribution of the excluded assets; the plan must be reasonably satisfactory to Axios and, if a signatory, the committee.
• Consummation requires the sale to close contemporaneously, together with an interim management or management operations transfer agreement, and the California Department of Public Health to issue Newco the hospital's general acute care license, or an interim arrangement letting Newco operate pending issuance, a condition Axios may waive. The asset purchase agreement must require the debtor to remit to Newco post-transfer receipts, including Medicare, Medi-Cal and payor receipts paid to the debtor's provider numbers pending change-of-ownership processing, and after Oct. 5, 2026 the debtor must execute licensing, provider-enrollment and other transfer filings within five business days of Axios's request.

Adequate Protection

Prepetition Secured Parties

• Replacement liens on the same types of collateral constituting prepetition collateral, excepting the excluded assets, perfected by operation of law on entry of the interim order and subordinate only to the DIP liens, the DIP superpriority claim, the carve-out and liens senior by operation of law or permitted under the prepetition loan documents
• Section 507(b) superpriority administrative expense claims, junior in all respects to the carve-out and to the DIP superpriority claim and all other DIP obligations, payable from and with recourse to all pre- and postpetition property other than the excluded assets, including avoidance action proceeds on entry of a final order
• Payment of the DIP lender's postpetition reasonable and documented fees and expenses, including those of counsel to the prepetition senior lender and those incurred negotiating the DIP and plan term sheets; the term sheet calls for review procedures allowing U.S. Trustee and committee review, while the interim order sends summary invoices to the U.S. Trustee and gives fee-objection rights only to the debtor and the U.S. Trustee
• The stipulations and releases described below

L.A. Care

• The interim order leaves undisturbed the L.A. Care sale order [Docket No. 115], which authorized the sale of HQAF receivables to L.A. Care under section 363, stipulated to the validity and non-avoidability of the prepetition HQAF receivable sales to L.A. Care, released estate claims against L.A. Care and granted L.A. Care administrative claims. Should the prepetition HQAF receivable purchase agreements be finally determined on a successful challenge to be secured loans rather than true sales, L.A. Care receives adequate protection for diminution as a prepetition secured party in exchange for subordination to the carve-out, the priming DIP liens and the adequate protection superpriority claims.

Debtor Stipulations, Releases and Challenge Rights

• The debtor stipulates that the prepetition senior loan obligations of approximately $50.9 million are valid, binding and enforceable, free of offsets, defenses or counterclaims; that the prepetition senior liens are valid, perfected and first priority; that no prepetition payment or transfer to the lender is avoidable; that the assignment from First Western to Axios is valid and Axios has standing to enforce; and that neither Axios nor its principals is an affiliate under the CARES Act or the Bankruptcy Code or an insider. The debtor waives and releases all challenges as of the petition date.
• On entry of the interim order the debtor releases the DIP lender, its affiliates, predecessors and representatives from all prepetition claims, including avoidance actions; the parallel release of the prepetition senior lender takes effect on entry of the final order, subject to challenge rights, and reaches only conduct on or before that entry, leaving future conduct and ongoing obligations under the prepetition loan documents unreleased. Both releases carve out actual fraud, gross negligence, bad faith, self-dealing and willful misconduct established by final, non-appealable judgment.
• Challenge Rights, held by the committee as to the stipulations and releases and by the committee or Axios as to a standing motion attacking prepetition transactions with L.A. Care, are tolled, not run on a fixed period, through the first of the closing of a private sale and the effective date of a confirmed plan, at which point they are deemed waived and released under the terms of that plan or sale. Tolling lapses only if the plan is not confirmed and the DIP lender either fails to fund its obligations or fails to perform a material operational duty or financial obligation under the IMA, that failure continues three business days after written notice to the prepetition senior lender's counsel, and it causes negative financial impact to the hospital greater than $500,000; declining to fund an advance whose conditions are unmet, or after a debtor event of default, is not a failure to fund. The interim order triggers the lapse if the plan is not confirmed, while the term sheet requires that the plan fail because of the lender's default. The committee, or Axios and the committee as to L.A. Care, then has 14 days from written notice of the continuing breach to commence and pursue a challenge, failing which the right terminates as to that party. No extension is effective without the written consent of the DIP lender, the prepetition senior lender or L.A. Care, as applicable.
• Pending that resolution, the prepetition senior lender escrows recoveries on its collateral in excess of the new money loans and the commitment fee. On a successful challenge, Axios's $15 million allowed claim against the liquidating trust is reduced first, in an amount the court sets not exceeding the amount actually due and unfunded under the approved budget or the IMA, and damages beyond that claim reduce any remaining Axios claim against the estate.
• The committee has derivative standing against the prepetition senior lender. A challenge must be commenced by adversary complaint or contested matter identifying each challenged lien, obligation, payment or transaction with particularity and the specific legal and factual basis; Rule 2004 examinations, discovery requests, motions to extend, objections and reservations of rights do not count. Pending a final, non-appealable order sustaining a challenge to a specifically identified portion of the roll-up, the roll-up remains a valid DIP obligation with all DIP protections, and no challenge, investigation, discovery request, grant of standing or reservation of rights affects the new money term loans or their protections.
• Challenge Budget: $25,000 in the aggregate from the DIP facility, DIP collateral, cash collateral and carve-out, available to the committee solely for an initial investigation by committee professionals of challenges against the prepetition secured party releasees and the prepetition senior liens. It is a hard cap; it may not fund an extension fight, an appeal, discovery beyond what the investigation reasonably requires, any attack on the new money loans or their protections, or claims against anyone other than the prepetition senior secured party releasees, and no unused portion may be reallocated without the DIP lender's written consent.

Waivers

• The interim order grants the following waivers:
  • Section 506(c): no administration costs or expenses may be surcharged against the DIP lender, the prepetition secured parties, the carve-out, the DIP collateral or the prepetition collateral without their prior written consent; the waiver protects the DIP lender immediately but reaches the prepetition secured parties and the roll-up only on entry of the final order, and nothing in it alters the challenge budget
  • Section 552(b): on entry of the final order, the equities-of-the-case exceptions under sections 552(b)(1) and (2) do not apply to the prepetition secured parties
  • Marshaling: on entry of the final order, the equitable doctrine of marshaling does not apply to the DIP or prepetition collateral, and no party other than the DIP lender and the prepetition secured parties may direct the exercise of remedies or control disposition of that collateral after an event of default
• The definitive documentation is to carry section 506(c) and section 510 waivers and a section 552(b)(1) entitlement.

Events of Default and Remedies

• An event of default under the term sheet is an event of default under the interim order unless waived by the DIP lender in writing in its sole discretion, and the debtor must give immediate written notice of any default or incipient default. Contemplated defaults include failure to comply with the approved budget within permitted variances, missed payments, unauthorized debt or asset sales, breach of representations, change of control, documentation not in form satisfactory to the lender, a missed milestone, and occurrence of a termination date.
• On five business days' written notice to the debtor, committee counsel, the prepetition secured parties and the U.S. Trustee, the remedies notice period, the lender is granted stay relief to exercise all rights and remedies under the DIP documents, at law or in equity; the stay is deemed terminated without further action unless those parties obtain a stay enforcement order before the period expires, with an expedited hearing available. Stay relief to perfect the DIP liens is immediate.
• After the remedies notice period lapses without a stay enforcement order, the prepetition senior lender may deliver notices of exclusive control or activation notices under deposit account control agreements in effect at the petition date, and depository institutions may comply without further order under the protection of section 364(e); no institution is required to sweep, transfer or apply funds before the period expires.

Budget and Permitted Variance

• Variance testing begins the second Monday after entry of the interim order: operating disbursements are tested against the approved budget with permitted variances of 15% in the aggregate and 20% per line item, measured cumulatively from the start of the budget period through the testing date rather than on a standalone weekly basis. Failure to comply is an immediate event of default.
• An agreed 13-week cash-flow budget and funding schedule, attached to the term sheet as Schedule 1, governs approved disbursements and draw timing. The debtor and the DIP lender may modify the budget in writing at the lender's sole discretion; silence, inaction, course of dealing or the funding of an advance is not approval of a modification or variance.
• The budget attached to the interim order as Exhibit B is a two-week forecast for the weeks ending Oct. 3 and Oct. 10, 2026, rather than the 13-week budget the term sheet contemplates. It opens with approximately $1.6 million of cash and projects roughly $2.7 million of receipts against approximately $6.3 million of operating disbursements, including about $1.6 million of payroll, $646,000 of rent and $243,000 of seismic and bed-opening capital spending, plus $2.6 million of professional fees, for a two-week net cash outflow of approximately $6.2 million; the $7 million initial DIP draw lands in the first week, leaving a closing balance of approximately $2.3 million.
• Beginning the second Monday after entry of the interim order, the debtor delivers to the DIP lender and to L.A. Care weekly 13-week budget-to-actual reports with variance explanations; weekly receivables aging, reimbursement, payor, denial, recoupment, setoff and HQAF reports; weekly reports on payroll, vendor obligations, patient census, licensure, provider agreements and material regulatory matters; and immediate notice of any default, material litigation, material regulatory notice or proceeding, casualty, loss of material provider status, or threatened impairment of material reimbursement rights. Reporting also covers weekly liquidity and the plan solicitation and confirmation process, delivered simultaneously to the lender and the committee.
• The debtor must preserve all material licensure, provider agreements, reimbursement rights and governmental-program participation, and may not settle, sell, assign, factor, advance against or otherwise dispose of any material receivable or reimbursement right without the DIP lender's prior written consent; any disposition of an HQAF receivable or its proceeds requires that consent in the lender's sole discretion and, where applicable law requires, a further court order. After a carve-out trigger notice, however, the DIP lender and prepetition senior lender consent to the debtor advancing or selling HQAF receivables to fund the reasonable, necessary and documented costs, excluding legal fees, of safely closing the hospital, determined in consultation with the DIP lender, with any excess turned over to the DIP lender; the term sheet gives the same consent to a wind-down funding agreement with L.A. Care or another party if the plan is not confirmed, the alternative private sale does not occur and the debtor proceeds to close the hospital.

Landlord and Litigation Standing

• The debtor, Axios and the landlord have reached a non-binding lease principle agreement setting out lease terms should Axios acquire the hospital. A landlord repudiation or abandonment of that agreement, or failure to reach agreement by Oct. 21, 2026, immediately vests the committee and Axios each with standing to sue the landlord on all estate claims, including recharacterization of the master lease, and terminates the restriction on using DIP proceeds to prosecute that litigation. Axios may commence such litigation, with the committee having 30 days from commencement to join or intervene absent other agreement.
• For these purposes the landlord also includes Taking the 5th LLC and Fifth/Arizona Investors, LLC. While the IMA is in effect and before Axios closes its purchase, any settlement or release of the landlord claims requires Axios's prior written consent, and if the dispute is unresolved at the plan effective date, Newco or its counsel handles the litigation for Newco's benefit. Neither the absence of a landlord agreement nor pending landlord litigation conditions or delays the sale to Axios; in that event the master lease is assumed and assigned to Newco under section 365 only to the extent it is a true lease, with the estate's claims against the landlord, including recharacterization, preserved under section 1123(b)(3)(B), or sold to Axios under section 363, and vested in Newco.
• Each subsequent advance is conditioned on the final DIP order remaining in effect as a final, non-appealable order; no default, including any missed milestone, and all representations and warranties true and correct; payment of all lender fees and expenses; no material adverse change since entry of the interim order in the lender's reasonable judgment; and no landlord repudiation or abandonment of the lease principle agreement in the lender's reasonable judgment.

Key Dates

• Interim order entered Sept. 30, 2026
• Objections to the proposed final order due Oct. 8, 2026 at 4:00 p.m. prevailing Eastern Time
• Final hearing Oct. 15, 2026 at 9:00 a.m. prevailing Eastern Time; if no objections are filed, no hearing need be held and the proposed final order may be entered on certification of counsel