10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-34171

GRAYMARK HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)

OKLAHOMA	20-0180812
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

204 N. Robinson Avenue, Ste. 400

Oklahoma City, Oklahoma 73102

(Address of principal executive offices)

(405) 601-5300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    ¨  Yes    x  No

As of November 19, 2013, 163,509,214 shares of the registrant’s common stock, $0.0001 par value, were outstanding.

GRAYMARK HEALTHCARE, INC.

FORM 10-Q

For the Quarter Ended September 30, 2013

TABLE OF CONTENTS

Part I.	Financial Information
Item 1.	Consolidated Condensed Financial Statements (Unaudited)	1
	a) Balance Sheets	2
	b) Statements of Operations	3
	c) Statements of Cash Flows	5
	d) Notes to Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	37
Part II.	Other Information
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	48
Item 6.	Exhibits	48
SIGNATURES		53

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements under the captions “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Item 1A. Risk Factors,” and elsewhere in this report constitute “forward-looking statements” Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “expects,” “may,” “will,” or “should” or other variations thereon, or by discussions of strategies that involve risks and uncertainties. Our actual results or industry results may be materially different from any future results expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include general economic and business conditions; our ability to implement our business strategies; competition; availability of key personnel; increasing operating costs; unsuccessful promotional efforts; changes in brand awareness; acceptance of new product offerings; and adoption of, changes in, or the failure to comply with, and government regulations.

Throughout this report the first personal plural pronoun in the nominative case form “we” and its objective case form “us”, its possessive and the intensive case forms “our” and “ourselves” and its reflexive form “ourselves” refer collectively to Graymark Healthcare, Inc. and its subsidiaries including Foundation Surgery Affiliates, LLC (“FSA”) and Foundation Surgical Hospital Affiliates, LLC (“FSHA”).

i

PART I. FINANCIAL INFORMATION

Item 1. Graymark Healthcare, Inc. Condensed Consolidated Financial Statements.

The condensed consolidated financial statements included in this report have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed consolidated balance sheets as of September 30, 2013 and December 31, 2012, the condensed consolidated statements of operations for the three and nine month periods ended September 30, 2013 and 2012, and the condensed consolidated statements of cash flows for nine months ended September 30, 2013 and 2012, have been prepared without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. On July 22, 2013, we acquired Foundation Surgery Affiliates, LLC (“FSA”) and FSA’s consolidated variable interest entity, Foundation Surgical Hospital Affiliates, LLC (“FSHA”). For accounting purposes, the acquisition of FSA was accounted for as a reverse acquisition and as a result, our historical operating results included in this Form 10Q for the periods prior to July 22, 2013 represent those of FSA. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the related notes thereto included in our latest annual report on Form 10-K and the consolidated financial statements of FSA included in our Form 8-K that was filed on November 13, 2013.

The consolidated statements for the unaudited interim periods presented include all adjustments, consisting of normal recurring adjustments, necessary to present a fair statement of the results for such interim periods. The results for any interim period may not be comparable to the same interim period in the previous year or necessarily indicative of earnings for the full year.

1

GRAYMARK HEALTHCARE, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

	September 30, 2013			December 31, 2012
ASSETS
Cash and cash equivalents	$	8,291,378		$	2,524,417
Accounts receivable, net of allowances for doubtful accounts of $2,654,086 and $1,659,337, respectively		11,049,321			6,849,055
Receivables from affiliates		843,468			1,045,485
Supplies inventories		1,846,691			1,943,284
Current assets from discontinued operations		957,661			—
Prepaid and other current assets		3,299,397			2,416,136
Total current assets		26,287,916			14,778,377
Property and equipment, net		11,857,253			9,403,853
Equity method investments in affiliates		6,994,123			7,013,611
Intangible assets, net		12,617,081			10,270,858
Goodwill		1,154,528			1,154,528
Other assets from discontinued operations		415,832			—
Other assets		138,897			126,559
Total assets	$	59,465,630		$	42,747,786
LIABILITIES, PREFERRED NONCONTROLLING INTEREST AND SHAREHOLDERS’ DEFICIT
Liabilities:
Accounts payable	$	12,130,135		$	10,596,333
Accrued liabilities		11,562,401			5,585,180
Preferred member dividends payable		120,057			3,549,670
Short term debt		7,316,083			2,007,597
Current portion of long-term debt		8,134,412			5,971,339
Current liabilities from discontinued operations		6,833,810			—
Other current liabilities		816,176			—
Total current liabilities		46,913,074			27,710,119
Long-term debt, net of current portion		11,134,747			11,532,751
Other liabilities from discontinued operations		110,044			—
Other liabilities		8,497,991			5,773,638
Total liabilities		66,655,856			45,016,508
Preferred noncontrolling interest		7,500,000			11,072,465
Commitments and contingencies (Note 9)
Graymark Healthcare shareholders’ deficit:
Preferred stock $0.0001 par value, 10,000,000 authorized; no shares issued and outstanding		—			—
Common stock $0.0001 par value, 500,000,000 shares authorized; 163,269,214 and 162,523,276 issued and outstanding, respectively		16,327			16,252
Paid-in capital		17,396,990			3,437,219
Accumulated deficit		(31,481,526	)		(14,744,688	)
Total Graymark Healthcare shareholders’ deficit		(14,068,209	)		(11,291,217	)
Noncontrolling interest		(622,017	)		(2,049,970	)
Total deficit		(14,690,226	)		(13,341,187	)
Total liabilities, preferred noncontrolling interest and shareholders’ deficit	$	59,465,630		$	42,747,786

See Accompanying Notes to Condensed Consolidated Financial Statements

2

GRAYMARK HEALTHCARE, INC.

Condensed Consolidated Statements of Operations

For the Three Months Ended September 30, 2013 and 2012

(Unaudited)

	2013			2012
Net Revenues:
Patient services	$	21,724,423		$	8,747,414
Management fees from affiliates		1,460,163			1,880,610
Equity in earnings of affiliates		1,448,898			1,637,354
Other revenue		1,048,381			171,804
Provision for doubtful accounts		(682,319	)		(123,413	)
Revenue		24,999,546			12,313,769
Operating Expenses:
Salaries and benefits		6,974,734			3,472,076
Supplies		6,659,330			2,201,344
Other operating expenses		8,609,650			4,330,938
Impairment of goodwill		20,847,608			—
Depreciation and amortization		1,290,779			565,675
Total operating expenses		44,382,101			10,570,033
Other Income (Expense):
Interest expense, net		(552,763	)		(285,844	)
Gain (loss) on sale of equity investments in affiliates		—			83,533
Other income		36,694			—
Net other (expense)		(516,069	)		(202,311	)
Income (loss) from continuing operations, before taxes		(19,898,624	)		1,541,425
Provision for income taxes		(961,105	)		—
Income (loss) from continuing operations, net of taxes		(20,859,729	)		1,541,425
Loss from discontinued operations, net of tax		(196,705	)		—
Extraordinary gain, net of tax, attributable to Graymark Healthcare		4,872,746			—
Extraordinary gain, net of tax, attributable to noncontrolling interests		2,094,856			—
Net income (loss)		(14,088,832	)		1,541,425
Less: Net income attributable to noncontrolling interests		2,402,532			384,257
Net income (loss) attributable to Graymark Healthcare	$	(16,491,364	)	$	1,157,168
Earnings per common share (basic and diluted):
Net income (loss) attributable to Graymark Healthcare from continuing operations	$	(0.14	)	$	0.01
Loss from discontinued operations, net of tax		—			—
Extraordinary gain, net of tax, attributable to Graymark Healthcare		0.03			—
Extraordinary gain, net of tax, attributable to noncontrolling interests		0.01			—
Net income (loss) per share, attributable to Graymark Healthcare	$	(0.10	)	$	0.01
Weighted average number of common and diluted shares outstanding		162,703,399			162,523,276
Pro forma income information (Note 3):
Pro forma provision for income taxes	$	(1,008,978	)	$	(616,570	)
Pro forma net income attributable to noncontrolling interests	$	2,401,087		$	230,554
Pro forma net income (loss) attributable to Graymark Healthcare	$	(16,537,792	)	$	694,301
Pro forma basic and diluted net income (loss) per share	$	(0.10	)	$	—

See Accompanying Notes to Condensed Consolidated Financial Statements

3

GRAYMARK HEALTHCARE, INC.

Condensed Consolidated Statements of Operations

For the Nine Months Ended September 30, 2013 and 2012

(Unaudited)

	2013			2012
Net Revenues:
Patient services	$	56,211,160		$	23,962,216
Management fees from affiliates		4,986,012			5,951,165
Equity in earnings of affiliates		4,502,759			4,833,992
Other revenue		3,845,254			1,169,884
Provision for doubtful accounts		(2,409,733	)		(386,165	)
Revenue		67,135,452			35,531,092
Operating Expenses:
Salaries and benefits		19,770,112			10,246,078
Supplies		16,993,555			6,836,004
Other operating expenses		24,513,007			11,325,500
Impairment of goodwill		20,847,608			—
Depreciation and amortization		3,636,840			1,709,612
Total operating expenses		85,761,122			30,117,194
Other Income (Expense):
Interest expense, net		(1,575,535	)		(840,602	)
Gain on sale of equity investments in affiliates		—			365,111
Other income		39,852			—
Net other (expense)		(1,535,683	)		(475,491	)
Income (loss) from continuing operations, before taxes		(20,161,353	)		4,938,407
Provision for income taxes		(961,105	)		—
Income (loss) from continuing operations, net of taxes		(21,122,458	)		4,938,407
Loss from discontinued operations, net of tax		(196,705	)		—
Extraordinary gain, net of tax, attributable to Graymark Healthcare		4,872,746			—
Extraordinary gain, net of tax, attributable to noncontrolling interests		2,094,856			—
Net income (loss)		(14,351,561	)		4,938,407
Less: Net income attributable to noncontrolling interests		1,522,445			452,157
Net income (loss) attributable to Graymark Healthcare	$	(15,874,006	)	$	4,486,250
Earnings per common share (basic and diluted):
Net income (loss) attributable to Graymark Healthcare from continuing operations	$	(0.14	)	$	0.03
Loss from discontinued operations, net of tax		—			—
Extraordinary gain, net of tax, attributable to Graymark Healthcare		0.03			—
Extraordinary gain, net of tax, attributable to noncontrolling interests		0.01			—
Net income (loss) per share, attributable to Graymark Healthcare	$	(0.10	)	$	0.03
Weighted average number of common and diluted shares outstanding		162,703,399			162,523,276
Pro forma income information (Note 3):
Pro forma provision for income taxes	$	(1,240,455	)	$	(1,975,363	)
Pro forma net income attributable to noncontrolling interests	$	1,170,410		$	271,294
Pro forma net income (loss) attributable to Graymark Healthcare	$	(15,801,321	)	$	2,691,750
Pro forma basic and diluted net income (loss) per share	$	(0.10	)	$	0.02

See Accompanying Notes to Condensed Consolidated Financial Statements

4

GRAYMARK HEALTHCARE, INC.

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2013 and 2012

(Unaudited)

	2013			2012
Operating activities:
Net income (loss)	$	(14,351,561	)	$	4,938,407
Less: Net loss from discontinued operations, net of tax		(196,705	)		—
Less: Extraordinary gain, net of tax		6,967,602			—
Income (loss) from continuing operations		(21,122,458	)		4,938,407
Adjustments to reconcile loss from continuing operations to net cash (used in) operating activities:
Depreciation and amortization		3,636,840			1,709,612
Impairment of goodwill		20,847,608			—
Stock-based compensation, net of cashless vesting		41,922			—
Provision for doubtful accounts		2,409,733			386,165
Equity in earnings of affiliates		(4,502,759	)		(4,833,992	)
Gain on sale of equity investments in affiliates		—			(365,111	)
Changes in assets and liabilities, net of acquisitions and extraordinary items – Accounts receivable, net of provision for doubtful accounts		(6,360,666	)		34,291
Receivables from affiliates		202,017			(44,116	)
Supplies Inventories		96,593			31,772
Prepaid and other current assets		(684,284	)		(519,994	)
Other assets		400,415			10,373
Accounts payable		202,838			(52,337	)
Accrued liabilities		7,001,418			391,968
Other current liabilities		816,176			—
Other liabilities		2,149,353			(436,087	)
Net cash provided by operating activities from continuing operations		5,134,746			1,250,951
Net cash (used in) operating activities from discontinued operations		(449,993	)		—
Net cash provided by operating activities		4,684,753			1,250,951
Investing activities:
Cash received in business acquisition		68,170			—
Purchase of property and equipment		(3,478,983	)		(820,120	)
Disposal of property and equipment		184,313			—
Distributions from affiliates		4,522,247			4,754,001
Cash received in extraordinary gain transaction		463,678			—
Sale of equity investments in affiliates		—			576,873
Purchase of equity investments in affiliates		—			(200,000	)
Net cash provided by investing activities from continuing operations		1,759,425			4,310,754
Net cash provided by investing activities from discontinued operations		200,000			—
Net cash provided by investing activities		1,959,425			4,310,754

5

GRAYMARK HEALTHCARE, INC.

Condensed Consolidated Statements of Cash Flows (continued)

For the Nine Months Ended September 30, 2013 and 2012

(Unaudited)

Financing activities:
Debt proceeds	$	12,190,184		$	887,421
Debt payments		(5,358,842	)		(3,487,018	)
Common stock proceeds		375,000			—
Preferred noncontrolling interests proceeds		7,500,000			—
Redemption of preferred noncontrolling interests		(13,509,195	)		—
Preferred noncontrolling interests dividends		(919,715	)		(211,094	)
Distributions to noncontrolling interests		(94,492	)		(63,004	)
Contributions from noncontrolling interests		—			12,500
Distributions from (to) member		(766,118	)		(1,611,097	)
Net cash (used in) financing activities from continuing operations		(583,178	)		(4,472,292	)
Net cash (used in) financing activities from discontinued operations		(294,039	)		—
Net cash (used in) financing activities		(877,217	)		(4,472,292	)
Net change in cash and cash equivalents		5,766,961			1,089,413
Cash and cash equivalents at beginning of period		2,524,417			981,105
Cash and cash equivalents at end of period	$	8,291,378		$	2,070,518
Cash Paid for Interest and Income Taxes:
Interest expense	$	1,436,125		$	1,253,325
Interest expense, discontinued operations	$	34,689		$	—
Income taxes, continuing operations	$	—		$	—
Income taxes, discontinued operations	$	—		$	—
Noncash Investing and Financing Activities:
Common stock warrants issued	$	(936,000	)	$	—
Seller financing – reverse acquisition	$	2,000,000		$	—
Debt and liabilities assumed – reverse acquisition	$	1,991,773		$	—
Debt converted to common stock	$	(14,138,187	)	$	—

See Accompanying Notes to Condensed Consolidated Financial Statements

6

GRAYMARK HEALTHCARE, INC.

Notes to Condensed Consolidated Financial Statements

For the Periods Ended September 30, 2013 and 2012

(Unaudited)

Note 1 – Nature of Business

Graymark Healthcare, Inc. (the “Company”) is organized under the laws of the state of Oklahoma and owns controlling and noncontrolling interests in surgical hospitals located in Texas. The Company also owns noncontrolling interests in ambulatory surgery centers (“ASCs” and “Affiliates”) located in Texas, Oklahoma, Louisiana, Pennsylvania, New Jersey, Maryland and Ohio. Additionally, the Company provides sleep testing management services to various rural hospitals in Iowa, Minnesota, Missouri, Nebraska and South Dakota under management contracts with the hospitals. The Company provides management services to a majority of its Affiliates under the terms of various management agreements.

Note 2 – Basis of Presentation

On July 22, 2013, the Company acquired Foundation Surgery Affiliates, LLC (“FSA”) and FSA’s consolidated variable interest entity, Foundation Surgical Hospital Affiliates, LLC (“FSHA”) (collectively referred to as “Foundation”). For accounting purposes, the acquisition of FSA was accounted for as a reverse acquisition and as a result, the Company’s historical operating results included in the accompanying condensed consolidated financial statements for the periods prior to July 22, 2013 represent those of FSA. The historical financial statements of FSA have been adjusted for the effect of the recapitalization that occurred as a result of the reverse acquisition.

As of September 30, 2013, the Company had an accumulated deficit of $31.5 million and a working capital deficiency of $20.6 million. During the nine months ended September 30, 2013, the Company generated a net loss attributable to Graymark Healthcare of $15.9 million, including a goodwill impairment charge of $20.8 million, and generated cash flow from operating activities from continuing operations of $5.1 million. Management expects to refinance, by the end of the first quarter of 2014, a significant portion of the Company’s long-term debt obligations. Management expects that the Company will be able to significantly reduce its annual debt service payments as part of the refinancing; however, there is no assurance that management will be successful in completing the debt refinancing.

Note 3 – Summary of Significant Accounting Policies

For a complete list of the Company’s significant accounting policies, please see the Company’s Annual Report on Form 10-K for the year ending December 31, 2012 and the consolidated financial statements of FSA as of December 31, 2012 as filed in the Company’s Form 8-K on November 13, 2013.

Interim Financial Information – The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial statements and in accordance with Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2013 are not necessarily indicative of results that may be expected for the year ended December 31, 2013. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2012 and the consolidated financial statements of FSA as of December 31, 2012 as filed in the Company’s Form 8-K on November 13, 2013. The December 31, 2012 consolidated balance sheet was derived from audited financial statements.

7

Pro forma income information – Prior to July 22, 2013, FSA’s and FSHA’s member had elected to have FSA’s and FSHA’s income taxed as an “S” Corporation under provisions of the Internal Revenue Code and a similar section of the state income tax law. Therefore, taxable income or loss is reported to the individual member for inclusion in its tax returns and no provision for income taxes is included in the Company’s consolidated financial statements for periods prior to July 22, 2013. The pro forma income information provides an adjustment for income tax expense as if FSA and FSHA had been a “C” Corporation prior to July 22, 2013 at an assumed combined federal and state effective tax rate of 40%, which approximates the calculated statutory tax rates for the periods.

Consolidation – The accompanying consolidated financial statements include the accounts of the Company and its wholly owned, majority owned and controlled subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

The Company accounts for its investments in Affiliates in which the Company exhibits significant influence, but not control, in accordance with the equity method of accounting. The Company does not consolidate its equity method investments, but rather measures them at their initial costs and then subsequently adjusts their carrying values through income for their respective shares of the earnings or losses during the period. The Company monitors its investments for other-than-temporary impairment by considering factors such as current economic and market conditions and the operating performance of the companies and records reductions in carrying values when necessary.

Use of estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition and accounts receivable – The Company recognizes revenues in the period in which services are performed. Accounts receivable primarily consist of amounts due from third-party payors and patients. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Amounts the Company receives for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third-party payors such as health maintenance organizations, preferred provider organizations and other private insurers are generally less than the Company’s established billing rates. Additionally, to provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. Accordingly, the revenues and accounts receivable reported in the Company’s consolidated financial statements are recorded at the net amount expected to be received.

Contractual Discounts and Cost Report Settlements – The Company derives a significant portion of its revenues from Medicare, Medicaid and other payors that receive discounts from its established billing rates. The Company must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the Company’s accompanying consolidated statements of operations.

Cost report settlements under reimbursement agreements with Medicare and Medicaid are estimated and recorded in the period the related services are rendered and are adjusted in future periods as final settlements are determined. There is a reasonable possibility that recorded estimates will change by a material amount in the near term. There were no adjustments for estimated cost report settlements during the nine months ended September 30, 2013 and 2012. The net cost report settlements due to the Company and included as a receivable under the caption “Prepaid and other current assets” in the accompanying consolidated balance sheets was $88,800 and $3,500, respectively, at September 30, 2013 and December 31, 2012. The Company’s management believes that adequate provisions have been made for adjustments that may result from final determination of amounts earned under these programs.

8

Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on the Company’s financial statements. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties and exclusion from the Medicare and Medicaid programs.

Provision and Allowance for Doubtful Accounts – To provide for accounts receivable that could become uncollectible in the future; the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The primary uncertainty lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients.

The Company has an established process to determine the adequacy of the allowance for doubtful accounts that relies on a number of analytical tools and benchmarks to arrive at a reasonable allowance. No single statistic or measurement determines the adequacy of the allowance for doubtful accounts. Some of the analytical tools that the Company utilizes include, but are not limited to, the aging of accounts receivable, historical cash collection experience, revenue trends by payor classification, revenue days in accounts receivable, the status of claims submitted to third party payors, reason codes for declined claims and an assessment of the Company’s ability to address the issue and resubmit the claim and whether a patient is on a payment plan and making payments consistent with that plan. Accounts receivable are written off after collection efforts have been followed in accordance with the Company’s policies.

Due to the nature of the healthcare industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available, which could have a material impact on the Company’s operating results and cash flows in subsequent periods. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

The patient and their third party insurance provider typically share in the payment for the Company’s services. The amount patients are responsible for includes co-payments, deductibles, and amounts not covered due to the provider being out-of-network. Due to uncertainties surrounding deductible levels and the number of out-of-network patients, the Company is not certain of the full amount of patient responsibility at the time of service. The Company estimates amounts due from patients prior to service and generally collects those amounts prior to service. Remaining amounts due from patients are then billed following completion of service.

The activity in the allowances for doubtful accounts for the nine months ending September 30, 2013:

	Balance at Beginning of Year		Additions Recognized as Reduction to Revenues		Write-offs, Net of Recoveries			Balance at End of Year
Nine months ended September 30, 2013	$	1,659,337	$	2,409,733	$	(1,414,984	)	$	2,654,086

Cash and cash equivalents – The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. Certificates of deposit with original maturities of more than three months are also considered cash equivalents if there are no restrictions on withdrawing funds from the account.

Goodwill and Intangible Assets – The Company evaluates goodwill for impairment at least on an annual basis and more frequently if certain indicators are encountered. Goodwill is to be tested at the reporting unit level, defined as an ASC or hospital (referred to as a component), with the fair value of the reporting unit being compared

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to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired. The Company will complete its annual impairment test in December 2013.

Intangible assets other than goodwill which include physician membership interests, service contracts and covenants not to compete are amortized over their estimated useful lives using the straight line method. The remaining lives range from five to seven years. The Company evaluates the recoverability of identifiable intangible asset whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable.

Net income (loss) per share – Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted loss per share are excluded from the calculation.

Recently Adopted and Recently Issued Accounting Guidance

Adopted Guidance

On January 1, 2013, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) to the testing of indefinite-lived intangible assets for impairment, similar to the goodwill changes adopted in September 2011. These changes provide an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the fair value of an indefinite-lived intangible asset is less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. Notwithstanding the adoption of these changes, management plans to proceed directly to the two-step quantitative test for the Company’s indefinite-lived intangible assets. The adoption of these changes had no impact on the Company’s consolidated financial statements.

On January 1, 2013, the Company adopted changes issued by the FASB to the disclosure of offsetting assets and liabilities. These changes require an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The enhanced disclosures will enable users of an entity’s financial statements to understand and evaluate the effect or potential effect of master netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. The adoption of these changes had no impact on the Company’s consolidated financial statements.

Issued Guidance

In February 2013, the FASB issued changes to the accounting for obligations resulting from joint and several liability arrangements. These changes require an entity to measure such obligations for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and (ii) any additional amount the reporting entity expects to pay on behalf of its co-obligors. An entity will also be required to disclose the nature and amount of the obligation as well as other information about those obligations. Examples of obligations subject to these requirements are debt arrangements and settled litigation and judicial rulings. These changes become effective for the Company on January 1, 2014. Management has determined that the adoption of these changes will not have an impact on the consolidated financial statements, as the Company does not currently have any such arrangements.

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Note 4 – Reverse Acquisition

On July 22, 2013, the Company acquired FSA and FSA’s consolidated variable interest entity, FSHA, from Foundation Healthcare Affiliates, LLC (“FHA”) pursuant to an Amended and Restated Membership Purchase Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Company (i) issued to FHA 114,500,000 shares of its common stock, (ii) issued to FHA a demand promissory note in the principal amount of $2.0 million, and (iii) assumed certain liabilities and obligations of FHA totaling approximately $2.0 million.

For accounting purposes, the acquisition of FSA was accounted for as a reverse acquisition and as a result, the Company’s historical operating results included in the accompanying condensed consolidated financial statements for the periods prior to July 22, 2013 represent those of FSA. The historical financial statements of FSA have been adjusted for the effect of the recapitalization that occurred as a result of the reverse acquisition.

The acquisition of Foundation was based on management’s belief that Foundation’s acquisition and development strategy and operating model will enable the Company to grow by taking advantage of highly-fragmented markets, an increasing demand for short stay surgery and a need by physicians to forge strategic alliances to meet the needs of the evolving healthcare landscape while also shaping the clinical environments in which they practice. The Company expects the acquisition of Foundation will generate positive earnings and cash flow that will be accretive to the earnings and cash flow of the Company.

Simultaneous with and subject to the reverse acquisition, the Company issued 6,000,000 shares of common stock to purchase a $6.0 million participation in the credit facility owed by the Company to Arvest Bank (see Note 5 – Discontinued Operations for more information) and 17,970,295 shares of common stock to Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates, for full satisfaction of debt owed to Mr. Oliver totaling $8,136,390. Since the completion of the reverse acquisition was subject to these transactions, they have been recorded as part of the reverse acquisition.

Since FSA is deemed to be the accounting acquirer, the reverse acquisition was recorded by allocating the purchase price of the acquisition to the assets acquired, including intangible assets and liabilities assumed, from the legacy business of Graymark Healthcare, Inc. (“Graymark”), based on their estimated fair values at the acquisition date. The excess of the cost of the acquisitions over the net amounts assigned to the estimated fair value of the assets acquired, net of liabilities assumed, was recorded as goodwill, none of which is anticipated to be tax deductible. The fair value amounts recorded are preliminary and are subject to change. Management has engaged a third-party valuation company to complete a valuation of the fair value of the assets acquired and liabilities assumed in the reverse acquisition. Management expects to complete the valuation in the fourth quarter of 2013.

The fair value of the total consideration issued in the reverse acquisition amounted to $17.4 million and included $13.4 million for the issuance of the Company’s common stock to FHA, Arvest Bank and Mr. Oliver, $2.0 million for the promissory note issued to FHA and $2.0 million for the debt obligations and liabilities assumed from FHA.

The preliminary purchase allocation for the reverse acquisition is presented in the table below. These preliminary estimates will be revised in future periods and the revisions may materially affect the presentation of the Company’s consolidated financial results. Any changes to the initial estimates of the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill, subject to a review for impairment.

	Graymark (Preliminary)
Cash and cash equivalents	$	68,170
Accounts receivable		249,333
Current assets from discontinued operations		1,773,471
Other current assets		198,977
Total current assets		2,289,951

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	Graymark (Preliminary)
Property and equipment		647,862
Intangible assets		3,800,000
Goodwill		20,847,608
Other assets from discontinued operations		295,542
Other assets		12,753
Total assets acquired		27,893,716
Liabilities assumed:
Accounts payable and accrued liabilities		2,501,877
Short term debt		2,000,000
Current portion of long-term debt		714,711
Current liabilities from discontinued operations		7,812,192
Total current liabilities		13,028,780
Long-term debt, net of current portion		742,385
Other liabilities from discontinued operations		174,509
Other liabilities		575,000
Total liabilities assumed		14,520,674
Net assets acquired	$	13,373,042

During the nine months ended September 30, 2013 and 2012, the Company incurred $435,522 and $222,335 in expenses related to the reverse acquisition. The expenses incurred related primarily to legal fees related to the Purchase Agreement and structure of the transaction and professional fees related to the audits of the 2012 and 2011 consolidated financial statements of FSA.

The amounts of acquisition revenues and earnings included in the Company’s consolidated statements of operations for the nine months ended September 30, 2013, and the revenue and earnings of the combined entity had the reverse acquisition date for Graymark been January 1, 2012 are as follows:

	Revenue		Loss from Continuing Operations			Net Income (Loss)			Net Income (Loss) Attrib. to Graymark			Net Income (Loss) Attrib. to Graymark per Share
Actual:
From 7/22/2013 to 9/30/2013	$	454,759	$	(21,698,335	)	$	(22,026,176	)	$	(22,026,176	)
Supplemental Pro Forma:
Nine months ending 9/30/2013	$	72,637,964	$	(4,895,543	)	$	1,868,402		$	165,138		$	0.00
Nine months ending 9/30/2012	$	48,496,884	$	(25,106,231	)	$	(25,470,403	)	$	(25,784,049	)	$	(0.16	)

The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

Note 5 – Discontinued Operations

Prior to the reverse acquisition, Graymark committed to a plan to divest of or close certain sleep diagnostic and sleep therapy locations. The decision was based on a combination of the financial performance of the facilities and the shift in focus to the business model of Foundation. As a result of the pending closure or sale of these locations, the related assets, liabilities, results of operations and cash flows were classified as discontinued operations which were acquired by the Company in the reverse acquisition.

Under the plan, from July 2013 to October 2013, Graymark closed or sold 24 sleep diagnostic locations including both IDTF and contracted locations in Georgia, Iowa, Kansas, Missouri, Nevada, Oklahoma and Texas and 5 sleep therapy locations in Iowa, Kansas, Nevada, Oklahoma and Texas.

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As part of the reverse acquisition, the Company acquired the special charge liability of $475,570 related to the estimated closing costs resulting from the plan to sell or close the sleep diagnostic and therapy locations. From July 22, 2013 to September 30, 2013, the activity in the acquired accruals for restructuring charges established for lease termination and other exit costs were as follows:

	Lease Termination Costs			Other Exit Costs			Total
Acquired balance at July 22, 2013	$	335,028		$	140,542		$	475,570
Cash payments		(41,873	)		(140,542	)		(182,415	)
Balance at September 30, 2013	$	293,155		$	—		$	293,155

Additional charges may be recorded in future periods dependent upon the Company’s ability to sub-lease or otherwise mitigate future lease costs at closed facilities.

The operating results of the discontinued sleep diagnostic and therapy locations and the Company’s other discontinued operations from July 22, 2013 to September 30, 2013 are summarized below:

	July 22 to September 30, 2013
Revenues	$	724,145
Net loss before taxes	$	(327,841	)
Income tax benefit		131,136
Net loss from discontinued operations, net of tax	$	(196,705	)

The balance sheet items for discontinued operations are summarized below:

	September 30, 2013
Cash and cash equivalents	$	(53,793	)
Accounts receivable, net of allowances		743,001
Inventories		23,583
Other current assets		244,870
Total current assets		957,661
Fixed assets, net		215,832
Other assets		200,000
Total noncurrent assets		415,832
Total assets	$	1,373,493
Payables and accrued liabilities	$	2,280,207
Short term debt		4,450,233
Current portion of long-term debt		103,370
Total current liabilities		6,833,810
Long-term debt		28,384
Other liabilities		81,660
Total liabilities	$	6,943,854

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The Company’s borrowings and capital lease obligations included in discontinued operations as of September 30, 2013 is as follows:

	Rate (1)			Maturity Date		September 30, 2013
Short-term Debt
Senior bank debt		6	%		Dec. 2013	$	4,450,233
Long-term Debt
Notes payable on equipment		6	%		Dec. 2013	$	30,220
Sleep center notes payable		6	%		Jan. 2015		38,835
Notes payable on vehicles		2.9	%		Dec. 2013		3,119
Equipment capital leases		8.2% - 11.5	%		Jan. 2015		59,580
Total							131,754
Less: Current portion of long-term debt							(103,370	)
Long-term debt						$	28,384

(1) Effective rate as of September 30, 2013

At September 30, 2013, future maturities of long-term debt included in discontinued operations were as follows:

Twelve months ended September 30,
2014	$	103,370
2015		28,384
2016		—
2017		—
2018		—
Thereafter		—

On July 22, 2013, the Company’s subsidiaries, SDC Holdings, LLC and ApothecaryRx, LLC (collectively the “Borrowers”), the Company and Mr. Stanton Nelson (the “Guarantor” and the Company’s chief executive officer) entered into a Second Amended and Restated Loan Agreement (the “New Loan Agreement”) and an Amended and Restated Promissory Note (the “New Note”) with Arvest Bank. The Company, Borrowers, Guarantor and other guarantors previously entered into the Amended and Restated Loan Agreement dated effective December 17, 2010, as amended by the First Amendment to Loan Agreement dated January 1, 2012, the Second Amendment to Loan Agreement dated effective June 30, 2012, and the Third Amendment to Loan Agreement dated effective October 12, 2012 (the “Prior Agreement”). Under the Prior Agreement, the Company and Borrowers were indebted to Arvest Bank under the Amended and Restated Promissory Note, in the original principal amount of $15,000,000 dated June 30, 2010 and the Second Amended and Restated Promissory Note, in the original principal amount of $30,000,000, dated June 30, 2010 (the “Prior Notes”). Arvest Bank, the Company, the Borrowers and the Guarantor have agreed to restructure the loan evidenced by the Prior Notes and the Prior Agreement. As of September 30, 2013, the outstanding principal amount of the New Note was $10,450,233.

On July 22, 2013, in conjunction with the New Loan Agreement with Arvest Bank, the Company entered into a Participation Agreement with Arvest Bank in which we purchased a $6,000,000 participation in the New Note from Arvest Bank in exchange for 13,333,333 shares of the Company’s common stock. The Company purchased the participation in the last $6,000,000 of the principal amount due under the Arvest credit facility. The Company’s participation in the note is eliminated against the New Note in the long-term debt table shown above.

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The New Loan Agreement and New Note were entered into on the same date as and in conjunction with the reverse acquisition. As such, the New Note is included in the opening balance sheet in the reverse acquisition accounting (see Note 4 – Reverse Acquisition).

The New Note is collateralized by substantially all of the assets of the Borrowers and the personal guaranty of the Guarantor which is limited to $2,919,000. The note bears interest at the greater of the prime rate or 6.0% and provided the Borrowers are not in default, the Borrowers are required to make monthly payments of interest only. The entire unpaid principal balance and all accrued and unpaid interest thereon will be due and payable on December 31, 2013. Additionally, the New Note is subject to certain financial covenants including a debt service coverage ratio (“DSR”) covenant of not less than 1.25 to 1. Arvest Bank has waived the DSR and other financial covenant requirements through December 31, 2013, which is the maturity date of the New Note.

Note 6 – Goodwill and Other Intangibles

Changes in the carrying amount of goodwill as of September 30, 2013 and December 31, 2012 were as follows:

	Gross Amount		Accumulated Impairment Losses			Net Carrying Value
December 31, 2012	$	1,154,528	$	—		$	1,154,528
Reverse acquisition		20,847,608		—			20,847,608
Impairment charge		—		(20,847,608	)		(20,847,608	)
September 30, 2013	$	22,002,136	$	(20,847,608	)	$	1,154,528

Goodwill and intangible assets with indefinite lives must be tested for impairment at least once a year. Carrying values are compared with fair values, and when the carrying value exceeds the fair value, the carrying value of the impaired asset is reduced to its fair value. The Company tests goodwill for impairment on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company generally determines the fair value of its reporting units using the income approach methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation methodologies. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill.

The Company has estimated the goodwill associated with the reverse acquisition to be $20,847,608. The Company then determined the projected cash flows from the continuing operations of the legacy Graymark business were not sufficient to support the recorded goodwill. The Company evaluated the fair value of the goodwill subsequent to the reverse acquisition and determined the acquired goodwill was fully-impaired.

The carrying amount of intangible assets as of September 30, 2013 and December 31, 2012 follows:

	September 30, 2013		December 31, 2012
Gross amount	$	11,791,500	$	3,498,500
Additions		3,800,000		8,293,000
Carrying value	$	15,591,500	$	11,791,500

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Intangible assets as of September 30, 2013 and December 31, 2012 include the following:

	Useful Life (Years)	September 30, 2013							December 31, 2012 Net
		Carrying Value		Accumulated Amortization			Net
Management fee contracts	2 – 8	$	3,498,500	$	(1,626,320	)	$	1,872,180	$	2,202,858
Non-compete	5		1,825,000		(334,584	)		1,490,416		1,764,167
Physician memberships	7		6,468,000		(902,915	)		5,565,085		6,303,833
Service contracts	7		3,800,000		(110,600	)		3,689,400		—
Total		$	15,591,500	$	(2,974,419	)	$	12,617,081	$	10,270,858

Amortization expense for the three months ended September 30, 2013 and 2012 was $556,816 and $129,970 respectively. Amortization expense for the nine months ended September 30, 2013 and 2012 was $1,453,777 and $434,199 million, respectively. Amortization expense for the next five years related to these intangible assets is expected to be as follows:

Twelve months ended September 30,
2014	$	2,281,976
2015		2,266,727
2016		2,266,727
2017		2,266,727
2018		1,624,904

Note 7 – Borrowings and Capital Lease Obligations

The Company’s short-term debt obligations are as follows:

	Rate (1)			September 30, 2013		December 31, 2012
Senior Lender:
Notes payable – working capital		6.5 – 7.0	%	$	2,787,937	$	778,287
Other Lenders:
Note payable – FHA		7.0	%		1,730,489		—
Note payable – S&H Leasing		11.5	%		1,865,600		—
Note payable – working capital		5.0	%		800,000		796,231
Note payable – HC REIT					—		100,000
Notes payable – acquisition		6.0 - 8.0	%		25,188		156,242
Insurance premium financings		3.1 – 3.9	%		106,869		176,837
Short-term debt				$	7,316,083	$	2,007,597

(1) Effective rate as of September 30, 2013

On March 19, 2013, the Company received a short-term working capital loan for $2,010,027 from its senior lender that is collateralized by the inventory, accounts receivable, equipment and other assets of one of the Company’s hospital subsidiaries. The note bears interest at a variable rate of prime plus 3.75%, with a minimum rate of 7%, and the Company is required to make monthly payments of interest only with the balance due at maturity in March 2014.

On July 22, 2013, in conjunction with the Foundation acquisition, the Company issued a promissory note for $2,000,000 to FHA. The note is unsecured, bears interest at a fixed rate of 7% and is due on demand. During the period from July 22, 2013 to September 30, 2013, the Company made payments totaling $286,904 on the FHA note. On October 14, 2013, the total principal and interest due on the FHA note, totaling $1,727,377 was paid.

On July 22, 2013, in conjunction with the Tyche Transaction (see Note 8 – Preferred Noncontrolling Interests), the Company issued a note payable to S&H Leasing, LLC (“S&H Leasing”), a member of Tyche. The note is unsecured and bears interest at a fixed rate of 11.5%. All principal and interest on the note is due at maturity on August 1, 2014.

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In August 2013, the HC REIT short-term note payable (“HC REIT Note 1”) was forgiven by HC REIT in conjunction with the El Paso Real Estate Transaction described in Note 10 – Extraordinary Gain and Other Item.

The Company’s long-term debt and capital lease obligations are as follows:

	Rate (1)			Maturity Date		September 30, 2013			December 31, 2012
Senior Lender:
Line of credit		7	%		Jun. 2014	$	896,000		$	431,000
Notes payable – working capital		5.5 – 7	%		Mar. 2014 – Feb. 2016		4,059,723			5,216,251
Note payable – equity investments		6.25	%		Sept. 2016		3,538,734			4,289,057
Note payable – management agreements		6.75	%		Dec. 2016		687,808			826,617
Note payable – assumption		6.75	%		Jan. 2015		178,801			—
Other Lenders:
Note payable – preferred interest redemption		10	%		Jul. 2015		5,100,000			—
Notes payable – THE		4.6 – 8	%		Dec. 2014 – Feb. 2016		348,304			453,034
Note payable – HC REIT							—			450,917
Notes payable – physician partners		5.25 – 6.75	%		Oct. 2013 – Nov. 2014		166,413			617,198
Note payable – equity investment		7.7	%		Nov. 2013		30,054			167,841
Note payables – settlements		5.25 – 8	%		Nov. 2013 – Jan. 2018		1,312,411			—
Notes payable – acquisition		6.0	%		Dec. 2014 – Oct. 2015		119,572			172,289
Capital lease obligations		0.2 – 12.3	%		Apr. 2013 – Dec. 2022		2,831,339			4,879,886
Total							19,269,159			17,504,090
Less: Current portion of long-term debt							(8,134,412	)		(5,971,339	)
Long-term debt						$	11,134,747		$	11,532,751

(1) Effective rate as of September 30, 2013

On July 22, 2013, as part of the acquisition of Foundation, the Company assumed a note payable with its senior lender from FHA. The note is unsecured and bears interest at a fixed rate of 6.75%. The Company is required to make monthly principal and interest payments under the note of $11,628.

In August 2013, the HC REIT note payable (“HC REIT Note 2”) was assigned to FSHA as part of the El Paso Real Estate Transaction described in Note 10 – Extraordinary Gain and Other Item.

The Company has a note payable with a bank that is collateralized by the Company’s equity investment in one of its Affiliates. The note bears interest at a fixed rate of 7.7% and the Company is required to make monthly principal and interest payments of $16,000.

On July 22, 2013, as part of the acquisition of Foundation, the Company assumed various notes payable from FHA, totaling $1.2 million that are owed to various third parties and a bank. The notes payable were related to

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past legal settlements of the Company that were funded by FHA through the notes payable. The assumed settlement notes bear interest at fixed rates ranging from 5.25% to 8%. On September 3, 2013, the Company entered into a note payable with a noncontrolling interest holder in one of the Company’s hospital subsidiaries. The note bears interest at prime plus 2% and was entered into as a settlement of a dispute and for the purpose of purchasing the noncontrolling interest from the holder. All of the settlements notes payable are unsecured and the Company is required to make monthly principal and interest payments totaling $51,449.

On August 30, 2013, the Company’s capital lease with HC REIT was forgiven in conjunction with the El Paso Real Estate Transaction described in Note 10 – Extraordinary Gain and Other Item.

The Company has entered into various short-term and long-term notes payable with its senior lender, Legacy Bank (referred to as “Legacy Debt”). As of September 30, 2013 and 2012, the balance of the Legacy Debt was $12.1 million and $11.5 million, respectively. The Legacy Debt is collateralized by substantially all of the assets of the Company’s subsidiaries, FSA and FSHA, and a portion is personally guaranteed by certain officers of the Company. In conjunction with the Legacy Debt, the Company has agreed to comply with certain financial covenants (as defined and calculated at the FSA and FSHA level) including:

• Debt Service Coverage Ratio of 1.05 to 1 and increasing to 1.1 to 1 by December 31, 2013; 1.15 to 1 by March 31, 2014; and 1.2 to 1 by June 30, 2014; and

• Minimum Tangible Net Worth of $11.1 million increased each quarter (beginning in September 30, 2013 by 50% of FSA’s and FSHA’s net income for the quarter).

As of September 30, 2013, FSA and FSHA are in compliance with the Legacy Bank Financial Covenants. Legacy Bank has waived the financial covenants until January 15, 2014. There is no assurance that Legacy Bank will waive any future violations of the financial covenants. The Company anticipates that it will also meet the financial covenants at January 15, 2014. Historically, management has been successful in obtaining waivers from the bank for any covenant non-compliance; however there is no assurance that the Company will be able to obtain waivers in the future.

At September 30, 2013, future maturities of long-term debt were as follows:

2014	$	8,134,412
2015		8,654,703
2016		2,227,649
2017		197,395
2018		55,000
Thereafter		—

Note 8 – Preferred Noncontrolling Interest

On March 13, 2013, the Company’s wholly-owned subsidiary, Foundation Health Enterprises, LLC (“FHE”) initiated a private placement offering for up to $15,960,000. The offering is comprised of 152 units (“FHE Unit” or “preferred noncontrolling interest”). Each FHE Unit is being offered at $105,000 and entitles the purchaser to one (1) Class B membership interest in FHE, valued at $100,000, and 10,000 shares of the Company’s common stock, valued at $5,000. During the period from July 22, 2013 to September 30, 2013, FHE and the Company completed the sale of 75 FHE Units for total consideration of $7,875,000 which was comprised of $7,500,000 attributable to the preferred noncontrolling interest and $375,000 attributable to the 750,000 shares of the Company’s common stock.

The FHE Units provide for a cumulative preferred annual return of 9% on the amount allocated to the Class B membership interests. The FHE Units will be redeemed by FHE in four annual installments beginning in July 2014. The first three installments shall be in the amount of $10,000 per FHE Unit and the fourth installment will be in the amount of the unreturned capital contribution and any undistributed preferred distributions. The FHE Units are convertible at the election of the holder at any time prior to the complete redemption into restricted common shares of the Company at a conversion price of $2.00 per share. Since the FHE Units have a redemption feature and

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a conversion feature which the Company determined to be substantive, the preferred noncontrolling interests has been recorded at the mezzanine level in the accompanying consolidated balance sheets and the corresponding dividends are recorded as a reduction of accumulated deficit.

As of December 31, 2012, the Company had an outstanding preferred membership interest of $11,072,465. The preferred member interest was owned by Tyche Health Enterprises, LLC (“Tyche”) and provided for annual cash dividends at a rate of 11.5%. On March 31, 2013, the Company entered into an Asset Purchase Agreement (the “Tyche Agreement”) with Tyche which was subsequently amended on March 31, 2013 and amended and closed on July 22, 2013. Under the Tyche Agreement, the Company purchased from Tyche (i) all of Tyche’s right, title and interest in the Membership Interest Purchase Agreement; (ii) all of Tyche’s right, title and interest in the preferred and common membership interest in FSH and the right to various equity interests in the affiliates of FSH; (iii) all of Tyche’s right, title and interest in the preferred and common membership interest in FSHA and the right to various equity interest in the affiliates of FSHA; and (iv) all of Tyche’s right, title and interest in any preferred or non-preferred ownership interest in any Foundation entities that have been acquired as a result of the Membership Interest Purchase Agreement.

Under the Tyche Agreement, the Company paid $11,102,372 to Tyche and Tyche related entities and TSH issued promissory notes totaling $2,339,905 to Tyche and Tyche related entities for total consideration of $13,442,277. As further consideration for the Tyche Agreement, the Company issued Tyche and certain Tyche related entities warrants for the purchase of Company’s common stock. The warrants issued included:

1. Five year warrants for the purchase of a total of 1,937,500 shares of the Company’s common stock at a strike price of $1.00 per share;

2. Seven and one-half year warrants for the purchase of a total of 3,516,204 shares of the Company’s common stock at a strike price of $1.35 per share; and

3. Ten year warrants for the purchase of a total of 2,296,296 shares of the Company’s common stock at a strike price of $1.60 per share.

Note 9 – Commitments and Contingencies

The Company is exposed to asserted and unasserted legal claims encountered in the normal course of business, including claims for damages for personal injuries, medical malpractice, breach of contracts, wrongful restriction of or interference with physicians’ staff privileges and employment related claims. In certain of these actions, plaintiffs request payment for damages, including punitive damages that may not be covered by insurance. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the operating results or the financial position of the Company. There were no settlement expenses during the nine months ended September 30, 2013. During the nine months ended September 30, 20112, the Company incurred $36,000 in settlement expenses related to its ongoing asserted and unasserted legal claims.

Note 10 – Extraordinary Gain and Other Item

Extraordinary Gain – On August 30, 2013, the Company, entered into an Agreement of Sale and Purchase (“Purchase Sale Agreement” or “PSA”) with HCRI Texas Properties, Ltd. (“Seller”) and HC REIT and an Agreement in Connection with Assignment and Assumption of PSA (“Assignment Agreement”) with DOC-FSH El Paso Medical Center, LLC (“DOC”) resulting in an extraordinary gain of $11,136,121 (collectively referred to as the “El Paso Real Estate Transaction”). The income taxes related to the extraordinary gain and the amount of the extraordinary gain attributable to noncontrolling interests are summarized below:

	Gross		Tax			Net
Attributable to Graymark Healthcare	$	7,864,051	$	(2,991,305	)	$	4,872,746
Attributable to noncontrolling interests		3,272,070		(1,177,214	)		2,094,856
Total extraordinary gain	$	11,136,121	$	(4,168,519	)	$	6,967,602

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Pursuant to the PSA, the Company agreed to acquire from Seller the real property occupied and certain personal property used by the Company’s subsidiary East El Paso Physicians’ Medical Center, LLC (“EEPPMC”) under a master lease agreement (“Master Lease”) between EEPPMC, Seller and HCN.

The real property and other consideration covered by the Purchase Sale Agreement includes the hospital (“Hospital”) and medical office building (“MOB”) occupied by EEPPMC, an adjoining parcel of vacant land (“Excess Land”), the HC REIT Note 2, and certain personal property, including medical equipment, owned by Seller and attached to or located in and used in the operation of the Hospital and MOB (“Personal Property. The purchase price under the Purchase Agreement was $39,066,428.

Simultaneous with the execution of the Purchase Sale Agreement, the Company executed the Assignment Agreement with DOC whereby FSHA assigned and DOC assumed all of FSHA’s right, title, interest and obligations in, to and under the Purchase Sale Agreement, except for the Excess Land, HC REIT Note 2 and Personal Property. The consideration under the Assignment Agreement with DOC was $40,000,000 and was composed of the following:

1. $39,066,428 which was paid directly to Seller;

2. $400,000 which was retained by DOC as a security deposit for the performance of EEPPMC’s payment obligations under the Master Lease;

3. $463,678 which was paid to the Company; and

4. $69,894 which was paid on behalf of the Company to cover certain legal and closing expenses.

The estimated excess value of the assets obtained compared to the consideration paid as a result of the PSA and Assignment agreement was $4,027,561. The Company is in the process of conducting formal valuations of the Excess Land and Personal Property acquired in the transaction and will adjust the extraordinary gain accordingly based on the results of those evaluations.

In conjunction with the execution of the PSA and Assignment Agreement, HC REIT agreed to forgive certain liabilities totaling $7,108,560 due to HC REIT from EEPPMC composed of the following:

1. $714,822 in capital equipment leases net of the write off of the related capital lease assets;

2. $467,132 in a note (HC REIT Note 1) and related accrued and unpaid interest (HC REIT Note 1 and HC REIT Note 2);

3. $2,767,905 in unpaid, past due rent on the hospital and MOB;

4. $3,158,701 in other accrued liabilities related to the hospital and MOB facilities.

The Company determined that the nature of the El Paso Real Estate Transaction was both unusual in nature and infrequent in occurrence given the nature of our business and current operating environment. The event is unusual given we are a health care organization that invests in and manages existing healthcare facilities, not a real estate company. This event is also unique given the complex nature of both the transaction and the unusual level of debt and liabilities forgiven as part of the transaction and as such would not be reasonably expected to reoccur in the foreseeable future.

Other Item – On September 30, 2013, the Company entered into an Agreement of Sale and Purchase (“OKC MOB Agreement”) with Foundation Medical Center of Oklahoma City, LLC (“FMC”) pursuant to which the Company agreed to acquire from Seller the real property occupied as the corporate headquarters of FSA and FSHA.

The real property covered by the OKC MOB Agreement includes an ambulatory surgery center facility owned and operated by a Foundation affiliate called Foundation Surgery Affiliate of Northwest Oklahoma City, LLC. The remainder of the building is medical office space occupied by a physician group, a sleep lab, a medical infusion company, and the Foundation corporate office. The building consists of approximately 52,000 square feet. The purchase price under the Purchase Agreement was $10,588,235.

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Simultaneous with the execution of the OKC MOB Agreement, the Company entered into an Agreement in Connection with Assignment and Assumption of PSA (“OKC MOB Assignment Agreement”) with DOC-GREYMARK HQ OKC MOB, LLC (“OKC DOC”) whereby the Company assigned and OKC DOC assumed, all of the Company’s right, title, interest and obligations in, to and under the OKC MOB Agreement. The consideration under the OKC MOB Assignment Agreement with OKC DOC was $15,600,000 and was composed of the following:

1. $10,588,235 which was paid directly to FMC;

2. $4,885,328 which was paid to the Company; and

3. $35,937 which was paid on behalf of the Company to cover certain legal and closing expenses.

Simultaneous with the sale to OKC DOC, the Company executed a 10 year master lease on the building for an annual rent of $1,248,000 with annual escalations of 2%. The current lease income on the underlying sub-leases is approximately $900,000 per year. The master lease is an operating lease. Given the disparity between the annual rent expense under the master lease and the rental income of the underlying sub-leases, the gain on the sale to OKC DOC will be deferred and recorded on a straight-line basis as a reduction in the rent expense under the master lease.

Note 11 – Fair Value Measurements

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market in an orderly transaction between market participants. In determining fair value, the accounting standards established a three-level hierarchy that distinguishes between (i) market data obtained or developed from independent sources (i.e., observable data inputs) and (ii) a reporting entity’s own data and assumptions that market participants would use in pricing an asset or liability (i.e., unobservable data inputs). Financial assets and financial liabilities measured and reported at fair value are classified in one of the following categories, in order of priority of observability and objectivity of pricing inputs:

• Level 1 – Fair value based on quoted prices in active markets for identical assets or liabilities.

• Level 2 – Fair value based on significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data.

• Level 3 – Fair value based on prices or valuation techniques that require significant unobservable data inputs. Inputs would normally be a reporting entity’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

The fair value measurement level for an asset or liability is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.

Recurring Fair Value Measurements: The carrying value of the Company’s financial assets and financial liabilities is their cost, which may differ from fair value. The carrying value of cash held as demand deposits, money market and certificates of deposit, accounts receivable, short-term borrowings, accounts payable and accrued liabilities approximated their fair value. At September 30, 2013, the fair value of the Company’s long-term debt, including the current portion was determined approximate its carrying value.

Nonrecurring Fair Value Measurements:

Business Acquisition – In July 2013, the Company acquired Foundation in a transaction that was treated as a reverse acquisition for accounting purposes; see Note 4 – Reverse Acquisition for additional information. The assets acquired and liabilities assumed from Graymark in the reverse acquisition were recorded at their respective fair values on the date of the acquisition.

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These nonrecurring fair value measurements were developed using significant unobservable inputs (Level 3). The primary valuation technique used was an income methodology based on management’s estimates of forecasted cash flows for each business unit, with those cash flows discounted to present value using rates commensurate with the risks of those cash flows. Assumptions used by management were similar to those that would be used by market participants performing valuations of these business units and were based on analysis of current and expected future economic conditions and the updated strategic plan for each business unit.

Note 12 – Related Party Transactions

On July 22, 2013, the Company issued Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates, 17,970,295 shares of common stock for full satisfaction of debt owed to Mr. Oliver totaling $8,136,390. The Company previously used the proceeds from the debt to fund its payment obligations to Arvest Bank.

As of September 30, 2013, the Company had $5.9 million on deposit at Valliance Bank. Valliance Bank is controlled by Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates. In addition, the Company is obligated to Valliance Bank under certain notes payable totaling approximately $5.9 million and $0.8 million at September 30, 2013 and December 31, 2012, respectively. The interest rates on the notes range from 5% to 10%. Non-controlling interests in Valliance Bank are held by Mr. Stanton Nelson, the Company’s chief executive officer and Mr. Joseph Harroz, Jr., a director of the Company. Mr. Nelson and Mr. Harroz also serve as directors of Valliance Bank.

The Company occupies office space subject to a lease agreement with City Place, LLC (“City Place”). Under the lease agreement, the Company pays monthly rent of $17,970 until June 30, 2014; $0.00 from July 1, 2014 to January 31, 2015 and $17,970 from February 1, 2015 to March 31, 2017 plus additional payments for allocable basic expenses of City Place; the lease expires on March 31, 2017. Non-controlling interests in City Place are held by Roy T. Oliver, one of the Company’s greater than 5% shareholders and affiliates, and Mr. Stanton Nelson, the Company’s Chief Executive Officer. During the period from July 22, 2013 to September 30, 2013, the Company incurred approximately $54,000 in lease expense under the terms of the lease.

As of September 30, 2013 and December 31, 2012, the Company has obligations of $1.4 million that are owed to FHA and certain real estate subsidiaries and affiliates of FHA related to transactions that occurred prior to the Foundation acquisition in July 2013. The amounts owed to FHA and FHA affiliates are included in “Other liabilities” on the accompanying consolidated balance sheets.

The Company has entered into agreements with certain of its Affiliate ASCs and hospitals to provide management services. As compensation for these services, the surgery centers and hospitals are charged management fees which are either fixed or are based on a percentage of the Affiliates cash collected or the Affiliates net revenue. The percentages range from 2.25% to 6.0%.

Note 13 – Subsequent Events

Management evaluated all activity of the Company and concluded that no material subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements, except as noted below:

On October 2, 2013, the Company and FHE completed the sale of 12 FHE Units for total consideration of $1,260,000 which was comprised of $1,200,000 attributable to the preferred noncontrolling interest and $60,000 attributable to the 120,000 shares of the Company’s common stock. See Note 8 – Preferred Noncontrolling Interests for additional information.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Company Overview

Graymark Healthcare, Inc. (the “Company”) is organized under the laws of the state of Oklahoma and owns controlling and noncontrolling interests in surgical hospitals located in Texas. We also own noncontrolling interests in ambulatory surgery centers (“ASCs” and “Affiliates”) located in Texas, Oklahoma, Louisiana, Pennsylvania, New Jersey, Maryland and Ohio. Additionally, we provides\ sleep testing management services to various rural hospitals in Iowa, Minnesota, Missouri, Nebraska and South Dakota under management contracts with the hospitals. We provide management services to a majority of our Affiliates under the terms of various management agreements.

Foundation Transaction

On July 22, 2013, we acquired 100% of the interests in Foundation Surgery Affiliates, LLC (“FSA”) and FSA’s consolidated variable interest entity, Foundation Surgical Hospital Affiliates, LLC (“FSHA”) (collectively “Foundation”) from Foundation Healthcare Affiliates, LLC (“FHA”) in exchange for 114,500,000 shares of the Company’s common stock and a promissory note in the amount of $2,000,000. We also assumed certain debt and other obligations of FHA in the amount of $1,991,733. The promissory note is unsecured, bears interest at a fixed rate of 7% and is due on demand. During the period from July 22, 2013 to September 30, 2013, we made payments totaling $286,904 on the FHA note. On October 14, 2013, the total principal and interest due on the FHA note, totaling $1,727,377 was paid.

For accounting purposes, the acquisition of FSA was accounted for as a reverse acquisition and as a result, our historical operating results included in our consolidated financial statements for the periods prior to July 22, 2013 represent those of FSA. The historical financial statements of FSA have been adjusted for the effect of the recapitalization that occurred as a result of the reverse acquisition. Prior to July 22, 2013, FSA’s member had elected to have FSA’s income taxed as an “S” Corporation under provisions of the Internal Revenue Code and a similar section of the state income tax law. Therefore, taxable income or loss is reported to the individual member for inclusion in its respective tax returns and no provision for federal and state income taxes is included in these consolidated financial statements for periods prior to July 22, 2013. We have included pro forma income information in our consolidated statements of operations that provides an adjustment for income tax expenses as if FSA and FSHA had been a “C” Corporation prior to July 22, 2013 at an assumed combined federal and state effective rate of 40%, which approximates the calculated statutory tax rates for the periods.

Hospital and ASC Business Overview

We are a nationally prominent owner and manager of ASCs and surgical hospitals with facilities located in Louisiana, Maryland, New Jersey, Ohio, Oklahoma, Pennsylvania and Texas. As of September 30, 2013, we owned interests and/or managed twelve ASCs and four surgical hospitals in partnership with over 400 local physicians. Through our facilities, we are a major provider of surgical services; we have performed approximately 54,700 outpatient and 1,700 inpatient surgical cases during the nine months ended September 30, 2013. [BRAD OR BOB – please complete] We believe that our acquisition and development strategy and operating model will enable us to continue to grow by taking advantage of highly-fragmented markets, an increasing demand for short stay surgery and a need by physicians to forge strategic alliances to meet the needs of the evolving healthcare landscape while also shaping the clinical environments in which they practice.

We typically own a minority ownership in facilities with ownership ranging from 10% to 31% in 13 facilities. However, we own over 51% in two of our larger hospitals located in San Antonio and El Paso, Texas. Our facilities collectively offer a “portfolio” of specialties ranging from relatively intensive specialties such as orthopedics and neurosurgery to low-surgery-intensive specialties such as pediatric ENT (tubes / adenoids), pain management and gastroenterology. Each of our facilities is located in freestanding buildings or medical office buildings. Our average ASC has approximately 16,000 square feet of space with four operating rooms, as well as ancillary areas for preparation, recover, reception and administration. Our surgery centers are normally open weekdays from 7:00 a.m. to approximately 5:00 p.m. or until the last patient is discharged. Our surgical hospitals have from 10 to 40 beds and average seven operating rooms, ranging in size from 40,000 to 126,000 square feet and are open 24 hours a day, 365 days a year.

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All of our ASC and surgical hospital facilities are licensed at the state level as either ASCs or hospitals, participate within the Medicare program and are accredited by the Accreditation Association for Ambulatory Healthcare (AAAHC), Det Norske Veritas (DNV) or the Joint Commission. We recognize that accreditation is a crucial quality benchmark for payors since many managed care organizations will not contract with a facility until it is accredited. We believe that our historical success in obtaining and retaining accreditation for our facilities reflects its commitment to providing high quality care in its facilities.

Generally, our ASC and surgical hospital facilities are owned and operated by limited partnerships or limited liability companies in which ownership interests are also held by local physicians who are on the medical staffs of the facilities. The facilities’ partnership and limited liability company agreements typically provide for the monthly or quarterly pro rata distribution of cash equal to net profits from operations, less amounts held in reserve for expenses and working capital. Even where we own a minority of the interests in a facility, the partnership or limited liability company agreements generally grant us representation on the facility’s governing board and ensure our participation in fundamental decisions. Our influence over the businesses of our facilities is enhanced by the management agreements which we possess with such facilities.

Our ASC and surgical hospital facilities depend upon third-party reimbursement programs, including governmental and private insurance programs, to pay for the preponderance of the services rendered to patients. Our ASC and surgical hospital facilities derive approximately 25% of their revenues from governmental healthcare programs, primarily Medicare and managed Medicare programs, and the remainder from a wide mix of commercial payors and patient co-pays and deductibles. Although our ASC and surgical hospital facilities receive only a quarter of their revenues from governmental programs, private payors typically follow the method in which the government reimburses healthcare providers. Under the government’s methodology our ASC and surgical hospital facilities are reimbursed for the performance of services through the payment of facility fees which vary according to whether the facility is an ASC or a hospital and the type of procedure that is performed. ASCs are reimbursed through the payment of a composite “ASC rate” which includes payment for most of the expenses associated with the performance of a procedure such as nursing services, supplies, and staffing costs. The reimbursement rates for inpatient hospital services are determined using Medicare severity diagnosis related groups which are intended to compensate hospitals according to the estimated intensity of hospital resources necessary to furnish care for a particular diagnosed illness. Hospitals are reimbursed for outpatient procedures in a manner similar to ASCs except that the methodologies employed to calculate reimbursement generally result in hospitals being reimbursed in this setting at a higher rate for outpatient procedures than free-standing ASCs.

The reimbursement rates payable to hospitals and ASCs are subject to frequent adjustment. In addition, the reimbursement methodologies contained in the Patient Protection and Affordable Care Act (the “ACA”) are still being evaluated and are a source of uncertainty. Physicians are typically paid separately for their professional services in both ASCs and hospitals.

Our revenues from the ASC and surgical hospital facilities are derived from (i) the pro rata distributions we receive on our ownership in the facilities, and (ii) management fees that we receive from these facilities. Such management fees are generally calculated as a percentage of the monthly net revenues. We own equity interests in all of our ASC and surgical hospital facilities except the Lake Surgery Center in Baton Rouge, Louisiana which we manage. We possess management agreements with all of our ASC and surgical hospital facilities except for the Houston Orthopedic Surgical Hospital in Houston, Texas in which we own 20% of the interest.

Liquidity Overview

As of September 30, 2013, we had an accumulated deficit of $31.5 million and a working capital deficiency of $20.6 million. During the nine months ended September 30, 2013, we generated a net loss attributable to Graymark Healthcare of $15.9 million, including a goodwill impairment charge of $20.8 million. We generated cash flow from operating activities from continuing operations of $5.1 million. We expect to refinance, by the end of the first quarter of 2014, a significant portion our long-term debt obligations and we expect that we will be able to significantly reduce our annual debt service payments as part of the refinancing. However, there is no assurance that we will be successful in completing the debt refinancing. See “Liquidity and Capital Resources” for additional information.

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Results of Operations

The following table sets forth selected results of our operations for the three and nine months ended September 30, 2013 and 2012. The following information was derived and taken from our unaudited financial statements appearing elsewhere in this report.

Comparison of the Three and Nine Month Periods Ended September 30, 2013 and 2012

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2013			2012			2013			2012
Net Revenues:
Patient services	$	21,724,423		$	8,747,414		$	56,211,160		$	23,962,216
Management fee from affiliates		1,460,163			1,880,610			4,986,012			5,951,165
Equity in earnings from affiliates		1,448,898			1,637,354			4,502,759			4,833,992
Other revenue		1,048,381			171,804			3,845,254			1,169,884
Provision for doubtful accounts		(682,319	)		(123,413	)		(2,409,733			(386,165	)
Revenue		24,999,546			12,313,769			67,135,452			35,531,092
Salaries and benefits		6,974,734			3,472,076			19,770,112			10,246,078
Supplies		6,659,330			2,201,344			16,993,555			6,836,004
Other operating expenses		8,609,650			4,330,938			24,513,007			11,325,500
Impairment of goodwill		20,847,608			—			20,847,608			—
Depreciation and amortization		1,290,779			565,675			3,636,840			1,709,612
Net other expense		(516,069	)		(202,311	)		(1,535,683	)		(475,491	)
Income (loss) from continuing operations, before taxes		(19,898,624	)		1,541,425			(20,161,353	)		4,938,407
Provision for income taxes		(961,105	)		—			(961,105	)		—
Income (loss) from continuing operations, net of taxes		(20,859,729	)		1,541,425			(21,122,458	)		4,938,407
Discontinued operations, net of tax		(196,705	)		—			(196,705	)		—
Extraordinary gain, net of tax		6,967,602			—			6,967,602			—
Net income (loss)		(14,088,832	)		1,541,425			(14,351,561	)		4,938,407
Less: Noncontrolling interests		2,402,532			384,257			1,522,445			452,157
Net income (loss) attributable to Graymark Healthcare	$	(16,491,364	)	$	1,157,168		$	(15,874,006	)	$	4,486,250

Discussion of Three Month Periods Ended September 30, 2013 and 2012

Overall comments – as a result of the Foundation transaction on July 22, 2013 being recorded as a reverse acquisition, the operating results of the Company’s legacy business (referred to as “legacy Graymark”) is included for the period of July 22, 2013 to September 30, 2013. There are no operating results for the legacy Graymark business recorded in the third quarter of 2012. We acquired East El Paso Physician Medical Center, LLC (“EEPMC”), on October 26, 2012. As a result, there are no operating results for EEPMC recorded in the third quarter of 2012.

Patient services revenue increased $13.0 million or 148% during the three months ended September 30, 2013 compared with the third quarter of 2012. The increase was primarily due to:

• Patient services revenue at, of $11.5 million at EEPMC during the third quarter of 2013; and

• An increase in the average reimbursement per surgical case at Foundation Bariatric Hospital of San Antonio (“FBH SA”) resulted in an increase in patient services revenue of $1.5 million during the third quarter of 2013 compared with third quarter of 2012.

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Management fees from affiliates decreased $0.4 million or 22% during the three months ended September 30, 2013 compared with the third quarter of 2012. Prior to our acquisition of EEPMC, we provided management services to that facility. That revenue is now eliminated in our consolidated financial statements. This change resulted in a $0.2 million decrease compared to the third quarter of 2012. Our management fees at both our ASCs and surgical hospitals are based on a percentage of collections. Lower collections at our ASCs resulted in a decrease of $0.1 million. An agreement to lower our management fees at one of our managed hospitals resulted in a decrease of $0.1 million.

Income from equity investments in affiliates decreased $0.2 million or 12% during the three months ended September 30, 2013 compared with the third quarter of 2012. Lower average reimbursement levels at one of our ASC’s in Pennsylvania resulted in a decrease of $0.3 million which was offset by improved operating results at our surgical hospitals resulting in a $0.1 million increase.

Other revenue increased $0.9 million or 510% during the three months ended September 30, 2013 compared with the third quarter of 2012. The increase was due to $0.5 million in revenue earned during the third quarter of 2013 from the sleep center management fees earned at our legacy Graymark hospital outreach locations. There is no revenue included from the hospital outreach locations during the third quarter of 2012 as a result of the reverse acquisition recorded on July 22, 2013. The remaining increase in other revenue of $0.4 million during the third quarter of 2013 compared to the third quarter of 2012 is primarily due to Tricare capital reimbursements on qualifying military admissions.

Provision for doubtful accounts increased $0.6 million or 453% during the three months ended September 30, 2013 compared with the third quarter of 2012. Provision for doubtful accounts as a percent of patient services revenue was 3.1% and 4.3% for the third quarter of 2013 and 2012, respectively. The increase is due to a $0.4 million reserve for EEPMC and a $0.2 million increase in the reserve at FBH SA related to increased revenues and accounts receivable balances.

Salaries and benefits increased $3.5 million or 101% to $7.0 million from $3.5 million during the three months ended September 30, 2013, compared with the third quarter of 2012. The increase in salaries and benefits was primarily due to:

• $2.6 million of salaries and benefits expense at EEPMC;

• $0.6 million of salaries and benefits at legacy Graymark; and

• $0.3 million due to increased salaries and benefits resulting from increased personnel required to manage our expanding hospital operations.

Supplies expense increased $4.5 million or 203% to $6.7 million from $2.2 million during the three months ended September 30, 2013, compared with the third quarter of 2012. The increase in supplies expense was primarily due to $3.9 million of medical supply expenses at EEPMC and an increase of $0.6 million at FBH SA resulting from a increased number of high acuity surgical cases.

Other operating expenses increased $4.3 million or 99% to $8.6 million from $4.3 million during the three months ended September 30, 2013, compared with the third quarter of 2012. The increase in other operating expenses was primarily due to:

• $4.8 million of other operating expenses at EEPMC;

• $0.5 million of other operating expenses at legacy Graymark;

• a decrease in other operating expenses at FBH SA of $0.9 million resulting from lower costs incurred with outside service vendors; and

• a decrease in other operating expenses of $0.1 million primarily driven by lower professional fees.

Impairment of goodwill – We recorded goodwill associated with the reverse acquisition related to legacy Graymark of $20,847,608. We then determined the projected cash flows from the continuing operations of the legacy Graymark business were not sufficient to support the recorded goodwill. We evaluated the fair value of the goodwill subsequent to the reverse acquisition and determined the acquired goodwill was fully-impaired.

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Depreciation and amortization represents the depreciation expense associated with our fixed assets and the amortization attributable to our intangible assets. Depreciation and amortization increased $0.7 million in the third quarter of 2013 compared to the second quarter of 2012. The increase was primarily due to $0.6 million of depreciation and amortization at EEPMC and $0.2 million of depreciation and amortization at legacy Graymark offset by a $0.1 million decrease at FBH SA due to certain assets becoming fully depreciated.

Net other expense represents primarily interest expense on borrowings reduced by interest income earned on cash and cash equivalents. Net other expense increased $0.4 million in the third quarter of 2013 compared to the second quarter of 2012. The increase is related to a $0.2 million increase in interest expense attributable to our increased borrowings as a result of the El Paso acquisition a $0.2 million increase related to legacy Graymark, and a gain of $0.1 million in the third quarter of 2012 related to the sale of an equity investment in affiliate which we did not have in 2013.

Provision for income taxes was $1.0 million for the third quarter in 2013. Prior to July 22, 2013, FSA’s member had elected to have FSA’s income taxed as an “S” Corporation under provisions of the Internal Revenue Code and a similar section of the state income tax law. Therefore, taxable income or loss is reported to the individual member for inclusion in its respective tax returns and no provision for federal and state income taxes is included in our consolidated financial statements for periods prior to July 22, 2013. We have included pro forma income information in our consolidated statements of operations that provides an adjustment for income tax expense as if FSA and FSHA had been a “C” Corporation prior to July 22, 2013 at an assumed combined federal and state effective tax rate of 40%, which approximates the calculated statutory tax rates for the periods.

Discontinued operations represent the net loss from the operations of our independent diagnostic testing facilities (“IDTF”) which were classified as held for sale prior the Graymark reverse acquisition. The results from our discontinued operations for the period of July 22, 2013 to September 30, 2013 are summarized below:

Revenues	$	724,145
Net loss before taxes	$	(327,841	)
Income tax benefit		131,136
Net loss from discontinued operations, net of tax	$	(196,705	)

Extraordinary gain, net of tax – on August 30, 2013, we entered into an Agreement of Sale and Purchase (“Purchase Sale Agreement” or “PSA”) with HCRI Texas Properties, Ltd. (“Seller”) and HC REIT and an Agreement in Connection with Assignment and Assumption of PSA (“Assignment Agreement”) with DOC-FSH El Paso Medical Center, LLC (“DOC”) resulting in an extraordinary gain of $11,136,121 (collectively referred to as the “El Paso Real Estate Transaction”). The income taxes related to the extraordinary gain and the amount of the extraordinary gain attributable to noncontrolling interests are summarized below:

	Gross		Tax			Net
Attributable to Graymark Healthcare	$	7,864,051	$	(2,991,305	)	$	4,872,746
Attributable to noncontrolling interests		3,272,070		(1,177,214	)		2,094,856
Total extraordinary gain	$	11,136,121	$	(4,168,519	)	$	6,967,602

Pursuant to the PSA, the Company agreed to acquire from Seller the real property occupied by and certain personal property used by the Company’s subsidiary East El Paso Physicians’ Medical Center, LLC (“EEPPMC”) under a master lease agreement (“Master Lease”) between EEPPMC, Seller and HCN.

The real property and other consideration covered by the Purchase Sale Agreement includes the hospital (“Hospital”) and medical office building (“MOB”) occupied by EEPPMC, an adjoining parcel of vacant land (“Excess Land”), a note payable, and certain personal property, including medical equipment, owned by Seller and attached to or located in and used in the operation of the Hospital and MOB (“Personal Property”). The purchase price under the Purchase Agreement was $39,066,428.

Simultaneous with the execution of the Purchase Sale Agreement, the Company executed the Assignment Agreement with DOC whereby FSHA assigned and DOC assumed all of FSHA’s right, title, interest and obligations in, to and under the Purchase Sale Agreement, except for the Excess Land, a note payable and Personal Property.

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The consideration under the Assignment Agreement with DOC was $40,000,000. In conjunction with the execution of the PSA and Assignment Agreement, HC REIT agreed to forgive certain liabilities totaling $7,108,562 due to HC REIT from EEPPMC.

We determined that the nature of the El Paso Real Estate Transaction was both unusual in nature and infrequent in occurrence given the nature of our business and current operating environment. The event is unusual given we are a health care organization that invests in and manages existing healthcare facilities, not a real estate company. This event is also unique given the complex nature of both the transaction and the unusual level of debt and liabilities forgiven as part of the transaction and as such would not be reasonably expected to reoccur in the foreseeable future.

Noncontrolling interests were allocated $2.4 million and $0.4 million of net income during the three months ended September 30, 2013 and 2012, respectively. Noncontrolling interests are the equity ownership interests in our majority owned hospital subsidiaries, EEPMC and FBH SA.

Net income (loss) attributable to Graymark Healthcare. Our operations resulted in a net loss of $16.5 million during the third quarter of 2013, compared to net income of $1.2 million during the third quarter of 2012.

Discussion of Nine Month Periods Ended September 30, 2013 and 2012

Overall comments – as a result of the Foundation transaction on July 22, 2013 being recorded as a reverse acquisition, the operating results of the Company’s legacy business (referred to as “legacy Graymark”) is included for the period of July 22, 2013 to September 30, 2013. There are no operating results for the legacy Graymark business recorded in the nine months ended September 30, 2012. We acquired East El Paso Physician Medical Center, LLC (“EEPMC”), on October 26, 2012. As a result, there are no operating results for EEPMC recorded in the nine months ended September 30, 2012.

Patient services revenue increased $32.2 million or 135% during the nine months ended September 30, 2013 compared with the first nine months of 2012. The increase was primarily due to:

• Patient services revenue at, of $31.2 million at EEPMC during the third quarter of 2013; and

• An increase in the average reimbursement per surgical case at Foundation Bariatric Hospital of San Antonio (“FBH SA”) resulted in an increase in patient services revenue of $1.0 million for the first nine months of 2013 compared with the same period of 2012.

Management fees from affiliates decreased $1.0 million or 16% during the nine months ended September 30, 2013 compared with first nine months of 2012. Prior to our acquisition of EEPMC, we provided management services to that facility. That revenue is now eliminated in our consolidated financial statements. This change resulted in a $0.6 million decrease compared to the first nine months of 2012. We had two temporary management agreements in the first six months of 2012 we no longer have resulting in a decrease of $0.3 million. An agreement to lower our management fees at one of our managed hospitals resulted in a decrease of $0.2 million. Our management fees at both our ASCs and surgical hospitals are based on a percentage of collections. Greater year to date collections at our ASCs resulted in an offsetting increase of $0.1 million.

Income from equity investments in affiliates decreased $0.3 million or 7% during the nine months ended September 30, 2013 compared with the first nine months of 2012. Lower average reimbursement levels at one of our ASC’s in Pennsylvania resulted in a decrease of $0.2 million and lower operating results at our surgical hospitals resulted in a decrease of $0.1 million.

Other revenue increased $2.7 million or 229% during the nine months ended September 30, 2013 compared with the first nine months of 2013. The addition of EEPMC resulted in a $2.6 million increase, which includes $1.5 million in meaningful use payments related to the federal electronic medical records program, a $0.5 million settlement of the facilities 2009 Medicare cost report and $0.6 million in a combination of rental revenue from sub-lease tenants and Tricare capital reimbursements on qualifying military admissions. Revenue earned during the first nine months of 2013 from the sleep center management fees earned at our legacy Graymark hospital outreach

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locations resulted in a $0.5 million increase. There is no revenue included from the hospital outreach locations during the first nine months 2012 as a result of the reverse acquisition recorded on July 22, 2013. These amounts are offset by a $0.1 million decrease in miscellaneous service fees to our managed facilities and $0.3 million decrease at FBH SA due to a meaningful use payment related to the federal electronic medical records program received in the first half of 2012. No meaningful use payments have been received at FBH SA in 2013.

Provision for doubtful accounts increased $2.0 million or 524% during the nine months ended September 30, 2013 compared with the first nine months of 2012. Provision for doubtful accounts as a percent of patient services revenue was 4.3% and 1.6% for the first nine months of 2013 and 2012, respectively. The addition of EEPMC resulted in a $1.8 million increase and higher reserves related to increased revenues and account receivables at FBH SA resulted in a $0.2 million increase.

Salaries and benefits increased $9.6 million or 93% to $19.7 million from $10.2 million during the nine months ended September 30, 2013, compared with the first nine months of 2012. The increase in salaries and benefits was primarily due to:

• $8.1 million of salaries and benefits expense at EEPMC;

• $0.6 million of salaries and benefits at legacy Graymark; and

• $1.1 million due to increased salaries and benefits resulting from increased personnel required to manage our expanding hospital operation;

• partially offset by a $0.2 million reduction at FBH SA due to improved operational efficiencies allowing for reduced labor.

Supplies expense increased $10.2 million or 149% to $17.0 million from $6.8 million during the nine months ended September 30, 2013, compared with the first nine months of 2012. The increase in supplies expense was primarily due to $10.0 million of medical supply expenses at EEPMC and an increase of $0.2 million at FBH SA resulting from an increase in the number of high acuity surgical cases.

Other operating expenses increased $13.2 million or 116% to $24.5 million from $11.3 million during the nine months ended September 30, 2013, compared with the first nine months of 2012. The increase in other operating expenses was primarily due to:

• $14.5 million of other operating expenses at EEPMC;

• $0.5 million of other operating expenses at legacy Graymark;

• a decrease in other operating expenses at FBH SA of $1.9 million resulting from lower costs incurred with outside service vendors; and

• an increase in other operating expenses of $0.1 million related to increased corporate expense to support our expanded operations.

Impairment of goodwill – We recorded goodwill associated with the reverse acquisition related to legacy Graymark of $20,847,608. We then determined the projected cash flows from the continuing operations of the legacy Graymark business were not sufficient to support the recorded goodwill. We evaluated the fair value of the goodwill subsequent to the reverse acquisition and determined the acquired goodwill was fully-impaired.

Depreciation and amortization represents the depreciation expense associated with our fixed assets and the amortization attributable to our intangible assets. Depreciation and amortization increased $1.9 million in the nine months ended September 30, 2013 compared to the first nine months of 2012. The increase was primarily due to $1.9 million of depreciation and amortization at EEPMC and $0.2 million of depreciation and amortization at legacy Graymark partially offset by a $0.2 million decrease at FBH SA due to certain assets becoming fully depreciated.

Net other expense represents primarily interest expense on borrowings reduced by interest income earned on cash and cash equivalents. Net other expense increased $1.2 million in the third quarter of 2013 compared to the second quarter of 2012. The increase is related to an increase of $0.8 million in interest expense attributable to our increased borrowings as a result of the El Paso acquisition and a $0.2 million increase related to legacy Graymark and a gain of $0.3 million in the first nine months quarter of 2012 related to the sale of equity investments in certain affiliates, offset by a $0.1 million reduction in interest expense at FBH SA due to lower principle balances related to principle payments on existing loans.

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Provision for income taxes was $1.0 million for the first nine months of 2013. Prior to July 22, 2013, FSA’s member had elected to have FSA’s income taxed as an “S” Corporation under provisions of the Internal Revenue Code and a similar section of the state income tax law. Therefore, taxable income or loss is reported to the individual member for inclusion in its respective tax returns and no provision for federal and state income taxes is included in our consolidated financial statements for periods prior to July 22, 2013. We have included pro forma income information in our consolidated statements of operations that provides an adjustment for income tax expenses as if FSA and FSHA had been a “C” Corporation prior to July 22, 2013 at an assumed combined federal and state effective rate of 40%, which approximates the calculated statutory tax rates for the periods.

Discontinued operations represent the net loss from the operations of our independent diagnostic testing facilities (“IDTF”) which were classified as held for sale prior the Graymark reverse acquisition. The results from our discontinued operations for the period of July 22, 2013 to September 30, 2013 are summarized below:

Revenues	$	724,145
Net loss before taxes	$	(327,841	)
Income tax benefit		131,136
Net loss from discontinued operations, net of tax	$	(196,705	)

Extraordinary gain, net of tax – on August 30, 2013, we entered into an Agreement of Sale and Purchase (“Purchase Sale Agreement” or “PSA”) with HCRI Texas Properties, Ltd. (“Seller”) and HC REIT and an Agreement in Connection with Assignment and Assumption of PSA (“Assignment Agreement”) with DOC-FSH El Paso Medical Center, LLC (“DOC”) resulting in an extraordinary gain of $11,136,121 (collectively referred to as the “El Paso Real Estate Transaction”). The income taxes related to the extraordinary gain and the amount of the extraordinary gain attributable to noncontrolling interests are summarized below:

	Gross		Tax			Net
Attributable to Graymark Healthcare	$	7,864,051	$	(2,991,305	)	$	4,872,746
Attributable to noncontrolling interests		3,272,070		(1,177,214	)		2,094,856
Total extraordinary gain	$	11,136,121	$	(4,168,519	)	$	6,967,602

Pursuant to the PSA, the Company agreed to acquire from Seller the real property occupied by and certain personal property used by the Company’s subsidiary East El Paso Physicians’ Medical Center, LLC (“EEPPMC”) under a master lease agreement (“Master Lease”) between EEPPMC, Seller and HCN.

The real property and other consideration covered by the Purchase Sale Agreement includes the hospital (“Hospital”) and medical office building (“MOB”) occupied by EEPPMC, an adjoining parcel of vacant land (“Excess Land”), a note payable, and certain personal property, including medical equipment, owned by Seller and attached to or located in and used in the operation of the Hospital and MOB (“Personal Property”). The purchase price under the Purchase Agreement was $39,066,428.

Simultaneous with the execution of the Purchase Sale Agreement, the Company executed the Assignment Agreement with DOC whereby FSHA assigned and DOC assumed all of FSHA’s right, title, interest and obligations in, to and under the Purchase Sale Agreement, except for the Excess Land, a note payable and Personal Property. The consideration under the Assignment Agreement with DOC was $40,000,000. In conjunction with the execution of the PSA and Assignment Agreement, HC REIT agreed to forgive certain liabilities totaling $7,108,562 due to HC REIT from EEPPMC.

We determined that the nature of the El Paso Real Estate Transaction was both unusual in nature and infrequent in occurrence given the nature of our business and current operating environment. The event is unusual given we are a health care organization that invests in and manages existing healthcare facilities, not a real estate company. This event is also unique given the complex nature of both the transaction and the unusual level of debt and liabilities forgiven as part of the transaction and as such would not be reasonably expected to reoccur in the foreseeable future.

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Noncontrolling interests were allocated $1.5 million and $0.5 million of net income during the nine months ended September 30, 2013 and 2012, respectively. Noncontrolling interests are the equity ownership interests in our majority owned hospital subsidiaries, EEPMC and FBH SA.

Net income (loss) attributable to Graymark Healthcare. Our operations resulted in a net loss of $15.9 million during the nine months ended September 30, 2013, compared to net income of $4.5 million during the nine months ended September 30, 2012.

Liquidity and Capital Resources

Generally our liquidity and capital resource needs are funded from operations, loan proceeds and equity offerings. As of September 30, 2013, our liquidity and capital resources included cash and cash equivalents of $8.3 million and a working capital deficit of $20.6 million. As of December 31, 2012, our liquidity and capital resources included cash and cash equivalents of $2.5 million and working capital deficit of $12.9 million.

Cash provided by operating activities from continuing operations was $5.1 million during the nine months ended September 30, 2013 compared to $4.3 million for the first nine months of 2012. During the nine months ended September 30, 2013, the primary sources of cash from operating activities from continuing operations were cash generated by income from continuing operations (net loss increased by non-cash items) of $1.3 million, increases in accounts payable, accrued liabilities and other liabilities totaling $10.2 million and decreases in receivables from affiliates, supplies inventories and other assets totaling $0.7 million. During the nine months ended September 30, 2013, the primary uses of cash from continuing operations, was a decrease in accounts receivables, other receivables and prepaid and other current assets totaling $7.5 million. During the nine months ended September 30, 2012, the primary uses of cash from operating activities from continuing operations were cash required to fund losses from continuing operations (net income reduced by non-cash items) of $3.1 million and an increase in prepaid and other current assets of $0.5 million and a decrease in other liabilities of $0.4 million. The primary sources of cash from operating activities from continuing operations in the first nine months of 2012 were a decrease in other receivables of $0.5 million and an increase in accrued liabilities of $0.4 million.

Cash used by discontinued operations for the nine months ended September 30, 2013 was $0.4 million. There were no discontinued operations during the nine months ended September 30, 2012.

Net cash provided by investing activities from continuing operations during the nine months ended September 30, 2013 was $1.8 million compared to the first nine months of 2012 when investing activities from continuing operations used $4.3 million. Investing activities during the first nine months of 2013 were primarily related to distributions received from equity investments of $4.5 million and proceeds from an extraordinary gain transaction of $0.5 million which were offset by purchases of property and equipment of $3.5 million. Investing activities during the first nine months of 2012 were primarily related to distributions received from equity investments of $4.8 million and proceeds from the sale of equity investments of $0.6 million which were offset by purchases of property and equipment of $0.8 million and purchases of equity investments of $0.2 million.

Investing activities from discontinued operations during the nine months ended September 30, 2013 were $0.2 million and represented proceeds from the sale of assets attributable to discontinued operations.

Net cash used by financing activities from continuing operations during the nine months ended September 30, 2013 was $0.6 million compared to the first nine months of 2012 when financing activities from continuing operations used $4.5 million. During the nine months ended September 30, 2013, we had proceeds from the sale of common stock and preferred noncontrolling interests of $0.4 million and $7.5 million, respectively. During the nine months ended September 30, 2013, we paid $13.5 million to redeem preferred noncontrolling interests. During the nine months ended September 30, 2013 and 2012, we received debt proceeds of $12.2 and $0.9 million, respectively, and we made debt payments of $5.4 million and $3.5 million, respectively. During the nine months ended September 30, 2013 and 2012, we made distributions to FHA (prior to the reverse acquisition on July 22, 2013) of $0.1 million and $1.6 million, respectively. During the nine months ended September 30, 2013 and 2012, we paid preferred noncontrolling dividends of $0.9 million and $0.2 million, respectively.

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As of September 30, 2013, we had an accumulated deficit of $31.5 million and a working capital deficiency of $20.6 million. During the nine months ended September 30, 2013, we generated a net loss attributable to Graymark Healthcare of $15.9 million, including a goodwill impairment charge of $20.8 million, and generated cash flow from operating activities from continuing operations of $5.1 million. We expect to refinance, by the end of the first quarter of 2014, a significant portion of our long-term debt obligations. We expect to significantly reduce our annual debt service payments as part of the refinancing; however, there is no assurance that we will be successful in completing the debt refinancing.

Legacy Bank Credit Facility

We have entered into various short-term and long-term notes payable with our senior lender, Legacy Bank (referred to as “Legacy Debt”). As of September 30, 2013, the balance of the Legacy Debt was $12.1 million. The Legacy Debt is collateralized by substantially all of the assets of our subsidiaries, FSA and FSHA, and a portion is personally guaranteed by certain of our officers. In conjunction with the Legacy Debt, we have agreed to comply with certain financial covenants (as defined and calculated at the FSA and FSHA level) including:

• Debt Service Coverage Ratio of 1.05 to 1 and increasing to 1.1 to 1 by December 31, 2013; 1.15 to 1 by March 31, 2014; and 1.2 to 1 by June 30, 2014; and

• Minimum Tangible Net Worth of $11.1 million increased each quarter (beginning in September 30, 2013 by 50% of FSA’s and FSHA’s net income for the quarter).

As of September 30, 2013, FSA and FSHA are in compliance with the Legacy Bank Financial Covenants. Legacy Bank has waived the financial covenants until January 15, 2014. There is no assurance that Legacy Bank will waive any future violations of the financial covenants. We anticipate that we will also meet the financial covenants at January 15, 2014. Historically, we have been successful in obtaining waivers from the bank for any covenant non-compliance; however there is no assurance that we will be able to obtain waivers for any non-compliance in the future.

Arvest Bank Credit Facility

On July 22, 2013, our subsidiaries, SDC Holdings, LLC and ApothecaryRx, LLC (collectively the “Borrowers”), we and Mr. Stanton Nelson (the “Guarantor” and the Company’s chief executive officer) entered into a Second Amended and Restated Loan Agreement (the “New Loan Agreement”) and an Amended and Restated Promissory Note (the “New Note”) with Arvest Bank. We, Borrowers, Guarantor and other guarantors previously entered into the Amended and Restated Loan Agreement dated effective December 17, 2010, as amended by the First Amendment to Loan Agreement dated January 1, 2012, the Second Amendment to Loan Agreement dated effective June 30, 2012, and the Third Amendment to Loan Agreement dated effective October 12, 2012 (the “Prior Agreement”). Under the Prior Agreement, we and Borrowers were indebted to Arvest Bank under the Amended and Restated Promissory Note, in the original principal amount of $15,000,000 dated June 30, 2010 and the Second Amended and Restated Promissory Note, in the original principal amount of $30,000,000, dated June 30, 2010 (the “Prior Notes”). We, Arvest Bank, the Borrowers and the Guarantor have agreed to restructure the loan evidenced by the Prior Notes and the Prior Agreement. As of September 30, 2013, the outstanding principal amount of the New Note was $10.4 million.

On July 22, 2013, in conjunction with the New Loan Agreement with Arvest Bank, we entered into a Participation Agreement with Arvest Bank in which we purchased a $6,000,000 participation in the New Note from Arvest Bank in exchange for 13,333,333 shares of the Company’s common stock. The Company purchased the participation in the last $6,000,000 of the principal amount due under the Arvest credit facility. The Company’s participation in the note is eliminated against the New Note. Since the operations of the Borrowers has been discontinued, the New Note, net of the participation, is included in current liabilities from discontinued operations in our consolidated balance sheet a.

The New Note is collateralized by substantially all of the assets of the Borrowers and the personal guaranty of the Guarantor which is limited to $2,919,000. The note bears interest at the greater of the prime rate or 6.0% and

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provided the Borrowers are not in default, the Borrowers are required to make monthly payments of interest only. The entire unpaid principle balance and all accrued and unpaid interest thereon will be due and payable on December 31, 2013. Additionally, the New Note is subject to certain financial covenants including a debt service coverage ratio (“DSR”) covenant of not less than 1.25 to 1. Arvest Bank has waived the DSR and other financial covenant requirements through December 31, 2013, which is the maturity date of the New Note.

Oliver Debt Conversion

On August 31, 2012, December 31, 2012, March 1, 2013, April 1, 2013 and July 22, 2013, we executed promissory notes with Mr. Roy T. Oliver in the amount of $1,184,808, $351,710, $485,082, $351,470 and $5,648,290, respectively, for a total of $8,021,360 (collectively referred to as the “Oliver Notes”). We used the proceeds from the notes to fund our payment obligations to Arvest Bank. On July 22, 2013, we issued Mr. Oliver 17,970,295 shares of common stock for full satisfaction of the Oliver Notes including principal and accrued interest owed thereon of $114,263.

Preferred Interest Financing Transaction

On March 13, 2013, our wholly-owned subsidiary, Foundation Health Enterprises, LLC (“FHE”) initiated a private placement offering for up to $15,960,000. The offering is comprised of 152 units (“FHE Unit”). Each FHE Unit is being offered at $105,000 and entitles the purchaser to one (1) Class B membership interest in FHE, valued at $100,000, and 10,000 shares of the Company’s common stock, valued at $5,000. From July 22, 2013 to September 30, 2013, we and FHE completed the sale of 75 FHE Units for total consideration of $7,875,000.

The FHE Units provide for a cumulative preferred annual return of 9% on the amount allocated to the Class B membership interests. The FHE Units will be redeemed by FHE in four annual installments beginning in July 2014. The first three installments shall be in the amount of $10,000 per FHE Unit and the fourth installment will be in the amount of the unreturned capital contribution and any undistributed preferred distributions. The FHE Units are convertible at the election of the holder at any time prior to the complete redemption into restricted common shares of the Company at a conversion price of $2.00 per share.

The proceeds from the FHE Units allocated to the Class B membership units were used to fund a portion of the Tyche Transaction described below.

Tyche Transaction

On March 31, 2013, we and our wholly-owned subsidiary, TSH Acquisition, LLC (“TSH”) entered into an Asset Purchase Agreement (the “Tyche Agreement”) with Tyche Health Enterprises, LLC (“Tyche”) which was subsequently amended on March 31, 2013 and July 22, 2013. The Tyche Agreement provides for the purchase of the preferred membership interests that Tyche owns in certain subsidiaries of FSHA and FSA under a Membership Interest Purchase Agreement, dated July 17, 2007, between Tyche and Foundation Surgery Holdings, L.L.C. (“FSH”), Foundation Weightwise Holdings, L.L.C. (nka FSHA), Foundation Healthcare Affiliates, L.L.C. (“FHA”) as well as the right to various equity interest in the affiliates of FSH, FSA and FHA (collectively “Foundation”).

The transactions under the Tyche Agreement were closed on July 22, 2013. Under the Tyche Agreement, TSH purchased from Tyche (i) all of Tyche’s right, title and interest in the Membership Interest Purchase Agreement; (ii) all of Tyche’s right, title and interest in the preferred and common membership interest in FSH and the right to various equity interests in the affiliates of FSH; (iii) all of Tyche’s right, title and interest in the preferred and common membership interest in FSHA and the right to various equity interest in the affiliates of FSHA; and (iv) all of Tyche’s right, title and interest in any preferred or non-preferred ownership interest in any Foundation entities that have been acquired as a result of the Membership Interest Purchase Agreement.

Under the Tyche Agreement, TSH paid $11,102,372 in cash to Tyche and Tyche related entities and TSH issued promissory notes totaling $2,339,905 to Tyche and Tyche related entities for total consideration of $13,442,277. The promissory notes bear interest at annual rate of 11.5% and mature on August 1, 2013 with all principal and interest being due at that time. On August 1, 2013, we paid-off two of the promissory notes totaling $474,305. We are in the process of extending the terms on the remaining note in the amount of $1,865,600.

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As further consideration for the Tyche Agreement, the Company issued Tyche and certain Tyche related entities warrants for the purchase of the Company’s common stock. The warrants issued included:

• Five year warrants for the purchase of a total of 1,937,500 shares of our common stock at a strike price of $1.00 per share;

• Seven and one-half year warrants for the purchase of a total of 3,516,204 shares of our common stock at a strike price of $1.35 per share; and

• Ten year warrants for the purchase of a total of 2,296,296 shares of our common stock at a strike price of $1.60 per share.

Valliance Loan Agreement

On July 22, 2013, our subsidiary, FHE executed a loan agreement and a promissory note in the amount of $5,100,000 payable to Valliance Bank. The note bears interest at annual rate of 10% and FHE is required to make quarterly payments of interest beginning on October 15, 2013. FHE is required to make one principal payment of $728,571 on August 15, 2014. The note matures on July 22, 2015 at which time all outstanding principal and accrued interest is due. The proceeds of the note, net of a $100,000 loan origination fee, were used to help fund FHE’s purchase of the preferred interests of FHA and FSHA from Tyche. The loan agreement requires FHE to prepay a portion of the loan upon the completion of a sale of FSHA’s equity interest in a hospital located in Sherman, TX. The promissory note is secured by the Company’s equity interests in TSH Acquisition, LLC. Valliance Bank is controlled by Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates. Non-controlling interests in Valliance Bank are held by Mr. Stanton Nelson, the Company’s chief executive officer and Mr. Joseph Harroz, Jr., a director of the Company. Mr. Nelson and Mr. Harroz also serve as directors of Valliance Bank.

Financial Commitments

Our future commitments under contractual obligations by expected maturity date at September 30, 2013 are as follows:

	< 1 year		1-3 years		3-5 years		> 5 years		Total
Short-term debt (1)	$	7,577,651	$	—	$	—	$	—	$	7,577,651
Long-term debt (1)		9,506,113		9,991,156		68,487		—		19,565,756
Other current liability (2)		1,052,500		—		—		—		1,052,500
Operating leases		8,223,549		15,767,778		16,186,321		58,869,538		99,047,186
Liabilities from discontinued operations (3)		4,648,599		28,758		—		—		4,677,357
Total	$	31,008,412	$	25,787,692	$	16,254,808	$	58,869,538	$	131,920,450

(1) Includes principal and interest obligations.

(2) Represents operating lease allowance payment obligation

(3) Represents the debt principal and interest obligations and future minimum lease payments included in our discontinued operations.

CRITICAL ACCOUNTING POLICIES

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on management’s prudent judgments and estimates. Actual results may differ from these estimates. Management believes that any reasonable deviation from those judgments and estimates would not have a material impact on our consolidated financial position or results of operations. To the extent that the estimates used differ from actual results, however, adjustments to the statement of earnings and corresponding balance sheet accounts would be necessary. These adjustments would be made in future statements. For a complete discussion of all our significant accounting policies please see our 2012 annual report on Form 10-K and in the audited consolidated financial statements of FSA as filed in our Form 8-K on November 13. 2013. Some of the more significant estimates include revenue recognition, allowance for doubtful accounts, and goodwill and intangible asset impairment. We use the following methods to determine our estimates:

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Revenue recognition and accounts receivable – We recognize revenues in the period in which services are performed. Accounts receivable primarily consist of amounts due from third-party payors and patients. Our ability to collect outstanding receivables is critical to its results of operations and cash flows. Amounts we receives for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third-party payors such as health maintenance organizations, preferred provider organizations and other private insurers are generally less than our established billing rates. Additionally, to provide for accounts receivable that could become uncollectible in the future, we establish an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. Accordingly, the revenues and accounts receivable reported in our consolidated financial statements are recorded at the net amount expected to be received.

Contractual Discounts and Cost Report Settlements – We derive a significant portion of our revenues from Medicare, Medicaid and other payors that receive discounts from its established billing rates. We must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. We estimate the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from our estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in our consolidated statements of operations.

Cost report settlements under reimbursement agreements with Medicare and Medicaid are estimated and recorded in the period the related services are rendered and are adjusted in future periods as final settlements are determined. There is a reasonable possibility that recorded estimates will change by a material amount in the near term.

Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. We believe that we are in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on our financial statements. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties and exclusion from the Medicare and Medicaid programs.

Provision and Allowance for Doubtful Accounts – To provide for accounts receivable that could become uncollectible in the future; we establish an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The primary uncertainty lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients.

We have an established process to determine the adequacy of the allowance for doubtful accounts that relies on a number of analytical tools and benchmarks to arrive at a reasonable allowance. No single statistic or measurement determines the adequacy of the allowance for doubtful accounts. Some of the analytical tools that we utilizes include, but are not limited to, the aging of accounts receivable, historical cash collection experience, revenue trends by payor classification, revenue days in accounts receivable, the status of claims submitted to third party payors, reason codes for declined claims and an assessment of our ability to address the issue and resubmit the claim and whether a patient is on a payment plan and making payments consistent with that plan. Accounts receivable are written off after collection efforts have been followed in accordance with our policies.

Due to the nature of the healthcare industry and the reimbursement environment in which we operate, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available, which could have a material impact on our operating results and cash

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flows in subsequent periods. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

The patient and their third party insurance provider typically share in the payment for our services. The amount patients are responsible for includes co-payments, deductibles, and amounts not covered due to the provider being out-of-network. Due to uncertainties surrounding deductible levels and the number of out-of-network patients, we are not certain of the full amount of patient responsibility at the time of service. We estimate amounts due from patients prior to service and generally collects those amounts prior to service. Remaining amounts due from patients are then billed following completion of service.

Goodwill and Intangible Assets – We evaluates goodwill for impairment at least on an annual basis and more frequently if certain indicators are encountered. Goodwill is to be tested at the reporting unit level, defined as an ASC or hospital (referred to as a component), with the fair value of the reporting unit being compared to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired.

Intangible assets other than goodwill which include physician membership interests, service contracts and covenants not to compete are amortized over their estimated useful lives using the straight line method. The remaining lives range from five to seven years. We evaluate the recoverability of identifiable intangible asset whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable.

Issued Guidance

In February 2013, the FASB issued changes to the accounting for obligations resulting from joint and several liability arrangements. These changes require an entity to measure such obligations for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and (ii) any additional amount the reporting entity expects to pay on behalf of its co-obligors. An entity will also be required to disclose the nature and amount of the obligation as well as other information about those obligations. Examples of obligations subject to these requirements are debt arrangements and settled litigation and judicial rulings. These changes become effective for us on January 1, 2014. We have determined that the adoption of these changes will not have an impact on the consolidated financial statements, as we do not currently have any such arrangements.

Cautionary Statement Relating to Forward Looking Information

We have included some forward-looking statements in this section and other places in this report regarding our expectations. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, business plans or objectives, levels of activity, performance or achievements, or industry results, to be materially different from any future results, business plans or objectives, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Some of these forward-looking statements can be identified by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategies that involve risks and uncertainties. You should read statements that contain these words carefully because they

• discuss our future expectations;

• contain projections of our future operating results or of our future financial condition; or

• state other “forward-looking” information.

We believe it is important to discuss our expectations; however, it must be recognized that events may occur in the future over which we have no control and which we are not accurately able to predict. Readers are

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cautioned to consider the specific business risk factors described in this report and our Annual Report on Form 10-K and not to place undue reliance on the forward-looking statements contained in this report or our Annual Report, which speak only as of the date of this report or the date of our Annual Report. We undertake no obligation to publicly revise forward-looking statements to reflect events or circumstances that may arise after the date of this report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting entity as defined in Rule 12b-2 of the Exchange Act and as such, are not required to provide the information required by Item 305 of Regulation S-K with respect to Quantitative and Qualitative Disclosures about Market Risk.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management (with the participation of our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of September 30, 2013. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including the Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer concluded that these disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except as described below.

On July 22, 2013, we completed our acquisition of Foundation. As permitted by the Securities and Exchange Commission under the current year acquisition scope exception, we will exclude the Foundation acquisition from our 2013 assessment of the effectiveness of our internal control over financial reporting since it is not practicable for management to conduct an assessment of internal control over financial reporting between the acquisition date and the date of management’s assessment. However, we have extended our oversight and monitoring processes that support our internal control over financial reporting to include Foundation’s operations.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

In the normal course of business, we may become involved in litigation or in legal proceedings. We are not aware of any such litigation or legal proceedings, that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition and results of operations.

Item 1A. Risk Factors.

The material changes from the risk factors previously disclosed in our 2012 Annual Report on Form 10-K are as follows:

Our acquisition of Foundation may increase our risk of significant deficiencies or material weaknesses in our internal controls over financial reporting.

Foundation has not performed an assessment of the effectiveness of the design and operation of their internal control over financial reporting. In addition, Foundation has not historically prepared their financial statements under U.S. generally accepted accounting standards. Foundation is not required to be included in our assessment of internal controls for 2013 but will be included in our assessment for 2014, which may increase our risk for material weaknesses in our internal control over financial reporting.

We require a significant amount of cash flow from operations and third-party financing to pay our indebtedness, to execute our business plan and to fund our other liquidity needs.

We may not be able to generate sufficient cash flow from operations, and future borrowings may not be available to us under existing loan facilities or otherwise in an amount sufficient to pay our indebtedness, to execute our business plan or to fund our other liquidity needs. We anticipate the need for substantial cash flow to fund future acquisitions, which is our primary growth strategy. In addition, we intend to refinance some or all of our current indebtedness at or before maturity.

At September 30, 2013, we have a short-term debt obligation with Arvest Bank of $4.5 million that matures on December 31, 2013 which is included in current liabilities from discontinued operations in our consolidated financial statements. At September 30, 2013, we have short-term debt and current portion of long-term debt payable to Legacy Bank of $2.8 million and $5.0 million, respectively. In addition, at September 30, 2013, we have additional short-term debt and current portion of long-term debt owed to other financial institutions totaling $4.5 million and $3.1 million, respectively. Further details about this indebtedness can be found in the footnotes to our consolidated financial statements included elsewhere in this report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

At September 30, 2013, we had total liabilities of approximately $67.7 million. There is no assurance that our operating results will provide sufficient funding to pay our liabilities on a timely basis. There is no assurance that we will be able to refinance any of our current indebtedness on commercially reasonable terms or at all. Failure to generate or raise sufficient funds may require us to modify, delay or abandon some of our future business growth strategies or expenditure plans.

We cannot predict the effect that the Affordable Care Act and its implementation may have on our business, financial condition or results of operations.

The Affordable Care Act was signed into law, in two parts, on March 23, 2010 and March 30, 2010. The Affordable Care Act dramatically alters the U.S. healthcare system and is intended to decrease the number of uninsured Americans and reduce the overall cost of healthcare. The Affordable Care Act attempts to achieve these goals by, among other things, requiring most Americans to obtain health insurance, expanding Medicare and Medicaid eligibility, reducing Medicare and Medicaid DSH payments to providers, expanding the Medicare program’s use of value-based purchasing programs, tying hospital payments to the satisfaction of certain quality criteria, bundling payments to hospitals and other providers, and instituting certain private health insurance reforms.

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Although a majority of the measures contained in the Affordable Care Act do not take effect until late 2013 and 2014, certain of the reductions in Medicare spending, such as negative adjustments to the Medicare hospital inpatient and outpatient prospective payment system market basket updates and the incorporation of productivity adjustments to the Medicare program’s annual inflation updates, became effective in 2010, 2011 and 2012. Although the expansion of health insurance coverage should increase revenues from providing care to certain previously uninsured individuals, many of these provisions of the Affordable Care Act will not become effective until 2014 or later, and the impact of such expansion may be gradual and may not offset scheduled decreases in reimbursement.

On June 28, 2012, the U.S. Supreme Court upheld the constitutionality of the Affordable Care Act, including the “individual mandate” provisions of the Affordable Care Act that generally require all individuals to obtain healthcare insurance or pay a penalty. However, the U.S. Supreme Court also held that the provision of the Affordable Care Act that authorized the Secretary of HHS to penalize states that choose not to participate in the expansion of the Medicaid program by removing all of their existing Medicaid funding was unconstitutional. In response to the ruling, a number of U.S. governors, including those of some states in which we operate, have stated that they oppose their state’s participation in the expanded Medicaid program, which could result in the Affordable Care Act not providing coverage to some low-income persons in those states. In addition, several bills have been and may continue to be introduced in Congress to repeal or amend all or significant provisions of the Affordable Care Act.

The Affordable Care Act changes how healthcare services are covered, delivered, and reimbursed. The net effect of the Affordable Care Act on our business is subject to numerous variables, including the law’s complexity, lack of complete implementing regulations and interpretive guidance, gradual and potentially delayed implementation or possible amendment, as well as the uncertainty as to the extent to which states will choose to participate in the expanded Medicaid program. As a result, we are unable to predict the net effect on our business, financial condition or results of operations of the expected increases in insured individuals using our facilities, the reductions in government healthcare reimbursement spending, and numerous other provisions of the Affordable Care Act that may affect us. We are also unable to predict how providers, payors, employers and other market participants will respond to the various reform provisions because many provisions will not be implemented for several years under the Affordable Care Act’s implementation schedule. Further, we are unable to predict the outcome of new or remaining court challenges and the impact of continued legislative efforts to delay implementation of or amend the Affordable Care Act.

Our revenues will decline if federal or state programs reduce our Medicare or Medicaid payments or if managed care companies reduce reimbursement amounts. In addition, the financial condition of payors and healthcare cost containment initiatives may limit our revenues and profitability.

In 2012, we derived 27% % of our revenues from the Medicare and Medicaid programs, collectively. The Medicare and Medicaid programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations concerning patient eligibility requirements, funding levels and the method of calculating payments or reimbursements and requirements for utilization review, among other things, and federal and state funding restrictions, all of which could materially increase or decrease payments from these government programs in the future, as well as affect the timing of payments to our facilities.

We are unable to predict the effect of future government healthcare funding policy changes on our operations. If the rates paid by governmental payors are reduced, if the scope of services covered by governmental payors is limited or if we or one or more of our hospitals are excluded from participation in the Medicare or Medicaid program or any other government healthcare program, there could be a material adverse effect on our business, financial condition, results of operations or cash flows. In addition, revenues from HMOs, PPOs and other private payors are subject to contracts and other arrangements that require us to discount the amounts we customarily charge for healthcare services.

During the past several years, healthcare payors, such as federal and state governments, insurance companies and employers, have undertaken initiatives to revise payment methodologies and monitor healthcare costs. As part of their efforts to contain healthcare costs, payors increasingly are demanding discounted fee

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structures or the assumption by healthcare providers of all or a portion of the financial risk related to paying for care provided, often in exchange for exclusive or preferred participation in their benefit plans. Similarly, many individuals and employers have attempted to reduce their healthcare costs by moving to private payor plans that reimburse our facilities at significantly lower rate than other competing private payors. We expect efforts to impose greater discounts and more stringent cost controls by government and private payors to continue, thereby reducing the payments we receive for our services. In addition, payors have instituted policies and procedures to substantially reduce or limit the use of inpatient services. For example, CMS has transitioned to full implementation of the MS-DRG system, which represents a refinement to the existing diagnosis-related group system. Future realignments in the MS-DRG system could impact the margins we receive for certain services. Furthermore, the Affordable Care Act, the Tax Relief Act and the ATRA provide for material reductions in the growth of Medicare program spending, including reductions in Medicare market basket updates, and Medicare DSH funding.

All, but one, of our hospitals are certified as providers of Medicaid services. Medicaid programs are jointly funded by federal and state governments and are administered by states under an approved plan that provides hospital and other healthcare benefits to qualifying individuals who are unable to afford care. A number of states, however, are experiencing budget problems and have adopted or are considering legislation designed to reduce their Medicaid expenditures, including enrolling Medicaid recipients in managed care programs and imposing additional taxes on hospitals to help finance or expand such states’ Medicaid systems. It is possible that budgetary pressures will force states to resort to some of the cost saving measures mentioned above. These efforts could have a material adverse effect on our business, financial condition, results of operations or cash flows.

We are subject to increasingly stringent governmental regulation, and may be subjected to allegations that we have failed to comply with governmental regulations which could result in sanctions and even greater scrutiny that reduce our revenues and profitability.

All participants in the healthcare industry are required to comply with many laws and regulations at the federal, state and local government levels. These laws and regulations require that hospitals meet various requirements, including those relating to hospitals’ relationships with physicians and other referral sources, the adequacy and quality of medical care, inpatient admission criteria, privacy and security of health information, standards for equipment, personnel, operating policies and procedures, billing and cost reports, payment for services and supplies, maintenance of adequate records, compliance with building codes and environmental protection, among other matters. Many of the laws and regulations applicable to the healthcare industry are complex, and there are numerous enforcement authorities, including CMS, OIG, State Attorneys General, and contracted auditors, as well as whistleblowers. Some positions taken in connection with enforcement appear to be inconsistent with historical common practices within the industry but have not previously been challenged. Moreover, as a result of the provisions of the Affordable Care Act that created potential False Claims Act liabilities for failing to report and repay known overpayments and return an overpayment within sixty (60) days of the identification of the overpayment or the date by which a corresponding cost report is due, whichever is later, hospitals and other healthcare providers are encouraged to disclose potential violations of law.

Hospitals continue to be one of the primary focal areas of the OIG and other governmental fraud and abuse programs. In January 2005, the OIG issued Supplemental Compliance Program Guidance for Hospitals that focuses on hospital compliance risk areas. Some of the risk areas highlighted by the OIG include correct outpatient procedure coding, revising admission and discharge policies to reflect current CMS rules, submitting appropriate claims for supplemental payments such as pass-through costs and outlier payments and a general discussion of the fraud and abuse risks related to financial relationships with referral sources. Each FFY, the OIG also publishes a General Work Plan that provides a brief description of the activities that the OIG plans to initiate or continue with respect to the programs and operations of HHS and details the areas that the OIG believes are prone to fraud and abuse.

The laws and regulations with which we must comply are complex and subject to change. In the future, different interpretations or enforcement of these laws and regulations could subject our practices to allegations of impropriety or illegality or could require us to make changes in our facilities, equipment, personnel, services, capital expenditure programs and operating expenses. If we fail to comply with applicable laws and regulations, we could suffer civil or criminal penalties, including the loss of our licenses to operate our hospitals and our ability to participate in the Medicare, Medicaid and other federal and state healthcare programs.

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Finally, we are subject to various federal, state and local statutes and ordinances regulating the discharge of materials into the environment. Our healthcare operations generate medical waste, such as pharmaceuticals, biological materials and disposable medical instruments that must be disposed of in compliance with federal, state and local environmental laws, rules and regulations. Our operations are also subject to various other environmental laws, rules and regulations. Environmental regulations also may apply when we renovate or refurbish hospitals, particularly older facilities.

As a result of increased reviews of claims to Medicare and Medicaid for our services, we may incur additional costs and may be required to repay amounts already paid to us.

We are subject to regular post-payment inquiries, investigations and audits of the claims we submit to Medicare for payment for our services. These post-payment reviews are increasing as a result of government cost-containment initiatives, including enhanced medical necessity reviews for Medicare patients admitted as inpatients to general acute care hospitals for certain procedures (e.g., cardiovascular procedures) and audits of Medicare claims under the RAC programs. RACs utilize a post-payment targeted review process employing data analysis techniques in order to identify those Medicare claims most likely to contain overpayments, such as incorrectly coded services, short stays, incorrect payment amounts, non-covered services and duplicate payments. The claims review strategies used by the RACs generally include a review of high dollar claims, including inpatient hospital claims. As a result, a large majority of the total amounts recovered by RACs has come from hospitals. In addition, CMS has announced a pre-payment demonstration project that will allow RACs to review claims before they are paid to ensure that the provider complied with all Medicare payment rules. Under the demonstration project, RACs conduct prepayment reviews on certain types of claims that historically result in high rates of improper payments, beginning with those involving short stay inpatient hospital services. These reviews will focus on certain states with high populations of fraud and error-prone providers (including the state of Texas in which we operate) and other states high claims volumes of short inpatient hospital stays. The demonstration project began on August 27, 2012 and will run for a three year period.

The Affordable Care Act expanded the RAC program’s scope to include managed Medicare and to include Medicaid claims, and all states are now required to establish programs to contract with RACs. In addition, CMS employs Medicaid Integrity Contractors (“MICs”) to perform post-payment audits of Medicaid claims and identify overpayments. The Affordable Care Act increases federal funding for the MIC program for FFY 2011 and later years. In addition to RACs and MICs, the state Medicaid agencies and other contractors have also increased their review activities. Any such audit or investigation could have a material adverse effect on the results of our operations.

We may continue to see the growth of uninsured and “patient due” accounts, and deterioration in the collectability of these accounts could adversely affect our collections of accounts receivable, revenues, results of operations and cash flows.

The primary collection risks associated with our accounts receivable relate to the uninsured patient accounts and patient accounts for which the primary insurance carrier has paid the amounts covered by the applicable agreement, but patient responsibility amounts (deductibles and co-payments) remain outstanding. The provision for doubtful accounts relates primarily to amounts due directly from patients. This risk has increased, and will likely continue to increase, as more individuals enroll in high deductible insurance plans or those with high co-payments or who have no insurance coverage. These trends will likely be exacerbated if general economic conditions remain challenging or if unemployment levels in the communities in which we operate rise. As unemployment rates increase, our business strategies to generate organic growth and to improve admissions and adjusted admissions at our hospitals could become more difficult to accomplish.

The amount of our provision for doubtful accounts is based on our assessments of historical collection trends, business and economic conditions, trends in federal and state governmental and private employer health coverage and other collection indicators. A continuation in trends that results in increasing the proportion of accounts receivable being comprised of uninsured accounts and deterioration in the collectability of these accounts

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could adversely affect our collections of accounts receivable, results of operations and cash flows. As enacted, the Affordable Care Act seeks to decrease, over time, the number of uninsured individuals. Among other things, the Affordable Care Act will, beginning in 2014, incentivize states to expand their Medicaid eligibility requirements and incentivize employers to offer, and require individuals to carry, health insurance or be subject to penalties. However, it is difficult to predict the full impact of the Affordable Care Act due to its complexity, lack of implementing regulations and interpretive guidance, gradual and potentially delayed implementation, and possible amendment, as well as our inability to foresee how individuals, businesses and states will respond to the choices afforded them by the Affordable Care Act. In addition, even after implementation of the Affordable Care Act, we may continue to experience bad debts and be required to provide uninsured discounts and charity care for undocumented aliens who are not permitted to enroll in a health insurance exchange or government healthcare programs.

Controls designed to reduce inpatient services may reduce our revenues.

Controls imposed by Medicare, Medicaid, and commercial third-party payors designed to reduce admissions and lengths of stay, commonly referred to as “utilization review,” have affected and are expected to continue to affect our facilities. Federal law contains numerous provisions designed to ensure that services rendered by hospitals to Medicare and Medicaid patients meet professionally recognized standards and are medically necessary and that claims for reimbursement are properly filed. These provisions include a requirement that a sampling of admissions of Medicare and Medicaid patients must be reviewed by quality improvement organizations, which review the appropriateness of Medicare and Medicaid patient admissions and discharges, the quality of care provided, the validity of MS-DRG classifications and the appropriateness of cases of extraordinary length of stay or cost on a post-discharge basis. Quality improvement organizations may deny payment for services or assess fines and also have the authority to recommend to HHS that a provider which is in substantial noncompliance with the standards of the quality improvement organization be excluded from participation in the Medicare program. The Affordable Care Act potentially expands the use of prepayment review by Medicare contractors by eliminating statutory restrictions on their use, and, as a result, efforts to impose more stringent cost controls are expected to continue. Utilization review is also a requirement of most non-governmental managed care organizations and other third-party payors. Inpatient utilization, average lengths of stay and occupancy rates continue to be negatively affected by payor-required preadmission authorization and utilization review and by third party payor pressure to maximize outpatient and alternative healthcare delivery services for less acutely ill patients. Although we are unable to predict the effect these controls and changes will have on our operations, significant limits on the scope of services reimbursed and on reimbursement rates and fees could have a material, adverse effect on our business, financial position and results of operations.

We may be subjected to actions brought by the government under anti-fraud and abuse provisions or by individuals on the government’s behalf under the False Claims Act’s “qui tam” or “whistleblower” provisions.

The federal False Claims Act prohibits providers from, among other things, knowingly submitting false claims for payment to the federal government. The “qui tam” or “whistleblower” provisions of the False Claims Act allow private individuals to bring actions under the False Claims Act on behalf of the government. These private parties are entitled to share in any amounts recovered by the government, and, as a result, the number of “whistleblower” lawsuits that have been filed against providers has increased significantly in recent years. Defendants found to be liable under the federal False Claims Act may be required to pay three times the actual damages sustained by the government, plus mandatory civil penalties ranging between $5,500 and $11,000 for each separate false claim.

There are many potential bases for liability under the False Claims Act. The government has used the False Claims Act to prosecute Medicare and other government healthcare program fraud such as coding errors, billing for services not provided, submitting false cost reports, and providing care that is not medically necessary or that is substandard in quality. The Affordable Care Act also provides that claims submitted in connection with patient referrals that result from violations of the Anti-kickback Statute constitute false claims for the purposes of the federal False Claims Act, and some courts have held that a violation of the Stark law can result in False Claims Act liability, as well. In addition, a number of states have adopted their own false claims and whistleblower provisions whereby a private party may file a civil lawsuit in state court. We are required to provide information to our employees and certain contractors about state and federal false claims laws and whistleblower provisions and protections.

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Although we intend and will endeavor to conduct our business in compliance with all applicable federal and state fraud and abuse laws, many of these laws are broadly worded and may be interpreted or applied in ways that cannot be predicted. Therefore, we cannot assure you that our arrangements or business practices will not be subject to government scrutiny or be found to be in compliance with applicable fraud and abuse laws.

The industry trend towards value-based purchasing may negatively impact our revenues.

There is a trend in the healthcare industry toward value-based purchasing of healthcare services. These value-based purchasing programs include both public reporting of quality data and preventable adverse events tied to the quality and efficiency of care provided by facilities. Governmental programs including Medicare and Medicaid currently require hospitals to report certain quality data to receive full reimbursement updates. In addition, Medicare does not reimburse for care related to certain preventable adverse events. Many large commercial payors currently require hospitals to report quality data, and several commercial payors do not reimburse hospitals for certain preventable adverse events.

The Affordable Care Act contains a number of provisions intended to promote value-based purchasing. Effective July 1, 2011, the Affordable Care Act prohibits the use of federal funds under the Medicaid program to reimburse providers for medical assistance provided to treat HACs. Beginning in FFY 2015, hospitals that fall into the top 25% of national risk-adjusted HAC rates for all hospitals in the previous year will receive a 1% reduction in their total Medicare payments. Another provision reduces payments for all inpatient discharges for hospitals that experience excessive readmissions for certain conditions designated by HHS.

The Affordable Care Act also requires HHS to implement a value-based purchasing program for inpatient hospital services. The Affordable Care Act requires HHS to reduce inpatient hospital payments for all discharges by a percentage beginning at 1% in FFY 2013 and increasing by 0.25% each fiscal year up to 2% in FFY 2017 and subsequent years. HHS will pool the amount collected from these reductions to fund payments to reward hospitals that meet or exceed certain quality performance standards established by HHS. HHS will determine the amount each hospital that meets or exceeds the quality performance standards will receive from the pool of dollars created by these payment reductions.

We expect value-based purchasing programs, including programs that condition reimbursement on patient outcome measures, to become more common and to involve a higher percentage of reimbursement amounts. We are unable at this time to predict how this trend will affect our results of operations, but it could negatively impact our revenues.

The lingering effects of the economic recession could materially adversely affect our financial position, results of operations or cash flows.

The U.S. economy continues to experience the negative effects from an economic recession, and unemployment levels remain high. While certain healthcare spending is considered non-discretionary and may not be significantly impacted by economic downturns, other types of healthcare spending may be adversely impacted by such conditions. When patients are experiencing personal financial difficulties or have concerns about general economic conditions, they may choose:

• to defer or forego elective surgeries and other non-emergent procedures, which are generally more profitable lines of business for hospitals; or

• a high-deductible insurance plan or no insurance at all, which increases a hospitals dependence on self-pay revenue. Moreover, a greater number of uninsured patients may seek care in our emergency rooms.

We are unable to determine the specific impact of these economic conditions on our business at this time, but we believe that the lingering effects of the economic recession could have an adverse impact on our operations and could impact not only the healthcare decisions of our patients, but also the solvency of managed care providers and other counterparties to transactions with us.

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The failure of certain employers, or the closure of certain manufacturing and other facilities in our markets, can have a disproportionate impact on our hospitals.

The economies in the non-urban communities in which our hospitals primarily operate are often dependent on a small number of large employers, especially manufacturing or other facilities. These employers often provide income and health insurance for a disproportionately large number of community residents who may depend on our hospitals for care. The failure of one or more large employers, or the closure or substantial reduction in the number of individuals employed at manufacturing or other facilities located in or near many of the non-urban communities in which our hospitals primarily operate, could cause affected employees to move elsewhere for employment or lose insurance coverage that was otherwise available to them. The occurrence of these events may cause a material reduction in our revenues and results of operations or impede our business strategies intended to generate organic growth and improve operating results at our hospitals.

We may have difficulty acquiring hospitals on favorable terms.

One element of our business strategy is expansion through the acquisition of acute care hospitals primarily in non-urban markets. We face significant competition to acquire attractive hospitals, and we may not find suitable acquisitions on favorable terms. Our primary competitors for acquisitions have included for-profit and tax-exempt hospitals and hospital systems and privately capitalized start-up companies. Buyers with a strategic desire for any particular hospital, for example, a hospital located near existing hospitals or those who will realize economic synergies, have demonstrated an ability and willingness to pay premium prices for hospitals. Strategic buyers, as a result, can present a competitive barrier to our acquisition efforts.

Given the increasingly challenging regulatory and enforcement environment, our ability to acquire hospitals could be negatively impacted if targets are found to have material unresolved compliance issues. We may condition our purchase on the resolution of such issues by reporting or refunding amounts under the voluntary self-disclosure protocols. We could experience delays in closing or fail to close transactions with targets that initially were attractive but became unattractive as a result of a poor compliance program, material non-compliance with laws or failure to timely address compliance risks.

The cost of an acquisition could result in a dilutive effect on our results of operations, depending on various factors, including the amount paid for the acquisition, the acquired hospital’s results of operations, allocation of purchase price, effects of subsequent legislation and limitations on rate increases. In the past, we have occasionally experienced temporary delays in improving the operating margins or effectively integrating the operations of our acquired hospitals. In the future, if we are unable to improve the operating margins of acquired hospitals, operate them profitably or effectively integrate their operations, we may be unable to achieve our growth strategy.

Even if we are able to identify an attractive target, we may not be able to obtain financing, if necessary, for any acquisitions or joint ventures that we might make or may be required to borrow at higher rates and on less favorable terms. We may incur or assume additional indebtedness as a result of acquisitions. Our failure to acquire non-urban hospitals consistent with our growth plans could prevent us from increasing our revenues.

In recent years, the legislatures and attorneys general of several states have become more interested in sales of hospitals by tax-exempt entities. This heightened scrutiny may increase the cost and difficulty, or prevent the completion, of transactions with tax-exempt organizations in the future.

We may encounter difficulty operating, integrating and improving financial performance at acquired hospitals.

We may be unable to timely and effectively integrate any hospitals that we acquire with our ongoing operations. We may experience delays in implementing operating procedures and systems in newly acquired hospitals. Integrating an acquired hospital could be expensive and time consuming and could disrupt our ongoing business, negatively affect cash flow and distract management and other key personnel. In addition, acquisition

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activity requires transitions from, and the integration of, operations and, usually, information systems that are used by acquired hospitals. In addition, we may not be able to achieve improved financial performance at acquired hospitals within our targeted time frames, or continue to improve financial performance for sustained periods following the acquisition.

If we do not effectively attract, recruit and retain qualified physicians, our ability to deliver healthcare services efficiently will be adversely affected.

As a general matter, only physicians on our medical staffs may direct hospital admissions and the services ordered once a patient is admitted to a hospital. As a result, the success of our hospitals depends in part on the number and quality of the physicians on the medical staffs of our hospitals, the admitting practices of those physicians and maintaining good relations with those physicians.

The success of our efforts to recruit and retain quality physicians depends on several factors, including the actual and perceived quality of services provided by our hospitals, our ability to meet demands for new technology and our ability to identify and communicate with physicians who want to practice in non-urban communities. In particular, we face intense competition in the recruitment and retention of specialists because of the difficulty in convincing these individuals of the benefits of practicing or remaining in practice in non-urban communities. If the non-urban communities in which our hospitals primarily operate are not seen as attractive, then we could experience difficulty attracting and retaining physicians to practice in our communities. We may not be able to recruit all of the physicians we target. In addition, we may incur increased malpractice expense if the quality of physicians we recruit does not meet our expectations.

Additionally, our ability to recruit physicians is closely regulated. For example, the types, amount and duration of assistance we can provide to recruited physicians are limited by the Stark law, the Anti-kickback Statute, state anti-kickback statutes, and related regulations. For example, the Stark law requires, among other things, that recruitment assistance can only be provided to physicians who meet certain geographic and practice requirements, that the amount of assistance cannot be changed during the term of the recruitment agreement, and that the recruitment payments cannot generally benefit physicians currently in practice in the community beyond recruitment costs actually incurred by them. In addition to these legal requirements, there is competition from other communities and facilities for these physicians, and this competition continues after the physician is practicing in one of our communities.

Our hospitals face competition for staffing, which may increase labor costs and reduce profitability.

In addition to our physicians, the operations of our hospitals are dependent on the efforts, abilities and experience of our management and medical support personnel, such as nurses, pharmacists and lab technicians. We compete with other healthcare providers in recruiting and retaining qualified management and staff personnel responsible for the day-to-day operations of each of our hospitals, including nurses and other non-physician healthcare professionals. In some markets, the scarce availability of nurses and other medical support personnel presents a significant operating issue. This shortage may require us to enhance wages and benefits to recruit and retain nurses and other medical support personnel, recruit personnel from foreign countries, and hire more expensive temporary or contract personnel. In addition, the states in which we operate could adopt mandatory nurse-staffing ratios or could reduce mandatory nurse staffing ratios already in place. State-mandated nurse-staffing ratios could significantly affect labor costs and have an adverse impact on revenues if we are required to limit admissions in order to meet the required ratios. If our labor costs increase, we may not be able to raise rates to offset these increased costs. We also depend on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate. Because a significant percentage of our revenue consists of fixed, prospective payments, our ability to pass along increased labor costs is constrained. Our failure to recruit and retain qualified management, nurses and other medical support personnel or to control our labor costs could have a material adverse effect on our financial condition or results of operations.

The loss of certain physicians can have a disproportionate impact on certain of our hospitals.

Generally, the top ten attending physicians within each of our facilities represent a large share of our inpatient revenues and admissions. The loss of one or more of these physicians, even if temporary, could cause a material reduction in our revenues, which could take significant time to replace given the difficulty and cost associated with recruiting and retaining physicians.

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We are subject to risks associated with outsourcing functions to third parties.

To improve operating margins, productivity and efficiency, we outsource selected nonclinical business functions to third parties. We take steps to monitor and regulate the performance of independent third parties to whom the Company delegates selected functions, including revenue cycle management, patient access, billing, cash collections, payment compliance and support services, project implementation, supply chain management and payroll services.

Arrangements with third party service providers may make our operations vulnerable if vendors fail to satisfy their obligations to us as a result of their performance, changes in their own operations, financial condition, or other matters outside of our control. The expanding role of third party providers may also require changes to our existing operations and the adoption of new procedures and processes for retaining and managing these providers, as well as redistributing responsibilities as needed, in order to realize the potential productivity and operational efficiencies. Effective management, development and implementation of our outsourcing strategies are important to our business and strategy. If there are delays or difficulties in enhancing business processes or our third party providers do not perform as anticipated, we may not fully realize on a timely basis the anticipated economic and other benefits of the outsourcing projects or other relationships we enter into with key vendors, which could result in substantial costs, divert management’s attention from other strategic activities, negatively affect employee morale or create other operational or financial problems for us.

Terminating or transitioning arrangements with key vendors could result in additional costs and a risk of operational delays, potential errors and possible control issues as a result of the termination or during the transition phase.

If we fail to effectively and timely implement electronic health record systems, our operations could be adversely affected.

As required by ARRA, the Secretary of HHS has developed and implemented an incentive payment program for eligible hospitals and healthcare professionals that adopt and meaningfully use electronic health record (“EHR”) technology. HHS uses the Provider Enrollment, Chain and Ownership System (“PECOS”) to verify Medicare enrollment prior to making EHR incentive program payments. If our hospitals and employed professionals are unable to meet the requirements for participation in the incentive payment program, including having an enrollment record in PECOS, we will not be eligible to receive incentive payments that could offset some of the costs of implementing EHR systems. Further, beginning in FFY 2015, eligible hospitals and professionals that fail to demonstrate meaningful use of certified EHR technology will be subject to reduced payments from Medicare. System conversions to comply with EHR could be time consuming and disruptive for physicians and employees. Failure to implement EHR systems effectively and in a timely manner could have a material adverse effect on our financial position and results of operations.

We are in process of converting certain of our clinical and patient accounting information system applications to newer versions of existing applications or all together new applications at several of our facilities. In connection with our implementations and conversions, we have incurred significant capitalized costs and additional training and implementation expenses. In addition, EHR incentive payments previously recognized are subject to audit and potential recoupment if it is determined that we did not meet the applicable meaningful use standards required in connection with such incentive payments.

We are subject to potential legal and reputational risk as a result of our access to personal information of our patients.

There are numerous federal and state laws and regulations addressing patient and consumer privacy concerns, including unauthorized access to or theft of personal information. In the ordinary course of our business,

45

we, and vendors on our behalf, collect and store sensitive data, including personal health data and other personally identifiable information of our patients. The secure processing, maintenance and transmission of this information are critical to our operations and business strategy. We have developed a comprehensive set of policies and procedures in our efforts to comply with HIPAA and other privacy laws. The HHS Office for Civil Rights has imposed civil monetary penalties and corrective action plans on covered entities for violating HIPAA’s privacy rule. If, in spite of our compliance efforts we were to experience a breach, loss, or other compromise of such personal health information, such event could disrupt our operations, damage our reputation, result in regulatory penalties, legal claims and liability under HIPAA and other state and federal laws, which could have a material adverse effect on our business, financial condition and results of operations.

If we acquire hospitals with unknown or contingent liabilities, we could become liable for material obligations.

Businesses we have acquired, or businesses we may acquire may have unknown or contingent liabilities for past activities of acquired businesses, including liabilities for failure to comply with healthcare laws and regulations, medical and general professional liabilities, worker’s compensation liabilities, previous tax liabilities and unacceptable business practices. Although we endeavor to continue to obtain contractual indemnification from sellers covering these matters, any indemnification obtained from sellers may be insufficient to cover material claims or liabilities for past activities of acquired businesses.

Other hospitals and outpatient facilities provide services similar to those which we offer. In addition, physicians provide services in their offices that could be provided in our hospitals. These factors increase the level of competition we face and may therefore adversely affect our revenues, profitability and market share

Competition among hospitals and other healthcare service providers, including outpatient facilities, has intensified in recent years. We compete with other hospitals, including larger tertiary care centers located in larger metropolitan areas, and with physicians who provide services in their offices which could otherwise be provided in our hospitals. Although the hospitals with which we compete may be a significant distance away from our facilities, patients in our markets may migrate on their own to, may be referred by local physicians to, or may be encouraged by their health plan to travel to these hospitals. Furthermore, some of the hospitals with which we compete may offer more or different services than those available at our hospitals, may have more advanced equipment or may have a medical staff that is thought to be better qualified. Also, some of the hospitals that compete with our facilities are owned by tax-supported governmental agencies or not-for-profit entities supported by endowments and charitable contributions. These hospitals, in most instances, are also exempt from paying sales, property and income taxes.

Quality of care and value-based purchasing have also become significant trends and competitive factors in the healthcare industry. In 2005, CMS began making public performance data relating to ten quality measures that hospitals submit in connection with their Medicare reimbursement. Since that time, CMS has on several occasions increased the number of quality measures hospitals are required to report in order to receive the full IPPS and OPPS market basket updates. In addition, the Medicare program no longer reimburses hospitals for care relating to certain preventable adverse events, and many private healthcare payors have adopted similar policies. If the public performance data become a primary factor in where patients choose to receive care, and if competing hospitals have better results than our hospitals on those measures, we would expect that our patient volumes could decline.

We also face very significant and increasing competition from services offered by physicians (including physicians on our medical staffs) in their offices and from other specialized care providers, including outpatient surgery, oncology, physical therapy and diagnostic centers (including many in which physicians may have an ownership interest). Some of our hospitals have and will seek to develop outpatient facilities where necessary to compete effectively. However, to the extent that other providers are successful in developing outpatient facilities or physicians are able to offer additional, advanced services in their offices, our market share for these services will likely decrease in the future.

46

If we do not continually enhance our hospitals with the most recent technological advances in diagnostic and surgical equipment, our ability to maintain and expand our markets may be adversely affected.

Technological advances, including with respect to computer-assisted tomography scanner (CTs), magnetic resonance imaging (MRIs) and robotic surgery devices, continue to evolve. In addition, the manufacturers of such equipment often provide incentives to try to increase their sales, including providing favorable financing to higher credit risk organizations. In an effort to compete, we must continually assess our equipment needs and upgrade our equipment as a result of technological improvements. We believe that the direction of the patient flow correlates directly to the level and intensity of such diagnostic equipment.

We may be subject to liabilities because of malpractice and related legal claims brought against our hospitals. If we become subject to these claims, we could be required to pay significant damages, which may not be covered by insurance.

We may be subject to medical malpractice lawsuits and other legal actions arising out of the operations of our owned and leased hospitals and the activities of our employed physicians. These actions may involve large claims and significant defense costs. In an effort to resolve one or more of these matters, we may choose to negotiate a settlement. Amounts we pay to settle any of these matters may be material. We maintain professional and general liability insurance with unrelated commercial insurance carriers to provide for losses in excess of our deductible amount. Also, some of these claims could exceed the scope of the coverage in effect, or coverage of particular claims could be denied.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Foundation Transaction. On July 22, 2013, in connection with the Acquisition, we issued 114,500,000 shares of common stock to Foundation Healthcare Affiliates, LLC, which represents on a post-transaction basis, approximately 70% of our outstanding common stock. We issued these shares in consideration of the acquisition of the membership interests of Foundation Surgery Affiliates, LLC and Foundation Surgical Hospital Affiliates, LLC. No underwriters were involved.

Loan Participation. On July 22, 2013, in conjunction with the New Loan Agreement with Arvest Bank, we entered into a Participation Agreement with Arvest Bank in which we purchased a $6,000,000 participation in the New Note from Arvest Bank in exchange for 13,333,333 shares of the our common stock. No underwriters were involved.

Oliver Debt Conversion. On August 31, 2012, December 31, 2012, March 1, 2013, April 1, 2013 and July 22, 2013, the Company executed promissory notes with Mr. Roy T. Oliver in the amount of $1,184,808, $351,710, $485,082, $351,470 and $5,648,290, respectively, for a total of $8,021,360. We used the proceeds from the notes to fund our payment obligations to Arvest Bank. On July 22, 2013, we issued Mr. Oliver 17,970,295 shares of common stock for full satisfaction of the Oliver indebtedness including principal and accrued interest owed thereon of $114,263. No underwriters were involved.

Preferred Noncontrolling Interest Financing Transaction. From July 22, 2013 to October 2, 2013, we and FHE sold 87 FHE Units for total proceeds of $9,135,000. Each FHE Units is being offered at $105,000 and entitles the purchaser to one (1) Class B membership interest in FHE, valued at $100,000 and 10,000 shares of the Company’s common stock. We issued 870,000 shares of common stock to the purchasers of the FHE Units. In addition, the FHE Units are convertible into shares of our common stock at the option of the holder at a conversion price of $2.00 per share or currently 4,350,000 shares of our common stock. If all 152 FHE Units are issued, we would issue, in the aggregate 1,520,000 shares of restricted stock and the 152 FHE Units would be convertible for up to 7,600,000 shares of our common stock. No underwriters were involved.

Tyche Transaction. On July 22, 2013, in connection with the purchase of preferred noncontrolling interests from Tyche, we issued to Tyche and related entities the following warrants exercisable for our common stock: (i) five year warrants for the purchase of a total of 1,937,500 shares of our common stock at a strike price of $1.00 per share; (ii) seven and one-half year warrants for the purchase of a total of 3,516,204 shares of our common stock at a strike price of $1.35 per share; and (iii) ten year warrants for the purchase of a total of 2,296,296 shares of the Company’s common stock at a strike price of $1.60 per share. No underwriters were involved.

47

Professional Services. In October 2013, we issued 100,000 shares of our common stock as payment for professional services rendered by our former Chairman of the Board of Directors, Ms. Jamie Hopping. The professional services performed by Ms. Hopping were covered by her Chairman Agreement with us and were valued at $40,000. In October 2013, we issued 20,000 shares of our common stock to a professional services company as payment for services valued at $9,750.

Cashless Stock Grant Vesting. During August 2013, we acquired, by means of net share settlements, 4,062 shares of Graymark common stock, at a price of $0.36 per share, related to the vesting of an employee restricted stock award to satisfy withholding tax obligations. We do not have any on-going stock repurchase programs.

Item 3. Defaults Upon Senior Securities.

We do not have anything to report under this Item.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

We do not have anything to report under this Item.

Item 6. Exhibits.

(a) Exhibits:

Exhibit No.	Description
10.1	Amended and Restated Membership Interest Purchase Agreement, dated as of March 29, 2013, among Graymark Healthcare, Inc., TSH Acquisition, LLC and Foundation Healthcare Affiliates, LLC, is incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on April 2, 2013.
10.2	First Amendment to Amended and Restated Membership Interest Purchase Agreement, dated as of July 22, 2013 among Graymark Healthcare, Inc., TSH Acquisition, LLC and Foundation Healthcare Affiliates, LLC, is incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.
10.3	Promissory Note (Demand), dated July 22, 2013, in favor of Foundation Healthcare Affiliates, LLC, is incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.
10.4	Promissory Note, dated July 22, 2013, in favor of Roy T. Oliver, is incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.
10.5	Second Amended And Restated Loan Agreement, dated July 22, 2013, among SDC Holdings, LLC, ApothecaryRx, LLC, Graymark Healthcare, Inc., Stanton M. Nelson, and Arvest Bank, is incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.

48

10.6	Amended and Restated Promissory Note, dated July 22, 2013, made by SDC Holding, LLC and ApothecaryRx, LLC in favor of Arvest Bank, is incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.
10.7	Participation Agreement, dated July 22, 2013, between Graymark Healthcare, Inc. and Arvest Bank, is incorporated by reference to Exhibit 10.9 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.
10.8	Subscription Agreement, dated July 22, 2013, between Graymark Healthcare, Inc. and Arvest Bank, is incorporated by reference to Exhibit 10.10 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.
10.9	Loan Agreement, dated July 22, 2013, between Foundation Health Enterprises, LLC and Valliance Bank, is incorporated by reference to Exhibit 10.11 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.
10.10	Promissory Note, dated July 22, 2013, made by Foundation Health Enterprises, LLC in favor of Valliance Bank, is incorporated by reference to Exhibit 10.12 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.
10.11	Consent, Ratification, Acknowledgement and Amendment to Loan Documents Agreement, dated July 22, 2013, among Legacy Bank, Foundation Healthcare Affiliates, LLC, Graymark Healthcare, Inc., TSH Acquisition LLC, Foundation Surgery Affiliates, LLC, Foundation Surgical Hospital Affiliates, LLC and other indirect subsidiaries of the registrant, is incorporated by reference to Exhibit 10.13 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.
10.12	Asset Purchase Agreement, dated March 31, 2013, between Tyche Health Enterprises, LLC and TSH Acquisition, LLC, is incorporated by reference to Exhibit 10.14 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.
10.12.1	Letter Agreement, dated June 22, 2013, between Tyche Health Enterprises, LLC, TSH Acquisition, LLC and Graymark Healthcare, Inc, is incorporated by reference to Exhibit 10.14.1 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.
10.13	Form of Five Year Common Stock Purchase Warrant (1,937,500 shares of common stock at $1.00 exercise price), dated July 22, 2013, issued to Tyche Health Enterprises, LLC and THE Managers, LLC, is incorporated by reference to Exhibit 10.15 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.
10.14	Form of Seven Year Common Stock Purchase Warrant (2,296,296 shares of common stock at $1.35 exercise price), dated July 22, 2013, issued to Tyche Health Enterprises, LLC and THE Managers, LLC, is incorporated by reference to Exhibit 10.16 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.

49

10.15	Form of Ten Year Common Stock Purchase Warrant (1,937,500 shares of common stock at $1.60 exercise price), dated July 22, 2013, issued to Tyche Health Enterprises, LLC and THE Managers, LLC, is incorporated by reference to Exhibit 10.17 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.
10.16	Registration Rights Agreement, dated July 22, 2013, among Graymark Healthcare, Inc., Tyche Health Enterprises, LLC and THE Managers, LLC, is incorporated by reference to Exhibit 10.18 of the Registrant’s Current Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 14, 2013.
10.17	Indemnification Agreement with each of Thomas Michaud and Dr. Robert Moreno, is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on August 24, 2010.
10.18	Agreement of Sale and Purchase, dated August 30, 2013, among Foundation Surgical Hospital Affiliates, LLC, HCRI Texas Properties, Ltd. and Health Care REIT, Inc., is incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on September 6, 2013.
10.19	Agreement in Connection with Assignment and Assumption Agreement, dated August 30, 2013, among Foundation Surgical Hospital Affiliates, LLC and DOC-FSH El Paso Medical Center, LLC, is incorporated by reference to Exhibit 2.2 of the Registrant’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on September 6, 2013.
10.20+	Amended and Restated Master Lease by and between DOC-FSH El Paso Medical Center, LLC and East El Paso Physicians’ Medical Center, LLC, dated August 31, 2013.
10.20.1+	First Amendment to Amended and Restated Master Lease by and between DOC-FSH El Paso Medical Center, LLC and East El Paso Physicians’ Medical Center, LLC, dated September 25, 2013.
10.20.2+	Assignment and Assumption of Lease Agreement among El Paso Physicians’ Medical Center, LLC, EEPPMC Partners, LLC and DOC-FSH El Paso Medical Center, LLC, dated September 27, 2013.
10.21	Agreement of Sale and Purchase, dated September 30, 2013, among Graymark Healthcare, Inc., and Foundation Medical Center of Oklahoma City, LLC, is incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on October 4, 2013.
10.22	Agreement in Connection with Assignment and Assumption Agreement, dated September 30, 2013, among Graymark Healthcare, Inc., and DOC-Greymark HQ OKC MOB, LLC, is incorporated by reference to Exhibit 2.2 of the Registrant’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on October 4, 2013.
10.23+	Master Lease by and between DOC-Greymark HQ OKC MOB, LLC and Foundation Surgery Affiliates, LLC, dated September 30, 2013.
10.24+	Lease Agreement by and between Foundation Bariatric Real Estate of San Antonio, L.P. and Foundation Bariatric Hospital of San Antonio, L.L.C. dated December 1, 2005.
10.24.1+	Addendum to the Lease Agreement by and between Foundation Bariatric Real Estate of San Antonio, L.P. and Foundation Bariatric Hospital of San Antonio, L.P. dated February 19, 2007.

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10.24.2+	Second Addendum to the Lease Agreement by and between Foundation Bariatric Real Estate of San Antonio, L.L.L.P. and Foundation Bariatric Hospital of San Antonio, L.L.C. dated June 1, 2007.
10.24.3+	Third Amendment to the Lease Agreement by and between Foundation Bariatric Real Estate of San Antonio, L.L.L.P. and Foundation Bariatric Hospital of San Antonio, L.L.C. dated July 15, 2010.
10.25+	Lease Agreement by and between Foundation Bariatric Real Estate of Huebner, L.P. and Foundation Bariatric Hospital of San Antonio, L.P. dated October 11, 2006.
10.26+	Private Placement Memorandum of Foundation Health Enterprises LLC dated March 18, 2013.
10.27+	Promissory note, dated March 19, 2013, by Foundation Surgery Affiliates, LLC and East El Paso Physicians’ Medical Center LLC in favor of Legacy Bank.
10.28+	Promissory note (1 of 2), dated March 21, 2012, by East El Paso Physicians’ Medical Center LLC in favor of Legacy Bank.
10.29+	Promissory note (2 of 2), dated March 21, 2012, by East El Paso Physicians’ Medical Center LLC in favor of Legacy Bank.
10.30+	First Modification to Promissory Notes and to First Amended and Restated Loan and Security Agreement, dated June 28, 2013, between Foundation Bariatric Hospital of San Antonio, L.L.C. and Legacy Bank.
10.31+	Promissory Note (Note No. 2), dated September 7, 2010, by Foundation Bariatric Hospital of San Antonio, L.L.C. in favor of Legacy Bank.
10.32+	Second Amended and Restated Promissory Note (Note No. 1), dated July 5, 2013, by Foundation Surgery Affiliates, LLC, Foundation Surgery Holdings, LLC and Foundation Surgery Management, LLC in favor of Legacy Bank.
10.33+	Promissory Note (Note No. 3), dated December 30, 2011, by Foundation Surgery Affiliates, LLC, Foundation Surgery Holdings, LLC and Foundation Surgery Management, LLC in favor of Legacy Bank.
10.34+	Promissory Note, Change in Terms Agreement, dated September 6, 2006, by Foundation Surgical Hospital Affiliates, LLC in favor of Legacy Bank.
10.35+	Promissory Note, Deferral / Extension Agreement, dated October 25, 2013 by East El Paso Physicians’ Medical Center, LLC in favor of Legacy bank.
31.1+	Certification of Stanton Nelson, Chief Executive Officer of Registrant (furnished herewith).
31.2+	Certification of Mark R. Kidd, Chief Financial Officer of Registrant (furnished herewith).
31.3+	Certification of Grant A. Christianson, Chief Accounting Officer of Registrant (furnished herewith).

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32.1+	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 of Stanton Nelson, Chief Executive Officer of Registrant (furnished herewith).
32.2+	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 of Mark R. Kidd, Chief Financial Officer of Registrant (furnished herewith).
32.3+	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 of Grant A. Christianson, Chief Accounting Officer of Registrant (furnished herewith).
101. INS	XBRL Instance Document.
101. SCH	XBRL Taxonomy Extension Schema Document.
101. CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101. DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101. LAB	XBRL Taxonomy Extension Label Linkbase Document.
101. PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

+ Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GRAYMARK HEALTHCARE, INC.
	(Registrant)
	By:	/S/ STANTON NELSON
		Stanton Nelson
		Chief Executive Officer
		(Principal Executive Officer)
Date: November 20, 2013
	By:	/S/ MARK R. KIDD
		Mark R. Kidd
		Chief Financial Officer
		(Principal Financial Officer)
Date: November 20, 2013
	By:	/S/ GRANT A. CHRISTIANSON
		Grant A. Christianson
		Chief Accounting Officer
		(Principal Accounting Officer)
Date: November 20, 2013

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EX-10.20

Exhibit 10.20

AMENDED AND RESTATED

MASTER LEASE

by and between

DOC-FSH EL PASO MEDICAL CENTER, LLC,

as Landlord

and

EAST EL PASO PHYSICIANS’ MEDICAL CENTER, LLC,

as Tenant.

August 31, 2013

Article I LEASE OF PREMISES; POSSESSION	1
Section 1.1. Lease to Tenant	1
Section 1.2. Premises	2
Section 1.3. Term	2
Section 1.4. Rent	2
Section 1.5. Permitted Uses	2
Section 1.6. Delivery of Possession; Condition of Title	3
Article II COMMENCEMENT DATE; MORTGAGES	4
Section 2.1. Commencement Date	4
Section 2.2. Right to Mortgage	4
Article III USE AND QUIET ENJOYMENT OF PREMISES	4
Section 3.1. Use of Premises	4
Section 3.2. Quiet Enjoyment	4
Section 3.3. Compliance with Applicable Laws	4
Section 3.4. Nuisance and Waste Prohibited	4
Article IV RENT	5
Section 4.1. Base Rent	5
Section 4.2. Additional Rent	5
Section 4.3. Payment of Rent	5
Section 4.4. Net Lease; Rent Absolute	5
Section 4.5. First Month’s Rent	6
Article V TAXES AND ASSESSMENTS; UTILITIES	6
Section 5.1. Taxes and Assessments	6
Section 5.2. Utilities	6
Section 5.3. Other Charges	6
Article VI COVENANTS OF TENANT CONCERNING MAINTENANCE,	7
Section 6.1. Maintenance	7
Section 6.2. Alterations	7
Section 6.3. Landlord’s Non-liability; Indemnification of Landlord	8
Section 6.4. No Liens	9
Article VII RIGHT TO CONTEST	9
Article VIII DAMAGE OR DESTRUCTION BY FIRE OR OTHER CASUALTY	10
Article IX INSURANCE AND WAIVER OF SUBROGATION	10
Section 9.1. Property Insurance	10
Section 9.2. Liability and Other Insurance	10
Section 9.3. Additional Insurance	11
Section 9.4. Tenant’s Right to Insure; Waiver of Subrogation	11
Section 9.5. Insurance Company Rating Requirements	11
Article X EMINENT DOMAIN	11
Article XI ASSIGNMENT AND SUBLETTING	12

1

Article XII END OF TERM	13
Article XIII EVENTS OF DEFAULT; LANDLORD’S REMEDIES; EXPENSES OF ENFORCEMENT	13
Section 13.1. Events of Default	13
Section 13.2. Termination of Lease; Reletting	14
Section 13.3. Termination of Lease; Money Judgment	14
Section 13.4. Expenses of Enforcement	14
Section 13.5. Landlord’s Right to Cure	14
Section 13.6. Bankruptcy of Tenant.	14
Article XIV HOLDING OVER IN POSSESSION	17
Article XV MORTGAGES	17
Section 15.1. Subordination and Attornment	17
Section 15.2. No Personal Liability	18
Section 15.3. Notices to Mortgagee and Mortgagee Right to Cure	18
Section 15.4. Foreclosure; Deed in Lieu of Foreclosure	18
Section 15.5. Estoppel Certificates	18
Section 15.6. Mortgage and Other Obligations Binding on Tenant	19
Article XVI CERTAIN RIGHTS OF LANDLORD	19
Section 16.1. Right of Entry	19
Section 16.2. Sale or Transfer of Premises	19
Article XVII MISCELLANEOUS	20
Section 17.1. Effect of Payments by Tenant	20
Section 17.2. Waiver of Jury Trial	20
Section 17.3. No Joint Venture	20
Section 17.4. Effect of Waiver	20
Section 17.5. Real Estate Brokers	20
Section 17.6. Recitals	20
Section 17.7. Time of Essence	20
Section 17.8. Communications	20
Section 17.9. Successors and Assigns	21
Section 17.10. Severability	21
Section 17.11. Execution of Counterparts	21
Section 17.12. Entire Agreement	21
Section 17.13. Modification, Waiver and Termination	21
Section 17.14. Construction.	21
Section 17.15. Governing Law	22
Section 17.16. Medical Waste	22
Section 17.17. Limitation of Landlord’s Liability	22
Section 17.18. No Merger	23
Section 17.19. Guaranty	23
Section 17.20. Financial Statements	23

Exhibit A Legal Descriptions of the Premises

Exhibit B Title Matters

2

AMENDED AND RESTATED

MASTER LEASE

THIS AMENDED AND RESTATED MASTER LEASE (the “Lease”) dated as of August 31, 2013, by and between DOC-FSH EL PASO MEDICAL CENTER, LLC, a Wisconsin limited liability company (“Landlord”), and EAST EL PASO PHYSICIANS’ MEDICAL CENTER, LLC, a Texas limited liability company (“Tenant”).

WITNESSETH:

WHEREAS, as of the date hereof, Landlord has purchased from Health Care REIT, Inc. and HCRI Texas Properties, Ltd., the Property (as defined in Section 1.2);

WHEREAS, Health Care REIT, Inc. and HCRI Texas Properties, Ltd., as landlord, and Tenant entered into that certain Master Lease Agreement, dated January 1, 2008, for that certain surgical hospital (the “Hospital”) and that certain medical office (the “MOB”) building located on the Property, as amended (the “Original Lease”);

WHEREAS, in connection with the purchase of the Property, Landlord assumed all of Landlord’s obligations under the Original Lease;

WHEREAS, Landlord and Tenant have agreed to amend and restate the Original Lease by entering into two (2) separate amended and restated master leases, one (1) for the Hospital entered into by and between Landlord and Tenant, dated as of the date hereof (the “A/R Hospital Lease”), and this Lease for the MOB;

WHEREAS, Landlord and Tenant have agreed to amend and restate the Original Lease with respect to the MOB located on the Property on the terms and conditions set forth in this Lease; and

WHEREAS, the Tenant desires to lease from Landlord, and Landlord desires to lease to Tenant, the Premises (as defined in Section 1.2) on the terms and conditions set forth in this Lease.

NOW, THEREFORE, in consideration of the Premises and the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

ARTICLE I

LEASE OF PREMISES; POSSESSION

Section 1.1. Lease to Tenant. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises described in Section 1.2. below, for the Term provided for in Section 1.3. below, at the Rent provided for in Section 1.4. below, and under the other terms and conditions provided for in this Lease, including the following:

(i) Amendment and Restatement of Original Lease. This Lease, together with the A/R Hospital Lease, amends, restates, replaces and supersedes in its entirety the Original Lease, any other prior leases, and any and all amendments thereto.

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(ii) Subleases. Landlord and Tenant hereby acknowledge that the Premises, pursuant to the Original Lease, is encumbered by certain subleases in effect as of the date hereof and that this Lease is intended to be a master lease of the Premises. Tenant further acknowledges that it has reviewed the existing subleases and is fully aware of all the terms, conditions and provisions of such subleases. To the extent that the Premises, or any parts thereof, are subject to existing subleases, Landlord and Tenant hereby agree that for purposes of this Lease, Tenant’s right to occupancy of those parts of the Premises that are so encumbered shall be subordinate to the rights of the subtenants under the existing subleases until such time as the existing subleases expire or otherwise terminate. Tenant further agrees not to disturb the existing subtenants, provided that such subtenants are not in default under the terms of their subleases. Upon expiration or termination of an existing sublease, this Lease shall become the primary lease with respect to that part of the Premises previously encumbered by an existing sublease. Furthermore, notwithstanding Tenant’s rights under this Lease, Tenant shall not enter into any new lease or sublease, or modify or extend any existing sublease unless such new lease or sublease or modification or extension of any existing sublease contains a provision that subordinates, without condition or exception, such new lease or sublease or modification or extension to the lien of any mortgage, now or hereinafter in effect, as well as this Lease, provided, however, no consent or approval of Landlord is required or necessary to any such new lease, sublease, modification or extension.

Section 1.2. Premises. The “Premises” being leased under this Lease consist of the MOB containing approximately 49,848 square feet situated on certain real property owned by Landlord (the “Property”), as more particularly described on Exhibit A attached hereto and incorporated by reference herein, and includes all fixtures, equipment, appliances and other personal property attached or appurtenant to, located in or on, or used in connection with the ownership and operation of the Premises.

The Premises includes Tenant’s non-exclusive license to use the areas located adjacent to the Premises designated by Landlord from time to time as being available for the common use by Landlord and tenants and occupants of the Premises, including the access drives, parking lot and landscaped areas adjacent to the Premises for parking, ingress and egress (the “Common Areas”), subject to the non-exclusive rights of Landlord and other tenants and occupants to use such Common Areas, and rules and regulations imposed by Landlord from time to time relating to the Common Areas. The parking lot and landscaped areas adjacent to the Premises shall be used for parking, ingress and egress purposes, maintenance and all other purposes required of Tenant hereunder.

Section 1.3. Term. The term of this Lease shall be a period of five (5) years commencing as of the Commencement Date (as defined in Section 2.1.) (the “Term”), subject to earlier termination as provided herein.

Section 1.4. Rent. The “Rent” payable by the Tenant under this Lease shall consist of the Base Rent provided for in Section 4.1. hereof and the Additional Rent provided for in Section 4.2. hereof.

Section 1.5. Permitted Uses. Tenant may use the Premises for medical office and healthcare related uses (the “Permitted Uses”). In the event that Tenant desires to use the Premises for purposes other than medical office and healthcare related uses, Tenant shall obtain

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Landlord’s and Landlord’s Mortgagee’s (as “Landlord’s Mortgagee” is hereinafter defined) prior written consent, which consent may not be unreasonably withheld, conditioned or delayed by Landlord or Landlord’s Mortgagee.

Section 1.6. Delivery of Possession; Condition of Title. Landlord has good and marketable title to the Premises. Tenant acknowledges and agrees that it has, at all times, been in possession and occupancy of the Premises pursuant to the terms and conditions of the Original Lease and therefore, has full and complete knowledge of and responsibility for all conditions of the Premises, including, without limitation, the physical condition of the Premises and the Property, and the subleases described in Section 1.1(ii) affecting the Premises. Accordingly, subject to Section 1.1. above, Landlord has delivered actual and exclusive possession of the Premises to Tenant on the Commencement Date (as hereafter defined) in an “as is, where is” condition without representation or warranty. Tenant acknowledges that Landlord’s title to the Premises is subject to the matters set forth in Exhibit C attached to this Lease, each of which has been examined by and is acceptable to Tenant (the “Title Matters”). Except as agreed by Landlord and Tenant in writing, Tenant agrees to timely comply with any requirements contained in the Title Matters to the extent such matters are applicable to Landlord. Furthermore, the Premises are leased to Tenant in an “as is, where is” condition without representation or warranty by Landlord, subject to any state of facts which an accurate physical inspection might reveal and to all applicable laws now or hereafter in effect. Tenant waives any claim or action against Landlord in respect of the condition of the Premises. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE PREMISES OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, SUITABILITY, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE PREMISES HAS BEEN INSPECTED BY TENANT AND IS SATISFACTORY TO IT. LANDLORD HEREBY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE RELATIVE TO THE PREMISES OR ANY COMPONENT PART THEREOF. Tenant acknowledges and agrees that no representations or warranties, express or implied, have been made by Landlord, or by any person, firm or agent acting or purporting to act on behalf of Landlord, as to (i) the presence or absence on or in the Premises of any particular materials or substances (including, without limitation, asbestos, hydrocarbons or hazardous or toxic substances), (ii) the condition or repair of the Premises or any portion thereof, (iii) the value, expense of operation or income potential of the Premises, (iv) the accuracy or completeness of any structural reports, environmental audits or other information provided to Tenant by any third party contractor relative to the Premises (regardless of whether the same were retained or paid for by Landlord), or (v) any other fact or condition which has or might affect the Premises or the condition, repair, value, expense of operation or income potential thereof. Tenant represents that the officers of Tenant are knowledgeable and experienced in the leasing of properties comparable to the Premises and agrees that Tenant will be relying solely on Tenant’s inspections of the Premises in leasing the Premises. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION BY LANDLORD OF, AND LANDLORD DOES HEREBY DISCLAIM, ANY AND ALL WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO THE PREMISES OR ANY PORTION THEREOF, WHETHER ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR OTHERWISE, AND TENANT HEREBY ACKNOWLEDGES AND ACCEPTS SUCH EXCLUSION, NEGATION AND DISCLAIMER.

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ARTICLE II

COMMENCEMENT DATE; MORTGAGES

Section 2.1. Commencement Date. The “Commencement Date” of this Lease shall be the date of this Lease set forth above. Upon the Commencement Date, Tenant shall have the right to occupy the Premises and any part thereof, subject to the terms and conditions of this Lease.

Section 2.2. Right to Mortgage Property. Landlord and Tenant acknowledge that Landlord shall have the right to and may, from time to time, encumber the Property with a mortgage or deed of trust (a “Mortgage”) as security for a loan (a “Loan”) to Landlord or Landlord’s affiliates by a lender (which, together with its successors and assigns, and any future provider of Mortgage Debt (as defined herein), is referred to herein as the “Landlord’s Mortgagee”), subject to the provisions of Article XV herein. As used herein, the term “Mortgage Debt” shall refer to the Loan from the Landlord’s Mortgagee and any future loan or financing entered into by the Landlord.

ARTICLE III

USE AND QUIET ENJOYMENT OF PREMISES

Section 3.1. Use of Premises. Tenant shall use the Premises solely for the Permitted Uses. No use shall be made or permitted to be made of the Premises, or acts done, that will cause a cancellation of any insurance policy covering the Premises, or any part thereof.

Section 3.2. Quiet Enjoyment. Landlord agrees that unless an Event of Default (as defined in Section 13.1. hereof) has occurred and is continuing, Tenant shall have quiet and peaceable possession of the Premises throughout the Term, without hindrance by Landlord or any persons claiming under Landlord, subject only to (i) this Lease, (ii) any Mortgage or other security device serving at any time a similar function, together with any and all amendments and supplements thereto upon or affecting the Premises and the Property, (iii) Landlord’s right to show the Premises, without material interference with Tenant’s use of the Premises, at any time to prospective purchasers and mortgagees of the Premises, and during the last eighteen (18) months of the Term, to prospective tenants of the Premises; and (iv) the Title Matters.

Section 3.3. Compliance with Applicable Laws. Tenant shall, at its sole cost and expense, comply with all applicable laws, ordinances, rules, regulations, directives and requirements (including those relating to environmental hazardous, toxic or regulated substances or materials whether or not such substances or materials existed on or in the Premises prior to the Commencement Date) relating to the Premises and/or Tenant’s activities on or about the Premises, and with all orders of court and all other tribunals and governmental or quasi-governmental departments, agencies and authorities relating to the Premises and/or Tenant’s activities on or about the Premises, and with all recorded covenants, conditions and restrictions relating to the Premises (including, but not limited to, the Title Matters) (hereinafter collectively referred to as “Legal Requirements”).

Section 3.4. Nuisance and Waste Prohibited. Tenant shall keep and maintain the Premises and abutting grounds, sidewalks, roads, parking and landscaped areas in good and neat order and repair and free of nuisance, and shall not commit or suffer to be committed any waste of the Premises.

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ARTICLE IV

RENT

Section 4.1. Base Rent. Commencing upon the Commencement Date, Tenant shall pay to Landlord “Base Rent” for the first year of the Term an annual amount equal to Five Hundred Seventy-Four Thousand Ninety-Eight and 00/100 Dollars ($574,098.00), payable in equal monthly installments of Forty-Seven Thousand Eight Hundred Forty-One and 50/100 Dollars ($47,841.50). On the first anniversary date of the Commencement Date, and on each anniversary date of the Commencement Date thereafter, the annual Base Rent shall be increased by three percent (3.0%).

Section 4.2. Additional Rent. In addition to paying the Base Rent provided for in Section 4.1. hereof, Tenant shall pay, during the Term of this Lease, as the same may be extended or renewed from time to time, any Additional Rent due hereunder, if any.

As used herein, the term “Additional Rent” shall mean all sums payable by Tenant under this Lease other than Base Rent, if any. Whenever the word “Rent” is used in this Lease it shall be deemed to include Base Rent and Additional Rent, unless the context specifically or clearly implies that only the Base Rent is referenced. All remedies available to Landlord pursuant to the terms of this Lease for non-payment of Base Rent shall be applicable for non-payment of Additional Rent.

Section 4.3. Payment of Rent. The Rent shall be paid by Tenant to Landlord or as directed by Landlord in writing. Tenant shall pay the Base Rent in advance on or before the first (1^st) day of each month during the Term hereof. All Additional Rent shall be paid by Tenant when due or if payable to Landlord shall be payable within twenty (20) days after written demand therefor. All amounts to be paid to Landlord under this Lease shall be paid to Landlord at the address set forth in Section 17.8. hereof or at such other address as Landlord shall designate in writing from time to time. Past due Rent payments shall be deemed involuntary extensions of credit by Landlord and, commencing on the second failure to pay timely Rent in any consecutive twelve (12) month period, such past due Rent shall be subject to default interest rate penalties at an annual rate equal to the lesser of the prime rate as reported from time to time in The Wall Street Journal plus three percent (3%) or the highest rate allowed by applicable law (“Interest Rate”).

Section 4.4. Net Lease; Triple Net Rent. This Lease is and shall be a triple net type lease, and Landlord is not nor shall it be required to provide any services or do any act or thing with respect to the Premises except as specifically provided herein. Except as otherwise expressly provided in this Lease, all obligations of Tenant under this Lease for the payment of Rent and all other sums payable under the Lease and all obligations of Tenant to perform its obligations under this Lease shall constitute independent obligations of Tenant and shall be paid and performed by Tenant without abatement, deduction, counterclaim, recoupment, suspension, deferment, diminution, deduction, reduction, defense or setoff whatsoever and shall, to the extent not satisfied, survive the termination of this Lease. Except as otherwise expressly provided in this Lease, (i) this Lease shall not terminate, and Tenant shall not have any right to terminate this Lease, during the Term, and (ii) Tenant’s obligation to pay the Rent and to perform its obligations

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is absolute and unconditional and shall survive and not be limited, abated or otherwise affected by any occurrence, event or circumstance whatsoever, including, without limitation, any of the following: expiration or termination of this Lease for whatever reason, any partial or complete destruction from whatever cause; any constructive or actual eviction or dispossession of Tenant from the Premises for failure to pay Rent, or the failure or inability of the Tenant to use, occupy or enjoy the same; any foreclosure of any Mortgage Debt or other lien with respect to the Premises for failure to pay Rent; any sale of all or part of the Premises as long as the Lease remains in full force and effect; any bankruptcy or insolvency of Landlord; any action or non-action by Landlord or any other person with respect to Tenant or the Premises as long as the Lease remains in full force and effect.

Section 4.5. First Month’s Rent. Simultaneously with the execution and delivery of this Lease by Tenant to Landlord, Tenant shall pay to Landlord an amount equal to the first month’s Base Rent. Landlord shall apply the first month’s Base Rent to Tenant’s Base Rent obligations on the Commencement Date.

ARTICLE V

TAXES AND ASSESSMENTS; UTILITIES

Section 5.1. Taxes and Assessments. Tenant shall pay directly to the appropriate governmental entities on or before the due date thereof, all taxes, levies, fees, assessments and other governmental charges of every kind and nature (including, without limitation, real property, ad valorem, personal property, gross income, franchise, withholding, profits, rent, single business, value added, excise, occupancy, use, impact fees, sales and gross receipts taxes) (collectively, “Impositions”) levied upon the Premises or personal property located at or used in connection with operating the Premises whether the same shall become due and payable before, or after, and during any tax assessment year or period which is within or partially within, the Term, including all Impositions which may be partially within the Term, including all Impositions which may be assessed, levied or imposed in replacement of, or in addition to, all or any part of same, whether or not measured, calculated by or based upon the Premises or any estate or interest in the Premises or the revenue or income generated by the Premises, regardless of the time at which, or period for which, such Impositions are assessed or charged or the time that such Impositions become a lien against the Premises. Upon receipt of written request by Landlord or Landlord’s Mortgagee, Tenant shall provide proof of payment of Impositions.

Section 5.2. Utilities. Tenant shall be responsible for supplying all Utilities and for the cost of all Utilities for the Premises, including, without limitation, electricity, gas, water and sewer, telephone and all other communication services, and Landlord shall have no obligations for Utilities whatsoever. Tenant shall cause all such utility services to the Premises to be metered in its own name or in the name of its subtenants and shall pay or cause to be paid all charges and deposits for such utilities. Tenant shall use utilities only within the capacity of the circuits in the Premises. Landlord shall not be liable for damages resulting from utility interruptions caused by casualty, accident, labor dispute or any other cause (other than Landlord’s gross negligence or intentional misconduct), nor shall any interruptions be deemed an actual or constructive or partial eviction or result in any abatement of Rent.

Section 5.3. Other Charges. Tenant shall be responsible for all charges and/or taxes related to any easement or similar agreements, general and special assessments, condominium assessments and fees, levies, fees, vault charges, permits, inspection and license fees affecting the Premises.

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ARTICLE VI

COVENANTS OF TENANT CONCERNING MAINTENANCE,

INDEMNIFICATION AND OTHER MATTERS

Section 6.1. Maintenance. Tenant shall maintain, and make all repairs, alterations and replacements (including, without limitation, all ordinary, extraordinary, foreseen and unforeseen repairs, alterations and replacements) necessary to operate and maintain the entire Premises in good condition and repair and in compliance with all applicable laws, ordinances, rules and regulations and any recorded covenants, conditions or restrictions relating to the Premises, and shall surrender the Premises when required by this Lease in good condition, reasonable use and wear excepted.

Landlord and Tenant hereby acknowledge and agree that Tenant, as tenant under this Lease and as tenant under the new A/R Hospital Lease, shall be responsible for the maintenance, repair and replacement of the Common Areas on the Property and shall coordinate such responsibilities for the Term of this Lease.

Additionally, Landlord and Tenant hereby acknowledge receipt of that certain Property Condition Report prepared by ADAMS Management Services Corporation, dated August 19, 2013 (the “Property Condition Report”). Landlord and Tenant shall review on an annual basis the “Deferred Maintenance Items” set forth in the Property Condition Report and shall reasonably and mutually agree upon those Deferred Maintenance Items that Tenant shall perform and the times upon which Tenant shall complete such Deferred Maintenance Items. In the event that Tenant fails to complete such agreed upon Deferred Maintenance Items within the agreed upon times, then, upon thirty (30) days written notice to Tenant, Landlord may perform such agreed upon Deferred Maintenance Items and all costs so incurred by Landlord shall be paid by Tenant as Additional Rent utilizing a capitalization rate of ten percent (10%) over the remaining Term of the Lease.

Section 6.2. Alterations. Subject to the requirements of Article IX below and any insurers providing insurance coverage thereto, Tenant may make, at its sole cost and expense, such alterations, improvements and additions of any kind to the Premises (collectively referred to herein as the “Alterations”) as Tenant deems desirable in the conduct of its business provided that such Alterations: (a) do not reduce, diminish or otherwise adversely affect the fair market value or utility of the Premises, or any part thereof; (b) do not reduce, diminish or otherwise adversely affect the useful life of the Premises, or any part thereof; and/or (c) do not change the general character or use of the Premises or any part thereof. All alterations, improvements, expansions and additions to the Premises, or any part thereof, shall be made in a good and workmanlike manner and in compliance with applicable laws, ordinances, rules, regulations, codes and requirements and any recorded covenants, conditions or restrictions relating to the Premises, or any part thereof. All alterations, improvements, expansions and additions which are not movable trade fixtures shall be the property of Landlord and shall remain upon and be surrendered with the Premises. To the extent such Alterations involve changes to the structure or systems of the Premises, as reasonably determined by Tenant’s architect or engineer, Tenant shall furnish to Landlord, prior to the commencement of construction, the proposed plans and specifications for Landlord’s approval, which approval shall not be unreasonably withheld, conditioned or delayed, and upon completion of construction, “as-built” plans and specifications for such Alterations. Landlord shall provide Tenant with its objections, in writing, to Tenant’s proposed plans and specifications within fifteen (15) days after receipt from Tenant. Tenant shall

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submit revised plans and specifications until such time as Landlord has approved Tenant’s proposed plans and specifications for such Alterations. If Landlord fails to object, in writing, to Tenant’s proposed plans and specifications within fifteen (15) days after receipt from Tenant, Landlord shall be deemed to have approved such proposed plans and specifications.

Section 6.3. Landlord’s Non-liability; Indemnification of Landlord. Landlord shall not be liable for any loss, damage or injury of any kind or character to any person or property, arising from any use of the Premises, or any part thereof, or caused by any defect in any improvements located on the Premises, or any part thereof, or in any equipment or other facility therein, or caused by or arising from any act or omission of Tenant, or of any subtenants, agents, employees, contractors, subcontractors, licensees, or invitees of Tenant, or arising out of any work or Alterations performed by Tenant or any subtenant, or by or from any accident on the Premises, or any part thereof, or any fire or other casualty thereon, or occasioned by the failure of Tenant to maintain the Premises, or any part thereof, in safe condition, or arising from any other cause whatsoever. Tenant, as a material part of the consideration of this Lease, hereby waives on its behalf all claims and demands against Landlord for any such loss, damage or injury of Tenant, and hereby agrees to indemnify and hold Landlord entirely free and harmless from all liability for any such loss, damage or injury of Tenant, and hereby agrees to indemnify and hold Landlord entirely free and harmless from all liability for any such loss, damage or injury of all other persons, and from all costs and expenses arising therefrom (including reasonable attorneys’ fees and expenses), unless such loss, damage or injury is caused by the gross negligence of Landlord or intentional acts of Landlord. Tenant agrees to pay, and to protect, indemnify, and save harmless Landlord from and against any and all liabilities, losses, damages, costs, expenses (including reasonable attorneys’ fees and expenses), causes of action, suits, claims, demands, or judgments of any nature whatsoever arising from (i) any injury to or the death of, any person, or damage to property, in, on or about the Premises, or any part thereof, or upon adjoining public sidewalks, streets, or ways, or in any manner growing out of or connected with the use, nonuse, condition, or occupation of the Premises, or any part thereof, or resulting from the condition thereof or of adjoining public sidewalks, streets or ways; (ii) violation by Tenant of any agreement or condition of this Lease; (iii) violation by Tenant of any contract or agreement to which Tenant is a party or of any restriction, statute, law, ordinance, or regulation, in each case affecting the Premises, or any part thereof, or the ownership, occupancy or use thereof; and (iv) (1) the presence of any “Hazardous Material” (as defined below) on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or release of any Hazardous Material from, the Premises or any part thereof, (2) any liens against the Premises, or any part thereof, permitted or imposed by any Environmental Laws (as defined below), or any actual or asserted liability or obligations of Landlord or any of its affiliates or subsidiaries under any Environmental Laws, and (3) any actual or asserted liability or obligations of Tenant or any of its affiliates or subsidiaries under any Environmental Laws; provided however, Tenant shall not be responsible for indemnifying Landlord for any of the foregoing matters caused solely by Landlord’s gross negligence or intentional misconduct. Tenant hereby acknowledges and agrees that Tenant was the tenant under the Original Lease for the Premises. Tenant further agrees that the terms and conditions of this Section 6.3. shall apply to any and all matters under the Original Lease notwithstanding that such matters may have occurred or arisen prior to the date of this Lease or during the term of this Lease. Landlord, as used in this Section 6.3., shall include any beneficiary of any trust or any agent, employee, or representative of Landlord or any trustee and the Landlord’s Mortgagee and their shareholders, directors, officers, employees, agents, representatives, members and partners. Any indemnification under this Section 6.3. shall constitute Additional Rent payable within twenty (20) days of demand and shall survive the termination or expiration of this Lease, including without limitation, the termination or rejection of this Lease in bankruptcy. Provided, however, for any obligation of Tenant to defend Landlord hereunder, Tenant shall have the right to select the attorneys to defend Landlord, then and in that event, Tenant shall not be liable for any attorneys’ fees of Landlord other than those of counsel selected to defend Landlord.

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For purposes of this Lease, the following terms shall have the following respective meanings:

(i) “Hazardous Material” means any hazardous substance or any pollutant or contaminant defined as such in (or for purposes of) the Comprehensive Environmental Response, Compensation, and Liability Act, any so-called “Superfund” or “Superlien” law, The Toxic Substances Control Act, or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree, now or hereafter in force, regulating, relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material; asbestos or any substance or compound containing asbestos; polychlorinated biphenyls or any substance or compound containing any polychlorinated biphenyl; petroleum and petroleum products; pesticides; and any other hazardous, toxic or dangerous waste, substance or material.

(ii) “Environmental Laws” means the Comprehensive Environmental Response, Compensation, and Liability Act, any so-called “Superfund” or “Superlien” law, the Toxic Substances Control Act, or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree, now or hereafter in force, regulating, relating to, or imposing liability or standards of conduct concerning any Hazardous Material.

Section 6.4. No Liens. Tenant shall not create or suffer to be created or to remain, directly or indirectly, and will discharge or promptly cause to be discharged, or file a bond or otherwise, any lien, charge or encumbrance on, all or any part of the Premises (each an “Encumbrance”), including, without limitation, any mechanic’s, materialmen’s, contractor’s or subcontractor’s liens arising from or any claim for damage growing out of any Alterations, construction, repair, restoration, replacement or improvement related to the Premises caused by Tenant. Tenant shall have the right to contest any such mechanics lien, materialmen’s lien or other lien. If Tenant fails to remove or bond over any such Encumbrance within thirty (30) days after written notice thereof from Landlord, Landlord may, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or otherwise, or bond over, without any investigation or contest of the validity thereof, and any amounts expended by Landlord in so doing, including costs, expenses and reasonable attorneys’ fees, shall constitute Additional Rent payable within twenty (20) days of demand and shall survive the termination of this Lease.

ARTICLE VII

RIGHT TO CONTEST

Landlord shall have the right to contest all Impositions at Landlord’s sole cost and expense. Landlord shall give notice to Tenant of Landlord’s contest to any Impositions. Landlord agrees that each such contest shall be promptly prosecuted to its final conclusion, except to the extent deemed commercially unreasonable by Landlord, in Landlord’s sole discretion. Landlord shall give notice to Tenant of any increases in Impositions, and in the event Landlord elects not to contest any Impositions, then and in that event, Tenant shall have the right to contest such Impositions. If Landlord elects to not contest such Impositions, Tenant shall have the right to contest any Impositions upon written notice to Landlord. Tenant agrees that each such contest

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shall be promptly prosecuted to a final conclusion. If necessary in the prosecution of any such contest, Landlord shall join with Tenant as a party to such contest, and Tenant shall pay, and save Landlord and Landlord’s Mortgagee, if any, harmless against, any and all losses, judgments, decrease and costs (including reasonable attorneys’ fees and expenses) in connection with any such contest and shall, promptly after the final settlement, compromise, or determination of such contest, fully pay and discharge the amounts that shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, and perform all acts, the performance of which shall be ordered or decreed as a result thereof. No such contest shall subject Landlord to the risk of any civil or criminal liability.

ARTICLE VIII

DAMAGE OR DESTRUCTION BY FIRE OR OTHER CASUALTY

If, during the Term, the Premises is partially or totally damaged or destroyed by fire or other casualty, Tenant shall, at its sole cost and expense, repair and restore the Premises as speedily as possible, to the value, character and condition existing prior to such damage or destruction in accordance with the provisions of this Lease applicable to maintenance and repair, alterations and restoration. If the insurance proceeds resulting from such fire or other casualty are payable to the Landlord’s Mortgagee or the holder of any future Mortgage Debt, then the obligation of Tenant to so repair and restore the Premises shall be subject to the availability to Tenant of such proceeds to the extent needed to pay for such repair or restoration, In the event insurance proceeds are not made available to the Tenant, then Tenant shall not be obligated to repair and restore the Premises until such time as Landlord has made available to Tenant funds in an amount equal to the insurance proceeds paid to the Landlord’s Mortgagee or the holder of any future Mortgage Debt, and Rent shall continue to be paid by Tenant for so long as rent loss and/or business interruption insurance proceeds are available, after which Rent shall abate; provided, however, if Landlord fails to make such funds available within twelve (12) months after the date of such casualty, Tenant shall have the right to cancel and terminate this Lease. Landlord shall use commercially reasonable efforts in good faith at Tenant’s expense to cause insurance proceeds to be made available to Tenant by Landlord’s Mortgagee for purposes of such repair and restoration. Tenant shall be obligated to meet all reasonable conditions imposed on the use of any such insurance proceeds by the Landlord’s Mortgagee. If such insurance proceeds are made available to Tenant by the Landlord’s Mortgagee or the holder of any future Mortgage Debt and are insufficient to repair and restore the Premises, Tenant shall be required to make up such deficiency out of Tenant’s own funds. Except as provided above, there shall be no abatement or reduction of any Rent under this Lease due to any such damage, destruction or repair or restoration and Tenant shall have no right to terminate this Lease notwithstanding the partial or total destruction of all or any part of the Premises.

ARTICLE IX

INSURANCE AND WAIVER OF SUBROGATION

Section 9.1. Property Insurance. Tenant shall, at Tenant’s cost and expense, insure the Premises against loss or damage normally covered under commercial property insurance policies (including, without limitation, earthquake, flood, boiler and machinery, war risk and acts of terrorism (if and to the extent such coverages are generally available at commercially reasonable rates), and rent loss and/or business interruption) and otherwise with such coverages, deductibles,

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sub-limits, and exclusions as are typical for owners of real estate similar to the Premises from time to time and/or as are required by applicable law. Such insurance shall be for the full insurable value (actual replacement value without deduction for physical deterioration) of the Premises, shall name Landlord as additional insured, Landlord’s Mortgagee as first mortgagee/secured party, and Landlord and Landlord’s Mortgagee as loss payees, and shall provide that the insurance for the Premises, as required herein, shall not be canceled or changed without at least thirty (30) days’ prior written notice to Landlord, Tenant and the Landlord’s Mortgagee. Tenant shall, from time to time and upon the written request of Landlord or the Landlord’s Mortgagee, furnish the requesting party with certificates of insurance demonstrating that such insurance is in full force and effect.

Section 9.2. Liability and Other Insurance. Tenant shall, at Tenant’s cost and expense, obtain and keep in force a policy or policies of commercial general liability insurance covering the Premises and any losses or claims arising in whole or in part from the use of the Premises, naming Landlord as named insured, and Tenant and the Landlord’s Mortgagee as additional insureds, which as of the Commencement Date shall be with minimum single limit of coverage for any one occurrence of not less than $1,000,000 with an aggregate of not less than $3,000,000 and an excess liability policy of not less than $10,000,000. Landlord’s liability insurance shall provide that it is primary coverage and not excess over or contributory with any other insurance coverage (including any other insurance maintained by the Landlord or the Tenant). All such insurance shall provide that the liability insurance, as required herein, shall not be canceled or changed without at least thirty (30) days’ prior written notice to Landlord, Tenant and Landlord’s Mortgagee. Notwithstanding anything to the contrary contained in this Section 9.2., all such insurance shall at all times be in such amounts and on such terms and conditions as are commercially reasonable. Landlord shall from time to time upon the written request of the Tenant (or the Landlord’s Mortgagee) furnish to the requesting party certificates of insurance demonstrating that all such insurance is in full force and effect. Tenant shall reimburse Landlord for all of Landlord’s costs and expenses incurred in connection with the foregoing promptly upon written request from Landlord. Landlord shall include with its written request paid invoices or such other evidence of payment and/or expense.

Section 9.3. Additional Insurance. Tenant shall, at Tenant’s cost and expense, obtain and keep in force a policy or policies of the following insurance covering the Premises:

(i) If the Premises, or any part thereof, is located within a one hundred (100) year flood plain area designated by Federal Emergency Management Agency, flood and such other hazards and in such amounts as may be customary for comparable properties in the area and if available from insurance companies authorized to do business in the state in which the Premises are located at rates which are economically practicable in relation to the risks covered.

(ii) If Tenant shall engage or cause to be engaged any contractor to perform work any Alterations in, on or about the Premises, the estimated cost of which will exceed $100,000.00, Tenant shall require such contractor to carry and maintain, at no expense to Landlord, commercial general liability insurance, builder’s risk insurance, including but not limited to contractor’s liability coverage, completed operations coverage, broad form property damage endorsement, workers compensation, and contractor’s protection liability coverage in such amounts and with such deductibles and such companies as are customary for the Alterations to be performed. Upon Landlord or Landlord’s Mortgagee’s written request, Tenant shall provide evidence of that such insurance is in full force and effect.

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Section 9.4. Tenant’s Right to Insure; Waiver of Subrogation. Tenant, at its sole cost and expense, shall have the right to directly procure any or all of the insurance required to be provided by Landlord pursuant to this Article IX, provided that such insurance and such insurance provider meet all of the requirements of this Article IX and such other commercially reasonable requirements as may be required by Landlord’s Mortgagee from time to time. In the event that Tenant elects to directly procure such insurance, Tenant shall remain liable for all of Landlord’s costs incurred in connection with Landlord’s obligation to provide such insurance under this Article IX, less any refunds or return of premiums actually received by Landlord. Any insurance maintained by either Landlord or Tenant shall provide that, to the extent permitted by law, the insurer waives all rights of subrogation against the Landlord and Tenant, as applicable, and their agents or employees, with respect to losses payable under the policy.

Section 9.5. Insurance Company Rating Requirements. All policies of insurance required under this Lease shall be placed with insurance companies having claims paying ratings no lower than A.M. Best “A-” or equivalent NAIC rating, from time to time.

ARTICLE X

EMINENT DOMAIN

If the Premises are taken in their entirety under the power of eminent domain by, or conveyed in lieu of such exercise to, any public authority, then Tenant’s obligations as to the Premises shall terminate as of the date upon which title to the Premises shall become vested in the condemning authority. If the entire parking area associated with the Premises or substantially all of the parking area associated with the Premises shall be taken at any time during the term of this Lease for any public or quasi-public purpose by any lawful power or authority, by the exercise of right of condemnation or eminent domain, or by agreement between Landlord, Tenant and those authorized to exercise such right, and Landlord fails to provide suitable replacement parking in connection therewith, then this Lease shall terminate as of the date upon which title to the parking area shall become vested in the condemning authority. Subject to the parking area provisions, if less than all of the Premises is so taken or conveyed, Tenant’s obligations as to the Premises shall not terminate, Rent shall abate and be reduced proportionally to such taking, and Tenant shall, at its sole cost and expense, restore the balance of the Premises to a complete structural unit that can be operated on an economically feasible basis under the provisions of this Lease using the proceeds of the condemnation. If the condemnation proceeds resulting from such taking or conveyance are payable to the Landlord, Landlord’s Mortgagee or the holder of any future Mortgage Debt, then the obligation of Tenant to so restore the balance of the Premises shall be subject to the availability to Tenant of such proceeds to the extent needed to pay for such restoration. Landlord shall use commercially reasonable efforts in good faith to cause such proceeds to be made available to Tenant for such purpose. In the event Landlord, Landlord’s Mortgagee or the holder of any future Mortgage Debt do not make the condemnation proceeds available to Tenant to restore the balance of the Premises, then and in that event, Tenant will have the option to terminate the Lease or restore the balance of the Premises and receive an abatement of Rent during the restoration and a proportionate reduction in Rent for the remainder of the term of the Lease. Tenant shall be obligated to meet all reasonable conditions imposed on the use of any such proceeds by the Landlord’s Mortgagee or any holder of future Mortgage Debt. If such proceeds are made available to Tenant by the Landlord’s Mortgagee or the holder of any future Mortgage Debt and such proceeds are insufficient to restore the Premises as described above, Tenant shall be required to make up such deficiency out of Tenant’s own funds. All damages awarded for any taking of all or any part of the Premises shall belong to Landlord, except that

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Tenant shall be entitled to any award made for removal and reinstallation of Tenant’s fixtures, moving expenses, loss of business and loss of its leasehold interest. In the event that Landlord elects not to do so, Tenant, at its sole cost and expense, shall have the right to contest any such eminent domain proceedings, including, but not limited to, the right to contest the proposed amount of any such award.

ARTICLE XI

ASSIGNMENT AND SUBLETTING

Provided that, at all times, (i) no Event of Default (as defined in Section 13.1.) under this Lease has occurred and is continuing; (ii) the sublease is expressly subject and subordinate to this Lease; and (iii) Tenant shall remain primarily liable for all of Tenant’s obligations under this Lease, Tenant may sublet the Premises, in whole or in part, without Landlord’s consent (“Permitted Subleases”). Upon any such sublease or upon any assignment of this Lease by Tenant, Tenant shall remain primarily liable to Landlord for timely payment and performance of all Rent and other obligations under this Lease. Tenant agrees to promptly notify Landlord in writing of all Permitted Subleases the Tenant enters into under this Lease. Landlord may accept Rent, Additional Rent, and any other sums that may become due under this Lease directly from any subtenant as agent for Tenant and require attornment of such subtenant in the event that this Lease is terminated or fails for any reason whatsoever. Notwithstanding anything contained herein to the contrary, Landlord’s consent shall not be required for, and nothing shall prohibit or restrict any leasehold mortgage entered into by Tenant, or any assignment of this Lease or subletting of a part or the whole of the Premises by Tenant: (i) to an affiliate of Tenant; (ii) in conjunction with any consolidation, reorganization, merger, acquisition, or private placement involving Tenant or any of its affiliate(s); (iii) to any corporation or other business entity purchasing all or substantially all of the assets of Tenant or any of its affiliate(s); or (iv) in conjunction with any offering, sale, listing, redemption, hypothecation, conversion, exchange, transfer or other similar disposition of all or any portion of the membership interests of Tenant or any of its affiliate(s).

ARTICLE XII

END OF TERM

Tenant shall surrender actual and exclusive possession of the entirety of the Premises to Landlord at the end of the Term, in good condition, subject to reasonable wear and tear, subject only to such tenancies and occupancies permitted to remain in effect beyond the expiration of the Term to which Landlord has previously agreed in writing and Permitted Subleases.

ARTICLE XIII

EVENTS OF DEFAULT; LANDLORD’S REMEDIES; EXPENSES OF ENFORCEMENT

Section 13.1. Events of Default. The occurrence of any one or more of the following shall constitute an “Event of Default” under this Lease:

(i) Tenant shall fail to pay when due any Rent or other amount owed to Landlord under this Lease; or

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(ii) Tenant shall fail to perform any other covenant or agreement in this Lease and such failure shall continue for a period of thirty (30) days after receipt of written notice from Landlord (or if such failure is not capable of being cured within thirty (30) days, such reasonable time thereafter not to exceed ninety (90) days, provided that Tenant has commenced such cure within the thirty (30) day period and is diligently proceeding to cure such failure), or if any such failure involves a hazardous condition or a failure to maintain insurance required by the Lease, such failure is not cured by Tenant immediately upon notice to Tenant; or

(iii) Tenant shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file or have filed against it a petition in any proceeding seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such proceeding shall not be vacated or discharged within thirty (30) days, or shall be adjudicated insolvent or bankrupt, or a receiver, trustee, custodian or other similar official shall be appointed for Tenant or for all or any substantial part of its property, or a substantial part of its property shall be attached, executed upon or otherwise impressed with a lien in favor of one or more creditors, and such appointment, attachment, execution or lien shall not be vacated or discharged within thirty (30) days; or

(iv) Tenant dissolves or liquidates.

Section 13.2. Termination of Lease; Reletting. Upon the occurrence of any Event of Default, in addition to any other remedies provided by law, Landlord may terminate this Lease, or Landlord may, without terminating this Lease in accordance with applicable law, re-enter the Premises or any property comprising part of the Premises and dispossess Tenant or any other occupant of the Premises or any property comprising part of the Premises and remove Tenant’s and/or such other occupant’s effects and relet the Premises or any property comprising part of the Premises for the account of Tenant for such rent and on such terms as shall be satisfactory to Landlord, crediting the actual proceeds of reletting (after deducting the costs and expenses of re-entry, alterations and additions and the expense of reletting) to the unpaid amounts due under this Lease during the remainder of the Term and Tenant shall remain liable to Landlord for the balance owed. Tenant shall not be entitled to any rents received by Landlord which exceed the balance owed by Tenant to Landlord calculated as provided in the immediately preceding sentence.

Section 13.3. Termination of Lease; Money Judgment. Upon termination of this Lease as a result of the occurrence of an Event of Default in accordance with applicable law, Landlord shall be entitled as final and liquidated damages to a money judgment against Tenant in the amount of the aggregate of the following: (i) all unpaid Rent due on or before the date of termination, together with interest thereon at the Interest Rate; (ii) the excess, if any, of all Rent which would have become due on or before the date of the judgment but for the termination over the fair market rental value of the Premises for such period, taking into account a reasonable vacancy and lease up factor, together with interest thereon at the Interest Rate; and (iii) the excess, if any, of all Rent which would come due after the date of the judgment but for the termination of this Lease over the fair rental value of the Premises for such period, taking into account a reasonable vacancy rate and lease up factor, discounted to present value using as a discount factor the discount rate of the Federal Reserve Bank of Chicago in effect at the time of judgment.

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Section 13.4. Expenses of Enforcement. If, at any time during the Term of this Lease, either Landlord or Tenant shall institute any action or proceeding against the other which is related to or arises out of the provisions of this Lease or any default hereunder, then each party shall bear its own costs and expenses, including, without limitation, attorneys’ fees and expenses.

Section 13.5. Landlord’s Right to Cure. Landlord may assign its rights under this Section to the Landlord’s Mortgagee upon written notice to Tenant. If Tenant shall fail to make any payment, or to perform any act required to be made or performed under this Lease and to timely cure the same, Landlord, without waiving or releasing any obligation or Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of Tenant, and may, to the extent permitted by law, enter upon the Property for such purpose and take all such action thereon as, in Landlord’s opinion, may be necessary or appropriate therefore, and no such entry shall be deemed an eviction of Tenant. Tenant shall immediately repay the same to Landlord, upon demand, together with all costs and expenses so incurred, together with a late charge thereon, all to the extent permitted by law, at the Interest Rate from the date on which such sums or expenses are paid or incurred by Landlord. The obligations of Tenant and rights of Landlord contained in this Article shall survive the expiration or earlier termination of this Lease.

Section 13.6. Bankruptcy of Tenant.

(a) In the event that Tenant shall become a debtor in a case filed under Chapter 7 of the Bankruptcy Code and Tenant’s trustee or Tenant shall elect to assume this Lease for the purpose of assigning the same or otherwise, such election and assignment may be made only if the provisions of Section 13.6.(b) and Section 13.6.(d) are satisfied as if the election to assume were made in a case filed under Chapter 11 of the Bankruptcy Code. If Tenant or Tenant’s trustee shall fail to elect to assume this Lease within sixty (60) days after the filing of such petition or such additional time as provided by the court within such 60-day period, this Lease shall be deemed to have been rejected and immediately thereupon Landlord shall be entitled to possession of the Premises without further obligation to Tenant or Tenant’s trustee and this Lease upon the election of Landlord shall terminate, but Landlord’s right to be compensated for damages (including, without limitation, liquidated damages pursuant to any provision hereof) or the exercise of any other remedies in any such proceeding shall survive, whether or not this Lease shall be terminated.

(b) (i) In the event that Tenant shall become a debtor in a case filed under Chapter 11 of the Bankruptcy Code, or in a case filed under Chapter 7 of the Bankruptcy Code which is transferred to Chapter 11, Tenant’s trustee or Tenant, as debtor-in-possession, must elect to assume this Lease within sixty (60) days from the date of the filing of the petition under Chapter 11 or the transfer thereto or such additional time as provided by the court or Tenant’s trustee or the debtor-in possession shall be deemed to have rejected this Lease. In the event that Tenant, Tenant’s trustee or the debtor-in-possession has failed to perform all of Tenant’s obligations under this Lease within the time periods (excluding grace periods) required for such performance, no election by Tenant’s trustee or the debtor-in-possession to assume this Lease, whether under Chapter 7 or Chapter 11, shall be permitted or effective unless each of the following conditions has been satisfied:

(1) Tenant’s trustee or the debtor-in possession has cured all Events of Default under this Lease, or has provided Landlord with Assurance (as defined below) that it will cure all Events of Default susceptible of being cured by the payment of money within ten (10) days from the date of such assumption and that it will cure all other Events of Default under this Lease which are susceptible of being cured by the performance of any act promptly after the date of such assumption.

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(2) Tenant’s trustee or the debtor-in-possession has compensated Landlord, or has provided Landlord with Assurance that within ten (10) days from the date of such assumption it will compensate Landlord, for any actual pecuniary loss incurred by Landlord arising from the default of Tenant, Tenant’s trustee, or the debtor-in-possession as indicated in any statement of actual pecuniary loss sent by Landlord to Tenant’s trustee or the debtor-in-possession.

(3) Tenant’s trustee or the debtor-in-possession has provided Landlord with Assurance of the future performance of each of the obligations of Tenant, Tenant’s trustee or the debtor-in-possession under this Lease, and, if Tenant’s trustee or the debtor-in-possession has provided such Assurance, Tenant’s trustee or the debtor-in-possession shall also (i) deposit with Landlord, as security for the timely payment of rent hereunder, an amount equal to one (1) installment of Rent (at the rate then payable) which shall be applied to installments of Rent in the inverse order in which such installments shall become due provided all the terms and provisions of this Lease shall have been complied with, and (ii) pay in advance to Landlord on the date each installment of Rent is payable a pro rata share of Tenant’s annual obligations for Additional Rent pursuant to this Lease, such that Landlord shall hold funds sufficient to satisfy all such obligations as they become due. The obligations imposed upon Tenant’s trustee or the debtor-in-possession by this Section shall continue with respect to Tenant or any assignee of this Lease after the completion of bankruptcy proceedings.

(4) The assumption of this Lease will not breach or cause a default under any provision of any other lease, mortgage, financing arrangement or other agreement by which Landlord is bound.

(ii) For purposes of this Section 13.6., Landlord and Tenant acknowledge that “Assurance” shall mean no less than: Tenant’s trustee or the debtor-in-possession has and will continue to have sufficient unencumbered assets after the payment of all secured obligations and administrative expenses to assure Landlord that sufficient funds will be available to fulfill the obligations of Tenant under this Lease, and (x) there shall have been deposited with Landlord, or the Bankruptcy Court shall have entered an order segregating, sufficient cash payable to Landlord, and/or (y) Tenant’s trustee or the debtor-in-possession shall have granted a valid and perfected first lien and security interest and/or mortgage in property of Tenant, Tenant’s trustee or the debtor-in-possession, acceptable as to value and kind to Landlord, to secure to Landlord the obligation of Tenant, Tenant’s trustee or the debtor-in-possession to cure the Events of Default under this Lease, monetary and/or non-monetary, within the time periods set forth above.

(c) In the event that this Lease is assumed in accordance with Section 13.6. (b) and thereafter Tenant is liquidated or has filed against it (without dismissal within sixty (60) days thereafter) or files a subsequent petition under Chapter 7 or Chapter 11 of the Bankruptcy Code, Landlord may, at its option, terminate this Lease and all rights of Tenant hereunder by giving Tenant notice of its election to so terminate within thirty (30) days after the occurrence of any such event.

(d) If Tenant’s trustee or the debtor-in-possession has assumed this Lease pursuant to the terms and provisions of Section 13.6.(a) or Section 13.6.(b) for the purpose of assigning (or elects to assign) this Lease, this Lease may be so assigned only if the proposed

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assignee (the “Assignee”) has provided adequate assurance of future performance of all of the terms, covenants and conditions of this Lease to be performed by Tenant. Landlord shall be entitled to receive all cash proceeds of such assignment. As used herein “adequate assurance of future performance” shall mean no less than that each of the following conditions has been satisfied;

(i) the Assignee has furnished Landlord with either (1) (x) a copy of a credit rating of Assignee which Landlord reasonably determines to be sufficient to assure the future performance by Assignee of Tenant’s obligations under this Lease and (y) a current financial statement of Assignee audited by a certified public accountant indicating a net worth and working capital in amounts which Landlord reasonably determines to be sufficient to assure the future performance by Assignee of Tenant’s obligations under this Lease, or (ii) a guarantee or guarantees, in form and substance satisfactory to Landlord, from one or more persons with a credit rating and net worth equal to or exceeding the credit rating and net worth of Tenant as of the date hereof.

(ii) Landlord has obtained all consents or waivers from others required under any lease, mortgage, financing arrangement or other agreement by which Landlord is bound to permit Landlord to consent to such assignment.

(e) when, pursuant to the Bankruptcy Code, Tenant’s trustee or the debtor-in-possession shall be obligated to pay reasonable use and occupancy charges for the use of the Premises, such charges shall not be less than the Rent payable by Tenant under this Lease.

(f) Neither the whole nor any portion of Tenant’s interest in this Lease or its estate in the Premises shall pass to any trustee, receiver, assignee for the benefit of creditors, or any other person or entity, by operation of law or otherwise under the laws of any state having jurisdiction of the person or property of Tenant unless Landlord shall have consented to such transfer. No acceptance by Landlord of rent or any other payments from any such trustee, receiver, assignee, person or other entity shall be deemed to constitute such consent by Landlord nor shall it be deemed a waiver of Landlord’s right to terminate this Lease for any transfer of Tenant’s interest under this Lease without such consent.

(g) In the event of an assignment of Tenant’s interests pursuant to this Section 13.6., the right of Assignee to extend the term of this Lease for an extended term beyond the then term of this Lease shall be extinguished.

Section 13.7 Default by Landlord. If Landlord shall fail to perform any covenant or obligation required to be performed by Landlord under the terms of this Lease and such failure shall continue for a period of thirty (30) days after receipt by Landlord of written notice thereof from Tenant or if Landlord shall fail to pay any sums due to Tenant under this Lease on the date the same shall become due and payable hereunder, and such failure shall continue for a period of thirty (30) days after receipt by Landlord of written notice thereof from Tenant [unless such failure is of such a nature that it cannot be cured within said thirty (30) day period, in which event Landlord shall not be in default hereunder if it shall have commenced to cure said default within said thirty (30) day period and diligently prosecute said cure to completion], then Tenant may, as its sole remedy under this Lease, cure any covenant or obligation which Landlord has failed to perform, and any sums expended by Tenant in curing such failure shall be paid by Landlord to Tenant immediately upon demand, and shall bear interest at the Interest Rate from the date of demand; or (b) bring suit to recover from Landlord all sums due Tenant from Landlord together with interest at the Interest Rate.

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ARTICLE XIV

HOLDING OVER IN POSSESSION

If Tenant shall retain possession of all or any part of the Premises beyond the expiration or termination of this Lease, Tenant (i) shall pay to Landlord one hundred twenty-five percent (125%) of the Base Rent payable for the last month of the Term of this Lease and any Additional Rent due to Landlord for each month that Tenant holds possession of any part of the Premises after expiration or termination of this Lease; (ii) shall also pay all costs incurred and damages sustained by Landlord, whether direct or consequential, on account of such holding over; and (iii) such tenancy shall be month to month and otherwise upon such terms and conditions (including rent) as Landlord shall specify.

ARTICLE XV

MORTGAGES

Section 15.1. Subordination and Attornment. This Lease shall be subject and subordinate to any Mortgage that may hereafter be placed upon the Premises, or any part thereof, and to all amounts secured thereby, and to all renewals, replacements and extensions of any of the foregoing, except to the extent that any Mortgage provides otherwise, provided that any such mortgagee agrees in writing to not disturb Tenant’s occupancy and possession of the Premises, so long as Tenant is not then in default. Tenant further agrees that, in the event of a foreclosure of any Mortgage or of a conveyance in lieu thereof, it will attorn to the mortgagee or to the purchaser at any foreclosure sale, as the case may be, upon the condition that such mortgagee or purchaser shall agree in writing to recognize Tenant and this Lease, so long as Tenant is not then in default. Tenant agrees that such mortgagee or purchaser shall not be bound to recognize (i) Tenant’s payment of any Rent if paid more than one (1) month in advance or (ii) any amendment to this Lease without such mortgagee’s consent. Tenant shall at Landlord’s request execute such further instruments or assurances as any mortgagee or purchaser may request to evidence (i) the subordination of this Lease or to acknowledge the superiority of this Lease, as the case may be upon the condition that such mortgagee or purchaser shall agree in writing to recognize Tenant and this Lease and agree to a non-disturbance of the Tenant, (ii) Tenant’s attornment agreement, and/or (iii) the acknowledgment of the express obligations of Tenant to the Landlord’s Mortgagee that are provided for in this Lease. Prior to the Landlord entering into a Mortgage, Landlord shall exercise commercially reasonable efforts to procure a subordination, nondisturbance and attornment agreement from Landlord’s Mortgagee in form and content reasonably acceptable to Tenant, pursuant to which such Mortgagee agrees that so long as there is not then a default by Tenant under this Lease which is not cured within the applicable cure period, Mortgagee shall not disturb Tenant’s use of the Premises if lender forecloses upon or otherwise takes possession of the Premises.

Section 15.2. No Personal Liability. In no event shall any Mortgagee of the Premises, or any part thereof, its nominee, or the purchaser at a foreclosure sale have any personal liability whatsoever for any representations, warranties, covenants or agreements of Landlord hereunder or in connection herewith, or any liability for any security deposit or other sums deposited with Landlord, or for any previous prepayment of Rent to Landlord, unless actually received by such Mortgagee, nominee or purchaser.

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Section 15.3. Notices to Mortgagee and Mortgagee Right to Cure. Provided Tenant receives written notice of the name and address of Landlord’s Mortgagee having an interest in the Premises, Tenant agrees that in the event of any default by Landlord hereunder, Tenant shall send written notice of the default to Landlord’s Mortgagee. Landlord’s Mortgagee shall have thirty (30) days after the written notice from Tenant is sent within which to cure the default, and if the default is not capable of being cured within the 30-day period, then Landlord’s Mortgagee shall have a reasonable time thereafter to effect such cure, provided that Landlord’s Mortgagee commences to cure the same within the initial 30-day period and diligently pursues such cure until completed. Notwithstanding any provision of this Lease to the contrary, Tenant shall not have any right or remedy pursuant to this Lease or otherwise due to Landlord’s default unless Tenant shall have first given notice of the default to Landlord’s Mortgagee and unless Landlord’s Mortgagee shall have failed to cure the default within the time required by this Section 15.3.. Tenant will accept performance by Landlord’s Mortgagee of any covenant, agreement or obligation of Landlord contained in this Lease with the same effect as though performed by Landlord. Nothing in this Section 15.3. shall be construed to require Landlord’s Mortgagee to cure a default by Landlord.

Section 15.4. Foreclosure; Deed in Lieu of Foreclosure. The provisions of this Article XV shall apply in the event of a foreclosure of any Mortgage or conveyance in lieu of foreclosure, notwithstanding the fact that the mortgagee thereunder may, directly or indirectly, own or have an interest in Landlord or an interest in the Premises in addition to its interest under such Mortgage.

Section 15.5. Estoppel Certificates. From time to time upon written request of Landlord or Tenant, the other shall deliver to the requesting party within fifteen (15) days of receipt of the request, a statement in writing by such party or its duly authorized representative having knowledge of the following facts, certifying (i) that this Lease is unmodified and in full force and effect or, if there have been modifications, an itemized description of such modifications and that this Lease as modified is in full force and effect; (ii) the dates to which Rent and other amounts payable hereunder have been paid; (iii) that the requesting party is not in default under any provision of this Lease, or, if in default, the nature thereof in detail; and (iv) such further matters as may be reasonably requested by the requesting party. It is the intention of the parties that any such statement may be relied upon by any auditors, accountants, lenders, prospective lenders, mortgagees or prospective mortgagees, or any prospective or subsequent purchaser or transferee of all or a part of Landlord’s interest in the Premises. In connection with the financing, sale or transfer of the Premises by Landlord, Tenant shall execute and deliver to Landlord whatever instruments may be required by Landlord for such purposes, or Tenant shall be in default under this Lease upon the expiration of such 15-day period.

Section 15.6. Mortgage and Other Obligations Binding on Tenant. Any and all obligations of and limitations on Landlord under any Mortgage on the Premises, or any part thereof, or any ground lease, including, without limitation, payment of property taxes and expense reimbursements, lien prohibitions, maintenance, repair, alterations, replacements and restoration obligations, required insurance coverages, and restrictions on use of insurance and condemnation proceeds, shall be binding on and be the responsibility of Tenant, subject to the provisions of this Lease. Landlord agrees that, if it grants or creates any mortgage, lien, or encumbrance (“Encumbrances”) upon the Premises, Landlord’s Mortgagee shall agree (a) to give Tenant the same notice, if any, given to Landlord of any default or acceleration of any obligation underlying any such Encumbrance or any sale in foreclosure of such Encumbrance, (b) to permit Tenant to cure any such default on Landlord’s behalf within any applicable cure period, in which event Landlord agrees to reimburse Tenant for any and all out-of-pocket costs and

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expenses incurred to effect any such cure (including reasonable attorneys’ fees), (c) to permit Tenant to appear with its representatives and to bid at any foreclosure sale with respect to any such Encumbrance, provided that no Event of Default by Tenant exists under the Lease, (d) that, if subordination by Tenant is requested by Landlord’s Mortgagee, to enter into an agreement with Tenant containing the provisions described in Section 15.1. of this Lease. Tenant shall be permitted to mortgage, pledge, grant or assign a security interest in its leasehold and contract rights hereunder. Landlord and Tenant shall not modify this Lease without the express prior written consent of the Landlord’s Mortgagee.

ARTICLE XVI

CERTAIN RIGHTS OF LANDLORD

Section 16.1. Right of Entry. Landlord reserves, and shall at all times have, the right to enter the Premises, or any part thereof, to inspect the same, to supply any service to be provided by Landlord to Tenant hereunder, to show the Premises, or any part thereof. Tenant hereby waives any claim, related to Landlord’s entry into the Premises, for damages for any injury, inconvenience to or interference with Tenant’s business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby, other than damages or injury caused solely by the gross negligence or intentional act of Landlord. For each of the aforesaid purposes, Landlord shall at all times have and retain keys with which to unlock all of the doors in, upon or about the Premises, or any part thereof, and Landlord shall have the right to use any and all means which Landlord may deem reasonably necessary or proper to open such doors in an emergency in order to obtain entry. Tenant is aware that Landlord may deposit keys to the Premises, or any part thereof, in lock boxes for the benefit of the local fire departments, and Tenant hereby waives any and all claims against Landlord resulting from Landlord’s deposit of keys in the lock boxes for the benefit of the local fire departments. If Tenant changes the locks to any doors in the Premises, or any part thereof, Tenant shall immediately provide Landlord with a key for such new lock. Any entry to the Premises, or any part thereof, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or any part thereof, or an eviction, of Tenant.

Section 16.2. Sale or Transfer of Premises. Landlord shall have the right to sell, assign or otherwise transfer, in whole or in part, its interest in the Premises and the Property without Tenant’s consent.

ARTICLE XVII

MISCELLANEOUS

Section 17.1. Effect of Payments by Tenant. No payment by Tenant or receipt by Landlord of a lesser amount than the total amount then due and payable shall be deemed to be other than on account, nor shall any such payment be deemed an accord and satisfaction. Landlord may accept any payment without prejudice to any outstanding demand or action for possession, notice of default or notice of termination. No payment by Tenant after termination of this lease shall reinstate this Lease or extend the Term or waive or affect any notice given or proceedings commenced.

Section 17.2. Waiver of Jury Trial. Intentionally omitted.

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Section 17.3. No Joint Venture. This Lease does not create a joint venture or partnership between Landlord and Tenant or Landlord and the Landlord’s Mortgagee or the Landlord’s Mortgagee and Tenant.

Section 17.4. Effect of Waiver. No waiver of performance of any agreement in this Lease shall be binding against the party alleged to have waived unless the waiver shall be in writing. No waiver shall be extended by implication, custom or practice to any situation or circumstance not expressly described and shall not be interpreted as applying to any obligations of a recurring nature, unless so stated with particularity.

Section 17.5. Real Estate Brokers. Landlord and Tenant each represents and warrants to the other that it has not dealt with any real estate broker or brokers in connection with this Lease. In the event that any claim for any broker’s or finder’s fee or commission in connection with the negotiation, execution or consummation of this Lease is made by any person or entity, each party shall defend, indemnify and hold the other harmless from and against any such claim.

Section 17.6. Recitals. The recitals hereto are hereby incorporated into and made a part of this Lease.

Section 17.7. Time of Essence. Time is of the essence of this Lease and each and every provision hereof.

Section 17.8. Communications. All communications provided for herein shall be in writing and shall be deemed to be given or made when served personally or two (2) business days after deposit in the United States mail, registered or certified, return receipt requested, postage prepaid, addressed as follows:

If to Landlord:	Physicians Realty L.P.
	250 East Wisconsin Avenue, Suite 1900
	Milwaukee, WI 53202
	Attn: John W. Sweet, Chief Investment Officer
If to Tenant:	East El Paso Physicians Medical Center, LLC
	c/o Foundation Surgical Hospital Affiliates, L.L.C.
	14000 N. Portland
	Oklahoma City, Oklahoma 73143
	Attn: Robert Byers
With a copy to:	East El Paso Physicians Medical Center, LLC
	c/o Foundation Surgical Hospital Affiliates, L.L.C.
	14000 N. Portland
	Oklahoma City, Oklahoma 73143
	Attn: Marcelo Puiggari, General Counsel

Or to such party at such other address as such party may designate by notice duly given in accordance with this Section to the other party.

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Section 17.9. Successors and Assigns. The rights and obligations of the parties to this Lease shall inure to the benefit of, and shall be binding upon, their respective successors, and assigns.

Section 17.10. Severability. In the event any provision of this Lease shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.

Section 17.11. Execution of Counterparts. This Lease may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Section 17.12. Entire Agreement. This Lease sets forth all of the covenants, promises, agreements, conditions and understandings of the parties relating to the subject matter of this Lease, and there are no covenants, promises, agreements, conditions or understandings, either oral or written, between them other than as are herein set forth. This Lease supersedes all prior written and oral communications relating to the subject matter of this Lease.

Section 17.13. Modification, Waiver and Termination. This Lease and each provision hereof may not be modified, amended, changed, altered, waived, terminated or discharged unless consented to by a written instrument signed by Landlord’s Mortgagee and the party sought to be bound by such modification, amendment, change, alteration, waiver, termination or discharge.

Section 17.14. Construction.

(a) The words “hereof,” “herein,” “hereunder,” and other words of similar import refer to this Lease as a whole not to the individual Sections in which such terms are used.

(b) References to Sections and other subdivision of this Lease are to the designated Sections and other subdivision of this Lease as originally executed.

(c) The headings of this Lease are for convenience only and shall not define or limit the provisions hereof.

(d) Where the context so requires, words used in the singular shall include the plural and vice versa, and words of one gender shall include all other genders.

Section 17.15. Governing Law. This Lease shall be governed exclusively by and construed in accordance with the applicable laws of the State of Texas without giving effect to its choice of law or conflicts of laws provisions.

Section 17.16. Medical Waste. At all times during the term of the Lease and any extension(s) thereof, Tenant, at Tenant’s sole cost and expense, shall make all necessary arrangements for the removal of all waste generated by Tenant, in accordance with all applicable rules, regulations and environmental laws regulating disposal of medical waste, and shall cause any subtenants or others occupying any portion of the Premises to dispose of all their waste in the same manner.

Section 17.17. Limitation of Landlord’s Liability. Anything contained in this Lease to the contrary notwithstanding, Tenant agrees that it shall look solely to the estate and property of the Landlord in the Premises for the collection of any judgment (or other judicial process)

24

requiring the payment of money by Landlord for any default or breach by Landlord of any of its obligations under this Lease, subject, however, to the prior rights of any ground or underlying landlord or the holder of any mortgage covering the Improvements or of Landlord’s interest therein. No other assets of the Landlord shall be subject to levy, execution or other judicial process for the satisfaction of Tenant’s claim. Nothing herein contained shall be construed to limit any right of injunction against the Landlord, where appropriate.

Section 17.18. No Merger. In no event shall the leasehold interests, estates, or rights of Tenant hereunder merge with any interests, estates, or rights of Landlord or of any mortgagee in or to any and all of the Premises, it being understood that such leasehold interests, estates, and rights of Tenant hereunder shall be deemed to be separate and distinct from Landlord’s and any mortgagee’s interests, estates, and rights in or to the Premises, notwithstanding that any such interests, estates, or rights shall at any time or times be held by or vested in the same person or entity.

Section 17.19. Financial Statements. Tenant shall provide to Landlord and Landlord’s Mortgagee the following:

(i) If Tenant’s financial statements are audited and certified by its public accountants, then within one hundred eighty (180) days after the end of each of Tenant’s fiscal years, a copy of the audited consolidated balance sheets of Tenant and its consolidated Subsidiaries as of the end of such fiscal year, and related audited consolidated statements of income, changes in common stock and other stockholders’ equity and changes in the financial position of Tenant, its consolidated Subsidiaries for such fiscal year, prepared in accordance with generally accepted accounting principles (‘GAAP’) applied on a basis consistently maintained throughout the period involved, together with the certification from Tenant’s accountants;

(ii) within 45 days after the end of each fiscal quarter (including the last fiscal quarter during each fiscal year of the Tenant), (A) a copy of the unaudited consolidated balance sheets of Tenant and its consolidated Subsidiaries as of the end of such fiscal quarter, and related unaudited consolidated statements, changes in common stock and other stockholders’ equity and changes in the financial position of Tenant, and its consolidated Subsidiaries for such fiscal quarter, (B) a statement of income of Tenant and its consolidated Subsidiaries that sets forth the results for both such fiscal quarter and year-to-date, in all cases prepared in accordance with GAAP applied on a basis consistently maintained throughout the applicable period, (C) all quarterly consolidated financial reports Tenant produces for (1) surgical volumes by specialty, (2) payor mix, and (3) gross and net revenue per surgical case for the Premises and (D) an Officer’s Certificate stating that to the best of the signer’s knowledge and belief after making due inquiry such quarterly financial statements are true, accurate and correct;

(iii) within thirty (30) days after they are required to be filed with the Securities and Exchange Commission (‘SEC’), copies of any annual reports and of information, documents and other reports, or copies of such portions of any of the foregoing as the SEC may prescribe, which Tenant is required to file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934;

(iv) promptly upon Tenant’s receipt thereof, copies of all written communications received by Tenant from any regulatory agency relating to (A) surveys of the Premises for purposes of licensure, Medicare and Medicaid certification and

25

accreditation which identify material violations or required changes relating to operation of the Premises, and (B) any proceedings, formal or informal, with respect to cited deficiencies with respect to services and activities provided and performed at the Premises, including patient and resident care, patient and resident activities, patient and resident therapy, maintenance, or the condition of the Premises, and involving an actual or threatened warning, imposition of a material fine or a penalty, or suspension, termination or revocation of any Premises’ license to be operated in accordance with its Permitted Use; and

(v) with reasonable promptness, such other information respecting (A) the financial and operational condition and affairs of Tenant and the Premises, (B) the physical condition of the Premises and (C) any suspected Transfer, including the then equity or voting ownership in Tenant in each case as Landlord may reasonably request, in the form of a questionnaire or otherwise, from time to time.

Tenant shall be obligated to furnish Landlord with all certificates and statements required under this Section 17.20 in a format reasonably acceptable to Landlord by (i) delivery of printed copies of the same to Landlord at its address for notice purposes under this Lease or any other address that Landlord may from time to time designate in writing or (ii) electronic delivery of the same to Landlord at any electronic mail address that Landlord may from time to time designate in writing.

[Signatures appear on following pages]

26

IN WITNESS WHEREOF the parties have executed this Lease as of the date first above written.

LANDLORD:
DOC-FSH EL PASO MEDICAL CENTER, LLC, a Wisconsin limited liability company
By:	Physicians Realty, L.P., a Delaware limited partnership, its Manager
	By:	Physicians Realty Trust, a Maryland real estate investment trust, its general partner
		By:
			John T. Thomas
			President and Chief Executive Officer

27

IN WITNESS WHEREOF the parties have executed this Lease as of the date first above written.

TENANT:
EAST EL PASO PHYSICIANS’ MEDICAL CENTER, LLC, a Texas limited liability company
By:	Foundation Surgical Hospital Holdings, LLC, its Manager
	By:
		Robert M. Byers, Manager

28

EXHIBIT A

LEGAL DESCRIPTION OF THE PROPERTY

LOT 1, BLOCK 9, STONE RIDGE UNIT THREE, AN ADDITION TO THE CITY OF EL PASO, EL PASO COUNTY, TEXAS, ACCORDING TO THE PLAT THEREOF ON FILE IN VOLUME 77, PAGE 17, REAL PROPERTY RECORDS, EL PASO COUNTY; AND LOTS 2 AND 3, BLOCK 9, STONE RIDGE UNIT FOUR, AN ADDITION TO THE CITY OF EL PASO, EL PASO COUNTY, TEXAS, ACCORDING TO THE PLAT THEREOF ON FILE IN VOLUME 77, PAGE 21, REAL PROPERTY RECORDS, EL PASO COUNTY, TEXAS;

SAVE AND EXCEPT FROM LOT 1, BLOCK 9, STONE RIDGE UNIT THREE THAT CERTAIN 1.12 ACRE PORTION THEREOF, MORE OR LESS, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

DESCRIPTION OF A 1.12 ACRE PARCEL OF LAND BEING A PORTION OF LOT 1, BLOCK 9, STONE RIDGE UNIT THREE, CITY OF EL PASO, EL PASO COUNTY, TEXAS AND BEING MORE PARTICULARLY DESCRIBED BY METES AND BOUNDS AS FOLLOWS TO WIT:

STARTING AT AN EXISTING CITY MONUMENT LOCATED AT THE CENTERLINE INTERSECTION OF TREY BURTON DRIVE (60’ WIDE PUBLIC RIGHT-OF-WAY) AND GEORGE DIETER DRIVE (120’ WIDE PUBLIC RIGHT-OF-WAY), THENCE SOUTH 00° 29’ 32” EAST ALONG SAID CENTERLINE OF GEORGE DIETER DRIVE A DISTANCE OF 706.78 FEET TO POINT ON SAID CENTERLINE. THENCE NORTH 89° 30’ 28’’ EAST A DISTANCE OF 60.00 FEET TO A FOUND 5/8” DIAMETER REBAR SAID POINT LYING ALONG THE EASTERLY RIGHT-OF-WAY LINE OF GEORGE DIETER DRIVE, SAID POINT BEING THE “TRUE POINT OF BEGINNING”,

THENCE CONTINUING ALONG THE ARC OF A CURVE TO THE RIGHT A DISTANCE 53.58 FEET, A RADIUS OF 25.00 FEET, WHOSE CENTRAL ANGLE IS 122° 47’ 15” AND WHOSE CHORD BEARS NORTH 60° 54’ 05” EAST A DISTANCE OF 43.90 FEET, TO A POINT, SAID POINT LYING ALONG THE SOUTHERLY RIGHT-OF-WAY LINE OF GUERNSEY ROAD (50’ WIDE PUBLIC RIGHT-OF-WAY) TO A FOUND 5/8” DIAMETER REBAR WITH YELLOW PLASTIC CAP STAMPED TX. 2449, ROE ENG., L.C.:

THENCE SOUTH 57° 42’ 17” EAST A DISTANCE OF 247.48 FEET, ALONG SAID SOUTHERLY RIGHT-OF-WAY LINE TO A SET 5/8” DIAMETER REBAR WITH YELLOW PLASTIC CAP STAMPED TX. 2449, ROE ENG., L.C.;

THENCE SOUTH 32° 17’ 43” WEST A DISTANCE OF 179.30 FEET TO A 5/8” DIAMETER REBAR WITH YELLOW PLASTIC CAP STAMPED TX. 2449, ROE ENG., L.C.;

THENCE SOUTH 89° 30’ 28” WEST A DISTANCE OF 149.49 FEET TO A SET 5/8” DIAMETER REBAR WITH YELLOW PLASTIC CAP STAMPED TX. 2449, ROE ENG., L.C.;

THENCE NORTH 00° 29’ 32” WEST ALONG SAID EASTERLY RIGHT-OF-WAY OF GEORGE DIETER A DISTANCE OF 263.74 FEET BACK TO THE “TRUE POINT OF BEGINNING” OF SAID PARCEL, AND CONTAINING IN ALL 48,960.53 SQUARE FEET OR 1.12 ACRES OF LAND, MORE OR LESS.

EXHIBIT B

TITLE MATTERS

Those certain exceptions set forth on Schedule B of that certain Commitment for Title Insurance No. NCS-621959-MKE issued by First American Title Insurance Company, dated August 7, 2013. The Title Matters shall be updated upon the issuance of the final title insurance policy issued by First American Title Insurance Company.

EX-10.20.1

Exhibit 10.20.1

FIRST AMENDMENT

TO

AMENDED AND RESTATED MASTER LEASE

THIS FIRST AMENDMENT TO AMENDED AND RESTATED MASTER LEASE (this “Amendment”) is made this 25^th day of September, 2013, by and between DOC-FSH EL PASO MEDICAL CENTER, LLC, a Wisconsin limited liability company (“Landlord”), and EAST EL PASO PHYSICIANS’ MEDICAL CENTER, LLC, a Texas limited liability company (“Tenant”).

W I T N E S S E T H:

WHEREAS, Landlord and Tenant entered into that certain Amended and Restated Master Lease dated August 31, 2013 (the “Lease”), for certain premises consisting of approximately 77,000 square feet situated on certain real property as more particularly described in the Lease (the “Premises”); and

WHEREAS, Landlord and Tenant mutually desire to amend the Lease as set forth herein.

NOW, THEREFORE, in consideration of the mutual promises, terms and conditions herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant agree as follows:

1. Recitals; Capitalized Terms. The foregoing recitals are true and correct, and incorporated by reference as if more fully set forth herein. All capitalized terms used but not defined herein shall have the meanings ascribed to them in the Lease.

2. Tenant Allowance. As of the date of this Amendment, Landlord has agreed to provide Tenant the sum of One Million and 00/100 Dollars ($1,000,000.00) (the “Allowance”) for certain improvements, refurbishments, furniture, fixtures, equipment and services (“Tenant Improvements”) performed at the Premises. Tenant may use the Allowance for Tenant Improvements to the Premises, subject to the terms and conditions of the Lease. Tenant shall use the Allowance to pay for the costs of all the Tenant Improvements. Pursuant to the Lease, Tenant shall keep the Property free and clear from all judgments, liens and encumbrances.

3. Additional Rent. In consideration of the Allowance, commencing on November 1, 2013 and on the first day of each month thereafter until March 31, 2014, Tenant shall pay to Landlord as Additional Rent the sum of Seven Thousand Five Hundred and 00/100 Dollars ($7,500.00). On March 31, 2014, Tenant shall pay to Landlord, as Additional Rent, the sum of One Million Seven Thousand Five Hundred and 00/100 Dollars ($1,007,500.00), consisting of an amount equal to the Allowance plus the monthly Additional Rent payment for March 2014 (the “Allowance Reimbursement”).

4. Base Rent. In the event that, on or before March 31, 2014, Tenant fails to pay to Landlord the Allowance Reimbursement, then Landlord and Tenant hereby agree that the annual Base Rent then-required to be paid under the Lease shall increase by One Hundred Thousand and 00/100 Dollars ($100,000.00) and that the monthly Base Rent amount then-required to be paid under the Lease shall increase by Eight Thousand Three Hundred Thirty-Three and 33/100 Dollars ($8,333.33). Landlord and Tenant further agree that, on the first anniversary of the Commencement Date and on each anniversary of the Commencement Date thereafter, such increased annual Base Rent shall be increased by three percent (3%), as set forth in the Lease.

5. Miscellaneous. Except as specifically set forth herein, all remaining terms and conditions of the Lease shall remain unmodified and in full force and effect, and said terms and conditions are hereby acknowledged and ratified and may not be further amended or modified except in writing signed by the parties hereto. In the event of any conflict between the terms, conditions and provisions of the Lease and this Amendment, the terms, conditions and provisions of this Amendment shall prevail. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Signatures transmitted via facsimile or in PDF or other format by electronic mail shall be binding upon Landlord and Tenant with the same force and effect as original signatures.

(Signatures contained on following pages.)

IN WITNESS WHEREOF, this Amendment has been executed as of the date and year first above written.

LANDLORD:
DOC-FSH EL PASO MEDICAL CENTER, LLC
By:	Physicians Realty, L.P., its Manager
	By:	Physicians Realty Trust, its general partner
		By:
			John T. Thomas, President & CEO
TENANT:
EAST EL PASO PHYSICIANS’ MEDICAL CENTER, LLC
By:	Foundation Surgical Hospital Holdings, LLC,
	its Manager
	By:
	Name:	Robert M. Byers
	Title:	Manager

EX-10.20.2

Exhibit 10.20.2

ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT

THIS LEASE ASSIGNMENT AND ASSUMPTION AGREEMENT WITH LANDLORD’S CONSENT (this “Assignment”) is made and entered into as of September 27, 2013 (the “Effective Date”) by and among EAST EL PASO PHYSICIANS’ MEDICAL CENTER, LLC (“Assignor”), EEPPMC PARTNERS, LLC (“Assignee”), and DOC-FSH EL PASO MEDICAL CENTER, LLC (“Landlord”).

Recitals.

A. Assignor is the “Tenant” under that certain Amended and Restated Master Lease dated August 30, 2013, a copy of which is attached hereto as Exhibit A (the “Lease”). Assignor desires the assign to Assignee, and Assignee desires to assume from Assignor, all of Assignor’s right, title and interest as Tenant under the Lease.

B. Landlord desires to consent to this Assignment.

C. Assignor, Assignee and Foundation Surgical Hospital Affiliates, L.L.C. (“FSHA”) desire to affirm and certify to Landlord that those certain guarantees (the “Guarantees”) of certain owners of Assignor will remain in effect and continue to be security for Assignee’s performance of its obligations under the Lease.

Assignment and Assumption.

In consideration of the foregoing, the covenants and agreements hereinafter contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, the parties hereby agree as follows:

1. Assignment. Assignor does hereby assign and transfer to Assignee all of its right, title and interest as Tenant under the Lease, effective as of the Effective Date.

2. Warranties & Representations. Assignor warrants and represents that prior to and as of the Effective Date, the term of the Lease is true and correct, in full force and effect, and that the Lease constitutes the entire understanding between the Landlord and Tenant relating to the Premises. Assignor further warrants and represents that neither Landlord nor Tenant is in default of the Lease or has a claim of breach, counterclaim, lien or offset presently existing. Assignor also represents that the rent set forth in the Lease is true and correct as stated.

3. Assumption. Assignee hereby accepts the foregoing assignment from Assignor and hereby assumes and agrees to perform all of the terms, conditions and provisions on Tenant’s part to be performed and agrees to timely pay to Landlord the rent as set forth in the Lease from and after the Effective Date.

4. Indemnification. Assignor agrees to indemnify and hold Assignee harmless from any and all obligations, duties, agreements and liabilities of Tenant under the Lease arising before the Effective Date. Assignor agrees to indemnify and hold Assignee harmless from any and all obligations, duties, agreements and liabilities of Tenant under the Lease arising out of or directly or indirectly related to any environmental hazard, risk, or contamination present on the premises identified by the Leases on or before the Effective Date or resulting directly or

indirectly from any act or omission occurring on or before the Effective Date. Except as set forth in the previous sentence, Assignee agrees to indemnify and hold Assignor harmless from any and all obligations, duties, agreements and liabilities of Tenant under the Lease arising from and after the Effective Date.

5. General. The paragraph headings in this Assignment are for convenience only and do not modify, define, limit, or expand the express provisions of this Assignment. This Assignment contains the entire agreement between the parties with respect to the assignment contemplated hereby. All of the covenants, terms and conditions set forth herein shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This Assignment may be executed by facsimile in multiple counterparts, each of which will, for all purposes, be deemed an original, but which together will constitute one and the same instrument.

Executed as of the Effective Date.

ASSIGNOR:
EAST EL PASO PHYSICIANS’ MEDICAL CENTER, LLC
By:	Foundation Surgical Hospital Holdings, LLC, its Manager
	By:
		Robert M. Byers, Manager
ASSIGNEE:
EEPPMC PARTNERS, LLC
By:
	Stanton Nelson, Manager

-2-

LANDLORD’S CONSENT

The undersigned, as Landlord under the Lease, hereby consents to the foregoing Assignment as follows:

1. No Waiver. Landlord’s consent shall not in any way be construed to relieve Assignee, as Tenant, from obtaining the express prior written consent of Landlord, to any further assignment or subletting for the use of any part of the premises nor shall the collection of rent by Landlord from any assignee, sublessee or other occupant be deemed a waiver of this covenant or the acceptance of said assignee, sublessee or occupant, as tenant, or a release of Assignee from the further performance by tenant of the covenants in the Lease on the part of the tenant to be performed thereunder. In addition, Landlord’s consent shall not in any way be construed to allow the Assignee to use the Premises for any use other than as expressly provided for in the Lease or as a waiver of any of the terms and conditions of the Lease, including, but not limited to, all terms and conditions concerning any further required consent of the Landlord under the Lease other than as expressly provided in the Assignment.

2. Assignee’s Liability. Upon execution of the Assignment, Assignee shall be liable for the performance of all the provisions of the Lease. The consent of the Landlord hereunder is expressly conditioned upon the Assignee accepting the Premises in an “as is, where is condition with all faults” and free from any requirement that Landlord has any obligation whatsoever to remodel, improve, rework or recondition the Premises and/or any mechanical systems servicing the same.

3. No Defaults. To the best of Landlord’s knowledge, as of the Effective Date: (a) neither Assignor nor Landlord is in default under the Lease; (b) Assignor has performed all of its obligations under the Lease; (c) no event has occurred which, with the passage of time or the giving of notice or both, would constitute an event of default by Assignor under the Lease; and (d) Landlord has no current defenses or claims against Assignor under the Lease.

5. Lease. The Lease contains the entire agreement between Landlord and Assignor and has not been amended, modified, or changed in any respect. The Lease is in full force and effect. Landlord’s consent shall not in any way be deemed to be a modification of any of the terms and conditions contained in the Lease or a modification, abrogation or other waiver of any rights or remedies the Landlord may have with respect to the Assignee or Assignor under the Lease, including all of the terms and conditions thereof.

LANDLORD:
DOC-FSH EL PASO MEDICAL CENTER, LLC
By:	Physicians Realty, L.P., its Manager
	By:	Physicians Realty Trust, its general Partner
		By:
			John T. Thomas, President and Chief Executive Officer

-3-

AFFIRMATION AND CERTIFICATION OF GUARANTEES

Assignor, Assignee and FSHA hereby affirm and certify to Landlord that the Guarantees:

(1) shall secure performance of Assignee’s obligations under the Lease; and

(2) shall not secure any other obligation, except for Assignor’s obligations under the certain Amended and Restated Master Lease for the Hospital entered into by and between Assignor and Landlord dated August 30, 2013; and

(3) shall not be assigned for the benefit of any other creditor, without the prior written consent of Landlord, which may be withheld in DOC’s sole discretion.

Executed as of the Effective Date.

FSHA:
FOUNDATION SURGICAL HOSPITAL AFFILIATES, LLC
By:
	Robert M. Byers, Manager
ASSIGNOR:
EAST EL PASO PHYSICIANS MEDICAL CENTER, LLC
By:	Foundation Surgical Hospital Holdings, LLC, its Manager
	By:
		Robert M. Byers, Manager
ASSIGNEE:
EEPPMC PARTNERS, LLC
By:
	Stanton Nelson, Manager

-4-

EXHIBIT A

Lease

(see attached)

-5-

EX-10.23

Exhibit 10.23

MASTER LEASE

by and between

DOC-GREYMARK HQ OKC MOB, LLC,

as Landlord

and

FOUNDATION SURGERY AFFILIATES, LLC,

as Tenant.

September 30, 2013

Article I LEASE OF PREMISES; POSSESSION	3
Section 1.1. Lease to Tenant	3
Section 1.2. Premises	4
Section 1.3. Term	4
Section 1.4. Rent	4
Section 1.5. Permitted Uses	4
Section 1.6. Delivery of Possession; Condition of Title	4
Article II COMMENCEMENT DATE; MORTGAGES	5
Section 2.1. Commencement Date	5
Section 2.2. Right to Mortgage	5
Article III USE AND QUIET ENJOYMENT OF PREMISES	6
Section 3.1. Use of Premises	6
Section 3.2. Quiet Enjoyment	6
Section 3.3. Compliance with Applicable Laws	6
Section 3.4. Nuisance and Waste Prohibited	6
Article IV RENT	6
Section 4.1. Base Rent	6
Section 4.2. Additional Rent	6
Section 4.3. Payment of Rent	7
Section 4.4. Net Lease; Rent Absolute	7
Section 4.5. First Month’s Rent	7
Article V TAXES AND ASSESSMENTS; UTILITIES	7
Section 5.1. Taxes and Assessments	7
Section 5.2. Utilities	8
Section 5.3. Other Charges	8
Article VI COVENANTS OF TENANT CONCERNING MAINTENANCE,	8
Section 6.1. Maintenance	8
Section 6.2. Alterations	9
Section 6.3. Landlord’s Non-liability; Indemnification of Landlord	9
Section 6.4. No Liens	11
Article VII RIGHT TO CONTEST	11
Article VIII DAMAGE OR DESTRUCTION BY FIRE OR OTHER CASUALTY	11
Article IX INSURANCE AND WAIVER OF SUBROGATION	12
Section 9.1. Property Insurance	12
Section 9.2. Liability and Other Insurance	12
Section 9.3. Additional Insurance	13
Section 9.4. Tenant’s Right to Insure; Waiver of Subrogation	13
Section 9.5. Insurance Company Rating Requirements	13
Article X EMINENT DOMAIN	13
Article XI ASSIGNMENT AND SUBLETTING	14

1

Article XII END OF TERM	15
Article XIII EVENTS OF DEFAULT; LANDLORD’S REMEDIES; EXPENSES OF ENFORCEMENT	15
Section 13.1. Events of Default	15
Section 13.2. Termination of Lease; Reletting	16
Section 13.3. Termination of Lease; Money Judgment	16
Section 13.4. Expenses of Enforcement	16
Section 13.5. Landlord’s Right to Cure	16
Section 13.6. Bankruptcy of Tenant	17
Article XIV HOLDING OVER IN POSSESSION	19
Article XV MORTGAGES	19
Section 15.1. Subordination and Attornment	19
Section 15.2. No Personal Liability	20
Section 15.3. Notices to Mortgagee and Mortgagee Right to Cure	20
Section 15.4. Foreclosure; Deed in Lieu of Foreclosure	20
Section 15.5. Estoppel Certificates	21
Section 15.6. Mortgage and Other Obligations Binding on Tenant	21
Article XVI CERTAIN RIGHTS OF LANDLORD	21
Section 16.1. Right of Entry	21
Section 16.2. Sale or Transfer of Premises	22
Article XVII MISCELLANEOUS	22
Section 17.1. Effect of Payments by Tenant	22
Section 17.2. Waiver of Jury Trial	22
Section 17.3. No Joint Venture	22
Section 17.4. Effect of Waiver	22
Section 17.5. Real Estate Brokers	22
Section 17.6. Recitals	22
Section 17.7. Time of Essence	22
Section 17.8. Communications	23
Section 17.9. Successors and Assigns	23
Section 17.10. Severability	23
Section 17.11. Execution of Counterparts	23
Section 17.12. Entire Agreement	23
Section 17.13. Modification, Waiver and Termination	23
Section 17.14. Construction	23
Section 17.15. Governing Law	24
Section 17.16. Medical Waste	24
Section 17.17. Limitation of Landlord’s Liability	24
Section 17.18. No Merger	24
Section 17.19. Guaranty	24
Section 17.20. Financial Statements

Exhibit A Legal Descriptions of the Premises

Exhibit B Title Matters

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MASTER LEASE

THIS MASTER LEASE (the “Lease”) dated as of September 30, 2013, by and between DOC-GREYMARK HQ OKC MOB, LLC, a Wisconsin limited liability company (“Landlord”), and FOUNDATION SURGERY AFFILIATES, LLC, a Nevada limited liability company (“Tenant”).

WITNESSETH:

WHEREAS, as of the date hereof, Landlord is the owner of the Property (as defined in Section 1.2); and

WHEREAS, Tenant desires to lease from Landlord, and Landlord desires to lease to Tenant, the Premises (as defined in Section 1.2) on the terms and conditions set forth in this Lease.

NOW, THEREFORE, in consideration of the Premises and the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

ARTICLE I

LEASE OF PREMISES; POSSESSION

Section 1.1. Lease to Tenant. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises described in Section 1.2. below, for the Term provided for in Section 1.3. below, at the Rent provided for in Section 1.4. below, and under the other terms and conditions provided for in this Lease. Landlord and Tenant hereby acknowledge that the Premises are encumbered by certain leases in effect as of the date hereof and that this Lease is intended to be a master lease of the Premises. Tenant further acknowledges that it has reviewed the existing leases and is fully aware of all the terms, conditions and provisions of such leases. To the extent that the Premises, or any parts thereof, are subject to existing leases, Landlord and Tenant hereby agree that for purposes of this Lease, Tenant’s right to occupancy of those parts of the Premises that are so encumbered shall be subordinate to the rights of the tenants under the existing leases until such time as the existing leases expire or otherwise terminate. Tenant further agrees not to disturb the existing tenants, provided that such tenants are not in default under the terms of their leases. Upon expiration or termination of an existing lease, this Lease shall become the primary lease with respect to that part of the Premises previously encumbered by an existing lease. Furthermore, Tenant shall not enter into any new lease or sublease, or modify or extend any existing lease unless such new lease or sublease or modification or extension of any existing lease contains a provision that subordinates, without condition or exception, such new lease or sublease or modification or extension to the lien of any mortgage, now or hereinafter in effect, as well as this Lease.

Notwithstanding the foregoing subordination of Tenant’s right to occupancy with respect to those parts of the Premises currently encumbered by the aforementioned leases, Tenant shall be obligated to pay all Rent and perform all of the other obligations of Tenant as set forth in this Lease as if this Lease is the primary lease for all of the Premises. For purposes of this Lease, the existing leases shall be treated as subleases of this Lease between Tenant, as sublessor, and the existing tenants, as sublessees. Tenant, in addition to its obligations under this Lease, shall perform all of the obligations of the landlord under the existing leases and shall enforce all of the

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obligations of the tenants under the existing leases. In connection therewith, Landlord hereby grants to Tenant a revocable license to collect the rents and any other sums due under the existing leases. Upon an Event of Default (as defined in Section 13.1), the license granted to Tenant herein may be revoked by Landlord or Landlord’s Mortgagee (as defined in Section 2.2) and upon such revocation, Landlord or Landlord’s Mortgagee immediately shall be entitled to receive and apply all rents as Landlord or Landlord’s Mortgagee shall determine.

Section 1.2. Premises. The “Premises” being leased under this Lease consist of the medical office building containing approximately 51,462 square feet situated on certain real property owned by Landlord (the “Property”), as more particularly described on Exhibit A attached hereto and incorporated by reference herein, and includes all fixtures, equipment, appliances and other personal property attached or appurtenant to, located in or on, or used in connection with the ownership and operation of the Premises.

Section 1.3. Term. The term of this Lease shall be a period of ten (10) years commencing as of the Commencement Date (as defined in Section 2.1. ) (the “Term”), subject to earlier termination as provided herein.

Section 1.4. Rent. The “Rent” payable by the Tenant under this Lease shall consist of the Base Rent provided for in Section 4.1. hereof and the Additional Rent provided for in Section 4.2. hereof.

Section 1.5. Permitted Uses. Tenant may use the Premises as an ambulatory surgery center and for medical office and healthcare related uses (the “Permitted Uses”). In the event that Tenant desires to use the Premises for purposes other than as an ambulatory surgery center, medical office and healthcare related uses, Tenant shall obtain Landlord’s and Landlord’s Mortgagee’s (as “Landlord’s Mortgagee” is hereinafter defined) prior written consent, which consent may not be unreasonably withheld, conditioned or delayed by Landlord or Landlord’s Mortgagee.

Section 1.6. Delivery of Possession; Condition of Title. Landlord has good and marketable title to the Premises. Tenant acknowledges and agrees that it has, at all times, been in possession and occupancy of the Premises pursuant to the terms and conditions of the Original Lease and therefore, has full and complete knowledge of and responsibility for all conditions of the Premises, including, without limitation, the physical condition of the Premises and the Property, and the subleases described in Section 1.1(ii) affecting the Premises. Accordingly, subject to Section 1.1. above, Landlord has delivered actual and exclusive possession of the Premises to Tenant on the Commencement Date (as hereafter defined) in an “as is, where is” condition without representation or warranty. Tenant acknowledges that Landlord’s title to the Premises is subject to the matters set forth in Exhibit C attached to this Lease, each of which has been examined by and is acceptable to Tenant (the “Title Matters”). Except as agreed by Landlord and Tenant in writing, Tenant agrees to timely comply with any requirements contained in the Title Matters to the extent such matters are applicable to Landlord. Furthermore, the Premises are leased to Tenant in an “as is, where is” condition without representation or warranty by Landlord, subject to any state of facts which an accurate physical inspection might reveal and to all applicable laws now or hereafter in effect. Tenant waives any claim or action against Landlord in respect of the condition of the Premises. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE PREMISES OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, SUITABILITY, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT

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BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE PREMISES HAS BEEN INSPECTED BY TENANT AND IS SATISFACTORY TO IT. LANDLORD HEREBY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE RELATIVE TO THE PREMISES OR ANY COMPONENT PART THEREOF. Tenant acknowledges and agrees that no representations or warranties, express or implied, have been made by Landlord, or by any person, firm or agent acting or purporting to act on behalf of Landlord, as to (i) the presence or absence on or in the Premises of any particular materials or substances (including, without limitation, asbestos, hydrocarbons or hazardous or toxic substances), (ii) the condition or repair of the Premises or any portion thereof, (iii) the value, expense of operation or income potential of the Premises, (iv) the accuracy or completeness of any structural reports, environmental audits or other information provided to Tenant by any third party contractor relative to the Premises (regardless of whether the same were retained or paid for by Landlord), or (v) any other fact or condition which has or might affect the Premises or the condition, repair, value, expense of operation or income potential thereof. Tenant represents that the officers of Tenant are knowledgeable and experienced in the leasing of properties comparable to the Premises and agrees that Tenant will be relying solely on Tenant’s inspections of the Premises in leasing the Premises. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION BY LANDLORD OF, AND LANDLORD DOES HEREBY DISCLAIM, ANY AND ALL WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO THE PREMISES OR ANY PORTION THEREOF, WHETHER ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR OTHERWISE, AND TENANT HEREBY ACKNOWLEDGES AND ACCEPTS SUCH EXCLUSION, NEGATION AND DISCLAIMER.

ARTICLE II

COMMENCEMENT DATE; MORTGAGES

Section 2.1. Commencement Date. The “Commencement Date” of this Lease shall be the date of this Lease set forth above. Upon the Commencement Date, Tenant shall have the right to occupy the Premises and any part thereof, subject to the terms and conditions of this Lease.

Section 2.2. Right to Mortgage Property. Landlord and Tenant acknowledge that Landlord shall have the right to and may, from time to time, encumber the Property with a mortgage or deed of trust (a “Mortgage”) as security for a loan (a “Loan”) to Landlord or Landlord’s affiliates by a lender (which, together with its successors and assigns, and any future provider of Mortgage Debt (as defined herein), is referred to herein as the “Landlord’s Mortgagee”), subject to the provisions of Article XV herein. As used herein, the term “Mortgage Debt” shall refer to the Loan from the Landlord’s Mortgagee and any future loan or financing entered into by the Landlord.

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ARTICLE III

USE AND QUIET ENJOYMENT OF PREMISES

Section 3.1. Use of Premises. Tenant shall use the Premises solely for the Permitted Uses. No use shall be made or permitted to be made of the Premises, or acts done, that will cause a cancellation of any insurance policy covering the Premises, or any part thereof.

Section 3.2. Quiet Enjoyment. Landlord agrees that unless an Event of Default (as defined in Section 13.1. hereof) has occurred and is continuing, Tenant shall have quiet and peaceable possession of the Premises throughout the Term, without hindrance by Landlord or any persons claiming under Landlord, subject only to (i) this Lease, (ii) any Mortgage or other security device serving at any time a similar function, together with any and all amendments and supplements thereto upon or affecting the Premises and the Property, (iii) Landlord’s right to show the Premises, without material interference with Tenant’s use of the Premises, at any time to prospective purchasers and mortgagees of the Premises, and during the last eighteen (18) months of the Term, to prospective tenants of the Premises; and (iv) the Title Matters.

Section 3.3. Compliance with Applicable Laws. Tenant shall, at its sole cost and expense, comply with all applicable laws, ordinances, rules, regulations, directives and requirements (including those relating to environmental hazardous, toxic or regulated substances or materials whether or not such substances or materials existed on or in the Premises prior to the Commencement Date) relating to the Premises and/or Tenant’s activities on or about the Premises, and with all orders of court and all other tribunals and governmental or quasi-governmental departments, agencies and authorities relating to the Premises and/or Tenant’s activities on or about the Premises, and with all recorded covenants, conditions and restrictions relating to the Premises (including, but not limited to, the Title Matters) (hereinafter collectively referred to as “Legal Requirements”).

Section 3.4. Nuisance and Waste Prohibited. Tenant shall keep and maintain the Premises and abutting grounds, sidewalks, roads, parking and landscaped areas in good and neat order and repair and free of nuisance, and shall not commit or suffer to be committed any waste of the Premises.

ARTICLE IV

RENT

Section 4.1. Base Rent. Commencing upon the Commencement Date, Tenant shall pay to Landlord “Base Rent” for the first year of the Term an annual amount equal to One Million Two Hundred Forty-Eight Thousand and 00/100 Dollars ($1,248,000.00), payable in equal monthly installments of One Hundred Four Thousand and 00/100 Dollars ($104,000.00). On the first anniversary date of the Commencement Date, and on each anniversary date of the Commencement Date thereafter, the annual Base Rent shall be increased by two percent (2.0%).

Section 4.2. Additional Rent. In addition to paying the Base Rent provided for in Section 4.1. hereof, Tenant shall pay, during the Term of this Lease, as the same may be extended or renewed from time to time, any Additional Rent due hereunder, if any.

As used herein, the term “Additional Rent” shall mean all sums payable by Tenant under this Lease other than Base Rent, if any. Whenever the word “Rent” is used in this Lease it shall be deemed to include Base Rent and Additional Rent, unless the context specifically or clearly implies that only the Base Rent is referenced. All remedies available to Landlord pursuant to the terms of this Lease for non-payment of Base Rent shall be applicable for non-payment of Additional Rent.

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Section 4.3. Payment of Rent. The Rent shall be paid by Tenant to Landlord or as directed by Landlord in writing. Tenant shall pay the Base Rent in advance on or before the first (1^st) day of each month during the Term hereof. All Additional Rent shall be paid by Tenant when due or if payable to Landlord shall be payable within twenty (20) days after written demand therefor. All amounts to be paid to Landlord under this Lease shall be paid to Landlord at the address set forth in Section 17.8. hereof or at such other address as Landlord shall designate in writing from time to time. Past due Rent payments shall be deemed involuntary extensions of credit by Landlord and, commencing on the second failure to pay timely Rent in any consecutive twelve (12) month period, such past due Rent shall be subject to default interest rate penalties at an annual rate equal to the lesser of the prime rate as reported from time to time in The Wall Street Journal plus three percent (3%) or the highest rate allowed by applicable law (“Interest Rate”).

Section 4.4. Net Lease; Triple Net Rent. This Lease is and shall be a triple net type lease, and Landlord is not nor shall it be required to provide any services or do any act or thing with respect to the Premises except as specifically provided herein. Except as otherwise expressly provided in this Lease, all obligations of Tenant under this Lease for the payment of Rent and all other sums payable under the Lease and all obligations of Tenant to perform its obligations under this Lease shall constitute independent obligations of Tenant and shall be paid and performed by Tenant without abatement, deduction, counterclaim, recoupment, suspension, deferment, diminution, deduction, reduction, defense or setoff whatsoever and shall, to the extent not satisfied, survive the termination of this Lease. Except as otherwise expressly provided in this Lease, (i) this Lease shall not terminate, and Tenant shall not have any right to terminate this Lease, during the Term, and (ii) Tenant’s obligation to pay the Rent and to perform its obligations is absolute and unconditional and shall survive and not be limited, abated or otherwise affected by any occurrence, event or circumstance whatsoever, including, without limitation, any of the following: expiration or termination of this Lease for whatever reason, any partial or complete destruction from whatever cause; any constructive or actual eviction or dispossession of Tenant from the Premises for failure to pay Rent, or the failure or inability of the Tenant to use, occupy or enjoy the same; any foreclosure of any Mortgage Debt or other lien with respect to the Premises for failure to pay Rent; any sale of all or part of the Premises as long as the Lease remains in full force and effect; any bankruptcy or insolvency of Landlord; any action or non-action by Landlord or any other person with respect to Tenant or the Premises as long as the Lease remains in full force and effect.

Section 4.5. First Month’s Rent. Simultaneously with the execution and delivery of this Lease by Tenant to Landlord, Tenant shall pay to Landlord an amount equal to the first month’s Base Rent. Landlord shall apply the first month’s Base Rent to Tenant’s Base Rent obligations on the Commencement Date.

ARTICLE V

TAXES AND ASSESSMENTS; UTILITIES

Section 5.1. Taxes and Assessments. Tenant shall pay directly to the appropriate governmental entities on or before the due date thereof, all taxes, levies, fees, assessments and other governmental charges of every kind and nature (including, without limitation, real property, ad valorem, personal property, gross income, franchise, withholding, profits, rent, single business,

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value added, excise, occupancy, use, impact fees, sales and gross receipts taxes) (collectively, “Impositions”) levied upon the Premises or personal property located at or used in connection with operating the Premises whether the same shall become due and payable before, or after, and during any tax assessment year or period which is within or partially within, the Term, including all Impositions which may be partially within the Term, including all Impositions which may be assessed, levied or imposed in replacement of, or in addition to, all or any part of same, whether or not measured, calculated by or based upon the Premises or any estate or interest in the Premises or the revenue or income generated by the Premises, regardless of the time at which, or period for which, such Impositions are assessed or charged or the time that such Impositions become a lien against the Premises. Upon receipt of written request by Landlord or Landlord’s Mortgagee, Tenant shall provide proof of payment of Impositions.

Section 5.2. Utilities. Tenant shall be responsible for supplying all Utilities and for the cost of all Utilities for the Premises, including, without limitation, electricity, gas, water and sewer, telephone and all other communication services, and Landlord shall have no obligations for Utilities whatsoever. Tenant shall cause all such utility services to the Premises to be metered in its own name or in the name of its subtenants and shall pay or cause to be paid all charges and deposits for such utilities. Tenant shall use utilities only within the capacity of the circuits in the Premises. Landlord shall not be liable for damages resulting from utility interruptions caused by casualty, accident, labor dispute or any other cause (other than Landlord’s gross negligence or intentional misconduct), nor shall any interruptions be deemed an actual or constructive or partial eviction or result in any abatement of Rent.

Section 5.3. Other Charges. Tenant shall be responsible for all charges and/or taxes related to any easement or similar agreements, general and special assessments, condominium assessments and fees, levies, fees, vault charges, permits, inspection and license fees affecting the Premises.

ARTICLE VI

COVENANTS OF TENANT CONCERNING MAINTENANCE,

INDEMNIFICATION AND OTHER MATTERS

Section 6.1. Maintenance. Tenant shall maintain, and make all repairs, alterations and replacements (including, without limitation, all ordinary, extraordinary, foreseen and unforeseen repairs, alterations and replacements) necessary to operate and maintain the entire Premises in good condition and repair and in compliance with all applicable laws, ordinances, rules and regulations and any recorded covenants, conditions or restrictions relating to the Premises, and shall surrender the Premises when required by this Lease in good condition, reasonable use and wear excepted.

Additionally, Landlord and Tenant hereby acknowledge receipt of that certain Property Condition Report prepared by ADAMS Management Services Corporation, dated September 19, 2013 (the “Property Condition Report”). Landlord and Tenant shall review on an annual basis the “Deferred Maintenance Items” set forth in the Property Condition Report and shall reasonably and mutually agree upon those Deferred Maintenance Items that Tenant shall perform and the times upon which Tenant shall complete such Deferred Maintenance Items. In the event that Tenant fails to complete such agreed upon Deferred Maintenance Items within the agreed upon times, then, upon thirty (30) days written notice to Tenant, Landlord may perform such agreed upon Deferred Maintenance Items and all costs so incurred by Landlord shall be paid by Tenant

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as Additional Rent utilizing a capitalization rate of ten percent (10%) over the remaining Term of the Lease. Notwithstanding anything to the contrary contained herein, Landlord acknowledges that the Property Condition Report identifies certain maintenance required in connection with the windows of the Premises, that Tenant has filed an insurance claim in connection with such windows, and that Landlord shall reasonably cooperate with Tenant is the settlement of such insurance claim and performance of the maintenance of such windows.

Section 6.2. Alterations. Subject to the requirements of Article IX below and any insurers providing insurance coverage thereto, Tenant may make, at its sole cost and expense, such alterations, improvements and additions of any kind to the Premises (collectively referred to herein as the “Alterations”) as Tenant deems desirable in the conduct of its business provided that such Alterations: (a) do not reduce, diminish or otherwise adversely affect the fair market value or utility of the Premises, or any part thereof; (b) do not reduce, diminish or otherwise adversely affect the useful life of the Premises, or any part thereof; and/or (c) do not change the general character or use of the Premises or any part thereof. All alterations, improvements, expansions and additions to the Premises, or any part thereof, shall be made in a good and workmanlike manner and in compliance with applicable laws, ordinances, rules, regulations, codes and requirements and any recorded covenants, conditions or restrictions relating to the Premises, or any part thereof. All alterations, improvements, expansions and additions which are not movable trade fixtures shall be the property of Landlord and shall remain upon and be surrendered with the Premises. To the extent such Alterations involve changes to the structure or systems of the Premises, as reasonably determined by Tenant’s architect or engineer, Tenant shall furnish to Landlord, prior to the commencement of construction, the proposed plans and specifications for Landlord’s approval, which approval shall not be unreasonably withheld, conditioned or delayed, and upon completion of construction, “as-built” plans and specifications for such Alterations. Landlord shall provide Tenant with its objections, in writing, to Tenant’s proposed plans and specifications within fifteen (15) days after receipt from Tenant. Tenant shall submit revised plans and specifications until such time as Landlord has approved Tenant’s proposed plans and specifications for such Alterations. If Landlord fails to object, in writing, to Tenant’s proposed plans and specifications within fifteen (15) days after receipt from Tenant, Landlord shall be deemed to have approved such proposed plans and specifications.

Section 6.3. Landlord’s Non-liability; Indemnification of Landlord. Landlord shall not be liable for any loss, damage or injury of any kind or character to any person or property, arising from any use of the Premises, or any part thereof, or caused by any defect in any improvements located on the Premises, or any part thereof, or in any equipment or other facility therein, or caused by or arising from any act or omission of Tenant, or of any subtenants, agents, employees, contractors, subcontractors, licensees, or invitees of Tenant, or arising out of any work or Alterations performed by Tenant or any subtenant, or by or from any accident on the Premises, or any part thereof, or any fire or other casualty thereon, or occasioned by the failure of Tenant to maintain the Premises, or any part thereof, in safe condition, or arising from any other cause whatsoever. Tenant, as a material part of the consideration of this Lease, hereby waives on its behalf all claims and demands against Landlord for any such loss, damage or injury of Tenant, and hereby agrees to indemnify and hold Landlord entirely free and harmless from all liability for any such loss, damage or injury of Tenant, and hereby agrees to indemnify and hold Landlord entirely free and harmless from all liability for any such loss, damage or injury of all other persons, and from all costs and expenses arising therefrom (including reasonable attorneys’ fees and expenses), unless such loss, damage or injury is caused by the gross negligence of Landlord or intentional acts of Landlord. Tenant agrees to pay, and to protect, indemnify, and save harmless Landlord from and against any and all liabilities, losses, damages, costs, expenses (including reasonable attorneys’ fees and expenses), causes of action, suits, claims, demands, or

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judgments of any nature whatsoever arising from (i) any injury to or the death of, any person, or damage to property, in, on or about the Premises, or any part thereof, or upon adjoining public sidewalks, streets, or ways, or in any manner growing out of or connected with the use, nonuse, condition, or occupation of the Premises, or any part thereof, or resulting from the condition thereof or of adjoining public sidewalks, streets or ways; (ii) violation by Tenant of any agreement or condition of this Lease; (iii) violation by Tenant of any contract or agreement to which Tenant is a party or of any restriction, statute, law, ordinance, or regulation, in each case affecting the Premises, or any part thereof, or the ownership, occupancy or use thereof; and (iv) (1) the presence of any “Hazardous Material” (as defined below) on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or release of any Hazardous Material from, the Premises or any part thereof, (2) any liens against the Premises, or any part thereof, permitted or imposed by any Environmental Laws (as defined below), or any actual or asserted liability or obligations of Landlord or any of its affiliates or subsidiaries under any Environmental Laws, and (3) any actual or asserted liability or obligations of Tenant or any of its affiliates or subsidiaries under any Environmental Laws; provided however, Tenant shall not be responsible for indemnifying Landlord for any of the foregoing matters caused solely by Landlord’s gross negligence or intentional misconduct. Tenant hereby acknowledges and agrees that Tenant was the tenant under the Original Lease for the Premises. Tenant further agrees that the terms and conditions of this Section 6.3. . shall apply to any and all matters under the Original Lease notwithstanding that such matters may have occurred or arisen prior to the date of this Lease or during the term of this Lease. Landlord, as used in this Section 6.3. ., shall include any beneficiary of any trust or any agent, employee, or representative of Landlord or any trustee and the Landlord’s Mortgagee and their shareholders, directors, officers, employees, agents, representatives, members and partners. Any indemnification under this Section 6.3. . shall constitute Additional Rent payable within twenty (20) days of demand and shall survive the termination or expiration of this Lease, including without limitation, the termination or rejection of this Lease in bankruptcy. Provided, however, for any obligation of Tenant to defend Landlord hereunder, Tenant shall have the right to select the attorneys to defend Landlord, then and in that event, Tenant shall not be liable for any attorneys’ fees of Landlord other than those of counsel selected to defend Landlord.

For purposes of this Lease, the following terms shall have the following respective meanings:

(i) “Hazardous Material” means any hazardous substance or any pollutant or contaminant defined as such in (or for purposes of) the Comprehensive Environmental Response, Compensation, and Liability Act, any so-called “Superfund” or “Superlien” law, The Toxic Substances Control Act, or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree, now or hereafter in force, regulating, relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material; asbestos or any substance or compound containing asbestos; polychlorinated biphenyls or any substance or compound containing any polychlorinated biphenyl; petroleum and petroleum products; pesticides; and any other hazardous, toxic or dangerous waste, substance or material.

(ii) “Environmental Laws” means the Comprehensive Environmental Response, Compensation, and Liability Act, any so-called “Superfund” or “Superlien” law, the Toxic Substances Control Act, or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree, now or hereafter in force, regulating, relating to, or imposing liability or standards of conduct concerning any Hazardous Material.

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Section 6.4. No Liens. Tenant shall not create or suffer to be created or to remain, directly or indirectly, and will discharge or promptly cause to be discharged, or file a bond or otherwise, any lien, charge or encumbrance on, all or any part of the Premises (each an “Encumbrance”), including, without limitation, any mechanic’s, materialmen’s, contractor’s or subcontractor’s liens arising from or any claim for damage growing out of any Alterations, construction, repair, restoration, replacement or improvement related to the Premises caused by Tenant. Tenant shall have the right to contest any such mechanics lien, materialmen’s lien or other lien. If Tenant fails to remove or bond over any such Encumbrance within thirty (30) days after written notice thereof from Landlord, Landlord may, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or otherwise, or bond over, without any investigation or contest of the validity thereof, and any amounts expended by Landlord in so doing, including costs, expenses and reasonable attorneys’ fees, shall constitute Additional Rent payable within twenty (20) days of demand and shall survive the termination of this Lease.

ARTICLE VII

RIGHT TO CONTEST

Landlord shall have the right to contest all Impositions at Landlord’s sole cost and expense. Landlord shall give notice to Tenant of Landlord’s contest to any Impositions. Landlord agrees that each such contest shall be promptly prosecuted to its final conclusion, except to the extent deemed commercially unreasonable by Landlord, in Landlord’s sole discretion. Landlord shall give notice to Tenant of any increases in Impositions, and in the event Landlord elects not to contest any Impositions, then and in that event, Tenant shall have the right to contest such Impositions. If Landlord elects to not contest such Impositions, Tenant shall have the right to contest any Impositions upon written notice to Landlord. Tenant agrees that each such contest shall be promptly prosecuted to a final conclusion. If necessary in the prosecution of any such contest, Landlord shall join with Tenant as a party to such contest, and Tenant shall pay, and save Landlord and Landlord’s Mortgagee, if any, harmless against, any and all losses, judgments, decrease and costs (including reasonable attorneys’ fees and expenses) in connection with any such contest and shall, promptly after the final settlement, compromise, or determination of such contest, fully pay and discharge the amounts that shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, and perform all acts, the performance of which shall be ordered or decreed as a result thereof. No such contest shall subject Landlord to the risk of any civil or criminal liability.

ARTICLE VIII

DAMAGE OR DESTRUCTION BY FIRE OR OTHER CASUALTY

If, during the Term, the Premises is partially or totally damaged or destroyed by fire or other casualty, Tenant shall, at its sole cost and expense, repair and restore the Premises as speedily as possible, to the value, character and condition existing prior to such damage or destruction in accordance with the provisions of this Lease applicable to maintenance and repair, alterations and restoration. If the insurance proceeds resulting from such fire or other casualty are payable to the Landlord’s Mortgagee or the holder of any future Mortgage Debt, then the obligation of Tenant to so repair and restore the Premises shall be subject to the availability to Tenant of such proceeds to the extent needed to pay for such repair or restoration, In the event insurance proceeds are not made available to the Tenant, then Tenant shall not be obligated to

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repair and restore the Premises until such time as Landlord has made available to Tenant funds in an amount equal to the insurance proceeds paid to the Landlord’s Mortgagee or the holder of any future Mortgage Debt, and Rent shall continue to be paid by Tenant for so long as rent loss and/or business interruption insurance proceeds are available, after which Rent shall abate; provided, however, if Landlord fails to make such funds available within twelve (12) months after the date of such casualty, Tenant shall have the right to cancel and terminate this Lease. Landlord shall use commercially reasonable efforts in good faith at Tenant’s expense to cause insurance proceeds to be made available to Tenant by Landlord’s Mortgagee for purposes of such repair and restoration. Tenant shall be obligated to meet all reasonable conditions imposed on the use of any such insurance proceeds by the Landlord’s Mortgagee. If such insurance proceeds are made available to Tenant by the Landlord’s Mortgagee or the holder of any future Mortgage Debt and are insufficient to repair and restore the Premises, Tenant shall be required to make up such deficiency out of Tenant’s own funds. Except as provided above, there shall be no abatement or reduction of any Rent under this Lease due to any such damage, destruction or repair or restoration and Tenant shall have no right to terminate this Lease notwithstanding the partial or total destruction of all or any part of the Premises.

ARTICLE IX

INSURANCE AND WAIVER OF SUBROGATION

Section 9.1. Property Insurance. Tenant shall, at Tenant’s cost and expense, insure the Premises against loss or damage normally covered under commercial property insurance policies (including, without limitation, earthquake, flood, boiler and machinery, war risk and acts of terrorism (if and to the extent such coverages are generally available at commercially reasonable rates), and rent loss and/or business interruption) and otherwise with such coverages, deductibles, sub-limits, and exclusions as are typical for owners of real estate similar to the Premises from time to time and/or as are required by applicable law. Such insurance shall be for the full insurable value (actual replacement value without deduction for physical deterioration) of the Premises, shall name Landlord as additional insured, Landlord’s Mortgagee as first mortgagee/secured party, and Landlord and Landlord’s Mortgagee as loss payees, and shall provide that the insurance for the Premises, as required herein, shall not be canceled or changed without at least thirty (30) days’ prior written notice to Landlord, Tenant and the Landlord’s Mortgagee. Tenant shall, from time to time and upon the written request of Landlord or the Landlord’s Mortgagee, furnish the requesting party with certificates of insurance demonstrating that such insurance is in full force and effect.

Section 9.2. Liability and Other Insurance. Tenant shall, at Tenant’s cost and expense, obtain and keep in force a policy or policies of commercial general liability insurance covering the Premises and any losses or claims arising in whole or in part from the use of the Premises, naming Landlord as named insured, and Tenant and the Landlord’s Mortgagee as additional insureds, which as of the Commencement Date shall be with minimum single limit of coverage for any one occurrence of not less than $1,000,000 with an aggregate of not less than $3,000,000 and an excess liability policy of not less than $10,000,000. Landlord’s liability insurance shall provide that it is primary coverage and not excess over or contributory with any other insurance coverage (including any other insurance maintained by the Landlord or the Tenant). All such insurance shall provide that the liability insurance, as required herein, shall not be canceled or changed without at least thirty (30) days’ prior written notice to Landlord, Tenant and Landlord’s Mortgagee. Notwithstanding anything to the contrary contained in this Section 9.2. , all such insurance shall at all times be in such amounts and on such terms and conditions as are

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commercially reasonable. Landlord shall from time to time upon the written request of the Tenant (or the Landlord’s Mortgagee) furnish to the requesting party certificates of insurance demonstrating that all such insurance is in full force and effect. Tenant shall reimburse Landlord for all of Landlord’s costs and expenses incurred in connection with the foregoing promptly upon written request from Landlord. Landlord shall include with its written request paid invoices or such other evidence of payment and/or expense.

Section 9.3. Additional Insurance. Tenant shall, at Tenant’s cost and expense, obtain and keep in force a policy or policies of the following insurance covering the Premises:

(i) If the Premises, or any part thereof, is located within a one hundred (100) year flood plain area designated by Federal Emergency Management Agency, flood and such other hazards and in such amounts as may be customary for comparable properties in the area and if available from insurance companies authorized to do business in the state in which the Premises are located at rates which are economically practicable in relation to the risks covered.

(ii) If Tenant shall engage or cause to be engaged any contractor to perform work any Alterations in, on or about the Premises, the estimated cost of which will exceed $100,000.00, Tenant shall require such contractor to carry and maintain, at no expense to Landlord, commercial general liability insurance, builder’s risk insurance, including but not limited to contractor’s liability coverage, completed operations coverage, broad form property damage endorsement, workers compensation, and contractor’s protection liability coverage in such amounts and with such deductibles and such companies as are customary for the Alterations to be performed. Upon Landlord or Landlord’s Mortgagee’s written request, Tenant shall provide evidence of that such insurance is in full force and effect.

Section 9.4. Tenant’s Right to Insure; Waiver of Subrogation. Tenant, at its sole cost and expense, shall have the right to directly procure any or all of the insurance required to be provided by Landlord pursuant to this Article IX, provided that such insurance and such insurance provider meet all of the requirements of this Article IX and such other commercially reasonable requirements as may be required by Landlord’s Mortgagee from time to time. In the event that Tenant elects to directly procure such insurance, Tenant shall remain liable for all of Landlord’s costs incurred in connection with Landlord’s obligation to provide such insurance under this Article IX, less any refunds or return of premiums actually received by Landlord. Any insurance maintained by either Landlord or Tenant shall provide that, to the extent permitted by law, the insurer waives all rights of subrogation against the Landlord and Tenant, as applicable, and their agents or employees, with respect to losses payable under the policy.

Section 9.5. Insurance Company Rating Requirements. All policies of insurance required under this Lease shall be placed with insurance companies having claims paying ratings no lower than A.M. Best “A-” or equivalent NAIC rating, from time to time.

ARTICLE X

EMINENT DOMAIN

If the Premises are taken in their entirety under the power of eminent domain by, or conveyed in lieu of such exercise to, any public authority, then Tenant’s obligations as to the Premises shall terminate as of the date upon which title to the Premises shall become vested in the

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condemning authority. If the entire parking area associated with the Premises or substantially all of the parking area associated with the Premises shall be taken at any time during the term of this Lease for any public or quasi-public purpose by any lawful power or authority, by the exercise of right of condemnation or eminent domain, or by agreement between Landlord, Tenant and those authorized to exercise such right, and Landlord fails to provide suitable replacement parking in connection therewith, then this Lease shall terminate as of the date upon which title to the parking area shall become vested in the condemning authority. Subject to the parking area provisions, if less than all of the Premises is so taken or conveyed, Tenant’s obligations as to the Premises shall not terminate, Rent shall abate and be reduced proportionally to such taking, and Tenant shall, at its sole cost and expense, restore the balance of the Premises to a complete structural unit that can be operated on an economically feasible basis under the provisions of this Lease using the proceeds of the condemnation. If the condemnation proceeds resulting from such taking or conveyance are payable to the Landlord, Landlord’s Mortgagee or the holder of any future Mortgage Debt, then the obligation of Tenant to so restore the balance of the Premises shall be subject to the availability to Tenant of such proceeds to the extent needed to pay for such restoration. Landlord shall use commercially reasonable efforts in good faith to cause such proceeds to be made available to Tenant for such purpose. In the event Landlord, Landlord’s Mortgagee or the holder of any future Mortgage Debt do not make the condemnation proceeds available to Tenant to restore the balance of the Premises, then and in that event, Tenant will have the option to terminate the Lease or restore the balance of the Premises and receive an abatement of Rent during the restoration and a proportionate reduction in Rent for the remainder of the term of the Lease. Tenant shall be obligated to meet all reasonable conditions imposed on the use of any such proceeds by the Landlord’s Mortgagee or any holder of future Mortgage Debt. If such proceeds are made available to Tenant by the Landlord’s Mortgagee or the holder of any future Mortgage Debt and such proceeds are insufficient to restore the Premises as described above, Tenant shall be required to make up such deficiency out of Tenant’s own funds. All damages awarded for any taking of all or any part of the Premises shall belong to Landlord, except that Tenant shall be entitled to any award made for removal and reinstallation of Tenant’s fixtures, moving expenses, loss of business and loss of its leasehold interest. In the event that Landlord elects not to do so, Tenant, at its sole cost and expense, shall have the right to contest any such eminent domain proceedings, including, but not limited to, the right to contest the proposed amount of any such award.

ARTICLE XI

ASSIGNMENT AND SUBLETTING

Provided that, at all times, (i) no Event of Default (as defined in Section 13.1. ) under this Lease has occurred and is continuing; (ii) the sublease is expressly subject and subordinate to this Lease; and (iii) Tenant shall remain primarily liable for all of Tenant’s obligations under this Lease, Tenant may sublet the Premises, in whole or in part, without Landlord’s consent (“Permitted Subleases”). Upon any such sublease or upon any assignment of this Lease by Tenant, Tenant shall remain primarily liable to Landlord for timely payment and performance of all Rent and other obligations under this Lease. Tenant agrees to promptly notify Landlord in writing of all Permitted Subleases the Tenant enters into under this Lease. Landlord may accept Rent, Additional Rent, and any other sums that may become due under this Lease directly from any subtenant as agent for Tenant and require attornment of such subtenant in the event that this Lease is terminated or fails for any reason whatsoever. Notwithstanding anything contained herein to the contrary, Landlord’s consent shall not be required for, and nothing shall prohibit or restrict any leasehold mortgage entered into by Tenant, or any assignment of this Lease or

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subletting of a part or the whole of the Premises by Tenant: (i) to an affiliate of Tenant; (ii) in conjunction with any consolidation, reorganization, merger, acquisition, or private placement involving Tenant or any of its affiliate(s); (iii) to any corporation or other business entity purchasing all or substantially all of the assets of Tenant or any of its affiliate(s); or (iv) in conjunction with any offering, sale, listing, redemption, hypothecation, conversion, exchange, transfer or other similar disposition of all or any portion of the membership interests of Tenant or any of its affiliate(s).

ARTICLE XII

END OF TERM

Tenant shall surrender actual and exclusive possession of the entirety of the Premises to Landlord at the end of the Term, in good condition, subject to reasonable wear and tear, subject only to such tenancies and occupancies permitted to remain in effect beyond the expiration of the Term to which Landlord has previously agreed in writing and Permitted Subleases.

ARTICLE XIII

EVENTS OF DEFAULT; LANDLORD’S REMEDIES; EXPENSES OF ENFORCEMENT

Section 13.1. Events of Default. The occurrence of any one or more of the following shall constitute an “Event of Default” under this Lease:

(i) Tenant shall fail to pay when due any Rent or other amount owed to Landlord under this Lease; or

(ii) Tenant shall fail to perform any other covenant or agreement in this Lease and such failure shall continue for a period of thirty (30) days after receipt of written notice from Landlord (or if such failure is not capable of being cured within thirty (30) days, such reasonable time thereafter not to exceed ninety (90) days, provided that Tenant has commenced such cure within the thirty (30) day period and is diligently proceeding to cure such failure), or if any such failure involves a hazardous condition or a failure to maintain insurance required by the Lease, such failure is not cured by Tenant immediately upon notice to Tenant; or

(iii) Tenant shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file or have filed against it a petition in any proceeding seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such proceeding shall not be vacated or discharged within thirty (30) days, or shall be adjudicated insolvent or bankrupt, or a receiver, trustee, custodian or other similar official shall be appointed for Tenant or for all or any substantial part of its property, or a substantial part of its property shall be attached, executed upon or otherwise impressed with a lien in favor of one or more creditors, and such appointment, attachment, execution or lien shall not be vacated or discharged within thirty (30) days; or

(iv) Tenant dissolves or liquidates.

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Section 13.2. Termination of Lease; Reletting. Upon the occurrence of any Event of Default, in addition to any other remedies provided by law, Landlord may terminate this Lease, or Landlord may, without terminating this Lease in accordance with applicable law, re-enter the Premises or any property comprising part of the Premises and dispossess Tenant or any other occupant of the Premises or any property comprising part of the Premises and remove Tenant’s and/or such other occupant’s effects and relet the Premises or any property comprising part of the Premises for the account of Tenant for such rent and on such terms as shall be satisfactory to Landlord, crediting the actual proceeds of reletting (after deducting the costs and expenses of re-entry, alterations and additions and the expense of reletting) to the unpaid amounts due under this Lease during the remainder of the Term and Tenant shall remain liable to Landlord for the balance owed. Tenant shall not be entitled to any rents received by Landlord which exceed the balance owed by Tenant to Landlord calculated as provided in the immediately preceding sentence.

Section 13.3. Termination of Lease; Money Judgment. Upon termination of this Lease as a result of the occurrence of an Event of Default in accordance with applicable law, Landlord shall be entitled as final and liquidated damages to a money judgment against Tenant in the amount of the aggregate of the following: (i) all unpaid Rent due on or before the date of termination, together with interest thereon at the Interest Rate; (ii) the excess, if any, of all Rent which would have become due on or before the date of the judgment but for the termination over the fair market rental value of the Premises for such period, taking into account a reasonable vacancy and lease up factor, together with interest thereon at the Interest Rate; and (iii) the excess, if any, of all Rent which would come due after the date of the judgment but for the termination of this Lease over the fair rental value of the Premises for such period, taking into account a reasonable vacancy rate and lease up factor, discounted to present value using as a discount factor the discount rate of the Federal Reserve Bank of Chicago in effect at the time of judgment.

Section 13.4. Expenses of Enforcement. If, at any time during the Term of this Lease, either Landlord or Tenant shall institute any action or proceeding against the other which is related to or arises out of the provisions of this Lease or any default hereunder, then each party shall bear its own costs and expenses, including, without limitation, attorneys’ fees and expenses.

Section 13.5. Landlord’s Right to Cure. Landlord may assign its rights under this Section to the Landlord’s Mortgagee upon written notice to Tenant. If Tenant shall fail to make any payment, or to perform any act required to be made or performed under this Lease and to timely cure the same, Landlord, without waiving or releasing any obligation or Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of Tenant, and may, to the extent permitted by law, enter upon the Property for such purpose and take all such action thereon as, in Landlord’s opinion, may be necessary or appropriate therefore, and no such entry shall be deemed an eviction of Tenant. Tenant shall immediately repay the same to Landlord, upon demand, together with all costs and expenses so incurred, together with a late charge thereon, all to the extent permitted by law, at the Interest Rate from the date on which such sums or expenses are paid or incurred by Landlord. The obligations of Tenant and rights of Landlord contained in this Article shall survive the expiration or earlier termination of this Lease.

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Section 13.6. Bankruptcy of Tenant.

(a) In the event that Tenant shall become a debtor in a case filed under Chapter 7 of the Bankruptcy Code and Tenant’s trustee or Tenant shall elect to assume this Lease for the purpose of assigning the same or otherwise, such election and assignment may be made only if the provisions of Section 13.6. (b) and Section 13.6. (d) are satisfied as if the election to assume were made in a case filed under Chapter 11 of the Bankruptcy Code. If Tenant or Tenant’s trustee shall fail to elect to assume this Lease within sixty (60) days after the filing of such petition or such additional time as provided by the court within such 60-day period, this Lease shall be deemed to have been rejected and immediately thereupon Landlord shall be entitled to possession of the Premises without further obligation to Tenant or Tenant’s trustee and this Lease upon the election of Landlord shall terminate, but Landlord’s right to be compensated for damages (including, without limitation, liquidated damages pursuant to any provision hereof) or the exercise of any other remedies in any such proceeding shall survive, whether or not this Lease shall be terminated.

(b) (i) In the event that Tenant shall become a debtor in a case filed under Chapter 11 of the Bankruptcy Code, or in a case filed under Chapter 7 of the Bankruptcy Code which is transferred to Chapter 11, Tenant’s trustee or Tenant, as debtor-in-possession, must elect to assume this Lease within sixty (60) days from the date of the filing of the petition under Chapter 11 or the transfer thereto or such additional time as provided by the court or Tenant’s trustee or the debtor-in possession shall be deemed to have rejected this Lease. In the event that Tenant, Tenant’s trustee or the debtor-in-possession has failed to perform all of Tenant’s obligations under this Lease within the time periods (excluding grace periods) required for such performance, no election by Tenant’s trustee or the debtor-in-possession to assume this Lease, whether under Chapter 7 or Chapter 11, shall be permitted or effective unless each of the following conditions has been satisfied:

(1) Tenant’s trustee or the debtor-in possession has cured all Events of Default under this Lease, or has provided Landlord with Assurance (as defined below) that it will cure all Events of Default susceptible of being cured by the payment of money within ten (10) days from the date of such assumption and that it will cure all other Events of Default under this Lease which are susceptible of being cured by the performance of any act promptly after the date of such assumption.

(2) Tenant’s trustee or the debtor-in-possession has compensated Landlord, or has provided Landlord with Assurance that within ten (10) days from the date of such assumption it will compensate Landlord, for any actual pecuniary loss incurred by Landlord arising from the default of Tenant, Tenant’s trustee, or the debtor-in-possession as indicated in any statement of actual pecuniary loss sent by Landlord to Tenant’s trustee or the debtor-in-possession.

(3) Tenant’s trustee or the debtor-in-possession has provided Landlord with Assurance of the future performance of each of the obligations of Tenant, Tenant’s trustee or the debtor-in-possession under this Lease, and, if Tenant’s trustee or the debtor-in-possession has provided such Assurance, Tenant’s trustee or the debtor-in-possession shall also (i) deposit with Landlord, as security for the timely payment of rent hereunder, an amount equal to one (1) installment of Rent (at the rate then payable) which shall be applied to installments of Rent in the inverse order in which such installments shall become due provided all the terms and provisions of this Lease shall have been complied with, and (ii) pay in advance to Landlord on the date each installment of Rent is payable a pro rata share of Tenant’s annual obligations for Additional Rent pursuant to this Lease, such that Landlord shall hold funds sufficient to satisfy all such obligations as they become due. The obligations imposed upon Tenant’s trustee or the debtor-in-possession by this Section shall continue with respect to Tenant or any assignee of this Lease after the completion of bankruptcy proceedings.

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(4) The assumption of this Lease will not breach or cause a default under any provision of any other lease, mortgage, financing arrangement or other agreement by which Landlord is bound.

(ii) For purposes of this Section 13.6. , Landlord and Tenant acknowledge that “Assurance” shall mean no less than: Tenant’s trustee or the debtor-in-possession has and will continue to have sufficient unencumbered assets after the payment of all secured obligations and administrative expenses to assure Landlord that sufficient funds will be available to fulfill the obligations of Tenant under this Lease, and (x) there shall have been deposited with Landlord, or the Bankruptcy Court shall have entered an order segregating, sufficient cash payable to Landlord, and/or (y) Tenant’s trustee or the debtor-in-possession shall have granted a valid and perfected first lien and security interest and/or mortgage in property of Tenant, Tenant’s trustee or the debtor-in-possession, acceptable as to value and kind to Landlord, to secure to Landlord the obligation of Tenant, Tenant’s trustee or the debtor-in-possession to cure the Events of Default under this Lease, monetary and/or non-monetary, within the time periods set forth above.

(c) In the event that this Lease is assumed in accordance with Section 13.6. (b) and thereafter Tenant is liquidated or has filed against it (without dismissal within sixty (60) days thereafter) or files a subsequent petition under Chapter 7 or Chapter 11 of the Bankruptcy Code, Landlord may, at its option, terminate this Lease and all rights of Tenant hereunder by giving Tenant notice of its election to so terminate within thirty (30) days after the occurrence of any such event.

(d) If Tenant’s trustee or the debtor-in-possession has assumed this Lease pursuant to the terms and provisions of Section 13.6. (a) or Section 13.6. (b) for the purpose of assigning (or elects to assign) this Lease, this Lease may be so assigned only if the proposed assignee (the “Assignee”) has provided adequate assurance of future performance of all of the terms, covenants and conditions of this Lease to be performed by Tenant. Landlord shall be entitled to receive all cash proceeds of such assignment. As used herein “adequate assurance of future performance” shall mean no less than that each of the following conditions has been satisfied;

(i) the Assignee has furnished Landlord with either (1) (x) a copy of a credit rating of Assignee which Landlord reasonably determines to be sufficient to assure the future performance by Assignee of Tenant’s obligations under this Lease and (y) a current financial statement of Assignee audited by a certified public accountant indicating a net worth and working capital in amounts which Landlord reasonably determines to be sufficient to assure the future performance by Assignee of Tenant’s obligations under this Lease, or (ii) a guarantee or guarantees, in form and substance satisfactory to Landlord, from one or more persons with a credit rating and net worth equal to or exceeding the credit rating and net worth of Tenant as of the date hereof.

(ii) Landlord has obtained all consents or waivers from others required under any lease, mortgage, financing arrangement or other agreement by which Landlord is bound to permit Landlord to consent to such assignment.

(e) when, pursuant to the Bankruptcy Code, Tenant’s trustee or the debtor-in-possession shall be obligated to pay reasonable use and occupancy charges for the use of the Premises, such charges shall not be less than the Rent payable by Tenant under this Lease.

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(f) Neither the whole nor any portion of Tenant’s interest in this Lease or its estate in the Premises shall pass to any trustee, receiver, assignee for the benefit of creditors, or any other person or entity, by operation of law or otherwise under the laws of any state having jurisdiction of the person or property of Tenant unless Landlord shall have consented to such transfer. No acceptance by Landlord of rent or any other payments from any such trustee, receiver, assignee, person or other entity shall be deemed to constitute such consent by Landlord nor shall it be deemed a waiver of Landlord’s right to terminate this Lease for any transfer of Tenant’s interest under this Lease without such consent.

(g) In the event of an assignment of Tenant’s interests pursuant to this Section 13.6. , the right of Assignee to extend the term of this Lease for an extended term beyond the then term of this Lease shall be extinguished.

Section 13.7 Default by Landlord. If Landlord shall fail to perform any covenant or obligation required to be performed by Landlord under the terms of this Lease and such failure shall continue for a period of thirty (30) days after receipt by Landlord of written notice thereof from Tenant or if Landlord shall fail to pay any sums due to Tenant under this Lease on the date the same shall become due and payable hereunder, and such failure shall continue for a period of thirty (30) days after receipt by Landlord of written notice thereof from Tenant [unless such failure is of such a nature that it cannot be cured within said thirty (30) day period, in which event Landlord shall not be in default hereunder if it shall have commenced to cure said default within said thirty (30) day period and diligently prosecute said cure to completion], then Tenant may, as its sole remedy under this Lease, cure any covenant or obligation which Landlord has failed to perform, and any sums expended by Tenant in curing such failure shall be paid by Landlord to Tenant immediately upon demand, and shall bear interest at the Interest Rate from the date of demand; or (b) bring suit to recover from Landlord all sums due Tenant from Landlord together with interest at the Interest Rate.

ARTICLE XIV

HOLDING OVER IN POSSESSION

If Tenant shall retain possession of all or any part of the Premises beyond the expiration or termination of this Lease, Tenant (i) shall pay to Landlord one hundred twenty-five percent (125%) of the Base Rent payable for the last month of the Term of this Lease and any Additional Rent due to Landlord for each month that Tenant holds possession of any part of the Premises after expiration or termination of this Lease; (ii) shall also pay all costs incurred and damages sustained by Landlord, whether direct or consequential, on account of such holding over; and (iii) such tenancy shall be month to month and otherwise upon such terms and conditions (including rent) as Landlord shall specify.

ARTICLE XV

MORTGAGES

Section 15.1. Subordination and Attornment. This Lease shall be subject and subordinate to any Mortgage that may hereafter be placed upon the Premises, or any part thereof, and to all amounts secured thereby, and to all renewals, replacements and extensions of any of the foregoing, except to the extent that any Mortgage provides otherwise, provided that any such mortgagee agrees in writing to not disturb Tenant’s occupancy and possession of the Premises, so

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long as Tenant is not then in default. Tenant further agrees that, in the event of a foreclosure of any Mortgage or of a conveyance in lieu thereof, it will attorn to the mortgagee or to the purchaser at any foreclosure sale, as the case may be, upon the condition that such mortgagee or purchaser shall agree in writing to recognize Tenant and this Lease, so long as Tenant is not then in default. Tenant agrees that such mortgagee or purchaser shall not be bound to recognize (i) Tenant’s payment of any Rent if paid more than one (1) month in advance or (ii) any amendment to this Lease without such mortgagee’s consent. Tenant shall at Landlord’s request execute such further instruments or assurances as any mortgagee or purchaser may request to evidence (i) the subordination of this Lease or to acknowledge the superiority of this Lease, as the case may be upon the condition that such mortgagee or purchaser shall agree in writing to recognize Tenant and this Lease and agree to a non-disturbance of the Tenant, (ii) Tenant’s attornment agreement, and/or (iii) the acknowledgment of the express obligations of Tenant to the Landlord’s Mortgagee that are provided for in this Lease. Prior to the Landlord entering into a Mortgage, Landlord shall exercise commercially reasonable efforts to procure a subordination, nondisturbance and attornment agreement from Landlord’s Mortgagee in form and content reasonably acceptable to Tenant, pursuant to which such Mortgagee agrees that so long as there is not then a default by Tenant under this Lease which is not cured within the applicable cure period, Mortgagee shall not disturb Tenant’s use of the Premises if lender forecloses upon or otherwise takes possession of the Premises.

Section 15.2. No Personal Liability. In no event shall any Mortgagee of the Premises, or any part thereof, its nominee, or the purchaser at a foreclosure sale have any personal liability whatsoever for any representations, warranties, covenants or agreements of Landlord hereunder or in connection herewith, or any liability for any security deposit or other sums deposited with Landlord, or for any previous prepayment of Rent to Landlord, unless actually received by such Mortgagee, nominee or purchaser.

Section 15.3. Notices to Mortgagee and Mortgagee Right to Cure. Provided Tenant receives written notice of the name and address of Landlord’s Mortgagee having an interest in the Premises, Tenant agrees that in the event of any default by Landlord hereunder, Tenant shall send written notice of the default to Landlord’s Mortgagee. Landlord’s Mortgagee shall have thirty (30) days after the written notice from Tenant is sent within which to cure the default, and if the default is not capable of being cured within the 30-day period, then Landlord’s Mortgagee shall have a reasonable time thereafter to effect such cure, provided that Landlord’s Mortgagee commences to cure the same within the initial 30-day period and diligently pursues such cure until completed. Notwithstanding any provision of this Lease to the contrary, Tenant shall not have any right or remedy pursuant to this Lease or otherwise due to Landlord’s default unless Tenant shall have first given notice of the default to Landlord’s Mortgagee and unless Landlord’s Mortgagee shall have failed to cure the default within the time required by this Section 15.3. . Tenant will accept performance by Landlord’s Mortgagee of any covenant, agreement or obligation of Landlord contained in this Lease with the same effect as though performed by Landlord. Nothing in this Section 15.3. shall be construed to require Landlord’s Mortgagee to cure a default by Landlord.

Section 15.4. Foreclosure; Deed in Lieu of Foreclosure. The provisions of this Article XV shall apply in the event of a foreclosure of any Mortgage or conveyance in lieu of foreclosure, notwithstanding the fact that the mortgagee thereunder may, directly or indirectly, own or have an interest in Landlord or an interest in the Premises in addition to its interest under such Mortgage.

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Section 15.5. Estoppel Certificates. From time to time upon written request of Landlord or Tenant, the other shall deliver to the requesting party within fifteen (15) days of receipt of the request, a statement in writing by such party or its duly authorized representative having knowledge of the following facts, certifying (i) that this Lease is unmodified and in full force and effect or, if there have been modifications, an itemized description of such modifications and that this Lease as modified is in full force and effect; (ii) the dates to which Rent and other amounts payable hereunder have been paid; (iii) that the requesting party is not in default under any provision of this Lease, or, if in default, the nature thereof in detail; and (iv) such further matters as may be reasonably requested by the requesting party. It is the intention of the parties that any such statement may be relied upon by any auditors, accountants, lenders, prospective lenders, mortgagees or prospective mortgagees, or any prospective or subsequent purchaser or transferee of all or a part of Landlord’s interest in the Premises. In connection with the financing, sale or transfer of the Premises by Landlord, Tenant shall execute and deliver to Landlord whatever instruments may be required by Landlord for such purposes, or Tenant shall be in default under this Lease upon the expiration of such 15-day period.

Section 15.6. Mortgage and Other Obligations Binding on Tenant. Any and all obligations of and limitations on Landlord under any Mortgage on the Premises, or any part thereof, or any ground lease, including, without limitation, payment of property taxes and expense reimbursements, lien prohibitions, maintenance, repair, alterations, replacements and restoration obligations, required insurance coverages, and restrictions on use of insurance and condemnation proceeds, shall be binding on and be the responsibility of Tenant, subject to the provisions of this Lease. Landlord agrees that, if it grants or creates any mortgage, lien, or encumbrance (“Encumbrances”) upon the Premises, Landlord’s Mortgagee shall agree (a) to give Tenant the same notice, if any, given to Landlord of any default or acceleration of any obligation underlying any such Encumbrance or any sale in foreclosure of such Encumbrance, (b) to permit Tenant to cure any such default on Landlord’s behalf within any applicable cure period, in which event Landlord agrees to reimburse Tenant for any and all out-of-pocket costs and expenses incurred to effect any such cure (including reasonable attorneys’ fees), (c) to permit Tenant to appear with its representatives and to bid at any foreclosure sale with respect to any such Encumbrance, provided that no Event of Default by Tenant exists under the Lease, (d) that, if subordination by Tenant is requested by Landlord’s Mortgagee, to enter into an agreement with Tenant containing the provisions described in Section 15.1. of this Lease. Tenant shall be permitted to mortgage, pledge, grant or assign a security interest in its leasehold and contract rights hereunder. Landlord and Tenant shall not modify this Lease without the express prior written consent of the Landlord’s Mortgagee.

ARTICLE XVI

CERTAIN RIGHTS OF LANDLORD

Section 16.1. Right of Entry. Landlord reserves, and shall at all times have, the right to enter the Premises, or any part thereof, to inspect the same, to supply any service to be provided by Landlord to Tenant hereunder, to show the Premises, or any part thereof. Tenant hereby waives any claim, related to Landlord’s entry into the Premises, for damages for any injury, inconvenience to or interference with Tenant’s business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby, other than damages or injury caused solely by the gross negligence or intentional act of Landlord. For each of the aforesaid purposes, Landlord shall at all times have and retain keys with which to unlock all of the doors in, upon or about the Premises, or any part thereof, and Landlord shall have the right to use any and all means which Landlord may deem reasonably necessary or proper to open such doors in an

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emergency in order to obtain entry. Tenant is aware that Landlord may deposit keys to the Premises, or any part thereof, in lock boxes for the benefit of the local fire departments, and Tenant hereby waives any and all claims against Landlord resulting from Landlord’s deposit of keys in the lock boxes for the benefit of the local fire departments. If Tenant changes the locks to any doors in the Premises, or any part thereof, Tenant shall immediately provide Landlord with a key for such new lock. Any entry to the Premises, or any part thereof, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or any part thereof, or an eviction, of Tenant.

Section 16.2. Sale or Transfer of Premises. Landlord shall have the right to sell, assign or otherwise transfer, in whole or in part, its interest in the Premises and the Property without Tenant’s consent.

ARTICLE XVII

MISCELLANEOUS

Section 17.1. Effect of Payments by Tenant. No payment by Tenant or receipt by Landlord of a lesser amount than the total amount then due and payable shall be deemed to be other than on account, nor shall any such payment be deemed an accord and satisfaction. Landlord may accept any payment without prejudice to any outstanding demand or action for possession, notice of default or notice of termination. No payment by Tenant after termination of this lease shall reinstate this Lease or extend the Term or waive or affect any notice given or proceedings commenced.

Section 17.2. Waiver of Jury Trial. Intentionally omitted.

Section 17.3. No Joint Venture. This Lease does not create a joint venture or partnership between Landlord and Tenant or Landlord and the Landlord’s Mortgagee or the Landlord’s Mortgagee and Tenant.

Section 17.4. Effect of Waiver. No waiver of performance of any agreement in this Lease shall be binding against the party alleged to have waived unless the waiver shall be in writing. No waiver shall be extended by implication, custom or practice to any situation or circumstance not expressly described and shall not be interpreted as applying to any obligations of a recurring nature, unless so stated with particularity.

Section 17.5. Real Estate Brokers. Landlord and Tenant each represents and warrants to the other that it has not dealt with any real estate broker or brokers in connection with this Lease. In the event that any claim for any broker’s or finder’s fee or commission in connection with the negotiation, execution or consummation of this Lease is made by any person or entity, each party shall defend, indemnify and hold the other harmless from and against any such claim.

Section 17.6. Recitals. The recitals hereto are hereby incorporated into and made a part of this Lease.

Section 17.7. Time of Essence. Time is of the essence of this Lease and each and every provision hereof.

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Section 17.8. Communications. All communications provided for herein shall be in writing and shall be deemed to be given or made when served personally or two (2) business days after deposit in the United States mail, registered or certified, return receipt requested, postage prepaid, addressed as follows:

If to Landlord:	c/o Physicians Realty L.P.
	250 East Wisconsin Avenue, Suite 1900
	Milwaukee, WI 53202
	Attn: Mark D. Theine
If to Tenant:	Foundation Surgery Affiliates, LLC
	14000 N. Portland, Suite 203
	Oklahoma City, Oklahoma 73143
	Attn: Stanton Nelson
With a copy to:	c/o Foundation Surgery Affiliates, L.L.C.
	14000 N. Portland, Suite 204
	Oklahoma City, Oklahoma 73143
	Attn: Marcelo Puiggari, General Counsel

Or to such party at such other address as such party may designate by notice duly given in accordance with this Section to the other party.

Section 17.9. Successors and Assigns. The rights and obligations of the parties to this Lease shall inure to the benefit of, and shall be binding upon, their respective successors, and assigns.

Section 17.10. Severability. In the event any provision of this Lease shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.

Section 17.11. Execution of Counterparts. This Lease may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Section 17.12. Entire Agreement. This Lease sets forth all of the covenants, promises, agreements, conditions and understandings of the parties relating to the subject matter of this Lease, and there are no covenants, promises, agreements, conditions or understandings, either oral or written, between them other than as are herein set forth. This Lease supersedes all prior written and oral communications relating to the subject matter of this Lease.

Section 17.13. Modification, Waiver and Termination. This Lease and each provision hereof may not be modified, amended, changed, altered, waived, terminated or discharged unless consented to by a written instrument signed by Landlord’s Mortgagee and the party sought to be bound by such modification, amendment, change, alteration, waiver, termination or discharge.

Section 17.14. Construction.

(a) The words “hereof,” “herein,” “hereunder,” and other words of similar import refer to this Lease as a whole not to the individual Sections in which such terms are used.

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(b) References to Sections and other subdivision of this Lease are to the designated Sections and other subdivision of this Lease as originally executed.

(c) The headings of this Lease are for convenience only and shall not define or limit the provisions hereof.

(d) Where the context so requires, words used in the singular shall include the plural and vice versa, and words of one gender shall include all other genders.

Section 17.15. Governing Law. This Lease shall be governed exclusively by and construed in accordance with the applicable laws of the State of Oklahoma without giving effect to its choice of law or conflicts of laws provisions.

Section 17.16. Medical Waste. At all times during the term of the Lease and any extension(s) thereof, Tenant, at Tenant’s sole cost and expense, shall make all necessary arrangements for the removal of all waste generated by Tenant, in accordance with all applicable rules, regulations and environmental laws regulating disposal of medical waste, and shall cause any subtenants or others occupying any portion of the Premises to dispose of all their waste in the same manner.

Section 17.17. Limitation of Landlord’s Liability. Anything contained in this Lease to the contrary notwithstanding, Tenant agrees that it shall look solely to the estate and property of the Landlord in the Premises for the collection of any judgment (or other judicial process) requiring the payment of money by Landlord for any default or breach by Landlord of any of its obligations under this Lease, subject, however, to the prior rights of any ground or underlying landlord or the holder of any mortgage covering the Improvements or of Landlord’s interest therein. No other assets of the Landlord shall be subject to levy, execution or other judicial process for the satisfaction of Tenant’s claim. Nothing herein contained shall be construed to limit any right of injunction against the Landlord, where appropriate.

Section 17.18. No Merger. In no event shall the leasehold interests, estates, or rights of Tenant hereunder merge with any interests, estates, or rights of Landlord or of any mortgagee in or to any and all of the Premises, it being understood that such leasehold interests, estates, and rights of Tenant hereunder shall be deemed to be separate and distinct from Landlord’s and any mortgagee’s interests, estates, and rights in or to the Premises, notwithstanding that any such interests, estates, or rights shall at any time or times be held by or vested in the same person or entity.

Section 17.19. Financial Statements. Tenant shall provide to Landlord and Landlord’s Mortgagee the following:

(i) If Tenant’s financial statements are audited and certified by its public accountants, then within one hundred eighty (180) days after the end of each of Tenant’s fiscal years, a copy of the audited consolidated balance sheets of Tenant and its consolidated Subsidiaries as of the end of such fiscal year, and related audited consolidated statements of income, changes in common stock and other stockholders’ equity and changes in the financial position of Tenant, its consolidated Subsidiaries for such fiscal year, prepared in accordance with generally accepted accounting principles (‘GAAP’) applied on a basis consistently maintained throughout the period involved, together with the certification from Tenant’s accountants;

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(ii) within 45 days after the end of each fiscal quarter (including the last fiscal quarter during each fiscal year of the Tenant), (A) a copy of the unaudited consolidated balance sheets of Tenant and its consolidated Subsidiaries as of the end of such fiscal quarter, and related unaudited consolidated statements, changes in common stock and other stockholders’ equity and changes in the financial position of Tenant, and its consolidated Subsidiaries for such fiscal quarter, (B) a statement of income of Tenant and its consolidated Subsidiaries that sets forth the results for both such fiscal quarter and year-to-date, in all cases prepared in accordance with GAAP applied on a basis consistently maintained throughout the applicable period, (C) all quarterly consolidated financial reports Tenant produces and (D) an Officer’s Certificate stating that to the best of the signer’s knowledge and belief after making due inquiry such quarterly financial statements are true, accurate and correct;

(iii) within thirty (30) days after they are required to be filed with the Securities and Exchange Commission (‘SEC’), copies of any annual reports and of information, documents and other reports, or copies of such portions of any of the foregoing as the SEC may prescribe, which Tenant is required to file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934;

(iv) promptly upon Tenant’s receipt thereof, copies of all written communications received by Tenant from any regulatory agency relating to (A) surveys of the Premises for purposes of licensure, Medicare and Medicaid certification and accreditation which identify material violations or required changes relating to operation of the Premises, and (B) any proceedings, formal or informal, with respect to cited deficiencies with respect to services and activities provided and performed at the Premises, including patient and resident care, patient and resident activities, patient and resident therapy, maintenance, or the condition of the Premises, and involving an actual or threatened warning, imposition of a material fine or a penalty, or suspension, termination or revocation of any Premises’ license to be operated in accordance with its Permitted Use; and

(v) with reasonable promptness, such other information respecting (A) the financial and operational condition and affairs of Tenant and the Premises, (B) the physical condition of the Premises and (C) any suspected Transfer, including the then equity or voting ownership in Tenant in each case as Landlord may reasonably request, in the form of a questionnaire or otherwise, from time to time.

Tenant shall be obligated to furnish Landlord with all certificates and statements required under this Section 17.20 in a format reasonably acceptable to Landlord by (i) delivery of printed copies of the same to Landlord at its address for notice purposes under this Lease or any other address that Landlord may from time to time designate in writing or (ii) electronic delivery of the same to Landlord at any electronic mail address that Landlord may from time to time designate in writing.

[Signatures appear on following pages]

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IN WITNESS WHEREOF the parties have executed this Lease as of the date first above written.

LANDLORD:
DOC-GREYMARK HQ OKC MOB, LLC, a Wisconsin limited liability company
By:	Physicians Realty, L.P., a Delaware limited partnership, its Manager
	By:	Physicians Realty Trust, a Maryland real estate investment trust, its general partner
		By:
			John T. Thomas
			President and Chief Executive Officer

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IN WITNESS WHEREOF the parties have executed this Lease as of the date first above written.

TENANT:
FOUNDATION SURGERY AFFILIATES, LLC, a Nevada limited liability company
By:
	Robert M. Byers, Manager

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EXHIBIT A

LEGAL DESCRIPTION OF THE PROPERTY

EXHIBIT B

TITLE MATTERS

Those certain exceptions set forth on Schedule B of that certain Commitment for Title Insurance No. 1309-0004-23 issued by First American Title Insurance Company, dated September 9, 2013. The Title Matters shall be updated upon the issuance of the final title insurance policy issued by First American Title Insurance Company.

EX-10.24

Exhibit 10.24

LEASE AGREEMENT

THIS LEASE AGREEMENT (the “Lease”) is made effective the 1^st day of December, 2005 (the “Commencement Date”), by and between Foundation Bariatric Real Estate of San Antonio, L.P., an Texas limited liability company (“Lessor”), and Foundation Bariatric Hospital of San Antonio, L.P., a Texas limited partnership (“Lessee”).

W I T N E S S E T H:

WHEREAS, the Lessor is the owner of certain real property located at 9550 Huebner Rd., San Antonio, Texas 78240, legally described at Exhibit “A”, attached as a part hereof together with the improvements located thereon consisting of a building, parking, walkways and related facilities (sometimes referred to herein as the “Property” or the “Leased Premises”); and,

WHEREAS, the parties desire that the Lessor lease the entire Property to the Lessee, all in accordance with the terms and provisions of this Agreement;

NOW, THEREFORE, in consideration of the rents, covenants, and agreements herein contained, the parties agree as follows:

1. Lease. The Lessor does hereby demise and lease to the Lessee, and the Lessee does hereby rent from the Lessor the Leased Premises, together with all rights, easements, entrances, exits, approaches and appurtenances relating thereto and the right to use in common with the Lessor the parking, driveway and walkway facilities located thereon.

2. Term. The initial term of this Lease shall be for a period of fifteen (15) years commencing on the Commencement Date (the “Initial Term”).

3. Renewal Options. Provided the Lessee shall not then be in default of its obligations under this Lease, the Lessee shall have the continuing right and option to extend the term of this Lease beyond the Initial Term for two (2) additional successive periods of five (5) years each (each a “Renewal Term”) on the same terms as contained in this Lease except for the amount of Rent payable hereunder as stated in paragraph 4 hereof, and provided that the Lessee shall have no option to extend the term of this Lease beyond the last of the above-stated Renewal Terms. The Lessee will be deemed to have exercised the foregoing option to extend the term of this Lease for each Renewal Term unless it serves written notice on the Lessor that the Lease term not be so extended on or before one hundred twenty (120) days prior to the commencement date of such Renewal Term.

4. Rent. During the Initial Term of this Lease, the Lessee covenants and agrees to pay to Lessor Rent for the Leased Premises on the first day of each calendar month in advance during the term hereof (prorated in the case of the first and last months if less than a full calendar month). “Rent” shall be the amount of “Base Rent” for the initial term of this Lease as set forth on Schedule 4 hereto, plus all other amounts due under this Lease. If the Lessee exercises its right to extend the term of this Lease, the Base Rent for each month of the first Renewal Term will equal one hundred five percent (105%) of the monthly Base Rent during the Initial Term of the Lease, and monthly Base Rent for the second Renewal Term shall equal one hundred five percent (105%) of the monthly Base Rent during the first Renewal Term.

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5. Absolute Net Lease. This Lease is an absolute net lease, and Base Rent and all other sums payable hereunder shall be paid without notice, demand, counterclaim, setoff, deduction, abatement, suspension, deferment, diminution or reduction. Except as otherwise expressly provided in this Lease, the Lessee shall at all times remain bound by this Lease and shall at all times remain obligated to pay the stated rentals and all other sums required by this Lease. The Lessee expressly acknowledges and agrees that the Lessor is not obligated to perform any services of any nature with respect to the Leased Premises after the Commencement Date except as may be specifically provided in this Lease.

6. Leased Premises Use. Lessee may use the Leased Premises only as a health care facility, including but not limited to a hospital, and for purposes related thereto. The Lessee agrees not to use the Leased Premises for any illegal purpose.

7. Lessee’s Maintenance. After the Commencement Date, the Lessee, at its expense, will keep the Leased Premises and all improvements located thereon in a good and clean condition and state of repair, subject to ordinary wear and tear and casualty loss, and will promptly, at its own expense, make all necessary or appropriate repairs, replacements and renewals thereof. Without limiting the generality of the foregoing, the Lessee acknowledges that Lessee’s obligations under this paragraph include the maintenance, repair and replacement of plumbing, electrical components, doors, windows, HVAC systems, and interior walls on or serving the Leased Premises. The Lessor shall have no obligation to repair or maintain the Leased Premises or any portion or component thereof. All repairs, replacements and renewals made by the Lessee shall be at least equal in quality, utility and class to the original condition of the Leased Premises on the Commencement Date. The Lessee further covenants and agrees that the Lessee will not commit or suffer to be committed any waste of the Leased Premises. At the expiration of the Lease term, the Lessee will remove all of its equipment, trade fixtures, furniture and personal property placed by it in the Leased Premises (but excluding all tenant improvements which, on installation, shall become part of the Property of the Lessor), immediately repair any damage caused by the removal thereof, and will surrender the Leased Premises in as good order as the same is on the Commencement Date, reasonable wear and tear and casualty loss excepted.

8. Inspection; Right to Perform. The Lessor and its authorized representatives may enter upon the Leased Premises at all reasonable times (after advance notice and scheduling to avoid interference with Lessee’s business thereon) for the purpose of inspecting the same to determine whether the Lessee has performed its covenants and agreements under paragraph 7 of this Lease or for the purpose of doing any work pursuant to this paragraph and taking all such action as may be reasonably necessary or appropriate for any such purpose (but nothing herein contained shall create or imply any duty on the part of Lessor to do any such work). If any such inspection reveals that the Lessee has not fully performed its covenants and agreements under paragraph 7 hereof, the Lessor will give written notice thereof to the Lessee, and if the Lessee does not undertake performance of such covenant or agreement within fifteen (15) days after receipt of such notice and diligently proceed to perform the same, the Lessor, without waiving or releasing

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any obligation or default of Lessee, may (but shall be under no obligation to) at any time thereafter perform such covenant or agreement for the account of and at the expense of the Lessee and take all such action as, in the reasonable opinion of the Lessor, may be necessary or appropriate therefore. No such entry by the Lessor or its authorized representatives for such purposes shall constitute an eviction of the Lessee. All reasonable costs and expenses (including, without limitation, attorneys’ fees and expenses) incurred by the Lessor in connection with the performance by Lessor of any such covenant or agreement of Lessee shall constitute additional rent hereunder and will be paid by the Lessee within twenty (20) days after the Lessor’s written demand therefor.

9. Lessee’s Maintenance. The Lessee agrees to maintain in good condition the driveways, walkways, parking areas and landscaping located on the Property, as well as the structural components of the building including the roof, load-bearing walls and foundation.

10. Utilities. The Lessee will pay for all charges for water, sewerage, telephone, electricity, gas, trash collection and other utilities serving the Leased Premises and the Lessee will not permit any lien to be filed against the Lessor by reason of such charges.

11. Lessor’s Insurance. Commencing on the Commencement Date and continuing for the remaining term of this Lease, the Lessor, at the cost and expense of the Lessee, shall provide, maintain and keep in force the following policies of insurance covering the Leased Premises:

a. Insurance to cover loss or damage by fire, vandalism and malicious mischief, extended coverage perils commonly known as “All Risk” and all physical loss perils, including but not limited to sprinkler leakage, in an amount not less than 100% of the actual replacement cost thereof from time to time;

b. Insurance for loss of rental under a rental value insurance policy covering risk of loss during the first twelve months of reconstruction necessitated by the occurrence of any of the hazards described herein; and,

c. Such other insurance as may be reasonably required by the Lessor or its lender on the Project, including flood insurance if the Leased Premises is in an area identified as a special flood hazard area pursuant to the Flood Disaster Protection Act of 1973 as amended, earthquake insurance and such other insurance as is commonly obtained by prudent owners of property similar in use to and in the same area of the Leased Premises.

At the time premiums for such policies of insurance are due, the Lessor will submit to the Lessee a copy of the invoice thereof and a certificate of insurance showing the type and amount covered by such invoice, and the Lessee will pay the amount of such invoice to the Lessor within twenty (20) days after receipt thereof. If Lessor’s lender shall require that anticipated annual premiums for any policies of insurance required by this Lease be paid to such lender to be held in escrow until payment of such premiums, then Lessee will pay Lessor the amount of such estimated premiums on a monthly basis at the time of and in addition to each installment of Base Rent due

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hereunder and, in the event such payments are not sufficient to pay in full such premiums as the same come due, Lessee shall also pay to the Lessor the shortage thereof within twenty (20) days after Lessor’s written request therefore. In the event of monthly payments of estimated premiums, the Lessor will annually during the term of this Lease provide the Lessee with an accounting of such payments made, premiums paid and the type and amount of insurance purchased thereby.

12. Lessee’s Insurance. Commencing on the Commencement Date and continuing for the remaining term of this Lease, the Lessee, at its sole cost and expense, shall provide, maintain and keep in force the following policies of insurance:

a. Comprehensive general liability insurance on an occurrence basis against claims for personal injury including, without limitation, bodily injury, death or property damage occurring on, in or about the Leased Premises and the adjoining streets, sidewalks and passageways, providing coverage of not less than $1,000,000.00 with respect to personal injury or death to any one or more persons or damage to property. Such policy of liability insurance shall name the Lessor and the Lessee as insureds thereunder and will provide that no cancellation thereof or reduction in coverage will be effective except on at least thirty (30) days prior written notice to the Lessor. On the Commencement Date and at least ten (10) days prior to each renewal of such policy of liability insurance, the Lessee will deliver to the Lessor a copy of such policy or a certificate evidencing such renewal, together with evidence of the payment of the premium therefore; and,

b. Such additional insurance of the types and amounts as determined by the Lessee, including casualty insurance covering Lessee’s furniture, equipment and other property located in the Leased Premises, it being understood that the Lessor will not carry any insurance on property of the Lessee or others located in the Leased Premises, and the Lessor shall not be liable for the theft or misappropriation thereof or for any damages or injury thereto.

13. Waiver of Subrogation. The Lessor and the Lessee expressly waive each in favor of the other all rights of recovery that either of them might have against the other for any and all liability and expense for loss, damage or destruction of property resulting from perils ordinarily covered by standard policies of fire and extended coverage insurance and originating from any cause whatsoever, including negligent acts or omissions of the parties, their agents or employees, so long as such waiver is available under standard forms of insurance coverage.

14. Taxes. The Lessor will pay when due all real estate taxes and assessments coming due on the Property during the term of this Lease and the Lessee will pay to Lessor all such taxes. If at any time during the term of this Lease, Lessor’s lender on the Property shall require that anticipated real estate taxes be paid to such lender to be held in escrow until payment thereof, then Lessee will pay Lessor the Lessee’s share of such estimated taxes (as determined above) on a monthly basis at the time of and in addition to each installment of Base Rent due hereunder and, in the event such payments are not sufficient to pay in full such taxes as the same come due,

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Lessee shall also pay to Lessor the shortage thereof within twenty (20) days after demand therefore. The Lessee also agrees to pay, promptly as and when the same shall become due and payable, and to hold Lessor harmless therefrom, all taxes and assessments, other than real estate taxes, of every character that may be assessed, levied, confirmed or imposed on or in respect of or be a lien upon (a) the Leased Premises or any part thereof or any rent therefrom or any right or interest therein, or (b) any acquisition, occupancy, use, leasing or possession of or activity conducted on the Leased Premises or any part thereof or any gross receipts thereof or of the rent therefrom; provided that, the Lessee shall not be required to pay any income, profits or revenue tax upon the net income of the Lessor, nor any franchise, excise, corporate, estate, inheritance, succession, capital levy or transfer tax of Lessor.

15. Damage or Destruction. The parties agree that if, at any time during the primary or any renewal term of this Lease, the Leased Premises or any part thereof are partially or totally destroyed by fire or other casualty and the same can be repaired or restored within one hundred twenty (120) days from the occurrence of such damage, then the Lessor will undertake repair and restoration of the Leased Premises at its cost with due diligence and return the Leased Premises to at least as good a condition as existed prior to such damage or destruction within such one hundred twenty (120) day period.

a. Major Damage or Destruction. If, at any time during the primary or any renewal term of this Lease, the Leased Premises or any part thereof are partially or totally destroyed by fire or other casualty and the same cannot reasonably be repaired or restored within one hundred twenty (120) days from the occurrence of such damage, then the Lessor and the Lessee shall each have the option to terminate and cancel this Lease effective the date of such casualty by giving written notice of such cancellation to the other party within thirty (30) days after the happening of such damage. In the event neither party so elects to terminate this Lease, then such repairs will be made with due diligence by and at the cost of the Lessor to at least as good as condition as existed prior to such damage or destruction.

b. Rent Abatement. All Base Rent and other sums payable hereunder shall be abated during the period the Leased Premises are damaged and untenantable.

c. Lessee’s Improvements. Unless this Lease is canceled and terminated in accordance with the foregoing provisions, repair or replacement of the improvements or property of the Lessee on the Leased Premises shall be the obligation of and at the cost of the Lessee, provided that Lessor will make available to Lessee any insurance proceeds received by Lessor which are specifically designated as payment for damage or destruction of such improvements or property which Lessee is obligated herein to repair or replace.

16. Eminent Domain. In the event all or any significant portion of the Building or any portion of the Leased Premises which is reasonably necessary to provide access to or parking for such Building shall be taken by any public or quasi-public authority under the power of eminent domain, then Lessor and Lessee shall each have the option to terminate this Lease by giving written notice of such termination to the other within ninety (90) days after receipt of notice of such taking. If either Lessor or Lessee elects to terminate, then this Lease shall terminate on the

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day title is transferred to such authority and rent shall be paid up to that date. In the event neither shall elect to terminate this Lease, Lessor will diligently undertake repair, restoration or modification of the Leased Premises required as a result of such taking and the Base Rent payable hereunder will be abated and/or adjusted in an equitable manner to reflect any diminished value (either temporary or permanent) of the Leased Premises as a result of such taking. The Lessor hereby reserves to itself all rights to receive all condemnation awards for the taking of all or any portion of the Leased Premises, and the Lessee hereby waives and releases to the Lessor all of the Lessee’s rights to such awards. However, nothing herein shall be deemed to prohibit the Lessee from seeking a separate award for its damages arising from such condemnation.

17. Hazardous Substances. Lessee agrees that it will not dispose of or otherwise release any Hazardous Substances (as hereinafter defined) on or about the Leased Premises during the term of this Lease except as permitted by regulations for hospitals and healthcare facilities. In the event any Hazardous Substances shall be disposed of or otherwise released on or about the Leased Premises by Lessee, its employees or agents, then Lessee, at its cost, will promptly take such action as may be required by law to remove and abate such Hazardous Substances from the Leased Premises, and Lessee agrees to indemnify and hold the Lessor harmless therefrom. As used herein, the term “Hazardous Substances” shall have the meaning specified in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, as the same may be amended from time to time.

18. Lessee’s Default. If (i) the Lessee defaults in the payment of any rent or other amounts due under the Lease and such default continues for ten (10) days after the Lessee’s receipt of written notice of such default, or (ii) the Lessee defaults in performance or observance of any of its covenants or obligations provided herein other than payment of rent and fails to remedy the same within thirty (30) days after the Lessee’s receipt of written notice of such default, or if such default is of the type that cannot reasonably be cured within thirty (30) days, the Lessee shall not have commenced to cure such default within such thirty (30) day period and diligently proceed to cure the same; then, in any of such events, the Lessor shall be entitled to exercise all rights and remedies afforded the Lessor in the State where the Leased Premises are located arising from such default. Without limiting the foregoing, the Lessor may, at the Lessor’s option, terminate this Lease or may, without such termination, enter into the Leased Premises, remove the Lessee’s property therefrom, and relet the Leased Premises, but in the event of Lessor’s re-entry, such re-entry shall not work a forfeiture of the rents to be paid and the covenants to be performed by the Lessee during the full term of this Lease. The mention herein of any particular remedy shall not preclude the Lessor from any other remedy which the Lessor might have, either in law or in equity, nor shall consent to one act which would otherwise be a violation of a covenant or condition of this Lease prevent a subsequent violation from having all the force and effect of an original violation.

19. Lessor’s Default. If the Lessor fails to perform any covenant, agreement, undertaking or obligation imposed upon it in this Lease, and fails to remedy the same within thirty (30) days after notice thereof by the Lessee to the Lessor, or if such default is of the type that cannot reasonably be cured within thirty (30) days, the Lessor shall not have commenced to cure such default within such thirty (30) day period and diligently proceed to cure the same, then the

6

Lessee may undertake to perform such covenant, agreement, undertaking or obligation of and on behalf of the Lessor, and if the Lessor does not pay to the Lessee the reasonable cost thereof within ten (10) days after receipt of a statement therefor, the Lessee may recover from the Lessor the cost of such performance by Lessee.

20. Alterations. The Lessee will not make any alterations or additions to the exterior of the building, make any structural changes to the building, or otherwise make any such changes whatsoever to the Property without first obtaining the Lessor’s written consent, which consent will not be unreasonably withheld. The Lessee agrees that the Lessee will not allow or permit any mechanics’, materialmen’s or laborers’ liens to attach to the Property as a result of any such work by the Lessee, and agrees to hold the Lessor harmless therefrom. If any such lien shall be filed, the Lessee shall cause the same to be removed within fifteen (15) days thereafter by payment of the underlying claim or the posting of a bond or bonds in the manner provided by the law of the State where the Property is located. All such alterations and additions, excepting only trade fixtures, equipment and merchandise of the Lessee, shall be and become part of the Building and shall not be removed by the Lessee on termination of this Lease.

21. Subordination. At the option of the Lessor, this Lease will be subject and subordinate to any existing or future mortgage or ground lease covering the Property, provided that any such mortgage or ground lease or a separate agreement shall contain a provision whereby the mortgagee or ground lessor agrees not to disturb the possession of the Lessee, nor to terminate any interest or right of the Lessee created by this Lease by foreclosure or otherwise so long as the Lessee shall not be in default under any provision of this Lease. From time to time, within twenty (20) days after request by the Lessor, the Lessee will execute and deliver to Lessor or the holder of a mortgage encumbering the Leased Premises a Subordination, Attornment and Nondisturbance Agreement and/or an Estoppel Certificate in reasonable form setting forth the agreements contained in this paragraph and/or the current status of this Lease. The word “mortgage”, when used herein, includes mortgages, deeds of trust or other similar instruments used in connection with obtaining financing.

22. Lessor’s Warranties. The Lessor warrants it is the owner of merchantable title to the Property (subject to easements, restrictions and mineral interests previously reserved or conveyed of record) and has full right and authority to execute this Lease. The Lessor covenants that the Lessor will warrant and forever defend the rights of the Lessee to possession and quiet enjoyment of the Leased Premises against all persons whomsoever so long as the Lessee shall observe the terms of this Lease.

23. Indemnification. The Lessee shall indemnify and save harmless the Lessor from all loss, cost, damage, expense and attorneys’ fees which the Lessor might sustain or incur on account of any claim, demand, lien or suit of any person or persons by reason of the operation and conduct of the business of the Lessee on the Leased Premises or on account of any condition existing on the Leased Premises under the control of the Lessee.

24. Holding Over. In the event the Lessee remains in possession of the Leased Premises, or any part thereof, after the expiration of the term of this Lease, the Lessee shall be deemed to be occupying the Leased Premises as a Lessee from month to month, otherwise subject to all conditions, provisions and obligations of this Lease insofar as the same are applicable to a month-to-month tenancy.

7

25. Entry; Signs. The Lessor and its authorized representatives may enter upon the Leased Premises at all reasonable times (after advance notice and scheduling to avoid interference with Lessee’s business thereon) for the purpose of exhibiting the Leased Premises for the purpose of sale, mortgage or other financing thereof. No signs advertising the sale or lease of the Leased Premises will be placed on the Leased Premises except during the last one hundred twenty (120) days of the term of this Lease, if the same has not been extended as herein provided.

26. Interest. Any amount not paid within ten (10) days after the date that it is due under the terms of this Lease will bear interest at the rate of twelve percent (12%) per annum until the same is paid in full.

27. Attorneys’ Fees. In any action brought to enforce or defend any rights or obligations under this Lease, the prevailing party shall be entitled to its fees and costs, including reasonable attorneys’ fees, in addition to other relief awarded.

28. Assignment and Subletting. The Lessee shall not assign this Lease or sublease the Leased Premises or any part thereof without the prior written consent of the Lessor, which consent will not be unreasonably withheld.

29. Notices. Any bill, statement, notice or other communication to be rendered by the Lessor or Lessee, shall be deemed sufficiently given if the same be in writing and personally delivered, sent by overnight courier, or mailed by certified mail, postage prepaid, return receipt requested, to the other party at its address at the Property and by delivering a copy of each such notice to Foundation Management Affiliates, L.P., 13900 North Portland Ave., Suite 200, Oklahoma City, Oklahoma, 73134-4005.

30. Binding Effect. This Lease constitutes the entire agreement between the parties on the subject matter hereof and may not be changed, modified, amended or supplemented except in writing, signed by both of the parties. All oral or other written agreements, promises and arrangements in relation to the subject matter of this Lease Agreement are hereby rescinded. This Lease will be binding on each of the parties and their respective heirs, personal representatives, successors, and assigns. If any part of this Lease is held to be unenforceable, the balance will nevertheless be effective and enforceable.

31. Time. Time is of the essence with regard to this Lease and of all provisions hereof.

32. Construction. This Lease shall be construed, enforced and governed in accordance with the laws of the State of Texas. The descriptive headings contained in this Lease are for convenience only and are not intended to define the subject matter or the provisions of this Lease and are not to be used for interpretation thereof.

33. Short Form Lease. The parties hereto agree that this Lease Agreement shall not be recorded, but that if either party so desires, the Lessor and the Lessee will enter into a Short Form Lease setting forth the terms of this Lease Agreement which may be recorded with the

8

appropriate governmental agency in the county where the Leased Premises are located. In addition thereto, Lessor may record with the county clerk for Bexar County, Texas, a memorandum of lease setting forth the name and address of the Lessee, the address and legal description of the Leased Premises, and the term and expiration date of the Initial Term and any renewal terms.

34. Relationship of Parties. Nothing contained herein shall be deemed or construed by the parties hereto, nor by any third party, as creating the relationship of principal and agent or a partnership or a joint venture between the parties hereto, it being agreed that neither the method of computation of rent nor any other provisions set forth herein nor any acts of the parties herein shall be deemed to create any relationship between the parties hereto other than the relationship of landlord and tenant.

IN WITNESS WHEREOF, the parties have executed this instrument as of the date first above written.

LESSOR:	FOUNDATION BARIATRIC REAL ESTATE OF SAN ANTONIO, L.P., a Texas limited partnership
	By:
		Robert M. Byers, Manager of Foundation Bariatric General, L.L.C., its General Partner
LESSEE:	FOUNDATION BARIATRIC HOSPITAL OF SAN ANTONIO, L.P., a Texas limited partnership
	By:
		Robert M. Byers, Manager of Foundation Bariatric General, L.L.C., its General Partner

9

EXHIBIT “A”

(Legal Description of Property)

10

SCHEDULE 4.

(Base Rent Schedule During Initial Term)

The Base Rent shall be $110,228.33 per month during the Initial Term of the Lease.

11

EX-10.24.1

Exhibit 10.24.1

ADDENDUM TO THE LEASE AGREEMENT

THIS ADDENDUM (the “Addendum”) is entered into this 19^th day of February, 2007, by and between Foundation Bariatric Real Estate of San Antonio, L.P., and Foundation Bariatric Hospital of San Antonio, L.L.C., f/k/a Foundation Bariatric Hospital of San Antonio, L.P. (collectively referred to as “the Parties”). The Parties hereby amend that Lease Agreement entered into in December of 2005 (the “Lease”) between the Parties, as follows:

Deleted from Schedule 4 of the Lease is the following:

“The Base Rent shall be $110,228.33 per month during the Initial Term of the Lease.”

Added, amended and replaced in Schedule 4 is the following:

“The Base Rent shall be $132,166.67 per month during the Initial Term of the Lease.”

All other terms of the Lease Agreement are hereby affirmed and shall remain effective.

IN WITNESS WHEREOF, the parties have executed this ADDENDUM as of the day and year above first written.

LESSOR:	FOUNDATION BARIATRIC REAL ESTATE OF SAN ANTONIO, L.P.
	By:	FOUNDATION WEIGHTWISE HOLDINGS, L.L.C., general partner
		By:
			Robert M. Byers, Manager
	By:	TYCHE ASSET MANAGEMENT, L.L.C., general partner
		By:
			Mike Horrell, Manager
LESSEE:	FOUNDATION BARIATRIC HOSPITAL OF SAN ANTONIO, L.L.C.
		By:
			Robert M. Byers, Manager

EX-10.24.2

Exhibit 10.24.2

SECOND ADDENDUM TO THE LEASE AGREEMENT

THIS SECOND ADDENDUM (the “Second Addendum”) is entered into this 1st day of June, 2007, by and between Foundation Bariatric Real Estate of San Antonio, L.L.L.P., a Texas limited liability limited partnership, f/k/a Foundation Bariatric Real Estate of San Antonio, LP, a Texas limited partnership and Foundation Bariatric Hospital of San Antonio, L.L.C., f/k/a Foundation Bariatric Hospital of San Antonio, L.P. (collectively referred to as “the Parties”).

For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby amend that Lease Agreement entered into in December of 2005, as amended by that certain Addendum to the lease Agreement dated February 19, 2007 (as amended, the “Lease”) between the Parties as follows:

1. The following shall be deleted from Schedule 4 of the Lease in its entirety:

“The Base Rent shall be $110,228.33 per month during the Initial Term of the Lease.”

2. As set forth in that Addendum to the Lease Agreement dated February 19, 2007 (the “First Addendum”), the following shall be added to Schedule 4 of the lease:

“The Base Rent shall be $132,166.67 per month during the Initial Term of the Lease.”

3. The Second Addendum adds the following language to Schedule 4 of the Lease:

The Base Tent shall be adjusted annually in an amount equal to two point nine percent (2.9%), beginning January 1, 2011. The adjustment date shall be June 1^st of each calendar year beginning Jun 1, 2011.

4. The Second Addendum adds the following language to the Lease:

Lessee agrees that this Lease shall be subject and subordinate (i) to any mortgage, deed of trust or other security interest now encumbering the Property and to all advances which may be hereafter made, to the full extent of all debts and charges secured thereby and to all renewals or extensions of any part thereof, and to any mortgage, deed of trust or other security interest which any owner of the Property may here3after, at any time, elect to place on the Property; (ii) to any assignment of Lessor’s interest in the leases and rents from the Property which includes the Lease which now exists or any owner of the Property may hereafter, at any time, elect to place on the Property; and (iii) to any Uniform Commercial Code Financing Statement covering the personal property rights of Lessor or any owner of the Property which now exists or any owner of the Property may hereafter, at any time, elect to place on the foregoing personal property (all of the foregoing instruments set for in (i). (ii), and (iii) above being hereafter collectively referred to as “Security Documents”. Lessee agrees upon request of the holder of any Security Documents (“Holder”) to hereafter execute any documents which the counsel for Lessor or Holder may reasonably deem necessary to evidence the subordination of the Lease to the Security Documents. Within ten (10) days after request therefore, if Lessee

fails to execute any such requested documents, Lessor or Holder is hereby empowered to execute such documents in the name of Lessee evidencing such subordination, as the act and deed of Lessee, and this authority is hereby declared to be coupled with an interest and not revocable.

5. Except as amended by this Second Addendum, the Lease, as modified herein, remains in full force and effect and is hereby ratified and affirmed by Lessor and Lessee and is hereby acknowledged by the Lessee and Lessor to be the correct agreement of lease for the Leased Premises described therein and any defense based on the prior executions is hereby waived by each Party. In the event of any conflict between the Lease and this Second Addendum, the terms and conditions of this Second Addendum shall control.

6. Lessee represents and warrants to Lessor that (a) the party(ies) executing this Second Addendum on behalf of Lessee is authorized to do so by requisite action of the board of directors or partners, as the case may be and (b) that Lessee has full right and power to execute and perform this Second Addendum. Lessor represents and warrants to Lessee that (a) the party(ies) executing this Second Addendum on behalf of Lessor are authorized to do so by requisite action of the board of directors or partners, as the case may be and (b) that Lessor has full right and power to execute and perform this Second Addendum.

7. Capitalized terms not defined herein shall have the same meaning as set forth in the Lease.

8. This Second Addendum shall be binding upon and inure to the benefit of the parties hereto and their heirs, personal representatives, successors and assigns.

9. The Lease, as amended by this Second Addendum, contains the entire agreement of the Parties with respect to the subject matter hereof, and may not be amended or modified except by an instrument executed in writing by the Parties.

[SIGNATURE PAGE IMMEDIATELY FOLLOWS]

IN WITNESS WHEREOF, the parties have executed this ADDENDUM as of the day and year above first written.

LESSOR:	FOUNDATION BARIATRIC REAL ESTATE OF SAN
	ANTONIO, L.L.L.P., a Texas limited liability limited
	partnership, f/k/a Foundation Bariatric Real Estate of San Antonio, LP
	By:	FSA REAL ESTATE PARTNERS, LP, a Nevada limited partnership, its General Partner
		By:	Foundation Real Estate Holdings, L.L.C., a Nevada limited liability company, its General Partner
			By:
			Name:	Robert M. Byers
			Title:	Manager
	By:	TYCHE ASSET MANAGERS, L.L.LC, a Nevada limited liability company, its General Partner
		By:	Archimedes Financial, L.L.C., a Nevada limited liability company, its Manager
			By:
			Name:	Michael B. Horrell
			Title:	Manager
		By:	Fortuna Asset Management, L.L.C., a California limited liability company, its Manager
			By:
			Name:	Karen Brenner
			Title:	Manager
	AND
	By:	TYCHE ASSET MANAGERS, LLC., a Nevada limited liability company, its General Partner

		By:	Archimedes Financial, L.L.C., a Nevada limited liability company, its Manager
			By:
			Name:	Michael B. Horrell
			Title:	Manager
LESSEE:	FOUNDATION BARIATRIC HOSPITAL OF SAN ANTONIO, L.L.C., a Texas limited liability company f/k/a Foundation Bariatric Hospital of San Antonio, L.P., a Texas limited partnership
	By:
	Name:	Robert M. Byers
	Title:	Manager

EX-10.24.3

Exhibit 10.24.3

THIRD AMENDMENT TO THE LEASE AGREEMENT

THIS THIRD AMENDMENT (the “Third Amendment”) is entered into this 15th day of July, 2010, by and between Foundation Bariatric Real Estate of San Antonio, L.L.L.P., a Texas limited liability limited partnership, f/k/a Foundation Bariatric Real Estate of San Antonio, LP, a Texas limited partnership and Foundation Bariatric Hospital of San Antonio, L.L.C., f/k/a Foundation Bariatric Hospital of San Antonio, L.P. (collectively referred to as “the Parties”).

For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby amend that Lease Agreement entered into in December of 2005, as amended by that certain Addendum to the lease Agreement dated February 19, 2007, as amended by that certain Second Amendment to Lease dated June 1, 2007, and as amended by that certain Second Addendum to Lease dated June 1^st, 2007 (as amended, the “Lease”) between the Parties as follows:

1. The following shall change Section 4, Rent:

“The Lessee covenants and agrees to pay to Lessor Rent for the Leased Premises on the tenth day of each calendar month in advance during the term of the lease and any extensions in accordance with the Lease.”

2. Except as amended by this Third Addendum, the Lease, as modified herein, remains in full force and effect and is hereby ratified and affirmed by Lessor and Lessee and is hereby acknowledged by the Lessee and Lessor to be the correct agreement of Lease for the Leased Premises described therein and any defense based on the prior executions is hereby waived by each Party. In the event of any conflict between the Lease and this Third Addendum, the terms and conditions of this Third Addendum shall control.

3. Lessee represents and warrants to Lessor that (a) the party(ies) executing this Third Addendum on behalf of Lessee is authorized to do so by requisite action of the board of directors or partners, as the case may be and (b) that Lessee has full right and power to execute and perform this Third Addendum. Lessor represents and warrants to Lessee that (a) the party(ies) executing this Third Addendum on behalf of Lessor are authorized to do so by requisite action of the board of directors or partners, as the case may be and (b) that Lessor has full right and power to execute and perform this Third Addendum.

4. Capitalized terms not defined herein shall have the same meaning as set forth in the Lease.

5. This Third Addendum shall be binding upon and inure to the benefit of the parties hereto and their heirs, personal representatives, successors and assigns.

6. The Lease, as amended by this Third Addendum, contains the entire agreement of the Parties with respect to the subject matter hereof, and may not be amended or modified except by an instrument executed in writing by the Parties.

IN WITNESS WHEREOF, the parties have executed this ADDENDUM as of the day and year above first written.

LESSOR:	FOUNDATION BARIATRIC REAL ESTATE OF SAN
	ANTONIO, L.L.L.P., a Texas limited liability limited
	partnership, f/k/a Foundation Bariatric Real Estate of San Antonio, LP
	By:	FSA REAL ESTATE PARTNERS, LP, a Nevada
		limited partnership, its General Partner
		By:	Foundation Real Estate Holdings, L.L.C., a
			Nevada limited liability company, its General Partner
			By:
					Robert M. Byers, Manager
	By:	TYCHE ASSET MANAGERS, L.L.LC, a Nevada
		limited liability company, its General Partner
		By:	Archimedes Financial, L.L.C., a Nevada
			limited liability company, its Manager
			By:
					Michael B. Horrell, Sole Member and Operating Manager
		By:	Fortuna Asset Management, L.L.C., a
			California limited liability company, its Manager
			By:
					Karen Brenner, Managing Member
	AND
	By:	TYCHE ASSET MANAGERS, LLC., a Nevada limited
		liability company, its General Partner
		By:		Archimedes Financial, L.L.C., a Nevada
				limited liability company, its Manager
				By:
					Michael B. Horrell, Sole Member and Operating Manager

	By:	Fortuna Asset Management, L.L.C., a California limited liability company, its Manager
			By:
				Karen Brenner, Managing Member
LESSEE:	FOUNDATION BARIATRIC HOSPITAL OF SAN
	ANTONIO, L.L.C., a Texas limited liability company f/k/a
	Foundation Bariatric Hospital of San Antonio, L.P., a Texas
	limited partnership
	By:	Foundation Surgical Hospital Holdings, LLC, successor
		of Foundation WeightWise Holdings, L.L.C., a Nevada
		limited liability company, its Manager
			By:
				Robert M. Byers, Manager

EX-10.25

Exhibit 10.25

LEASE AGREEMENT

THIS LEASE AGREEMENT (the “Lease”) is made as of October 11, 2006, by and between Foundation Bariatric Real Estate of Huebner, L.P., as landlord (“Landlord”), and Foundation Bariatric Hospital of San Antonio, L.P., as tenant (“Tenant”), with reference to the following:

A. Landlord owns Condominium Unit 301 (the “Unit”) in The Village on Huebner II Office Condominiums (the “Project”), which is located at 9502 Huebner Road, San Antonio, Texas, which is improved with a building (the “Building”) and adjacent parking and other improvements.

B. The land, the Building, the Unit, the adjacent parking and other improvements, are subject to that Condominium Declaration for The Villages on Huebner II Office Condominiums, which is recorded as Document #20060164728 in Book 12250, Page 1744 in the records of Bexar County, Texas (the “Declaration”), which created the Project pursuant to the Texas Uniform Condominium Act (the “Act”).

1. Demised Description

A. Landlord does hereby lease to Tenant the Unit and the related interests in the Common Elements and the Limited Common Elements as provided in the Declaration (the “Premises”). The legal description of the Premises are set forth in Exhibit A attached hereto and incorporated herein.

B. The Commencement Date of the Lease (“Commencement Date”) shall be the date first written above.

C. Landlord represents that it has delivered to Tenant complete accurate copies of the Declaration and the “Plan,” “Plat,” and “Bylaws” of the “Association,” (all as defined in the Act), and Tenant hereby approves of the same and agrees to be bound by and subject to all of the terms, conditions, obligations and restrictions affecting the Premises set forth therein.

2. Term

A. The initial term of this Lease shall be for fifteen (15) years commencing on the Commencement Date. Concurrently with the execution of this Lease, Landlord and Tenant agree that they shall execute the Commencement Date Certificate attached hereto as Exhibit B. The term “Term Year” means a period of twelve (12) consecutive months. The first Term Year shall begin on the Commencement Date if the Commencement Date is the first day of a calendar month. Otherwise the first Term Year shall begin on the first day of the first calendar month after the Commencement Date. Each succeeding Term Year shall begin on the anniversary of the first Term Year.

B. Tenant is hereby granted and shall, if no event of default exists at the time the option is exercised or at the time of the commencement of any additional term, have the options to renew this Lease for two (2) additional terms of five (5) years each on the same terms, covenants and conditions and subject to the same restrictions and exceptions herein contained. This option shall be exercised by Tenant delivering to Landlord in person or by United States mail not less three-hundred sixty-five (365) days and not more than Five Hundred Forty-five (545) days prior to the expiration of the then appropriate term, written notice of Tenant’s irrevocable election to renew the term of this Lease as herein provided.

3. Rent and Security Deposit.

A. Commencing upon the Commencement Date, Tenant agrees to and shall pay to Landlord in equal monthly installments, as base rent for the Premises as follows (“Base Rent”):

Period	Annual Base Rent		Monthly Base Rent
Term Year 1	$	478,800.00	$	39,900.00
Term Year 2	$	492,685.20	$	41,057.10
Term Year 3	$	506,973.07	$	42,247.76
Term Year 4	$	521,675.29	$	43,472.94
Term Year 5	$	536,803.87	$	44,733.66
Term Year 6	$	552,371.19	$	46,030.93
Term Year 7	$	568,389.95	$	47,365.83
Term Year 8	$	584,873.26	$	48,739.44
Term Year 9	$	601,834.58	$	50,152.88
Term Year 10	$	619,287.79	$	51,607.32
Term Year 11	$	637,247.13	$	53,103.93
Term Year 12	$	655,727.30	$	54,643.94
Term Year 13	$	674,743.39	$	56,228.62
Term Year 14	$	694,310.95	$	57,859.25
Term Year 15	$	714,445.97	$	59,537.16

2

Base Rent shall be payable in advance on the first day of each calendar month during the term and shall be proportionately reduced for any partial month during the term. Base Rent for the month in which the Commencement Date occurs, however, shall be payable on the first day of the following calendar month. Base Rent, Real Estate Taxes, Assessments, and any other amounts which Tenant is or becomes obligated to pay Landlord or under this Lease or other agreement entered in connection herewith, are sometimes herein referred to collectively as “Rent,” and all remedies applicable to the non-payment of rent shall be applicable thereto.

B. Base Rent during any exercised renewal option shall increase annually by 2.9%.

C. Tenant shall not be required to make any security deposit in connection with the Lease.

4. Use

Tenant shall use and occupy the Premises in accordance with all of the terms and conditions of the Declaration for the purpose of a medical clinic and related office uses and for no other purposes except those authorized in writing by Landlord, which authority shall not be unreasonably withheld, conditioned or delayed. Tenant may operate on the Premises, at Tenant’s option, on a seven (7) days-a-week, twenty-four (24) hours-a-day basis, subject, however, to zoning and other regulatory requirements.

5. Utilities, Taxes, and Association Assessments

Tenant shall pay all charges for water, electricity, gas, telephone and other utility services furnished to the Premises during this term. Landlord agrees to bring water, electricity, gas and sanitary sewer to the Premises as provided in the Plans and Specifications.

Tenant shall pay directly to the taxing authority all real estate taxes and general and special assessments that are separately taxed or assessed by any lawful authority on the Premises as a separate parcel of real property (collectively, “Real Estate Taxes”). Real Estate Taxes shall not include: (i) income, profits, intangible, documentary stamp, franchise, corporate, capital stock, succession, estate, gift or inheritance taxes or taxes substituted for or in lieu of the foregoing exclusions; or (ii) any assessment or additional tax associated with the development or further improvement of the Premises, including, but not limited to, the widening of exterior roads, the installation of or hook up to sewer lines, sanitary and storm drainage systems and other utility lines and installations, or the installation of traffic signals.

Tenant, at Tenant’s sole cost and expense, shall be entitled to contest Real Estate Taxes or valuation notices affecting the Premises and Landlord shall reasonably cooperate with Tenant in any such proceeding (including withholding payment of Real Estate Taxes if required by applicable law in connection with a contest). Landlord shall furnish Tenant with copies of all tax bills or valuation notices related to the Premises promptly upon receipt. If Tenant decides to contest, Tenant shall promptly notify Landlord. If Tenant prevails in a tax contest, it shall be entitled to recover the costs of the contest out of the savings achieved.

3

Within 30 days after payment, Tenant shall provide to Landlord written evidence that Real Estate Taxes for the most recently due and owing period were paid in a timely manner.

Tenant will pay the full amount of all taxes, assessments, impositions, levies, charges, excises, fees, licenses and other sums levied, assessed, charged or imposed by any governmental authority or other taxing authority upon Tenant’s leasehold interest under this Lease, and all alterations additions, fixtures, (including removable trade fixtures, hereinafter defined), inventory and other property installed or placed or permitted at the Premises by Tenant. Within thirty (30) days after notice from Landlord, Tenant will furnish Landlord a true copy of receipts evidencing such payment received by Tenant from the governmental authority or other taxing authority assessing such charges.

Tenant shall pay before they are delinquent all assessments levied by the Association pursuant to the Declaration and Bylaws (“Assessments”). Tenant shall not be obligated to make payment of the Assessments more than fifteen days before payment of the Assessments would be delinquent and Tenant shall not be obligated to pay Assessments pending a tax contest if applicable law so provides. Tenant shall make the check for an Assessment payable directly to the Association. Within 30 days after payment, Tenant shall provide to Landlord with written evidence that an Assessment was paid in a timely manner. Assessments and Real Estate Taxes covering any period not included in the term of this Lease shall be prorated between Landlord and Tenant.

6. Alterations, Additions, Installations and Removal Thereof

Tenant may also, at its own expense, either at the commencement of or during the term of this Lease, make such alterations in and/or additions to the Premises including, without prejudice to the generality of the foregoing, the addition of a television antenna, flue openings and an emergency generator as well as alterations in the water, gas, and the electric wiring system, as may be necessary to fit the same for its business, upon first obtaining the written approval of Landlord as to the materials to be used and the manner of making such alterations and/or additions. Landlord covenants not to unreasonably withhold, condition or delay its approval of alterations and/or additions proposed to be made by Tenant. All alterations, installations and remodels shall be subject to the restrictions and conditions of the Declaration.

At any time prior to the expiration or earlier termination of this Lease, Tenant may remove any or all such alterations, additions or installations in such a manner as will not substantially injure the Premises, or the portion or portions affected by such removal, and the Premises shall be restored to the same condition as existed prior to the making of such alteration, addition, or installation, ordinary wear and tear, damage or destruction by fire, flood, storm, civil commotion, or other unavoidable cause excepted. All alterations, additions, or installations not so removed by Tenant shall become the property of Landlord without liability on Landlord’s part to pay for the same.

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7. Trade Fixtures, Personal Property

All articles of personal property and all business and trade fixtures, machinery and equipment, furniture and movable partitions owned by Tenant or installed by Tenant after the Commencement Date at its expense in the Premises (“Tenant Trade Fixture”) shall be and remain the property of Tenant and may be removed by Tenant at any time during the term of this Lease provided no event of default exists, and provided further that Tenant shall repair any damage caused by such removal. Tenant’s water treatment equipment shall be considered a Tenant Trade Fixture for purposes of this Lease.

8. Condition of Premises Maintenance and Repair

Tenant’s taking possession of any portion of the Premises shall be conclusive evidence that such portion of the Premises was in good order and satisfactory condition when the Tenant took possession. No promise of the Landlord to alter, remodel or improve the Premises or the Building and no representation by Landlord or its agents respecting the condition of the Premises or the Building have been made to Tenant or relied upon by Tenant other than as may be contained in this Lease or in any written amendment hereto signed by Landlord and Tenant.

Except as hereinafter provided, Tenant shall maintain and keep the interior of the Premises in good repair, free of refuse and rubbish and shall return the same at the expiration or termination of this Lease in as good condition as received by Tenant, ordinary wear and tear, and damage or destruction by fire, flood, storm, civil commotion or other unavoidable causes excepted; provided, however, that if alterations, additions and/or installations shall have been made by Tenant as provided for in this Lease and approved in writing by Landlord, Tenant shall not be required to restore the Premises to the condition in which they were prior to such alterations, additions and/or installations except as hereinafter provided. Tenant shall be responsible for maintenance and repair of Tenant’s equipment in the Premises and shall replace all broken glass.

Landlord shall, without expense to Tenant, cause all other parts of the Premises to be maintained in good condition and repair and all necessary repairs to the foundations, structure, load bearing walls, exterior walls, roof, gutters, and downspouts, if any, on or appurtenant to the Premises to be made, unless damage to any of the above are caused by the Tenant’s negligence or any employee, agent, invitee, or guest of Tenant. Notwithstanding anything to the contrary in the foregoing sentence, to the extent that the Association is responsible under the Declaration for the repair or maintenance of any of the above Landlord obligations, the Association shall be solely responsible for the repair or maintenance of such items.

Tenant shall be responsible for the regular maintenance of the heating/air conditioning systems serving the Premises; and shall maintain a service agreement in effect at all times during the term of this Lease at the Tenant’s expense; and further provided that the Tenant shall be responsible for the major repairs to and replacement of the systems.

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9. Indemnification

Tenant agrees to indemnify and hold Landlord harmless against all claims, demands, costs and expenses, including reasonable attorney’s fees for the defense thereof, arising from Tenant’s conduct, occupancy or management of Tenant’s business, its use of the Premises, from construction of improvements by Tenant, or from any negligence of Tenant, its agents, servants, contractors or employees in the Premises. Notwithstanding anything to the contrary contained herein, the foregoing provision shall not be construed to make Tenant responsible for loss, damage, liability or expense resulting from injuries caused by any negligence or intentional misconduct of Landlord, its agents, servants, contractors or employees. In case of any action or proceeding brought against Landlord by reason of such claim as is described in the initial sentence of this Paragraph 9, Tenant, upon notice from Landlord, covenants to defend such action or proceeding by counsel reasonably acceptable to Landlord.

Landlord agrees to indemnify and hold Tenant harmless against all claims, demands, costs and expenses, including reasonable attorney’s fees for the defense thereof, arising from Landlord’s conduct, occupancy or management of Landlord’s business, from construction of improvements by Landlord, from any breach on the part of the Landlord of any conditions of this Lease, or from any negligence of Landlord, its agents, servants, contractors or employees in the Premises. Notwithstanding anything to the contrary contained herein, the foregoing provision shall not be construed to make Landlord responsible for loss, damage, liability or expense resulting from injuries caused by any negligence or intentional misconduct of Tenant, its agents, servants, contractors or employees.

10. Insurance

At all times during the term, Tenant shall carry and maintain:

(i) Bodily injury and property damage liability insurance equivalent to coverage offered by a commercial general liability form, with a combined single occurrence limit of not less than $1,000,000, and including personal injury and contractual liability coverage for the performance by Tenant of the indemnity obligations in this Lease;

(ii) Insurance covering all of the Tenant Trade Fixtures in an amount not less than the full replacement cost, on an “all risk” basis; and

(iii) Worker’s compensation insurance insuring against and satisfying Tenant’s obligations and liabilities under the worker’s compensation laws of the State of Texas, including employer’s liability insurance in the limits required by law.

The insurance referred to in (ii) shall name Landlord and Tenant as their interests may appear. The insurance referred to in (i) shall name Landlord as an additional insured. Certificates of insurance will be delivered to Landlord prior to Tenant’s occupancy of the Premises and from time to time at least ten days prior to the expiration of the Term of each such policy. All policies shall provide that the carrier will endeavor to provide at least ten days notice of any cancellation or material change in coverage.

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Landlord and Tenant each waive any and all rights to recover against the other, or against the officers, directors, shareholders, partners, joint venturers, employees, agents, customers, invitees, or business visitors of such other party or of such other Tenant, for any loss or damage to such waiving party arising from any cause covered by any property insurance required to be carried by such party pursuant to this Lease or any other property insurance actually carried by such party to the extent of the limits of such policy. Landlord and Tenant from time to time will cause their respective insurers to issue appropriate waiver of subrogation rights endorsements to all property insurance policies carried in connection with the Premises.

11. Compliance With Laws

Tenant acknowledges that no trade or occupation shall be conducted in the Premises or use made thereof which will be unlawful, improper, excessively noisy or offensive, or contrary to any law or any municipal by-law or ordinance in force in the state, city or town in which the Premises are situated.

A. Tenant shall give prompt notice to Landlord of any written notice it receives of the violation of any law or requirement of public authority, and at its own expense shall comply with all laws and requirements of public authorities which shall, with respect to the conduct of Tenant’s business in the Premises, or the abatement of any nuisance, impose any obligation, order or duty on Landlord or Tenant arising from (i) Tenant’s use of the Premises, (ii) Tenant’s conduct of its business or operation of its installations, equipment or other property, (iii) any cause or condition created by or at the instance of Tenant, other than by Landlord’s performance of any work for or on behalf of Tenant, or (iv) Tenant’s breach of its obligations under this Lease. Tenant, however, shall not be so required to make any structural or other substantial change in the Premises. Furthermore, Tenant need not comply with any such law or requirement of public authority so long as Tenant shall be contesting the validity thereof or the applicability thereof to the Premises, in accordance with subdivision B of this paragraph.

B. Tenant may, at its expense (and if necessary in the name of, but without expense to, Landlord) contest, by appropriate proceedings prosecuted diligently and in good faith, the validity, or applicability to the Premises, of any law or requirement of public authority and Landlord shall cooperate with Tenant in such proceedings, provided that:

(i) Landlord shall not be subject to any fine or criminal penalty or to prosecution for a crime nor shall the Premises or any part thereof be subject to being condemned or vacated, by reason of noncompliance or otherwise by reason of such contest.

(ii) Tenant shall defend, indemnify, and hold harmless the Landlord against all liability, loss or damage which Landlord shall suffer by reason of such noncompliance or contest, including reasonable attorney’s fees and other expenses reasonably incurred by Landlord.

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(iii) Tenant shall keep Landlord advised as to the status of such proceedings.

12. Casualty Loss

In the event that the Premises or any part of the Project is damaged by fire or other casualty, Landlord shall forthwith proceed to repair and restore the Premises or cause the Association to repair and restore the Premises or Project to the condition existing prior to the damage, subject to the terms and conditions of the Declaration, including the required payment of any insurance proceeds, which shall take precedence with regards to Landlord’s obligation to repair or restore the Premises under this Paragraph 12. Tenant’s rent shall be abated in just proportion during the period of impaired use of the Premises. If more than fifty percent (50%) of the inside space of the Premises or the limited common elements related to the Premises are so damaged, either Landlord or Tenant may cancel this Lease on thirty (30) days notice and rent shall be apportioned as of the date of the casualty. If a registered engineer or architect jointly acceptable to Landlord and Tenant shall notify them within thirty (30) days after such fire or casualty that, in his/her opinion, the damage to the Premises or the limited common elements related to the Premises cannot be repaired so as to substantially restore the Premises to its former condition within one hundred eighty (180) days after such fire or casualty or if the Premises and the limited common elements related to the Premises are in fact not restored to substantially the same condition as existed prior to such fire or casualty within one hundred eighty (180) days after such occurrence, then this Lease may be terminated by either Landlord or Tenant and rent shall be apportioned as of the termination date

13. Condemnation

In the event the Premises or the limited common elements related to the Premises shall be taken for public use by the city, state, federal government, public authority or other corporation having the power of eminent domain, then this Lease shall terminate as of the date on which possession thereof shall be taken for such public use or, at the option of Tenant, as of the date on which the Premises shall become unsuitable for Tenant’s regular business by reason of such taking; provided, however, that if only a part of the Premises or any material portion of the common elements of the Project or limited common elements allocated to the Premises, such termination shall be at the option of Tenant only. If such a taking occurs, and Tenant elects not to terminate this Lease, there shall be a proportionate reduction of the rent to be paid under this Lease from and after the date such possession is taken for public use, but Landlord shall have no requirement to construct any additional improvements on or to its Premises. Tenant shall have not have the right to participate, directly or indirectly, in any award for such public taking on account of such public taking.

14. Default

A. The following events shall be deemed to be events of default by Tenant under this Lease.

(1) Tenant shall fail to pay any installment of the Rent herein when due, or any other payment or reimbursement to Landlord required herein when due, and such failure shall continue for a period of five (5) days from the date written notice of such non-payment is delivered by Landlord to Tenant.

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(2) Tenant shall become insolvent, or shall make a transfer in fraud of creditors, or shall make and assignment for the benefit of creditors, or shall permit the Premises or the leasehold estate created hereby to be taken on execution or other process of law in any action against Tenant.

(3) Tenant shall file a petition, or a petition is filed against Tenant, under any section or chapter of the United States Bankruptcy Code (Title 11 of the United States Code), as amended, or under any similar law or statute of the United States or any State thereof, or Tenant shall be adjudged bankrupt or insolvent in proceedings filed against Tenant thereof.

(4) A receiver or trustee shall be appointed for all or substantially all of the assets of the Tenant.

(5) Tenant shall fail to take occupancy of the Premises within a reasonable time after the Commencement Date.

(6) Tenant shall fail to comply with any term, provision or covenant of the Lease (other than any monetary payment obligation, which shall be subject to the cure period set forth in 14.A(1) above), and shall not cure such failure within thirty (30) days after written notice thereof to Tenant provided; however, that if the nature of the default is such that the same cannot reasonably be cured within such period, Tenant shall not be deemed to be in default if within such period Tenant shall commence such cure and thereafter diligently prosecute the same to completion, but in no event shall the Tenant have longer than ninety (90) days to cure such failure.

B. Upon the occurrence of any of such events of default described in Paragraph 14(A) hereof, and after any applicable cure period, Landlord shall have the option to pursue any one or more of the remedies available to Landlord at law or in equity in connection with such event of default, including the right to terminate Tenant’s right of possession, and to re-let the Premises and receive the rent therefor on Tenant’s account, which rent Landlord shall first apply to any and all expenses it incurred in so re-letting the Premises and then to the satisfaction of Tenant’s obligations hereunder, and Tenant agrees to pay to the Landlord on demand any deficiency between the rental received from subletting (after first covering Landlord’s expenses of re-letting) and the Rental reserved hereunder. Upon the occurrence of any event of default, Landlord shall use commercially reasonable efforts to mitigate its damages.

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If Tenant fails to pay any installment of Rent hereunder within ten (10) days of the date when such installment is due, to help defray the additional cost to Landlord for processing such late payments, Tenant shall pay to Landlord on demand a late charge in the amount of $3,000; and the failure to pay such amount within five (5) days after Tenant’s receipt of written demand therefor shall be an event of default hereunder. The provision for such late charge shall be in addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner.

All rights and remedies of Landlord herein existing at law or in equity are cumulative and the exercise of one or more rights or remedies shall not be taken to exclude or waive the right to the exercise any other. No act or thing done by the Landlord or its agents during the term hereby granted shall be deemed a termination of this Lease or an acceptance of the surrender of the Premises, and no agreements to terminate this lease or accept a surrender of said Premises shall be valid unless such agreement is in writing and signed by Landlord. No waiver by Landlord or Tenant, of any violation or breach of any of the terms, provisions and covenants herein, contained shall be deemed or construed to constitute a waiver of any other violation or breach of any of the items, provision and covenants herein contained.

15. Landlord’s Right To Enter the Premises

Tenant shall permit Landlord or its agent to enter at all reasonable times and upon reasonable notice (and in case of emergency at any time) to make such alterations or repairs therein as may be necessary for the safety or the preservation thereof, or for any other reasonable purposes. Tenant shall also permit Landlord or its agents, on or after one hundred twenty (120) days next preceding the expiration of the term of this Lease, provided that the lease term has not been renewed, to show the Premises to prospective tenants at reasonable times, and to place notices on the front of said Premises, or on any part thereof, offering the Premises for lease or for sale.

16. Assignment and Subletting

Tenant shall not assign this Lease or sublet the whole or any part of the Premises without the prior written consent of Landlord, such consent not to be unreasonably withheld, conditioned or delayed. In the event of any such assignment, Tenant shall deliver to Landlord within a reasonable time thereafter, a written agreement from the assignee agreeing with Landlord to perform the material terms, covenants, and conditions of Tenant contained in this Lease.

Notwithstanding anything contained herein to the contrary, Tenant may assign this Lease or sublease the Premises, in whole or in part, without the consent of Landlord, to:

(a) any entity into which or with which Tenant has merged or consolidated;

(b) any parent, subsidiary, successor, or wholly-owned affiliate entity of Tenant;

(c) any entity which acquires all or substantially all of the assets or ownership interests of Tenant;

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(d) any partnership, the majority interest of which shall be owned by Tenant or a parent, subsidiary, successor or wholly-owned affiliate entity of Tenant; or

(e) any purchaser of substantially all of the assets of Tenant in the Premises;

provided that any such assignee or successor shall agree in writing to assume and perform all of the terms and conditions of this Lease on Tenant’s part to be performed from and after the effective date of such assignment or subletting. Notwithstanding anything contained herein to the contrary, Landlord may assign this Lease without the consent of Tenant.

17. Holding Over

If Tenant or anyone claiming under Tenant shall remain in possession of the Premises or any part thereof after the expiration of the term of this Lease without any agreement in writing between the Landlord and Tenant with respect thereto, the person remaining in possession shall be deemed a month-to-month tenant at a rental rate equal to one hundred fifty percent (150%) of the Base Rent in effect upon the date of such expiration or termination until the tenancy is terminated in a manner provided by law.

18. Estoppel Certificates

Upon not less than ten (10) business days prior written request, either Landlord or Tenant agrees, in favor of the other, to execute, acknowledge and deliver a statement in writing certifying that this Lease is unmodified and in full force and effect (or, if there have been any modifications that the same are in full force and effect as modified and stating the modifications), the dates to which rent and other charges required under this Lease have been paid, and any other information reasonably requested. Any such statement delivered pursuant to this paragraph may be relied upon by any prospective purchaser, mortgagee or lending source.

19. Acts Of God

In any case where either party hereto is required to do any act, delays caused by or resulting from acts of God, war, civil commotion, fire, flood or other casualty, labor difficulties, shortages of labor, materials or equipment, unusual government regulations, unusually severe weather, or other causes beyond such party’s reasonable control shall not be counted in determining the time during which such act shall be completed, whether such time be designated by a fixed date, a fixed time or “a reasonable time,” and such time shall be deemed to be extended by the period of such delay.

20. Mortgage Subordination

This Lease shall be subordinate to any mortgage, deed of trust, deed to secure debt, or other lien or security interest encumbering the Premises (collectively, a “Mortgage”), provided that the holder of which (the “Mortgagee”) has entered into a non-disturbance agreement (a “Non-Disturbance Agreement”) pursuant to which: (i) this Lease shall not be terminated or otherwise affected, nor Tenant’s continued possession of the Premises disturbed, by reason of any foreclosure, trustee’s sale, deed in lieu of foreclosure or

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similar proceeding (collectively, a “Foreclosure”); and (ii) upon any Foreclosure, the purchaser automatically shall succeed to the interests and obligations of Landlord under this Lease, this Lease shall constitute a direct lease between the purchaser, as landlord, and Tenant, as tenant, and Tenant shall attorn to the purchaser. The terms of the Non-Disturbance Agreement shall otherwise be reasonably satisfactory to Tenant and the Mortgagee. Landlord warrants that as of the date of this Lease, no Mortgage encumbers the Premises except for the lien of Security Mutual Life Insurance Company of New York (the “Existing Lender”). Landlord shall provide to Tenant, contemporaneously with the execution of this Lease, a Non-Disturbance Agreement from the Existing Lender in form and substance reasonably acceptable to Tenant. Upon request from time to time, Tenant shall execute agreements subordinating this Lease to future Mortgages provided the subordination agreements contain Non-Disturbance Agreements as provided above. Any subordination agreement may include a provision that any subsequent amendment to this Lease made without the Mortgagee’s consent will not be binding upon the Mortgagee or upon any purchaser on Foreclosure.

At the request of any Mortgagee, and subject to the requirement that the Tenant receive a Non-Disturbance Agreement from such Mortgagee, Tenant shall attorn to such Mortgagee, its successors in interest, or any purchaser in a foreclosure sale. Tenant shall promptly execute and deliver any instrument that such successor landlord may reasonably request (1) evidencing such attornment; and (2) setting forth the terms and conditions of Tenant’s tenancy. Upon such attornment, this Lease shall continue in full force and effect as a direct lease between such successor landlord and Tenant on all of the terms, conditions, and covenants set forth in this Lease, except that such successor landlord shall not be (1) liable for any act or omission of Landlord, or required to cure any default of Landlord, except to the extent: (a) such act or omission constitutes a nonmonetary default of Landlord; (b) such act or omission continues beyond the date when such successor landlord succeeds to Landlord’s interest; and (c) Tenant shall have given prompt written notice of such act or omission to Mortgagee, with an opportunity to cure the same, in accordance with the terms hereof; (2) subject to any offsets, defenses, claims, counterclaims, offsets, or setoffs that Tenant may have against Landlord; (3) bound by any Rent that Tenant may have paid more than one month in advance; (4) liable for any security or other deposit, or surrender of any letter of credit, whether or not still held by Landlord, unless such security or other deposit was actually received by Mortgagee or such successor landlord, and in the event of receipt of any such security deposit, Mortgagee’s or such successor landlord’s obligations with respect thereto shall be limited to the amount of such security deposit actually received by Mortgagee or such successor landlord, and Mortgagee or such successor landlord shall be entitled to all rights, privileges, and benefits of Landlord set forth in this Lease with respect thereto; (5) bound by any agreement between Landlord and Tenant not expressly set forth in this Lease (or any exhibit thereto), as amended (subject to Mortgagee’s right to consent thereto); (6) bound by any agreement, amendment, extension, modification, cancellation, or termination of this Lease that was made without the prior written consent of Mortgagee, which consent may be withheld, conditioned, or delayed for any reason, in the sole discretion of Mortgagee; (7) liable to Tenant under this Lease or otherwise from and after such time as Mortgagee or such successor landlord ceases to be the owner of the Property; or (8) bound by, or liable for any breach of, any representation or warranty or indemnity agreement of any kind contained in this Lease or otherwise made by Landlord.

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21. Quiet Enjoyment

Landlord agrees that if Tenant pays the rent and performs and observes the agreements, conditions and other provisions on its part to be performed and observed, Tenant shall and may peaceably and quietly have, hold and enjoy the Premises during the term of this Lease and any extensions thereof without any manner of hindrance or molestation from Landlord or anyone claiming under Landlord, subject, however, to the terms of this Lease and any instruments having a prior lien. Tenant shall have the right to terminate this Lease by notice to Landlord for breach of any covenant contained in this Paragraph 21.

22. Notices

Except as expressly provided to the contrary in this Lease, every notice or other communication to be given by either party to the other with respect hereto or to the Premises or Project, shall be in writing and shall not be effective for any purpose unless the same shall be served personally or by national air courier service, or United States certified mail, return receipt requested, postage prepaid, to the parties at the addresses set forth below or such other address or addresses as Tenant or Landlord may from time to time designate by notice given as above provided. Every notice or other communication hereunder shall be deemed to have been given as of the third business day following the date of such mailing (or as of any earlier date evidenced by a receipt from such national air courier service or the United States Postal Service) or immediately if personally delivered. Notices not sent in accordance with the foregoing shall be of no force or effect until received by the foregoing parties at such addresses required herein. Notices shall be delivered to the following addresses:

A. If given or served by Landlord, by delivering the notice to the Tenant at the Premises, with a copy addressed to: Foundation Management Affiliates, L.P., Attn. Legal Department, 13900 North Portland Ave., Suite 200, Oklahoma City, OK 73134; or

B. If given or served by Tenant, by delivering the notice to Landlord at 1800 Ridge, Suite 109, Evanston Illinois, 60201.

23. Self-Help

If Tenant shall default in the performance or observance of any agreement or condition in this Lease contained on its part to be performed or observed, other than an obligation to pay money, and shall not cure such default as provided herein, Landlord may, at its option, without waiving any claim for damages for breach of this Lease, at any time thereafter, cure such default for the account of Tenant and any amount paid or any liability incurred by Landlord in so doing shall be deemed paid or incurred for the account of Tenant, and Tenant agrees to reimburse Landlord thereafter and save Landlord harmless therefrom.

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If Landlord shall default in the performance or observance of any agreement or condition in this Lease contained on its part to be performed or observed and shall not cure such default as provided herein, Tenant may, at its option, without waiving any claim of damages for breach of this Lease, at any time thereafter, cure such default for the account of Landlord and any amount paid or any liability incurred by Tenant in so doing shall be deemed paid or incurred for the account of Landlord and Landlord agrees to reimburse Tenant thereafter and save Tenant harmless therefrom.

24. Hazardous Materials

A. Landlord represents and warrants that as of the commencement of the term of this Lease, it has no knowledge of any Hazardous Material (as defined below) of whatever nature at the Project or the land upon which the Project is located. If Landlord has performed testing at the Project (or land upon which the Project is located), Landlord warrants that it has provided Tenant with a copy of any reports resulting from such testing (i.e., a Phase 1 Study). Landlord shall have no liability for nor indemnification obligation with respect to any hazardous or toxic material released onto the Project or the land upon which the Project is located, by Tenant or its agents, employees, contractors, invitees or licensees. “Hazardous Material” shall mean any (1) hazardous waste as defined in the federal Resource Conservation and Recovery Act, as amended (42 U.S.C. §6901, et seq.), and regulations promulgated thereunder; (2) hazardous substance as defined in the federal Comprehensive Environmental Response, Compensation, and Liability Act, as amended (42 U.S.C. §9601, et seq.), and regulations promulgated thereunder; (3) petroleum or liquid petroleum or wastes; and (4) other toxic or hazardous substances that may be regulated from time to time by federal, state, or local environmental laws.

B. Tenant shall comply with applicable laws (including all environmental laws) with respect to the use, transportation, storage, maintenance, generation, manufacturing, handling, and disposition of Hazardous Material. Tenant will assume full responsibility and liability for and will indemnify, defend and hold Landlord harmless from any and all claims and criminal and/or civil liability as a result of any Hazardous Materials released onto the Premises, the Project (or land upon which the Project is located) by Tenant.

25. Miscellaneous

A. This Lease shall be governed by and construed in accordance with the laws of the State of Texas, and if any provisions of this Lease shall to any extent be invalid, the remainder of this Lease shall not be affected thereby.

B. There are no oral or written agreements between Landlord and Tenant affecting this Lease. This Lease may be amended only by instruments in writing executed by Landlord and Tenant.

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C. The titles of the several paragraphs contained herein are for convenience only and shall not be considered in construing this Lease.

D. Unless the context indicates otherwise, the words “Landlord” and “Tenant” appearing in this Lease shall be construed to mean those named above and their respective successors and assigns and those claiming through or under them respectively.

E. Tenant shall have the right to park at the Premises in accordance with the parking rights afforded the Unit pursuant to the Declaration.

[SIGNATURE PAGE TO FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and year first above written.

TENANT:	FOUNDATION BARIATRIC HOSPITAL OF SAN ANTONIO, L.P.
	By:	Foundation Bariatric General, L.L.C., its sole general partner
		By	/s/ Robert M. Byers
			Robert M. Byers, Manager
LANDLORD:	FOUNDATION BARIATRIC REAL ESTATE OF HUEBNER, L.P., a Texas limited partnership
	By:		TYCHE ASSET MANAGERS LLC, a Nevada limited liability company, its general partner
	By:		ARCHIMEDES FINANCIAL LLC,
			its manager
	By:		/s/ Michael B. Horrell
			Michael B. Horrell, Manager

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EXHIBIT A

LEGAL DESCRIPTION OF PREMISES

Unit 301, Building 3, New City Block 17195, The Villages on Huebner II Office Condominiums, a Condominium Project in the City of San Antonio, Bexar County, Texas as fully described in Condominium Declaration Volume 11250, Page 1744, Official Public Records of Real Property of Bexar County, Texas, together with an undivided 65.84 percent interest in the common elements.

EXHIBIT B

COMMENCEMENT DATE CERTIFICATE

This Commencement Date Certificate is made as of this 11th day of October, 2006 between Foundation Bariatric Real Estate of Huebner, L.P. hereinafter referred to as “Landlord” and Foundation Bariatric Hospital of San Antonio, L.P., hereinafter referred to as “Tenant”.

WHEREAS, the parties entered into a lease dated 11^th day of October, 2006 (the “Lease”), attached hereto and incorporated by reference, in which Landlord leased to Tenant that certain property to be situated at 9502 Huebner Road, San Antonio, Texas, commonly known as Unit 301 in Building 3 of The Village on Huebner II Office Condominiums (the “Premises”).

WHEREAS, Landlord and Tenant desire to confirm the Commencement Date of the Lease.

NOW, THEREFORE in consideration of the mutual covenants herein contained and further good and valuable consideration, the parties hereto incorporate the following into the terms of their existing Lease:

I. Landlord and Tenant agree that the Commencement Date under the Lease shall be October ll^th., 2006 and the expiration of the initial term of the Lease shall be October 10^th , 2006, unless earlier terminated, extended or renewed in accordance with the terms of the Lease.

II. Except for the specific modifications to the Lease contained in this Commencement Date Certificate, all terms of the Lease shall remain unchanged, and are hereby ratified, republished and reaffirmed and are incorporated into this Agreement.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement as of the day and year first above written.

TENANT:		LANDLORD:
FOUNDATION BARIATRIC HOSPITAL OF SAN ANTONIO, L.P.		FOUNDATION BARIATRIC REAL ESTATE OF HUEBNER, L.P.
By	/s/ Robert M. Byers	By	/s/ Illigible
Name:	Robert M. Byers	Name
Title:	Manager of Foundation Bariatric General,	Title
	L.L.C., its sole general partner

18

EX-10.26

Exhibit 10.26

CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM

Foundation Health Enterprises LLC

Delaware Limited Liability Company

(the “Company”)

Offering of up to

$15,960,000

Class B Units

at

$105,000.00 per Unit

Foundation Health Enterprises, LLC, a Delaware limited liability company (“Company”) is hereby offering (“Offering”) for sale 152 units of its Class B membership interests with a one percent (1%) Class B membership interest representing one (1) unit (“Unit).

The Offering will expire at 5:00 p.m., Central Standard Time, on August 1, 2013, unless sooner terminated or extended. All subscription amounts will be deposited into a separate, fully insured deposit account at the Company’s bank pending acceptance of the subscriptions. Subscriptions may be accepted by the Company at the discretion of the Company. Therefore, subscriptions may be accepted from time to time as the Company may determine. Any subscription payment attributable to a subscription that is not accepted by the Company will be returned to the subscriber, without interest. If the Offering is terminated, all payments for subscriptions will be refunded, without any interest earned thereon.

THE UNITS HAVE NOT BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR REGISTERED UNDER THE SECURITIES LAWS OF ANY STATE, IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION AS PROVIDED IN APPLICABLE STATUTES. THE SALE OR OTHER DISPOSITION OF THE UNITS IS RESTRICTED AND THE EFFECTIVENESS OF ANY SUCH SALE OR OTHER DISPOSITION MAY BE CONDITIONED UPON RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH SALE OR OTHER DISPOSITION CAN BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND OTHER APPLICABLE STATUTES. THE UNITS HAVE NOT BEEN APPROVED, DISAPPROVED OR RECOMMENDED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

March 18, 2013

THIS SUMMARY IS DELIVERED SOLELY TO:

Name:

Control No.:

THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANYONE IN ANY STATE OR IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED.

THIS MEMORANDUM CONSTITUTES AN OFFER ONLY TO THE PERSON WHO HAS RECEIVED IT FROM THE COMPANY. DELIVERY OF THIS MEMORANDUM, OR ANY OTHER DOCUMENTS OR INFORMATION FURNISHED TO AN OFFEREE TO ANYONE OTHER THAN THE PERSON WHO HAS RECEIVED IT FROM THE COMPANY IS UNAUTHORIZED, AND ANY REPRODUCTION HEREOF, IN WHOLE OR IN PART, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY IS PROHIBITED. ANY PERSON ACTING CONTRARY TO THE FOREGOING RESTRICTIONS MAY PLACE HIMSELF AND THE COMPANY IN VIOLATION OF FEDERAL AND STATE SECURITIES LAWS.

THE OFFEREE, BY ACCEPTING DELIVERY OF THIS INVESTMENT MEMORANDUM, AGREES TO RETURN IT AND ALL ENCLOSED DOCUMENTS TO THE MANAGER IF THE OFFEREE DOES NOT UNDERTAKE TO PURCHASE ANY OF THE UNITS OFFERED HEREBY. ANY REPRODUCTION OR DISTRIBUTION OF THIS MEMORANDUM, IN WHOLE OR IN PART, OR THE DIVULGENCE OF ANY OF ITS CONTENTS, EXCEPT TO THE OFFEREE’S REPRESENTATNES OR ADVISORS, WITHOUT THE PRIOR WRITTEN CONSENT OF THE MANAGER, IS PROHIBITED.

NO PERSON HAS BEEN AUTHORIZED TO FURNISH ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS WITH RESPECT TO OR IN CONNECTION WITH THE OFFERING OF UNITS OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM (INCLUDING THE EXHIBITS HERETO) OR OTHER INFORMATION WHICH IS FURNISHED BY THE COMPANY UPON REQUEST AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MAY NOT BE RELIED UPON BY ANY OFFEREE AS HAVING BEEN AUTHORIZED BY THE MANAGER OR BY THE COMPANY.

NO OFFERING LITERATURE OR ADVERTISING IN ANY FORM WILL BE EMPLOYED IN THE OFFERING OF UNITS OTHER THAN THIS MEMORANDUM AND THE DOCUMENTS INCLUDED HEREWITH AND REFERRED TO HEREIN. ANY INFORMATION OR REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN OR INFORMATION THAT IS FURNISHED BY THE COMPANY UPON REQUEST SHOULD NOT BE RELIED UPON. NEITHER THE DELIVERY OF THIS MEMORANDUM NOR THE ACCEPTANCE OF ANY SUBSCRIPTION HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OR PROSPECTS OF THE COMPANY SINCE THE DATES AT WHICH INFORMATION IS GIVEN HEREIN OR THE DATE HEREOF.

THIS MEMORANDUM REPLACES AND SUPERSEDES ANY AND ALL INFORMATION AND MATERIALS RELATING TO THE UNITS WHICH THE MANAGER MAY HAVE FURNISHED TO ANY OFFEREE PRIOR TO THE DATE OF THIS MEMORANDUM. EACH OFFEREE MUST RELY EXCLUSIVELY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS MEMORANDUM OR FURNISHED BY THE COMPANY UPON REQUEST IN DECIDING WHETHER TO PURCHASE ANY UNITS.

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THE COMPANY WILL ANSWER ALL INQUIRIES FROM OFFEREES AND/OR THEIR ADVISORS CONCERNING THE UNITS, COMPANY AND ANY OTHER MATTERS RELATING TO COMPANY AND THE OFFERING AND SALE OF THE UNITS AND WILL AFFORD OFFEREES AND/OR THEIR ADVISORS THE OPPORTUNITY TO OBTAIN ANY ADDITIONAL INFORMATION, TO THE EXTENT THAT THE COMPANY OR THE MANAGER POSSESS SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE.

THE TAX IMPLICATIONS AND CONSEQUENCES WILL NOT BE THE SAME FOR ALL INVESTORS, AND ARE A MATERIAL FACTOR WHICH SHOULD BE CONSIDERED BY EVERY OFFEREE. SEE “SUMMARY RISK FACTORS.” PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS LEGAL, TAX OR BUSINESS ADVICE. EACH INVESTOR IS ADVISED TO CONSULT WITH THE OFFEREE’S FINANCIAL ADVISOR, LEGAL COUNSEL AND ACCOUNTANT AS TO ANY LEGAL OR RELATED MATTERS CONCERNING AN INVESTMENT IN THE UNITS.

THERE IS NO PUBLIC OR PRIVATE MARKET FOR THE UNITS OFFERED HEREBY, NOR IS IT EXPECTED THAT ANY SUCH MARKET WILL DEVELOP. A PURCHASER OF UNITS IS REQUIRED TO RETAIN OWNERSHIP AND BEAR THE ECONOMIC RISK OF THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

THE UNITS ARE OFFERED ONLY TO OFFEREES WHO ARE ACCREDITED INVESTORS AND UP TO 35 NON-ACCREDITED INVESTORS UNDER THE FEDERAL SECURITIES LAWS AND WHO INTEND TO ACQUIRE THEIR UNITS FOR· INVESTMENT PURPOSES, WITHOUT ANY VIEW TO THE DISTRIBUTION OR RESALE OF THE UNITS. NO SUBSCRIPTION TO PURCHASE UNITS WILL BE ACCEPTED WITHOUT THE APPROVAL OF THE MANAGER, WHICH HAS THE ABSOLUTE RIGHT TO REFUSE TO ACCEPT ANY SUBSCRIPTION.

OWNERSHIP OF UNITS OF THE COMPANY INVOLVES A HIGH DEGREE OF RISK AND IS NOT RECOMMENDED FOR ANY INVESTOR WHO DOES NOT HAVE A SUBSTANTIAL NET WORTH, WHO IS NOT IN A HIGH FEDERAL INCOME TAX BRACKET, AND WHO CANNOT AFFORD A TOTAL LOSS OF THE PROSPECTIVE INVESTOR’S INVESTMENT.

THIS MEMORANDUM IS SUBMITTED IN CONNECTION WITH THE PRIVATE PLACEMENT OF THESE UNITS AND MAY NOT BE REPRODUCED OR USED FOR ANY OTHER PURPOSE.

PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS MEMORANDUM OR ANY PRIOR OR SUBSEQUENT COMMUNICATION FROM THE COMPANY, THEIR AFFILIATES, OR ANY PROFESSIONAL ASSOCIATED WITH THIS OFFERING, AS LEGAL, TAX OR INVESTMENT ADVICE. EACH INVESTOR SHOULD CONSULT WITH AND RELY ON HIS OWN PERSONAL COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX AND ECONOMIC IMPLICATIONS OF THE INVESTMENT DESCRIBED HEREIN AND ITS SUITABILITY FOR THE INVESTOR.

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FORWARD-LOOKING STATEMENTS

This Memorandum and the Exhibits attached hereto, including any financial information (“Financial Information”), contain statements that should be deemed “forward-looking.” These forward-looking statements are based on certain assumptions and facts and are subject to many conditions and expectations. All forward-looking statements involve estimates by the Company and are subject to various risks and uncertainties that may be beyond the Company’s control and may cause results to differ from the Company’s current expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable based upon currently available information, it can give no assurance that such expectations will ultimately prove to be correct. You should read this Memorandum completely and with the understanding that the Company’s actual results and performance may differ materially from the forward-looking statements and from future results or performance expressed or implied by such forward-looking statements. Except as required by law, the Company undertakes no duty to update these forward-looking statements, even though the Company’s situation may change in the future. The Company qualifies all of its forward-looking statements by these cautionary statements.

ADDITIONAL NOTICES TO INVESTORS

This offering is made to a limited number of potential investors. The Units offered hereby have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), or any state securities laws and are being offered and sold in reliance on the exemption from the registration requirements provided by section 4(2) of the 1933 Act and the regulations promulgated thereunder and analogous provisions of certain state laws. The Units are subject to restrictions on transferability and resale, and may not be transferred or resold except as permitted under the 1933 Act and applicable state securities laws, and pursuant to the terms of the Company’s Operating Agreement and the Subscription Agreement. Purchasers of the Units will be required to represent to the Company that the Units are being acquired for investment only.

SUMMARY RISK FACTORS

Investing in the healthcare industry involves certain risks. A variety of factors can have a material adverse effect on the expected cash flows, net income, value of the underlying businesses and other matters described in the Financial Information, including many factors over which the Company will have no control. Such factors and risks are not described herein, and the investors are expected to perform such due diligence as they deem necessary to evaluate an investment in the healthcare industry.

CERTAIN TRANSACTIONS

FHE Manager, LLC, a Delaware limited liability company, is the manager of the Company (the “Manager”), and the Manager’s principals, have engaged in, and may be expected to further engage in, certain transactions with the entities in which the Company holds an interest in the real estate, operations and equipment of some of the entities and may receive fees or other forms of compensation in connection with such transactions. The Manager is an affiliate of the Class A Member of the Company. While the Manager and its principals believe the fees and other compensation received in connection with these transactions is reasonable, such fees and other compensation are not negotiated on an arm’s length basis.

iii

ADDITIONAL INFORMATION

This Memorandum and the Exhibits attached hereto do not contain all of the information that an investor would consider materially important in making an investment decision in the Company. It is expected that persons investing in this Offering will conduct their own review of the health care industry in general and the medical facilities/surgical center sector in specific prior to making an investment in the Company. Persons properly receiving this Memorandum are encouraged to ask any questions and review any documents, or to have their investment, tax or legal counsel do so on their behalf, prior to making an investment in the Company. For additional information concerning this Offering, the Company or Graymark, please contact Mr. Michael Horrell, one of the managers of the Manager, at 401 S. LaSalle, Suite 203, Chicago, IL 60605, or Mr. Stanton Nelson the Chief Executive Officer of Graymark at 204 N. Robinson, Floor 4, Oklahoma City, OK 73102. You may telephone Mr. Horrell at 847-867-0764 or Mr. Nelson at 405-601-5390.

Investors in this Offering will be required to represent that: (i) they (or their investment representative) are knowledgeable in making investments of this type; (ii) they have conducted their own investigation and have received answers to all questions asked by them of the Company; (iii) acknowledge that this Memorandum does not contain all of the information a reasonable investor would consider as material to an investment decision in the Company; and (iv) they are not relying upon the Memorandum for all material information concerning an investment in the Company.

Additionally, the limited information about the business and financial results of the Company’s expected investments has been provided to it by third parties and has not been independently verified by the Company. While the Company has no reason to believe such information is not materially accurate or complete, no representation or warranty in this regard is being made herein by the Company.

Circular 230 Notice. The following notice is based upon U.S. Treasury Regulations governing practice before the Internal Revenue Service: (1) any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding U.S. federal tax penalties that may be imposed on the taxpayer; (2) any such advice is written to support the promotion or marketing of the transactions described herein; and (3) each taxpayer should seek advice based an such taxpayer’s particular circumstances from an independent tax advisor.

iv

TABLE OF CONTENTS

	Page
SUMMARY OF THE OFFERING		1
The Company		1
The Offering		1
The Company’s Business		2
Source and Estimated Use of Funds		2
Summary of Key Terms of Preferred Equity Position in TSH		2
SOURCE AND ESTIMATED USE OF PROCEEDS		3
Anticipated Current Ownership of the Company		4
The Manager		4
Profit and Loss Participation		4
Distributions		4
Minimum Investment		4
Investors		4
RISK FACTORS		5
Certain Transactions and Potential Conflicts of Interest		7
Assignment		8
BACKGROUND INFORMATION ON FHA, FSA AND FSHA		9
FHA		9
FSA		9
FSHA		9
INFORMATION ON GRAYMARK		9
FHA AND GRAYMARK MERGER		10

i

EXHIBITS

A. Operating Agreement of Foundation Health Enterprises, LLC

B. Organization Chart of Foundation Healthcare Affiliates, LLC and Related Entities – Pre Merger

C. Organization Chart of Foundation Healthcare Affiliates, LLC and Related Entities – Post Merger

D. Operating Agreement of TSH Acquisition, LLC

E. FSA and FSHA Financial Information

F. Graymark Business

G. Graymark Financial Information

H. Subscription Materials

ii

SUMMARY OF THE OFFERING

This is a summary of the principal terms under which Class B Units shall be offered. This Summary and the entire Memorandum is qualified in its entirety by the information and terms contained in the Company’s Operating Agreement (the “Operating Agreement”) a copy of which is attached as Exhibit A hereto. Investors are encouraged to carefully review the Operating Agreement, which contains all of the designations, terms, conditions, rights and privileges of the Class B Units of the Company, including rights and obligations relating to management, fees, distributions, indemnification, and other matters. The Operating Agreement is incorporated herein in its entirety by reference and shall be controlling over anything contained in this Summary and Memorandum in the event of any conflict between the actual terms of the Operating Agreement and anything to the contrary contained herein.

The Company: Foundation Health Enterprises, LLC (the “Company”) is a newly formed Delaware limited liability company.

The Offering: This Confidential Private Placement Memorandum (the “Memorandum”) pertains to an offering to Accredited Investors and up to 35 Non-Accredited Investors, as defined in Rule 506 of Regulation D of the Securities Act of 1933 (the “Act”), of up to $15,960,000 Class B membership interests with a one percent (1%) Class B membership interest representing one unit (“Unit”) in the Company at $105,000 per Unit (“Offering”) (being $15,200,000 plus 5% Syndication Fee). The Offering is being made on a best-efforts basis and will be closed on a rolling basis as subscriptions are received and accepted by the Company generally as the Company is able to close on the purchase of the preferred membership interest in TSH Acquisition, LLC, a Delaware limited liability company (“TSH Preferred”) as further described herein. The Company may reject any subscription and may terminate the Offering at any time. Amounts received will be held in escrow pending issuance of the Units to the subscriber. Prior to the issuance of the Units to the subscriber, the Company may reject and return to such subscriber any subscription in full (without any interest thereon) that was accepted in contemplation of a purchase of the TSH Preferred that did not close. In such event, all amounts held in escrow will be returned to subscribers. The amounts received will be held in escrow until the closing of the FHA and Graymark merger described herein.

Each Unit consists of (a) One Class B Unit in the Company, and (b) as an additional incentive to make the investment, each Unit will also receive 10,000 restricted shares of the common stock of Graymark Healthcare, Inc., an Oklahoma corporation, the Company’s Class A Member (“Graymark” or the “Class A Member”) (i.e. one share of restricted common stock of Graymark for every $10.00 invested in the Units, net of the 5% Syndication Fee).

(a) Class B Units in the Company. The Class B Units in the Company are non-voting (except as otherwise provided in the Operating Agreement or as the Delaware Limited Liability Company Act requires.) The Class B Units will provide for a cumulative preferred return of 9% per annum on any unreturned capital contribution and will be redeemed by the Company in four (4) annual installments commencing at the end of the twelfth (12^th) month after the close of the Offering and on each anniversary date thereafter, the first three (3) installments of which shall be in the amount of $10,000 each (being 10% of the initial capital contribution of $100,000, net of Syndication Fee) and the fourth (4th) installment shall be in the full amount of the balance of any unreturned capital contribution remaining plus the amount of any undistributed preferred distributions allocable to such Class B Unit. The Class B Units will not participate in or be allocated any income or gain of the Company over and above the preferred return and redemption rights described herein.

1

In addition, the Class B Units are convertible at the election of the holder thereof at any time prior to the complete redemption thereof into restricted shares of the common stock of Graymark with respect to the balance of any unreturned capital contribution remaining plus the amount of any undistributed preferred distributions allocable thereto at such time at the conversion price of $2.00 per share. Graymark common stock issued upon conversion will not be registered and will be restricted shares.

The Class B Units will not be certificated.

(b) Common Stock of Graymark Healthcare, Inc. The common stock of Graymark is publicly held. Shares of Graymark common stock issued to Class B Unit holders will not be registered and will be restricted shares. The financial information of Graymark for the year ended 2011 and for the interim period ended September 30, 2012 are attached hereto as Exhibit G. Further information, including links to Graymark’s SEC filings may be found online at http://investor.graymarkhealthcare.com/phoenix.zhtml?c=187463&p=irol-irhome

The Company’s Business: The Company intends to purchase the TSH Preferred in TSH Acquisition, LLC (“TSH”). TSH’s business is investments in two (2) subsidiaries of Foundation HealthCare Affiliates, LLC, an Oklahoma limited liability company (“FHA”) consisting specifically of 100% of the membership interests in Foundation Surgery Affiliates, L.L.C., a Nevada limited liability company (“FSA”), and Foundation Surgical Hospital Affiliates, L.L.C., a Nevada limited liability company (“FSHA”).

The purchase by the Company of the TSH Preferred is as described in the TSH Operating Agreement. The TSH Operating Agreement is attached hereto as Exhibit D.

Source and Estimated Use of Funds: As shown below, of the total of up to $15,960,000 ($105,000 per Unit) of Investor Contributions to the Company, it is estimated that up to $15,200,000 ($100,000 per Unit) will be used to purchase the TSH Preferred and up to $760,000 ($5,000 per unit), representing a 5% Syndication Fee, will accrue to the account of or be paid to the Class A Member, which shall be responsible for all of the expenses of organizing the Company, expenses related to the Offering and expenses incurred in managing the Company, including management fees, if any paid to the Manager.

Summary of Key Terms of Preferred Equity Position in TSH:

Pursuant to the TSH Operating Agreement (see Exhibit D) by and among the Company and Graymark, the Company will purchase the TSH Preferred in TSH with the proceeds of this Offering.

Other Provisions:

The Company will be admitted as a member of TSH, binding TSH and Graymark to the TSH Operating Agreement.

Additionally, the FHA principals will not agree to any amendments to governing documents of FHA or its subsidiaries that could adversely affect the Company. There is no agreement in place with the Company and Graymark or the Company and FHA that would limit the right to or prohibit either FHA, Graymark or TSH from issuing additional preferred membership interests in other subsidiaries.

2

SOURCE AND ESTIMATED USE OF PROCEEDS:

Source
Investor Contributions:	up to $	15,960,000.00
Estimated Use
Purchase of TSH Preferred:	up to $	15,200,000.00
Syndicated Fee (Organization/Offering and Managerial Expenses):	up to $	760,000.00
Total:	$	15,960,000.00

3

Anticipated Current Ownership of the Company: The Class A membership interests of the Company are owned entirely by Graymark Healthcare, Inc., an Oklahoma corporation (“Graymark” or the “Class A Member”). The Company will be manager managed and the Class A membership interests will be the sole voting class of membership in the Company and will have the power to elect the manager and control the Company. As stated above, the purchase by the Company of the TSH Preferred will be pursuant to the TSH Operating Agreement.

The Manager: FHE Manager LLC, a newly formed Delaware limited liability Company and affiliate of the Class A Member will be the manager (“Manager”) of the Company. The business and affairs of the Company shall be directed, managed and controlled by the Manager. The Class A Member will be responsible for all expenses related to organizing the Company, expenses related to the Offering and expenses incurred in managing the Company, including any management fee payable to the Manager, which in turn shall be fully responsible for all salaries and other compensation for employees and other agents of the Company, if any, as may be fixed from time to time by the Manager. The membership interests of FHE Manager, LLC are owned by Graymark.

Neither the Class A Member nor the Manager is in any way responsible or liable for, or has it in any way guaranteed or secured, any of the debts or obligations with respect to payment or performance under the Class B Units.

Profit and Loss Participation: Profits and losses will be allocated solely to the Class A Member with respect to the Class A membership interests after payments of the preferred return allocable to and any required redemption of the Class B Units.

Distributions: Distributions of Company net cash flow will be made first to the holders of the Class B Units to the extent of the preferred return allocated to and any required redemption of such Class B Units and then entirely to the Class A Member with respect to the Class A membership interest. Distributions shall be paid at such times and in such amounts as determined by the Manager in its discretion, except for distributions required to redeem the Class B Units, which shall be made as and when required. No distribution or return of capital will be made or paid if thereafter the Company would be insolvent or the net assets of the Company would be less than zero.

Minimum Investment: $105,000 (one Class B Unit)

Investors: The Class B Units will be offered to certain individuals and entities whose financial sophistication and wherewithal are sufficient to be deemed “accredited investors” or up to 35 “non-accredited investors” under Regulation D of the Securities Act of 1933. Offerees must be “accredited investors” or up to 35 “non-accredited investors” and meet other financial qualifications established from time to time by the Manager.

4

RISK FACTORS

PRIOR TO MAKING AN INVESTMENT DECISION, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, ALONG WITH ALL OF THE OTHER INFORMATION CONTAINED IN THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM, THE FOLLOWING RISK FACTORS ATTENDANT TO THAT INVESTMENT, AND SHOULD CONSULT WITH THEIR OWN LEGAL AND FINANCIAL ADVISORS WITH RESPECT THERETO:

Risk Factors

Investing in privately issued securities is highly speculative. You should not consider an investment in the Units unless you or your investment advisor/purchaser representative are familiar with the risks associated with this investment and are capable of evaluating the merits of this investment. Additionally, the financial projections and certain other information contained herein are forward-looking statements and may not be representative of the actual results of an investment in the Units. All financial projections are inherently speculative. To the extent any of these assumptions prove to be incorrect, the actual financial results of the Company (or of its investments), and the results of investing in the Units are likely to differ materially from the results projected herein. Investors are encouraged to ask any questions and review any documents, or to have their investment, tax or legal counsel do so on their behalf, prior to making an investment in the Units.

Risk Associated With Operating History

The Company was formed in 2013 to acquire the TSH Preferred. While the Managers have extensive operating histories, the Company itself has no operating history.

Limited Capitalization; Further Borrowing

Although the Company has made a good faith effort to provide for reasonably anticipated problems and expenses in the development of its investment plan, there remains a risk that occurrences neither foreseen nor foreseeable could seriously increase the Company’s need for capital. There is an assessment provision in the Company’s Operating Agreement to provide for those eventualities, and the burden of such events would require either additional borrowing by the Company or the raising of additional capital from the members of the Company. While the Managers believe that adequate reserves and contingency strategies exist, and that this risk is unlikely in the present economy, the Company may not have revenues or borrowings available and therefore may have additional capital required from the Members of the Company. All investments of this type are to one or another extent speculative and subject to market fluctuation. There is no agreement in place with the Company and Graymark or the Company and FHA that would limit the right to or prohibit either FHA, Graymark or TSH from issuing additional preferred membership interests in other subsidiaries.

Skill of Management

The success of the Company depends on the skills and abilities of several key principals of the Managers, particularly Stanton Nelson and Michael Horrell. If these individuals were to cease to be involved with the Company for any reason (including, but not limited to, death or termination of employment), the success of the Company would depend in part on the ability of the Company to engage new people of at least equivalent skill. There is no assurance that the Company will be able to replace any departed principal of the Managers.

5

Concentration of Control

Following the completion of this Offering, the Manager will remain in absolute control of the Company. The Manager, by and through their officers and members, exercise virtually total control over all aspects of the Company’s business operations and procedures. This means that purchasers of the Units will invest subject to the risks associated with not having control of the Company. The Manager of the Company has complete discretion concerning all aspects of the Company. The Manager will continue to follow accepted business procedures and use its best efforts to implement this business plan. However, the Manager retains discretion to modify this business plan within broad guidelines should business conditions or opportunities dictate. Further, there is the possibility that unexpected negative events concerning either TSH Preferred, Graymark, Foundation or the economy in general would alter investment conditions to the extent that additional capital might be required from the members or that to the extent that dilution of existing investors might be required in order to raise necessary capital. While the Manager has the right to loan additional capital to the Company, the Manager may not be in a position to do so. In such event, there can be no assurance that the current management team would remain in place or that the Company’s business plan would not materially change as a result of a shift in control.

Competition with Other Ventures of the Manager and Its Members

The Manager and its principals own and/or sponsor other investments and programs. These activities may compete for the time and resources of the Manager’s personnel. The Company will not have the legal right to compel the Manager’s personnel to allocate their time in the Company’s favor, nor to forego opportunities for the sale of the Company’s interests.

No Market for Units

There is presently no market for the Units and none is anticipated. There are substantial restrictions upon the sale of Units. The Company’s exit strategy anticipates the eventual ability to sell or exchange the Units, but it may take longer to liquidate or exchange than anticipated. There can be no absolute assurance of the final liquidation date or exchange date of the Company, nor a particular date upon which investments will be returned.

Arbitrary Offering Price

The offering price of $105,000 per Unit and the number of Units offered hereby have been determined arbitrarily by the Company. No independent opinion or other appraisal has been obtained in the determination of the value of the Company or offering price.

Federal Income Tax Risks

THE COMPANY HAS NOT OBTAINED A LEGAL OPINION CONCERNING THE TAX IMPLICATIONS OF AN INVESTMENT IN THE COMPANY. Investors are “accredited” or up to 35 “non accredited” as defined in federal law and are therefore presumed to have access to needed legal and tax advice. Prospective purchasers of Units must consult their own tax advisors as to their own tax situation prior to investment in the Company. The cost of such consultation could, depending on the amount thereof, materially increase the cost of investment in the Company and decrease any anticipated yield on the investment. A number of changes in the tax laws have been made and/or are under consideration, and such professional consultation is essential.

6

Risk of Audit

The Company’s federal returns may be audited by the IRS. Such audit may result in the challenge and disallowance of some of the deductions or increase in the taxable income described in such returns. No assurance or warranty of any kind can be made with respect to the deductibility or taxability of any such items in the event of either an audit or any litigation resulting from an audit.

Tax Classification of the Company

The Manager expects the Company to be taxed as a partnership for federal income tax purposes. If the Company were to be treated for tax purposes as a corporation, the tax benefits associated with an investment in the Company, if any, would not be available to the Members. The Company would, among other things, pay income tax on its earnings in the same manner and at the same rate as a corporation, and losses, if any, would not be passed through to, and deductible by, the Members.

Investing in the Healthcare Industry Involves Certain Risks

A variety of factors can have a material adverse effect on the expected cash flows, net income, value of the underlying businesses and other matters described in the Financial Information, including many factors over which the Company will have no control. Such factors and risks are not described herein, and investors are expected to perform such due diligence as they deem necessary to evaluate an investment in the healthcare industry.

The return on any investment in the Units ultimately will be dependent on the performance of the assets and investments that make up the TSH Preferred, which includes investments in preferred interests in FSA, and FSHA, which are two subsidiaries of FHA.

Investors will have no control over the Company after the Offering. The business and affairs of the Company will be directed, managed and controlled by the Manager, which will be appointed solely by the Class A Member, which will have voting control. The Class B Units offered in this Offering will have no voting rights and no control of the Company, except as otherwise provided in the Company’s Articles of Organization, Operating Agreement or as the Delaware Limited Liability Company Act requires.

Because there is no market for the Class B Units, you may not be able to sell your Class B Units or recover any part of your investment, unless the Company is able to redeem and pay for the Class B Units as required by its terms. Also, the transfer and assignment of Class B Units is restricted as described in “Assignment” below.

Certain Transactions and Potential Conflicts of Interest

Graymark, the Manager, certain officers and directors of Graymark and principals of the Manager, and their affiliates, have engaged in, and may be expected to further engage in, certain transactions with FHA, FSA, FSHA, TSH, and the manager of these entities (and their affiliates) and may receive fees or other forms of compensation and income in connection with such transactions and interests. While the Manager and its principals believe the fees and other compensation received in connection with these transactions is reasonable, such fees and other compensation are not negotiated on an arm’s length basis.

7

Certain principals of the Manager are currently invested in, and may in the future invest in, one or more entities that are affiliated with FHA. The Manager’s principals and some of the Company’s potential investors have an equity interest in the entities that own real property leased by FHA’s operating businesses. The Manager, including its principals and affiliates, may in the future, but is not obligated to, offer additional investment opportunities to one or more of the Company’s investors (but not necessarily all investors) and to investors, principals, and affiliates of FHA.

Michael B. Horrell is affiliated with Graymark and a principal of the Manager and is also a principal of certain interests in FHA subsidiaries.

The investors hereby acknowledge and waive any claims in connection with a conflict of interest of the Company, the Manager, FHA, FSA, FSHA, TSH, or any principals, affiliates or investors of any of the foregoing.

Assignment

Class B Units may not be transferred or assigned without the prior written consent of the Manager and in no event will a transfer or assignment be allowed if it would result in the Company failing to qualify for an exemption from the registration requirements of the federal or any applicable state securities laws. Similarly, shares of Graymark common stock issued to Class B Unit holders will not be registered and will be restricted shares.

8

BACKGROUND INFORMATION ON FHA, FSA AND FSHA

FHA

FHA is a physician-centric development and management company of 15 ambulatory surgery centers and surgical hospitals. Founded by Thomas A. Michaud in 1996, FHA has two wholly-owned subsidiaries dedicated to these surgery centers and hospitals: FSA and FSHA, respectively. (See the corporate brochure at www.foundationsurgery.com.) The unaudited financial information for FSA and FSHA are shown in Exhibit E for the interim period ended September 30, 2012. The organization chart attached as Exhibit C hereto depicts the organization after the FHA and Graymark merger.

FSA

FSA is an industry-leading ambulatory surgery center (ASC) management and development company focused on partnering with physicians and employees to create an outstanding patient experience while maximizing partner and shareholder value. FSA partners with physicians through investment in a minority ownership position, usually 10-20 percent, based on physician needs. FSA will manage the ASC for, and with, physicians. FSA will also work with physicians in a joint-venture relationship with local hospitals or health systems, if such a relationship is in the best interest of the physicians and ASC. FSA believes physician partners are the lifeline of any ASC and they should retain control of the facility — FSA focuses on adding value by managing the business with physician partners while allowing the partners to focus on patient care.

FSA has ownership and management agreements in 11 ASCs. The FSA management team includes CEO Thomas Michaud; EVP/COO Thomas Newman; CFO Bradford Ottwell; and Vice Presidents Margo Carpenter, Randy Reynolds and Rob Andersen. www.foundationsurgery.com

FSHA

FSHA was formed in 2008 from the success of the FSA. FSHA is a healthcare management and development company that partners with physicians to develop and operate surgical hospitals. FSHA specializes in ASC to surgical hospital conversions; surgical hospital acquisition opportunities; and new surgical hospital projects. FSHA also focuses on the development and inclusion of ancillary service lines, including hyperbarics, sleep labs, intraoperative monitoring and robotic surgery. FSHA assists facilities in reaching their clinical goals, improving patient satisfaction and monitoring financial performance — resulting in a fair return for the surgeon and hospital partners.

FSHA has ownership and management agreements in four surgical hospitals and operates three physician-owned hospitals. The FSHA management team includes CEO Thomas Michaud; President Robert Byers; CFO Scott Banks; and COO Mike Schuster. www.foundationhospitals.com

INFORMATION ON GRAYMARK

As described in the Graymark business description on Exhibit F, attached hereto, Graymark is in the business of providing care management solutions to the sleep disorder market based on a number of independent sleep care centers and hospital sleep diagnostic programs operated in the United States. Graymark provides a comprehensive diagnosis and care management solution for patients suffering from sleep disorders.

9

FHA AND GRAYMARK MERGER

Graymark and FHA are currently in negotiations for a potential merger of their businesses. Graymark, the Class A Member of the Company, believes the merger should occur by March 29, 2013, or such later date as is necessary related to such transaction. At the closing of the FHA and Graymark merger, as described herein, FHA will own (i) all of the issued and outstanding membership interests (“FSA Membership Interests”) in FSA, and (ii) all of the issued and outstanding membership interests (“FSHA Membership Interests,”) in FSHA. FHA, TSH and Graymark have entered into that certain Amended and Restated Membership Interest Purchase Agreement to effect the proposed merger between Foundation and Graymark. At the effective date of the proposed merger TSH will own 100% of the FSA Membership Interests and 100% of the FSHA Membership Interests. The Company will own the TSH Preferred in TSH. The Class B Members of the Company will own the Class B Units.

In addition, the Class B Units are convertible at the election of the holder thereof at any time prior to the complete redemption thereof into restricted shares of the common stock of Graymark with respect to the balance of any unreturned capital contribution remaining plus the amount of any undistributed preferred distributions allocable thereto at such time at the conversion price of $2.00 per share. Graymark common stock issued upon conversion will not be registered and will be restricted shares.

10

Exhibit “A”

Operating Agreement of Foundation Health Enterprises, LLC

LIMITED LIABILITY COMPANY AGREEMENT

OF

FOUNDATION HEALTH ENTERPRISES, LLC

THIS AGREEMENT is made as of March 13, 2013, by Graymark Healthcare, Inc., an Oklahoma corporation (“GRMH”) and the persons or entities set forth on any Joinder hereto for the purpose of setting forth the limited liability company agreement of FOUNDATION HEALTH ENTERPRISES, LLC, a Delaware limited liability company (the “Company”).

For good and valuable consideration, it is agreed as follows:

Section I.

Defined Terms

The following capitalized terms shall have the meanings specified in this section. Other terms are defined throughout this Agreement.

“Act” shall mean the Delaware Limited Liability Company Act, as amended from time to time.

“Adjusted Capital Account Deficit” shall mean, with respect to any Interest Holder, the deficit balance, if any, in the Interest Holder’s Capital Account as of the end of the relevant taxable year, after giving effect to the following adjustments:

(i) the deficit shall be decreased by the amounts that the Interest Holder is deemed obligated to restore pursuant to Regulation Sections 1.704-2(g)(1) and (i)(5) (i.e., the Interest Holder’s share of Minimum Gain and Member Minimum Gain); and

(ii) the deficit shall be increased by the items described in Regulation Section 1.704-1 (b) (2) (ii) (d) (4), (5), and (6).

“Affiliate” shall mean, with respect to any Member, any Person: (i) which owns more than 50% of the voting interests in the Member; or (ii) in which the Member owns more than 50% of the voting interests; or (iii) in which more than 50% of the voting interests are owned by a Person who has a relationship with the Member described in clause (i) or (ii) above.

“Agreement” shall mean this Agreement, as amended from time to time.

“Capital Account” shall mean the account maintained by the Company for each Interest Holder.

“Capital Contribution” shall mean the total amount of cash and the fair market value of any other assets contributed (or deemed contributed under Regulation Section 1.704-1(b)(2)(iv)(d)) to the Company by a Member, net of liabilities assumed or to which the assets are subject.

“Class A Member” shall mean Graymark Healthcare, Inc., an Oklahoma corporation, and any Person admitted as a Class A Member in accordance with the terms hereof.

“Class B Members” shall mean each person executing a Member Signature Page and Joinder of Member to Agreement in substantially the form of Exhibit “B” or any counterpart thereof to Class B Membership Interests and is subsequently admitted as a Class B Member as provided herein.

“Class B Redemption” means Class B Member’s right to give notice, which right can be first exercised beginning on the first day of the First Class B Redemption Option Year, that the Company makes a distribution to the Class B Members, pursuant to Section 4.1A. During the First Class B Redemption Option Year and for the two years thereafter, the amount of such distribution shall be equal to the greater of ten percent (10%) of (a) a Class B Member’s Capital Contribution with respect to the Preferred Equity, or (b) the sum of a Class B Member’s Unreturned Capital Contribution and the Unpaid Preference; provided, however, that in no event shall such distribution be greater than the sum a Class B Member’s Unreturned Capital Contribution and the Unpaid Preference. In the fifth (5^th) calendar year after the date hereof, such distribution shall be equal to the sum of the balance of a Class B Member’s Unreturned Capital Contribution and the Unpaid Preference. Such distribution will be charged to the Class B Member’s Capital Account, as provided in Section 3.5.2. the Class B Member may exercise its Class B Redemption by delivering written notice to the Manager and to the Company and upon receipt of such notice, the Class B Redemption shall be exercised.

“Class B Redemption Obligation” means the amount the Company is required to distribute to the Class B Members on account of the Class B Member’s election to exercise the Class B Redemption.

“Class B Unit Conversion to GRMH Common Stock” refers to the option of the Class B Unit Holders, to give notice to the Company to convert each Unit of Class B Membership Interest to GRMH Common Stock at a conversion rate of $2.00 per share. Upon such conversion of Class B Membership Interest Units to GRMH Common Stock, there will be corresponding reduction of the Class B Member’s Unreturned Capital Contribution and the Unpaid Preference with respect to the Preferred Equity in the Company using the same conversion rate. At such time as the Unpaid Preference and the Unreturned Capital Contributions with respect to Preferred Equity in the Company have been reduced to zero, there shall be no further rights of the Class B Unit Holders to convert such Units of Class B Membership Interest to GRMH Common Stock.

“Code” shall mean the Internal Revenue Code of 1986, as amended, or any corresponding provision of any succeeding law.

“Common Equity” shall mean the Class A Membership Interests in the Company that do not entitle the owner to the Preference.

“Company” shall mean FOUNDATION HEALTH ENTERPRISES, LLC, the Delaware limited liability company, organized pursuant to the Certificate of Formation and governed by this Agreement.

“Depreciation” shall mean, for each calendar year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable for federal income tax purposes with respect to an asset for the calendar year, except that if the adjusted book value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of the calendar year, then the depreciation, amortization, or cost recovery bears the same ratio to such beginning adjusted book value as federal income tax depreciation, amortization, or other cost recovery deduction for the calendar year bears to the beginning adjusted tax basis.

“Discretionary Distribution” shall have the meaning provided in Section 4.1B hereof.

“Distributable Cash” shall mean the amount of cash that the Manager, in its reasonable discretion, deems available for distribution to the Interest Holders, taking into account (a) all cash funds derived from operations of the Company (including interest received on reserves), without reduction for any noncash charges, but less cash funds used to pay current operating expenses and to pay or establish reasonable reserves for future expenses, debt payments, and capital improvements and replacements as determined by the Manager; and (b) any property that the Manager determines is no longer suitable for use by the Company. At the discretion of the Manager, the amount of Distributable Cash shall be increased by the reduction of any reserve previously established.

“Economic Interest” shall mean a Person’s share of the Profits and Losses of, and the right to receive distributions from, the Company.

“First Class B Redemption Option Year” means the second calendar year after the date hereof.

“Interest Holder” shall mean any Person who holds an Economic Interest, whether as a Member or as an unadmitted assignee of a Member.

“Involuntary Transfer” shall mean, with respect to any Member, any Transfer that occurs as a result of any of the following events:

(i) an assignment for the benefit of creditors;

(ii) any bankruptcy or insolvency proceeding;

(iii) any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation;

(iv) appointment of a trustee for, receiver for, or liquidation of the Member or of all or any substantial part of the Member’s properties;

(v) if the Member is an individual, the Member’s death or adjudication by a court of competent jurisdiction as incompetent to manage the Member’s person or property;

(vi) if the Member is acting as a Member by virtue of being a trustee of a trust, the termination of the trust;

(vii) if the Member is a partnership or limited liability company, the dissolution and commencement of winding up of the partnership or limited liability company;

(viii) if the Member is a corporation, the filing of a certificate of dissolution of the corporation or the lapse of 90 days after notice to the corporation of the revocation without reinstatement of its charter; or

(ix) if the Member is an estate, the distribution by the fiduciary of the estate’s entire interest in the company.

“Manager” shall mean FHE Manager, LLC, a Delaware limited liability company, or any Manager appointed in accordance with the terms of this Agreement.

“Member” shall mean of the Class A Member, GRMH, and the Class B Members admitted in accordance with the terms hereof.

“Member Loan Nonrecourse Deductions” shall mean any Company deductions that would be Nonrecourse Deductions if they were not attributable to a loan made or guaranteed by a Member within the meaning of Regulation Section 1.704-2(i).

“Member Minimum Gain” has the meaning set forth in Regulation Section 1.704-2(i) for “partner nonrecourse debt minimum gain.”

“Membership Interest” shall mean all of the rights of a Member in the Company, including a Member’s: (i) Economic Interest, (ii) right to inspect the Company’s books and records, (iii) right to participate in the management of and vote on matters coming before the Company, and (iv) unless this Agreement or the Certificate of Formation provide to the contrary, right to act as an agent of the Company.

“Membership Interest Percentage” shall mean the percentage shown for a Class A Common Equity holder on Exhibit A, as updated by the Managers to reflect the transfer or issuance of additional Common Equity pursuant to this Agreement.

“Minimum Gain” has the meaning set forth in Regulation Section 1.704-2(d) for “partnership minimum gain”. Minimum Gain shall be computed separately for each Interest Holder in a manner consistent with the Regulations under Code Section 704(b).

“Negative Capital Account” shall mean a Capital Account with a balance of less than zero.

“Nonrecourse Deductions” has the meaning set forth in Regulation Section 1.704-2(b)(1). The amount of Nonrecourse Deductions for a taxable year of the Company shall be determined according to the provisions of Regulation Section 1.704-2(c).

“Officer” shall mean each Person designated as such pursuant to Section V.

“Person” whether of not capitalized shall mean an individual, corporation, partnership, association, limited liability company, trust, estate, or other entity.

“Preference” shall mean an amount equal to a non-compounded annual rate of return of 9% calculated on the average daily balance of the Unreturned Capital Contribution of each Class B Member with respect to the Preferred Equity.

“Preferred Equity” shall mean Class B Membership Interests in the Company that entitle the owner to the Preference.

“Principal” shall mean any person actively serving as an executive officer of a company and devoting substantially all of his or her business time to the operations of the Company and/or its Affiliates.

“Profit” and “Loss” shall mean, for each taxable year of the Company (or other period for which Profit or Loss must be computed), the Company’s taxable income or loss determined in accordance with Code Section 703(a), with the following adjustments:

(i) all items of income, gain, loss, deduction, or credit required to be stated separately pursuant to Code Section 703(a)(1) shall be included in computing taxable income or loss;

(ii) any tax-exempt income of the Company, not otherwise taken into account in computing Profit or Loss, shall be included in computing taxable income or loss;

(iii) any expenditures of the Company described in Code Section 705(a)(2) (B) (or treated as such pursuant to Regulation Section 1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing Profit or Loss, shall be subtracted from taxable income or loss;

(iv) gain or loss resulting from any taxable disposition of Company property shall be computed by reference to the adjusted book value of the property disposed of notwithstanding the fact that the adjusted book value differs from the adjusted basis of the property for federal income tax purposes;

(v) in lieu of the depreciation, amortization, or cost recovery deductions allowable in computing taxable income or loss, there shall be taken into account the Depreciation for such taxable year; and

(vi) notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Section 4.3 hereof shall not be taken into account in computing Profit or Loss.

“Regulation” shall mean the income tax regulations, including any temporary or proposed regulations, from time to time promulgated under the Code.

“Secretary” shall mean the Secretary of State of Delaware.

“Special Distributions” shall mean those distributions made pursuant to Section 4.1A hereof.

“Transfer” shall include any and all means by which a Member or Interest Holder may be divested of a Membership Interest or Economic Interest in the Company, including divestment by sale, merger, exchange, gift, assignment, operation of law, pledge, hypothecation, or otherwise.

“Unpaid Preference” shall mean an amount equal to the cumulative Preference accrued with respect to a Class B Member on the date of a distribution less any distributions that have been made to the Class B Members under Section 4.1.1 or 4.1.A.1 or (in the event the Class B Redemption Obligation is determined by reference to clause (b) of the definition of Class B Redemption) the amount distributed pursuant to Section 4.1.A.2 with respect to the Unpaid Preference.

“Unreturned Capital Contribution” shall mean an amount equal to the total Capital Contributions made by a Class B Member with respect to the Preferred Equity less any amount of distributions of Distributable Cash, Discretionary Distributions, or Special Distributions at any time in excess of the Unpaid Preference.

“Voluntary Transfer” shall mean any Transfer other than an Involuntary Transfer.

Section II.

Formation and Name; Office; Purpose; Term

2.1. Purpose. The Company is organized to hold membership interests and other equity interests in limited liability companies and other entities owning, holding and operating surgery centers and surgical hospitals and will engage in any lawful act or activity related thereto in which limited liability companies organized under the Act may engage.

2.2. Term. The term of existence of the Company shall be perpetual, unless terminated pursuant to Section VII of this Agreement.

2.3. Principal Office. The principal office and place of business of the Company in the State of Oklahoma shall be located at 204 N. Robinson, Floor 4, Oklahoma City, OK 73102, or at any other place determined by the Company’s Manager.

2.4. The Company was organized on March 13, 2013, and has had one member, GRMH, and has not filed any income tax returns and has existed as a disregarded entity as provided in Regulation §301.7701-3. Exhibit C is a complete list of the Membership Interests held by the Company as it may be amended from time to time, and the Member(s)’s adjusted basis of each interests and the fair market value of each interests.

2.5. Class A Member. Graymark Healthcare, Inc., an Oklahoma corporation, is the initial Class A Member and shall have and possess all the rights, duties and obligations of such Class A Member as set forth in this Agreement.

2.6. Class B Members. Each person executing a Member Signature Page and Joinder of Member to Agreement in substantially the form of Exhibit “B” or any counterpart thereof to Class B Membership Interests and is subsequently admitted as a Class B Member as provided herein.

Section III.

Members; Capital; Capital Accounts

3.1. Capital Contributions. The Class B Members will contribute in cash to the Company the amounts set forth on Exhibit “A” and will have credited to the Class B Members’ Capital Account an amount equal to the contribution as provided in Section 3.5.1. GRMH will be deemed to contribute all of the Company’s assets as of the date hereof and prior to the Class B Member’s contribution and, as provided in Section 3.5.1, will receive a capital account equal to the fair market value of such assets equal to the fair market value shown on Exhibit B.

3.2. No Interest on Capital Contributions. Interest Holders shall not be paid interest on their Capital Contributions.

3.3. Return of Capital Contributions. Except as otherwise provided in this Agreement, no Interest Holder shall have the right to receive the return of any Capital Contribution.

3.4. Form of Return of Capital. If an Interest Holder is entitled to receive a return of a Capital Contribution, the Company may distribute cash, notes, property, or a combination thereof to the Interest Holder in return of the Capital Contribution.

3.5. Capital Accounts. A separate Capital Account shall be maintained for each Interest Holder as follows.

3.5.1. An Interest Holder’s Capital Account shall be credited with the Interest Holder’s Capital Contributions, the amount of any Company liabilities assumed by the Interest Holder (or which are secured by Company property distributed to the Interest Holder), the Interest Holder’s allocable share of Profit, and any item in the nature of income or gain specially allocated to such Interest Holder pursuant to the provisions of Section IV (other than Section 4.3.3); and

3.5.2. An Interest Holder’s Capital Account shall be debited with the amount of money and the fair market value of any Company property distributed to the Interest Holder, the Interest Holder’s allocable share of Loss, and any item in the nature of expenses or losses specially allocated to the Interest Holder pursuant to the provisions of Section IV (other than Section 4.3.3.).

3.5.3. If any Economic Interest is transferred pursuant to the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent the Capital Account is attributable to the transferred Economic Interest. If the adjusted book value of Company property is adjusted pursuant to this Agreement, the Capital Account of each Interest Holder shall be adjusted to reflect the aggregate adjustment in the same manner as if the Company had recognized gain or loss equal to the amount of such aggregate adjustment. It is intended that the Capital Accounts of all Interest Holders shall be maintained in compliance with the provisions of the Regulations issued under Code Section 704, including Regulation Section 1.704-1(b), and all provisions of this Agreement relating to the maintenance of Capital Accounts shall be interpreted and applied in a manner consistent with that Regulation.

3.6. Loans. Any Member may, at any time, make or cause a loan to be made to the Company in any amount and on those terms upon which the Manager and the Member agree.

3.7. Preferred Equity. Notwithstanding any other provision of this Agreement, at such time as the Unpaid Preference and the Unreturned Capital Contributions with respect to Preferred Equity have been reduced to zero, such Preferred Equity shall be deemed cancelled and redeemed by the Company and the owners of such Preferred Equity shall have no further rights with respect to such Preferred Equity. At that time, the Common Equity holders shall be the only members of the Company.

3.8. Manager May Revise Exhibit A. Notwithstanding anything else to the contrary, the Manager may (i) update and revise Exhibit A from time to time so that Exhibit A correctly states the Members of the Company, the Capital Contributions of such Members, and the Membership Interest of such Members, and (ii) attach any such updated Exhibit A to this Agreement as a replacement for the Exhibit A previously attached hereto.

Section IV.

Profit, Loss, and Distributions

4.1. Distributions of Distributable Cash. Subject to applicable law and any limitations contained elsewhere in this Agreement, in any calendar year, the Manager shall direct the Company to distribute any Distributable Cash to the Interest Holders, which distributions shall be made to the Interest Holders as follows:

4.1.1. First, to the Class B Members in an amount equal to their Unpaid Preference;

4.1.2. Then, to the holders of Common Equity in accordance with their respective Membership Interest Percentages.

4.1A Special Distribution. In a calendar year in which a Class B Member exercises its Class B Redemption, distributions of Distributable Cash that are made after the exercise of the Class B Redemption shall be made as follows:

4.1A.1 First to the Class B Member in an amount equal to its Unpaid Preference;

4.1A.2 Second, to the Class B Member in an amount equal to the unpaid Class B Redemption Obligation; and

4.1A.3 Thereafter, to the holders of Common Equity in accordance with their respective Membership Interest Percentages.

If the Manager determines that the unpaid Class B Redemption Obligation cannot be satisfied during the taxable year without additional capital or the Manager determines that there is not sufficient Distributable Cash to fully satisfy the unpaid Class B Redemption Obligation, the Manager will direct GRMH to, and GRMH will promptly, recontribute any distributions received by GRMH pursuant to this Article IV after the date hereof to the extent necessary to satisfy the unpaid Class B Redemption Obligation. It is expected that the Manager will operate the Company in a manner recognizing the Class B Redemption Obligation, including imposing reasonable restrictions on the Company’s capital and non capital expenditures to allow the satisfaction of the Class B Redemption Obligation.

4.2. Profit and Loss Allocations. Except as expressly provided to the contrary in this Section 4.2, after giving effect to the special allocations set forth in Section 4.3, for any taxable year of the Company, Profit or Loss shall be allocated to the Interest Holders in proportion to their Membership Interest Percentages.

4.3. Regulatory Allocations.

4.3.1. Qualified Income Offset. No Interest Holder shall be allocated Losses or deductions to the extent the allocation would, as of the end of the taxable year, create or increase an Adjusted Capital Account Deficit. If an Interest Holder receives (1) an allocation of Loss or deduction (or item thereof), or (2) any distribution which causes

the Interest Holder to have or increase an Adjusted Capital Account Deficit at the end of any taxable year, then all items of income and gain of the Company (consisting of a pro rata portion of each item of Company income, including gross income and gain) for that taxable year shall be allocated to that Interest Holder before any other allocation is made of Company items for that taxable year, in the amount and in proportions required to eliminate the excess as quickly as possible. This Section 4.3.1 is intended to comply with, and shall be interpreted consistently with, the “qualified income offset” provisions of the Regulations promulgated under Code Section 704(b).

4.3.2. Minimum Gain Chargeback. Except as set forth in Regulation Section 1.704-2(f)(2), (3), and (4), if, during any taxable year, there is a net decrease in Minimum Gain or Member Minimum Gain, each Interest Holder, prior to any other allocation pursuant to this Section IV, shall be specially allocated items of gross income and gain for such taxable year (and, if necessary, subsequent taxable years) in an amount equal to that Interest Holder’s share of the net decrease of Minimum Gain or Member Minimum Gain. Allocations of gross income and gain pursuant to this Section 4.3.2 shall be made first from gain recognized from the disposition of Company assets subject to nonrecourse liabilities (within the meaning of the Regulations promulgated under Code Section 752), to the extent of the Minimum Gain or Member Minimum Gain attributable to those assets, and thereafter, from a pro rata portion of the Company’s other items of income and gain for the taxable year. It is the intent of the parties hereto that any allocation pursuant to this Section 4.3.2 shall constitute a “minimum gain chargeback” under Regulation Sections 1.704-2(f) or 1.704-2(i)(4) and that this section be interpreted consistently therewith.

4.3.3. Contributed Property and Book-Ups. In accordance with Code Section 704(c) and the Regulations thereunder, as well as Regulation Section 1.704-1(b)(2)(iv)(d)(3), income, gain, loss, and deduction with respect to any property contributed (or deemed contributed) to the Company shall, solely for tax purposes, be allocated among the Interest Holders so as to take account of any variation between the adjusted basis of the property to the Company for federal income tax purposes and its fair market value at the date of contribution (or deemed contribution). Unless the Manager elects otherwise, if the adjusted book value of any Company asset is adjusted as provided herein, subsequent allocations of income, gain, loss, and deduction with respect to the asset shall take account of any variation between the adjusted basis of the asset for federal income tax purposes and its adjusted book value in the manner required under Code Section 704(c) using the “traditional method” described in the Regulations thereunder.

4.3.4. Code Section 754 Adjustment. To the extent an adjustment to the tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of the adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases basis), and the gain or loss shall be specially allocated to the Interest Holders in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to that Section of the Regulations.

4.3.5. Nonrecourse Deductions. Nonrecourse Deductions for a taxable year or other period shall be specially allocated to the holders of Common Equity in accordance with their respective Membership Interest Percentages.

4.3.6. Member Loan Nonrecourse Deductions. Any Member Loan Nonrecourse Deduction for any taxable year or other period shall be specially allocated to the Interest Holder who bears the risk of loss with respect to the loan to which the Member Loan Nonrecourse Deduction is attributable in accordance with Regulation Section 1.704-2.

4.3.7. Guaranteed Payments. Any distributions with respect to the Preference are intended to be guaranteed payment under Code Section 707(c) paid to recipient other than in its capacity as a Member within the meaning of Code Section 707(a) and the partnership expense arising from such guaranteed payment shall be allocated to the Common Equity holders based on their Membership Interest Percentages. To the extent any such distributions with respect to the Preference, any compensation paid to any Member by the Company, including any fees payable to any Member pursuant to Section 5.3 hereof, or the payment to a Class B Member made pursuant to Section 4.6, is determined by the Internal Revenue Service not to be a guaranteed payment under Code Section 707(c) or is not paid to the Member other than in the Person’s capacity as a Member within the meaning of Code Section 707(a), the Member shall be specially allocated gross income of the Company in an amount equal to the amount of that payment, and the Member’s Capital Account shall be adjusted to reflect the payment.

4.3.8. Unrealized Receivables. If an Interest Holder’s Interest is reduced (provided the reduction does not result in a complete termination of the Interest Holder’s Interest), the Interest Holder’s share of the Company’s “unrealized receivables” and “substantially appreciated inventory” (within the meaning of Code Section 751) shall not be reduced, so that, notwithstanding any other provision of this Agreement to the contrary, that portion of the Profit otherwise allocable upon a liquidation or dissolution of the Company pursuant to Section 4.4 hereof which is taxable as ordinary income (recaptured) for federal income tax purposes shall, to the extent possible without increasing the total gain to the Company or to any Interest Holder, be specially allocated among the Interest Holders in proportion to the deductions (or basis reductions treated as deductions) giving rise to such recapture.

4.3.9. Withholding. All amounts required to be withheld pursuant to Code Section 1446 or any other provision of federal, state, or local tax law shall be treated as amounts actually distributed to the affected Interest Holders for all purposes under this Agreement.

4.4. Liquidation and Dissolution.

4.4.1. If the Company is liquidated, the assets of the Company shall be distributed to the Interest Holders in accordance with the following:

(i) First to Class B Members in an amount equal to the Unpaid Capital Contribution and Unpaid Preference as of the date of the distribution;

(ii) Then, the balance to the holders of Common Equity in accordance with their respective Membership Interest Percentages.

4.4.2. No Interest Holder shall be obligated to restore a Negative Capital Account.

4.5. General.

4.5.1. If any assets of the Company are distributed in kind to the Interest Holders, those assets shall be valued on the basis of their fair market value, and any Interest Holder entitled to any interest in those assets shall receive that interest as a tenant-in-common with all other Interest Holders so entitled. Unless the Members (including the Class B Members) otherwise agree, the fair market value of the assets shall be determined by an independent appraiser who shall be selected by the Members with the consent of the Class B Members. The Profit or Loss for each undistributed asset shall be determined as if the asset had been sold at its fair market value, and the Profit or Loss shall be allocated as provided in Section 4.2 and shall be properly credited or charged to the Capital Accounts of the Interest Holders prior to the distribution of the assets in liquidation pursuant to Section 4.4.

4.5.2. All Profit and Loss shall be allocated, and all distributions shall be made, to the Persons shown on the records of the Company to have been Interest Holders as of the last day of the taxable year for which the allocation or distribution is to be made. All distributions shall be made to the Persons shown on the records of the company to have been Interest Holders as of the date the distribution is to be made. Notwithstanding the foregoing, unless the Company’s taxable year is separated into segments, if there is a Transfer during the taxable year, the Profit or Loss shall be allocated between the original Interest Holder and the successor on the basis of the number of days each was an Interest Holder during the taxable year; provided, however, the Company’s taxable year shall be segregated into two or more segments in order to account for Profit, Loss, or proceeds attributable to any extraordinary nonrecurring items of the Company.

4.5.3. The Manager is authorized, upon the advice of the Company’s tax counsel, to amend this Section IV to comply with the Code and the Regulations promulgated under Code Section 704(b); provided, however, that no amendment shall materially affect distributions to an Interest Holder without the Interest Holder’s prior written consent.

4.6. Clawback. Upon the dissolution of the Company, the Manager shall calculate the amount by which the Class B Member’s Capital Contributions with respect to the Preferred Equity plus the Preference thereon exceeds all distributions made to the Class B Member on account of the provisions of Section IV. This calculated amount is hereinafter referred to as the “Clawback Requirement”. GRMH shall contribute to the Company an amount (hereinafter referred to as the “Minimum Distribution”) equal to the lesser of (a) the Clawback Requirement

or (b) the aggregate amount of distributions received by GRMH from the Company after the date of this Agreement. The Company, upon receipt of the Minimum Distribution, shall pay an amount equal to the Minimum Distribution to the Class B Member. The amount distributed to the Class B Member shall be accounted for as a guaranteed payment under Code Section 707(c). The partnership expense arising from such guaranteed payment shall be allocated to GRMH.

Section V.

Management: Rights, Powers, and Duties

5.1. Management.

5.1.1. Manager. The Company shall be managed by one or more Managers, who may, but need not, be Members. The initial Manager is FHE Manager, LLC, a Delaware limited liability company.

5.1.2. General Powers. The Manager shall have full, exclusive, and complete discretion, power, and authority, subject in all cases to the other provisions of this Agreement and the requirements of applicable law, to manage, control, administer, and operate the business and affairs of the Company and to make all decisions affecting such business and affairs, including, for Company purposes, the power to:

(a) acquire by purchase, lease, or otherwise, any real or personal property;

(b) construct, operate, maintain, finance, and improve, and to own, sell, convey, assign, mortgage, or lease any real or personal property;

(c) enter into agreements and contracts and give receipts, releases, and discharges;

(d) purchase liability and other insurance to protect the Company’s properties and business;

(e) borrow money for and on behalf of the Company;

(f) prepay, in whole or in part, refinance, amend, modify, or extend any mortgages or deeds of trust that may affect any asset of the Company and in connection therewith to execute for and on behalf of the Company any extensions, renewals, or modifications of such mortgages or deeds of trust;

(g) execute any and all other instruments and documents that may be necessary or in the opinion of the Managers desirable to carry out the intent and purpose of this Agreement, including documents whose operation and effect extend beyond the term of the Company;

(h) make any and all expenditures that the Manager, in its sole discretion, deems necessary or appropriate in connection with the management of the affairs of the Company and the carrying out of its obligations and responsibilities under this Agreement, including all legal, accounting, and other related expenses incurred in connection with the organization and financing and operation of the Company;

(i) enter into any kind of activity necessary to, in connection with, or incidental to the accomplishment of the purposes of the Company;

(j) invest and reinvest Company reserves in short- term instruments or money market funds; and

(k) direct the Company to make a loan (with an interest rate equal to the applicable federal rate) to GRMH in an amount equal to the Capital Contribution made by a Class B Member with respect to the Preferred Equity.

5.1.3. Extraordinary Transactions. Notwithstanding anything to the contrary in this Agreement the Manager shall not undertake any of the following without the approval of the Class A Members:

(a) the sale, exchange, lease, or other disposition of all or substantially all of the assets of the Company;

(b) the merger, consolidation, or reorganization of the Company with or into any other Person;

(c) subject to Section 5.1.4, the amendment or restatement of the Certificate of Formation of the Company or this Agreement; and

(d) the admission of additional members to the Company.

5.1.4. [RESERVED]

5.1.5. Limitation on Authority of Members.

(a) No Member is an agent of the Company solely by virtue of being a Member, and no Member has authority to act for the Company solely by virtue of being a Member.

(b) Any Member who takes any action or binds the Company in violation of this section shall be solely responsible for any loss and expense incurred by the Company as a result of the unauthorized action and shall indemnify and hold the Company harmless with respect to the loss or expense.

5.1.6. Removal of Manager. GRMH at any time and from time to time and for any reason may remove any Manager then acting and select a new Manager.

5.2. Meetings of and Voting by Members.

5.2.1. A meeting of the Class A Members may be called at any time by the Manager or any Class A Member. Meetings of Class A Members shall be held at the Company’s principal place of business or at any other place designated by the Manager. Not less than ten (10) nor more than ninety (90) days before each meeting, the Manager or the Class A Member calling the meeting shall give written notice of the meeting to each Class A Member. The notice shall state the time, place, and purpose of the meeting. Notwithstanding the foregoing provisions, each Class A Member waives notice if before or after the meeting the Class A Member signs a waiver of the notice that is filed with the records of Class A Members meetings or is present at the meeting in person or by proxy. Unless this Agreement provides otherwise, at a meeting of Class A Members, the presence in person or by proxy of GRMH constitutes a quorum. A Class A Member may vote either in person or by written proxy signed by the Class A Member or by the Class A Member’s duly authorized attorney-in-fact.

5.2.2. Except as otherwise provided in this Agreement, the affirmative vote of the Class A Members whose Membership Interest Percentages total more than fifty percent (50%) shall be required to approve any matter coming before the Class A Members.

5.2.3. Except as otherwise provided in this Agreement, the Class B Members shall not be entitled to vote.

5.2.4. In lieu of holding a meeting, the Class A Members may vote or otherwise take action by a written consent stating the action taken executed by the Class A Members holding a majority or other required amount of Membership Interests then held by Class A Members.

5.3. Personal Services.

5.3.1. No Member shall be required to perform services for the Company solely by virtue of being a Member. Unless approved by the Class A Members, no Member shall be entitled to compensation for services performed for the Company by the Member. However, upon substantiation of the amount and purpose thereof, the Members shall be entitled to reimbursement for expenses reasonably incurred in connection with the activities of the Company, including but not limited to, reasonable expenses incurred in connection with services provided to the Company by employees of Affiliates.

5.3.2. Unless approved by Class A Members whose Membership Interest Percentages total more than fifty percent (50%), a Manager shall not be entitled to compensation for services performed for the Company. However, upon substantiation of the amount and purpose thereof, the Managers shall be entitled to reimbursement for expenses reasonably incurred in connection with the activities of the Company.

5.4. Officers. Unless determined otherwise by GRMH, the Manager may appoint agents of the Company, referred to as “Officers,^” to carry out the Manager’s decisions and the day-to-day activities of the Company. Unless determined otherwise by GRMH, the Officers shall have the titles, power, authority, and duties as from time to time may be assigned by the Manager or GRMH.

5.5. Duties of Parties.

5.5.1. The Manager shall not be liable, responsible, or accountable in damages or otherwise to the Company or to any Member for any action taken or any failure to act on behalf of the Company within the scope of the authority conferred on the Manager by this Agreement or by law, unless the action or omission constituted a breach of the Manager’s duty of loyalty, was not in good faith, involved intentional misconduct or knowing violation of law, resulted in the receipt of an improper personal benefit, or constituted recklessness.

5.5.2. Nothing in this Agreement shall be deemed to restrict in any way the rights of any Member, or of any Affiliate of any Member, to conduct any other business or activity whatsoever, and the Member shall not be accountable to the Company or to any Member with respect to that business or activity even if the business or activity competes with the Company’s business. The organization of the Company shall be without prejudice to the Member’s respective rights (or the rights of their respective Affiliates) to maintain, expand, or diversify such other interests and activities and to receive and enjoy profits or compensation therefrom. Each Member waives any rights the Member might otherwise have to share or participate in such other interests or activities of any other Member or the Member’s Affiliates.

5.5.3. Each Member understands and acknowledges that the conduct of the Company’s business may involve business dealings and undertakings with Members and their Affiliates. In any of those cases, those dealings and undertakings shall be at arm’s length and on commercially reasonable terms.

5.6. Indemnification. The Company shall indemnify the Manager and Officers for any action taken or failure to act on behalf of the Company within the scope of the authority conferred on the Manager or Officers by this Agreement or by law, unless such action or omission was not in good faith, involved intentional misconduct or knowing violation of law, resulted in the receipt of an improper personal benefit, or constituted recklessness. The Company shall promptly notify the Members whenever the Manager or an Officer has been indemnified by the Company for any act, matter, or thing whatsoever.

Section VI.

Transfer of Interests; Additions and Withdrawals of Members

6.1. Transfers. Except as provided in Section 4.7, no Member may make a Voluntary Transfer of all, or any portion of, or any interest or rights in, the Membership Interests owned by the Member, and no Interest Holder may make a Voluntary Transfer of all, or any portion of, or any interest or rights in, any Economic Interest. Each Member hereby acknowledges the

reasonableness of this prohibition in view of the purposes of the Company and the relationship of the Members. Any attempt to make a Voluntary Transfer of any Membership Interests or Economic Interests in violation of the prohibition contained in this Section 6.1 shall be invalid, null, and void, and of no force or effect. Any Person to whom a Membership Interest is attempted to be transferred in violation of this Section 6.1 shall not be entitled to vote on matters coming before the Members, participate in the management of the Company, act as an agent of the Company, receive distributions from the Company, or have any other rights in or with respect to the Membership Interests.

6.2. Withdrawal. No Member shall have the right or power to withdraw voluntarily from the Company.

6.3. Involuntary Transfer. Immediately upon the occurrence of an Involuntary Transfer, the successor of the Member shall thereupon become an Interest Holder but shall not become a Member.

6.4. Additional Members. Notwithstanding anything in this Agreement to the contrary, the Manager may, without the consent of the Members, (i) admit one or more additional Members to the Company, (ii) issue Preferred Equity to such additional Members, which shall entitle the holder to distributions pursuant to Sections 4.1, 4.1A and 4.4 on the same terms and in the same priority as distributions payable to Class B Members thereunder.

Section VII.

Dissolution, Liquidation, and Termination of the Company

7.1. Events of Dissolution. The Company shall dissolve and its affairs shall be wound up on the first to occur of the following events:

7.1.1. upon a determination by GRMH or

7.1.2. upon the entry of a decree of judicial dissolution of the Company under the Act.

7.2. Procedure for Winding Up and Dissolution. If the Company is dissolved, the Manager shall wind up the Company’s affairs. On winding up of the Company, the assets of the Company shall be distributed, first, to creditors of the Company, including Interest Holders who are creditors, in satisfaction of the liabilities of the Company, and then to the Interest Holders in accordance with Section 4.4.

7.3. Filing of Certificate of Cancellation. If the Company is dissolved, the Manager shall promptly file Certification of Cancellation with the Secretary. If there is no Manager, the Certificate of Cancellation shall be filed by the remaining Members. If there are no remaining Members, the Certificate of Cancellation shall be filed by the last Person to be a Member. If there is no Manager, remaining Members, or a Person who last was a Member, the Certificate of Cancellation shall be filed by the legal or personal representatives of the Person who last was a Member.

Section VIII.

Books, Records, Accounting, and Tax Elections

8.1. Bank Accounts. All funds of the Company shall be deposited in a bank account or accounts opened in the Company’s name. The Manager shall determine the institution or institutions at which the accounts will be opened and maintained, the types of accounts, and the Persons who will have authority with respect to the accounts and the funds therein.

8.2. Books and Records. The Manager shall keep or cause to be kept complete and accurate books and records of the Company and supporting documentation of the transactions with respect to the conduct of the Company’s business.

8.3. Annual Accounting Period. The annual accounting period of the Company shall be its taxable year. The Company’s taxable year shall be selected by the Manager, subject to the requirements and limitations of the Code.

Section IX.

General Provisions

9.1. Assurances. Each Member shall execute all such certificates and other documents and shall do all such filing, recording, publishing, and other acts as the Members deem appropriate to comply with the requirements of law for the formation and operation of the Company and to comply with any laws, rules, and regulations relating to the acquisition, operation, or holding of the property of the Company.

9.2. Notifications. Any notice, demand, consent, election, offer, approval, request, or other communication (collectively, a “notice”) required or permitted under this Agreement must be in writing and either delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested. A notice must be addressed to an Interest Holder at the Interest Holder’s last known address on the records of the Company. A notice to the Company must be addressed to the Company’s principal office. A notice delivered personally will be deemed given only when acknowledged in writing by the person to whom it is delivered. A notice that is sent by mail will be deemed given three (3) business days after it is mailed. Any party may designate, by notice to all of the others, substitute addresses or addressees for notices; and, thereafter, notices are to be directed to those substitute addresses or addressees.

9.3. Specific Performance. The parties recognize that irreparable injury will result from a breach of any provision of this Agreement and that money damages will be inadequate to fully remedy the injury. Accordingly, in the event of a breach or threatened breach of one or more of the provisions of this Agreement, any party who may be injured (in addition to any other remedies which may be available to that party) shall be entitled to one or more preliminary or permanent orders (i) restraining and enjoining any act which would constitute a breach, or (ii) compelling the performance of any obligation which, if not performed, would constitute a breach.

9.4. Complete Agreement. This Agreement constitutes the final, complete, and exclusive statement of the agreement among the Members. It supersedes all prior written and oral statements, including any prior representation, statement, condition, or warranty. This Agreement may not be amended without the written consent of all of the Members.

9.5. Headings. The headings in this Agreement are inserted as a matter of convenience only, and do not define, limit, or describe the scope of this Agreement or the intent of the Members.

9.6. Binding Provisions. This Agreement is binding upon, and inures to the benefit of, the parties hereto and their respective heirs, executors, administrators, personal and legal representatives, successors, and permitted assigns.

9.7. Jurisdiction and Venue. Any suit involving any dispute or matter arising under this Agreement may only be brought in the United States District Court for the Western District of Oklahoma or the District Court of Oklahoma County, Oklahoma. All Members hereby consent to the exercise of personal jurisdiction by any such court with respect to any such proceeding.

9.8. Terms. Common nouns and pronouns shall be deemed to refer to the masculine, feminine, neuter, singular, and plural, as the identity of the Person may in the context require. “Includes” and “including” are not limiting. The rule of construction that a document is to be construed most strictly against the party who drafted the document shall not be applicable to this Agreement because both parties participated in the preparation of this Agreement.

9.9. Separability of Provisions. Each provision of this Agreement shall be considered separable; and if for any reason, any provision or provisions herein are determined to be determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Agreement that are valid.

9.10. Counterparts. This Agreement may be executed simultaneously in two or more counterparts each of which shall be deemed an original, and all of which, when taken together, constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart.

9.11. Estoppel Certificate. Each Member shall, within ten (10) days after written request by any Member or the Manager, deliver to the requesting Person a certificate stating, to the Member’s knowledge, that: (i) this Agreement is in full force and effect; (ii) this Agreement has not been modified except by any instrument or instruments identified in the certificate; and (iii) there is no default hereunder by the requesting Person, or if there is a default, the nature and extent thereof.

9.12. No Partnership Intended for Nontax Purposes. The Members have formed the Company under the Act, and expressly do not intend hereby to form a partnership under either the Delaware Revised Uniform Partnership Act or the Delaware Revised Uniform Limited Partnership Act. The Members do not intend to be partners to one another, or partners to any third party. To the extent any Member, by word or action, represents to another person that any other Member is a partner or that the Company is a partnership, the Member making such wrongful representation shall be liable to any other Member who incurs personal liability by reason of such representation. No statement or action of any Member that occurred prior to the formation of the Company shall be construed to constitute the formation of a partnership of that Member with any other Member or any third party.

9.13. Amendment. This Agreement may be amended solely upon the recommendation of the Manager, subject to approval by a majority in interest of the Class A Members. Notwithstanding the foregoing or anything else to the contrary, the Class A Members hereby consent to the amendment of Exhibit A to this Agreement by a Manager at any time to reflect the Membership Interest and Capital Contribution of any Member or the addition or withdrawal of any Member.

9.14. Power of Attorney.

9.14.1 Grant of Power. Each Member constitutes and appoints the Manager as the Member’s true and lawful attorney-in-fact (“Attorney-in-Fact”), and in the Member’s name, place and stead, to make, execute, sign, acknowledge, and file:

9.14.1.1 one or more articles of organization;

9.14.1.2 all documents (including amendments to articles of organization) which the Attorney-in-Fact deems appropriate to reflect any amendment, change, or modification of this Agreement;

9.14.1.3 any and all other certificates or other instruments required to be filed by the Company under the laws of any state of jurisdiction, including, without limitation, any certificate or other instruments necessary in order for the Company to continue to qualify as a limited liability company under the laws of the jurisdiction wherein the Company may be doing business or owning property;

9.14.1.4 one or more fictitious or trade name certificates; and

9.14.1.5 all documents which may be required to dissolve and terminate the Company and to cancel its articles of organization.

9.14.2 Irrevocability. The foregoing power of attorney is irrevocable and is coupled with an interest, and, to the extent permitted by applicable law, shall survive the death or disability of a Member. It also shall survive the transfer of an economic interest, except that if the transferee is approved for admission as a Member, this power of attorney shall survive the delivery of the assignment for the sole purpose of enabling the Attorney-in-Fact to execute, acknowledge and file any documents needed to effectuate the substitution. Each Member shall be bound by any representations made by the Attorney-in-Fact acting in good faith pursuant to this power of attorney, and each Member hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the Attorney-in-Fact taken in good faith under this power of attorney.

9.15 Member Representations and Agreements. Notwithstanding anything contained in this Agreement to the contrary, each Member hereby represents and warrants to the Company, the Manager and to each other that: (a) the Membership Interest of such Member is acquired for investment purposes only, for the Member’s own account, and not with a view to or in connection with any distribution, reoffer, resale or other disposition not in compliance with the Securities Act of 1933, as amended, and the rules and regulation thereunder (the “ 1933 Act”) and applicable state securities laws; (b) such Member, alone or together with the Member’s representatives, possesses such expertise, knowledge and sophistication in financial and business matters generally, and in the type of transactions in which the Company proposes to engage in particular, that the Member is capable of evaluating the merits and economic risks of acquiring and holding the Membership Interest and the Member is able to bear all such economic risks now and in the future; (c) such Member has had access to all of the information with respect to the Membership Interest acquired by the Member under this Agreement that the Member deems necessary to make a complete evaluation thereof and has had the opportunity to question the other Members and the Managers (if any) concerning such Membership Interest; (d) such Member’s decision to acquire the Membership Interest for investment has been based solely upon the evaluation made by the Member; (e) such Member is aware that the Member must bear the economic risk of an investment in the Company for an indefinite period of time because Membership Interests have not been registered under the 1933 Act or under the securities laws of various states and, therefore, cannot be sold unless such Membership Interests are subsequently registered under the 1933 Act and any applicable state securities laws or an exemption from registration is available; (f) such Member is aware that only the Company can take action to register Membership Interests and the Company is under no such obligation and does not propose to attempt to do so; (g) such Member is aware that this Agreement provides restrictions on the ability of a Member to sell, transfer, assign, mortgage, hypothecate or otherwise encumber the Member’s Membership Interest; (h) such Member agrees that the Member will truthfully and completely answer all questions, and make all covenants, that the Company or the Managers may, contemporaneously or hereafter, ask or demand for the purpose of establishing compliance with the 1933 Act and applicable state securities laws; and (i) if that Member is an organization, that it is duly organized, validly existing, and in good standing under the laws of its state of organization and that it has full organizational power and authority to execute and agree to this Agreement and to perform its obligations hereunder.

[Signature page follows.]

THE MEMBERSHIP INTERESTS REFERENCED HEREIN HAVE NOT BEEN

REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR

PURSUANT TO THE PROVISIONS OF ANY STATE SECURITIES ACT

CERTAIN RESTRICTIONS ON TRANSFERS OF

INTERESTS ARE SET FORTH HEREIN

IN WITNESS WHEREOF, the undersigned have executed this Operating Agreement for Foundation Health Enterprises LLC as of the date first set forth above.

GRAYMARK HEALTHCARE, INC., an Oklahoma corporation
By:
	Stanton Nelson, President

Exhibit A

Membership Interests of Class A Member Common Equity Holders

Member	Percentage of Common Equity Membership Interest
Graymark Healthcare, Inc.		100	%

CAPITAL CONTRIBUTIONS OF CLASS B MEMBERS

Member’s Name	Member’s Address	Value of Member’s Capital Contribution
Class B Members subscribing to new units	As identified in Subscription Agreement	$105,000.00 per one percent (1%) membership interest (“Unit”)

EXHIBIT B

FORM OF JOINDER

JOINDER OF MEMBER TO

OPERATING AGREEMENT

OF

FOUNDATION HEALTH ENTERPRISES LLC

The undersigned hereby joins in the execution of the Operating Agreement (the “Agreement”) of FOUNDATION HEALTH ENTERPRISES LLC, a Delaware limited liability company (the “Company”). The undersigned hereby acknowledges that upon acceptance of this Joinder by the Company, (a) this Joinder shall be a counterpart execution of the Agreement and (b) the undersigned shall be a party to the Agreement. The undersigned hereby agrees to be bound by all the terms of the Agreement as though the undersigned was an original party thereto.

IN WITNESS WHEREOF, the undersigned has executed this Joinder as of this             day of             , 2013.

By:

Address:

ACCEPTANCE

The foregoing Joinder is hereby accepted by the Company as of             , 20            .

FOUNDATION HEALTH ENTERPRISES LLC,

a Delaware limited liability company

By:

Title:

Exhibit C

Membership Interests Held by the Company

100% of the Preferred Equity Membership Interests in TSH Acquisitions, LLC

Exhibit “B”

Organization Chart of Foundation Healthcare Affiliates, LLC and Related Entities – Pre Merger

Exhibit “C”

Organization Chart of Foundation Healthcare Affiliates, LLC and Related Entities – Post Merger

Exhibit “D”

Operating Agreement of TSH Acquisition, LLC

LIMITED LIABILITY COMPANY AGREEMENT

OF

TSH ACQUISTION, LLC

THIS AGREEMENT is made as of March 13, 2013, by Graymark Healthcare, Inc., an Oklahoma corporation (“GRMH”) and Foundation Health Enterprises, LLC, an Oklahoma limited liability company (“FHE”) for the purpose of setting forth the limited liability company agreement of TSH Acquistion, LLC, a Delaware limited liability company (the “Company”).

For good and valuable consideration, it is agreed as follows:

Section I.

Defined Terms

The following capitalized terms shall have the meanings specified in this section. Other terms are defined throughout this Agreement.

“Act” shall mean the Delaware Limited Liability Company Act, as amended from time to time.

“Adjusted Capital Account Deficit” shall mean, with respect to any Interest Holder, the deficit balance, if any, in the Interest Holder’s Capital Account as of the end of the relevant taxable year, after giving effect to the following adjustments:

(i) the deficit shall be decreased by the amounts that the Interest Holder is deemed obligated to restore pursuant to Regulation Sections 1.704-2(g)(1) and (i)(5) (i.e., the Interest Holder’s share of Minimum Gain and Member Minimum Gain); and

(ii) the deficit shall be increased by the items described in Regulation Section 1.704-1 (b) (2) (ii) (d) (4), (5), and (6).

“Affiliate” shall mean, with respect to any Member, any Person: (i) which owns more than 50% of the voting interests in the Member; or (ii) in which the Member owns more than 50% of the voting interests; or (iii) in which more than 50% of the voting interests are owned by a Person who has a relationship with the Member described in clause (i) or (ii) above.

“Agreement” shall mean this Agreement, as amended from time to time.

“Capital Account” shall mean the account maintained by the Company for each Interest Holder.

“Capital Contribution” shall mean the total amount of cash and the fair market value of any other assets contributed (or deemed contributed under Regulation Section 1.704-1(b)(2)(iv)(d)) to the Company by a Member, net of liabilities assumed or to which the assets are subject.

“Code” shall mean the Internal Revenue Code of 1986, as amended, or any corresponding provision of any succeeding law.

“Common Equity” shall mean Membership Interests in the Company that do not entitle the owner to the Preference.

‘Company” shall mean TSH Acquisition, L.L.C., the Delaware limited liability company, organized pursuant to the Certificate of Formation and governed by this Agreement.

“Depreciation” shall mean, for each calendar year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable for federal income tax purposes with respect to an asset for the calendar year, except that if the adjusted book value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of the calendar year, then the depreciation, amortization, or cost recovery bears the same ratio to such beginning adjusted book value as federal income tax depreciation, amortization, or other cost recovery deduction for the calendar year bears to the beginning adjusted tax basis.

“Discretionary Distribution” shall have the meaning provided in Section 4.1B hereof.

“Distributable Cash” shall mean the amount of cash that the Manager, in its reasonable discretion, deems available for distribution to the Interest Holders, taking into account (a) all cash funds derived from operations of the Company (including interest received on reserves), without reduction for any noncash charges, but less cash funds used to pay current operating expenses and to pay or establish reasonable reserves for future expenses, debt payments, and capital improvements and replacements as determined by the Manager; and (b) any property that the Manager determines is no longer suitable for use by the Company. At the discretion of the Manager, the amount of Distributable Cash shall be increased by the reduction of any reserve previously established.

“Economic Interest” shall mean a Person’s share of the Profits and Losses of, and the right to receive distributions from, the Company.

“FHE Redemption” means FHE’s right to give notice, which right can be first exercised beginning on the first day of the First FHE Redemption Option Year, that the Company make a distribution to FHE, pursuant to Section 4.1A. During the First FHE Redemption Option Year and for the two years thereafter, the amount of such distribution shall be equal to the greater of ten percent (10%) of (a) FHE’s Capital Contribution with respect to the Preferred Equity, or (b) the sum of FHE’s Unreturned Capital Contribution and the Unpaid Preference; provided, however, that in no event shall such distribution be greater than the sum FHE’s Unreturned Capital Contribution and the Unpaid Preference. In the fifth (5^th) calendar year after the date hereof, such distribution shall be equal to the sum of the balance of FHE’s Unreturned Capital Contribution and the Unpaid Preference. Such distribution will be charged to FHE’s Capital Account, as provided in Section 3.5.2. FHE may exercise its FHE Redemption by delivering written notice to the Manager and to FHA and upon receipt of such notice, the FHE Redemption shall be exercised.

“FHE Redemption Obligation” means the amount the Company is required to distribute to FHE on account of FHE’s election to exercise the FHE Redemption.

“FHE Unit Conversion to GRMH Common Stock” refers to the option of the FHE Unit Holders pursuant to the FHE Operating Agreement, to give notice to FHE to convert each Unit of FHE to GRMH Common Stock at a conversion rate of $2.00 per share. Upon such conversion of FHE Units to GRMH Common Stock, there will be corresponding reduction of FHE’s Unreturned Capital Contribution and the Unpaid Preference with respect to the Preferred Equity in the Company using the same conversion rate. At such time as the Unpaid Preference and the Unreturned Capital Contributions with respect to Preferred Equity in the Company have been reduced to zero, there shall be no further rights of FHE Unit Holders to convert such Units to GRMH Common Stock.

“First FHE Redemption Option Year” means the second calendar year after the date hereof.

“Interest Holder” shall mean any Person who holds an Economic Interest, whether as a Member or as an unadmitted assignee of a Member.

“Involuntary Transfer” shall mean, with respect to any Member, any Transfer that occurs as a result of any of the following events:

(vii) an assignment for the benefit of creditors;

(viii) any bankruptcy or insolvency proceeding;

(ix) any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation;

(x) appointment of a trustee for, receiver for, or liquidation of the Member or of all or any substantial part of the Member’s properties;

(xi) if the Member is an individual, the Member’s death or adjudication by a court of competent jurisdiction as incompetent to manage the Member’s person or property;

(xii) if the Member is acting as a Member by virtue of being a trustee of a trust, the termination of the trust;

(xiii) if the Member is a partnership or limited liability company, the dissolution and commencement of winding up of the partnership or limited liability company;

(xiv) if the Member is a corporation, the filing of a certificate of dissolution of the corporation or the lapse of 90 days after notice to the corporation of the revocation without reinstatement of its charter; or

(xv) if the Member is an estate, the distribution by the fiduciary of the estate’s entire interest in the company.

“Manager” shall mean the Person or Persons designated as such pursuant to Section V.

“Member” shall mean each of GRMH and FHE and any Person who subsequently is admitted as a member of the Company.

“Member Loan Nonrecourse Deductions” shall mean any Company deductions that would be Nonrecourse Deductions if they were not attributable to a loan made or guaranteed by a Member within the meaning of Regulation Section 1.704-2(i).

“Member Minimum Gain” has the meaning set forth in Regulation Section 1.704-2(i) for “partner nonrecourse debt minimum gain.”

“Membership Interest” shall mean all of the rights of a Member in the Company, including a Member’s: (i) Economic Interest, (ii) right to inspect the Company’s books and records, (iii) right to participate in the management of and vote on matters coming before the Company, and (iv) unless this Agreement or the Certificate of Formation provide to the contrary, right to act as an agent of the Company.

“Membership Interest Percentage” shall mean the percentage shown for a Common Equity holder on Exhibit A, as updated by the Managers to reflect the transfer or issuance of additional Common Equity pursuant to this Agreement.

“Minimum Gain” has the meaning set forth in Regulation Section 1.704-2(d) for “partnership minimum gain”. Minimum Gain shall be computed separately for each Interest Holder in a manner consistent with the Regulations under Code Section 704(b).

“Negative Capital Account” shall mean a Capital Account with a balance of less than zero.

“Nonrecourse Deductions” has the meaning set forth in Regulation Section 1.704-2(b)(1). The amount of Nonrecourse Deductions for a taxable year of the Company shall be determined according to the provisions of Regulation Section 1.704-2(c).

“Officer” shall mean each Person designated as such pursuant to Section V.

“Person” whether of not capitalized shall mean an individual, corporation, partnership, association, limited liability company, trust, estate, or other entity.

“Preference” shall mean an amount equal to a non-compounded annual rate of return of 9% calculated on the average daily balance of the Unreturned Capital Contribution of FHE with respect to the Preferred Equity.

“Preferred Equity” shall mean Membership Interests in the Company that entitle the owner to the Preference.

“Principal” shall mean any person actively serving as an executive officer of a company and devoting substantially all of his or her business time to the operations of the Company and/or its Affiliates.

“Profit” and “Loss” shall mean, for each taxable year of the Company (or other period for which Profit or Loss must be computed), the Company’s taxable income or loss determined in accordance with Code Section 703(a), with the following adjustments:

(xvi) all items of income, gain, loss, deduction, or credit required to be stated separately pursuant to Code Section 703(a)(1) shall be included in computing taxable income or loss;

(xvii) any tax-exempt income of the Company, not otherwise taken into account in computing Profit or Loss, shall be included in computing taxable income or loss;

(xviii) any expenditures of the Company described in Code Section 705(a)(2) (B) (or treated as such pursuant to Regulation Section 1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing Profit or Loss, shall be subtracted from taxable income or loss;

(xix) gain or loss resulting from any taxable disposition of Company property shall be computed by reference to the adjusted book value of the property disposed of notwithstanding the fact that the adjusted book value differs from the adjusted basis of the property for federal income tax purposes;

(xx) in lieu of the depreciation, amortization, or cost recovery deductions allowable in computing taxable income or loss, there shall be taken into account the Depreciation for such taxable year; and

(xxi) notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Section 4.3 hereof shall not be taken into account in computing Profit or Loss.

“Regulation” shall mean the income tax regulations, including any temporary or proposed regulations, from time to time promulgated under the Code.

“Secretary” shall mean the Secretary of State of Delaware.

“Special Distributions” shall mean those distributions made pursuant to Section 4.1A hereof.

“Transfer” shall include any and all means by which a Member or Interest Holder may be divested of a Membership Interest or Economic Interest in the Company, including divestment by sale, merger, exchange, gift, assignment, operation of law, pledge, hypothecation, or otherwise.

“Unpaid Preference” shall mean an amount equal to the cumulative Preference accrued with respect to FHE on the date of a distribution less any distributions that have been made to FHE under Section 4.1.1 or 4.1.A.1 or (in the event the FHE Redemption Obligation is determined by reference to clause (b) of the definition of FHE Redemption) the amount distributed pursuant to Section 4.1.A.2 with respect to the Unpaid Preference.

“Unreturned Capital Contribution” shall mean an amount equal to the total Capital Contributions made by FHE with respect to the Preferred Equity less any amount of distributions of Distributable Cash, Discretionary Distributions, or Special Distributions at any time in excess of the Unpaid Preference.

“Voluntary Transfer” shall mean any Transfer other than an Involuntary Transfer.

Section II.

Formation and Name; Office; Purpose; Term

2.1. Purpose. The Company is organized to hold membership interests and other equity interests in limited liability companies and other entities owning, holding and operating surgery centers and surgical hospitals and will engage in any lawful act or activity related thereto in which limited liability companies organized under the Act may engage.

2.2. Term. The term of existence of the Company shall be perpetual, unless terminated pursuant to Section VII of this Agreement.

2.3. Principal Office. The principal office and place of business of the Company in the State of Oklahoma shall be located at 204 N. Robinson, Floor 4, Oklahoma City, OK 73102, or at any other place determined by the Company’s Manager.

2.4. The Company was organized on March 13, 2013 and has had one member, GRMH, and has not filed any income tax returns and has existed as a disregarded entity as provided in Regulation §301.7701-3. Exhibit B is a complete list of the Membership Interests held by the Company as it may be amended from time to time, and the Member(s)’s adjusted basis of each interests and the fair market value of each interests.

Section III.

Members; Capital; Capital Accounts

3.1. Capital Contributions. Prior to March 31, 2013, FHE will contribute no more than $14,000,000 in cash to the Company without the prior written consent of FHA and will have credited to FHE’s Capital Account an amount equal to the contribution as provided in Section 3.5.1. GRMH will be deemed to contribute all of the Company’s assets as of the date hereof and prior to the FHE contribution and, as provided in Section 3.5.1, will receive a capital account equal to the fair market value of such assets equal to the fair market value shown on Exhibit B.

3.2. No Interest on Capital Contributions. Interest Holders shall not be paid interest on their Capital Contributions.

3.3. Return of Capital Contributions. Except as otherwise provided in this Agreement, no Interest Holder shall have the right to receive the return of any Capital Contribution.

3.4. Form of Return of Capital. If an Interest Holder is entitled to receive a return of a Capital Contribution, the Company may distribute cash, notes, property, or a combination thereof to the Interest Holder in return of the Capital Contribution.

3.5. Capital Accounts. A separate Capital Account shall be maintained for each Interest Holder as follows.

3.5.1. An Interest Holder’s Capital Account shall be credited with the Interest Holder’s Capital Contributions, the amount of any Company liabilities assumed by the Interest Holder (or which are secured by Company property distributed to the Interest Holder), the Interest Holder’s allocable share of Profit, and any item in the nature of income or gain specially allocated to such Interest Holder pursuant to the provisions of Section IV (other than Section 4.3.3); and

3.5.2. An Interest Holder’s Capital Account shall be debited with the amount of money and the fair market value of any Company property distributed to the Interest Holder, the Interest Holder’s allocable share of Loss, and any item in the nature of expenses or losses specially allocated to the Interest Holder pursuant to the provisions of Section IV (other than Section 4.3.3.).

3.5.3. If any Economic Interest is transferred pursuant to the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent the Capital Account is attributable to the transferred Economic Interest. If the adjusted book value of Company property is adjusted pursuant to this Agreement, the Capital Account of each Interest Holder shall be adjusted to reflect the aggregate adjustment in the same manner as if the Company had recognized gain or loss equal to the

amount of such aggregate adjustment. It is intended that the Capital Accounts of all Interest Holders shall be maintained in compliance with the provisions of the Regulations issued under Code Section 704, including Regulation Section 1.704-1(b), and all provisions of this Agreement relating to the maintenance of Capital Accounts shall be interpreted and applied in a manner consistent with that Regulation.

3.6. Loans. Any Member may, at any time, make or cause a loan to be made to the Company in any amount and on those terms upon which the Manager and the Member agree.

3.7. Preferred Equity. Notwithstanding any other provision of this Agreement, at such time as the Unpaid Preference and the Unreturned Capital Contributions with respect to Preferred Equity have been reduced to zero, such Preferred Equity shall be deemed cancelled and redeemed by the Company and the owners of such Preferred Equity shall have no further rights with respect to such Preferred Equity. At that time, the Common Equity holders shall be the only members of the Company.

Section IV.

Profit, Loss, and Distributions

4.1. Distributions of Distributable Cash. Subject to applicable law and any limitations contained elsewhere in this Agreement, in any calendar year, the Manager shall direct the Company to distribute any Distributable Cash to the Interest Holders, which distributions shall be made to the Interest Holders as follows:

4.1.1. First, to FHE in an amount equal to its Unpaid Preference;

4.1.2. Then, subject to Section 4.1B, to the holders of Common Equity in accordance with their respective Membership Interest Percentages.

4.1A Special Distribution. In a calendar year in which FHE exercises its FHE Redemption, distributions of Distributable Cash that are made after the exercise of the FHE Redemption shall be made as follows:

4.1A.1 First to FHE in an amount equal to its Unpaid Preference;

4.1A.2 Second, to FHE in an amount equal to the unpaid FHE Redemption Obligation; and

4.1A.3 Thereafter, subject to Section 4.1.B, to the holders of Common Equity in accordance with their respective Membership Interest Percentages.

If the Manager determines that the unpaid FHE Redemption Obligation cannot be satisfied during the taxable year without additional capital or the Manager determines that there is not sufficient Distributable Cash to fully satisfy the unpaid FHE Redemption Obligation, the Manager will direct GRMH to, and GRMH will promptly, recontribute any distributions received by GRMH pursuant to this Article IV after the date hereof to the extent necessary to satisfy the unpaid FHE Redemption Obligation. It is expected that the Manager will operate the Company in a manner recognizing the FHE Redemption Obligation, including imposing reasonable restrictions on the Company’s capital and non capital expenditures to allow the satisfaction of the FHE Redemption Obligation.

4.2. Profit and Loss Allocations. Except as expressly provided to the contrary in this Section 4.2, after giving effect to the special allocations set forth in Section 4.3, for any taxable year of the Company, Profit or Loss shall be allocated to the Interest Holders in proportion to their Membership Interest Percentages.

4.3. Regulatory Allocations.

4.3.1. Qualified Income Offset. No Interest Holder shall be allocated Losses or deductions to the extent the allocation would, as of the end of the taxable year, create or increase an Adjusted Capital Account Deficit. If an Interest Holder receives (1) an allocation of Loss or deduction (or item thereof), or (2) any distribution which causes the Interest Holder to have or increase an Adjusted Capital Account Deficit at the end of any taxable year, then all items of income and gain of the Company (consisting of a pro rata portion of each item of Company income, including gross income and gain) for that taxable year shall be allocated to that Interest Holder before any other allocation is made of Company items for that taxable year, in the amount and in proportions required to eliminate the excess as quickly as possible. This Section 4.3.1 is intended to comply with, and shall be interpreted consistently with, the “qualified income offset” provisions of the Regulations promulgated under Code Section 704(b).

4.3.2. Minimum Gain Chargeback. Except as set forth in Regulation Section 1.704-2(f)(2), (3), and (4), if, during any taxable year, there is a net decrease in Minimum Gain or Member Minimum Gain, each Interest Holder, prior to any other allocation pursuant to this Section IV, shall be specially allocated items of gross income and gain for such taxable year (and, if necessary, subsequent taxable years) in an amount equal to that Interest Holder’s share of the net decrease of Minimum Gain or Member Minimum Gain. Allocations of gross income and gain pursuant to this Section 4.3.2 shall be made first from gain recognized from the disposition of Company assets subject to nonrecourse liabilities (within the meaning of the Regulations promulgated under Code Section 752), to the extent of the Minimum Gain or Member Minimum Gain attributable to those assets, and thereafter, from a pro rata portion of the Company’s other items of income and gain for the taxable year. It is the intent of the parties hereto that any allocation pursuant to this Section 4.3.2 shall constitute a “minimum gain chargeback” under Regulation Sections 1.704-2(f) or 1.704-2(i)(4) and that this section be interpreted consistently therewith.

4.3.3. Contributed Property and Book-Ups. In accordance with Code Section 704(c) and the Regulations thereunder, as well as Regulation Section 1.704-1(b)(2)(iv)(d)(3), income, gain, loss, and deduction with respect to any property contributed (or deemed contributed) to the Company shall, solely for tax purposes, be allocated among the Interest Holders so as to take account of any variation between the adjusted basis of the property to the Company for federal income tax purposes and its fair market value at the date of contribution (or deemed contribution). Unless the Manager elects otherwise, if the adjusted book value of any Company asset is adjusted as provided

herein, subsequent allocations of income, gain, loss, and deduction with respect to the asset shall take account of any variation between the adjusted basis of the asset for federal income tax purposes and its adjusted book value in the manner required under Code Section 704(c) using the “traditional method” described in the Regulations thereunder.

4.3.4. Code Section 754 Adjustment. To the extent an adjustment to the tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of the adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases basis), and the gain or loss shall be specially allocated to the Interest Holders in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to that Section of the Regulations.

4.3.5. Nonrecourse Deductions. Nonrecourse Deductions for a taxable year or other period shall be specially allocated to the holders of Common Equity in accordance with their respective Membership Interest Percentages.

4.3.6. Member Loan Nonrecourse Deductions. Any Member Loan Nonrecourse Deduction for any taxable year or other period shall be specially allocated to the Interest Holder who bears the risk of loss with respect to the loan to which the Member Loan Nonrecourse Deduction is attributable in accordance with Regulation Section 1.704-2.

4.3.7. Guaranteed Payments. Any distributions with respect to the Preference are intended to be guaranteed payment under Code Section 707(c) paid to recipient other than in its capacity as a Member within the meaning of Code Section 707(a) and the partnership expense arising from such guaranteed payment shall be allocated to the Common Equity holders based on their Membership Interest Percentages. To the extent any such distributions with respect to the Preference, any compensation paid to any Member by the Company, including any fees payable to any Member pursuant to Section 5.3 hereof, or the payment to FHE made pursuant to Section 4.6, is determined by the Internal Revenue Service not to be a guaranteed payment under Code Section 707(c) or is not paid to the Member other than in the Person’s capacity as a Member within the meaning of Code Section 707(a), the Member shall be specially allocated gross income of the Company in an amount equal to the amount of that payment, and the Member’s Capital Account shall be adjusted to reflect the payment.

4.3.8. Unrealized Receivables. If an Interest Holder’s Interest is reduced (provided the reduction does not result in a complete termination of the Interest Holder’s Interest), the Interest Holder’s share of the Company’s “unrealized receivables” and “substantially appreciated inventory” (within the meaning of Code Section 751) shall not be reduced, so that, notwithstanding any other provision of this Agreement to the contrary, that portion of the Profit otherwise allocable upon a liquidation or dissolution of the Company pursuant to Section 4.4 hereof which is taxable as ordinary income (recaptured) for federal income tax purposes shall, to the extent possible without increasing the total gain to the Company or to any Interest Holder, be specially allocated among the Interest Holders in proportion to the deductions (or basis reductions treated as deductions) giving rise to such recapture.

4.3.9. Withholding. All amounts required to be withheld pursuant to Code Section 1446 or any other provision of federal, state, or local tax law shall be treated as amounts actually distributed to the affected Interest Holders for all purposes under this Agreement.

4.4. Liquidation and Dissolution.

4.4.1. If the Company is liquidated, the assets of the Company shall be distributed to the Interest Holders in accordance with the following:

(iii) First to FHE in an amount equal to the Unpaid Capital Contribution and Unpaid Preference as of the date of the distribution;

(iv) Then, the balance to the holders of Common Equity in accordance with their respective Membership Interest Percentages.

4.4.2. No Interest Holder shall be obligated to restore a Negative Capital Account.

4.5. General.

4.5.1. If any assets of the Company are distributed in kind to the Interest Holders, those assets shall be valued on the basis of their fair market value, and any Interest Holder entitled to any interest in those assets shall receive that interest as a tenant-in-common with all other Interest Holders so entitled. Unless the Members (including FHE) otherwise agree, the fair market value of the assets shall be determined by an independent appraiser who shall be selected by the Members with the consent of FHE. The Profit or Loss for each undistributed asset shall be determined as if the asset had been sold at its fair market value, and the Profit or Loss shall be allocated as provided in Section 4.2 and shall be properly credited or charged to the Capital Accounts of the Interest Holders prior to the distribution of the assets in liquidation pursuant to Section 4.4.

4.5.2. All Profit and Loss shall be allocated, and all distributions shall be made, to the Persons shown on the records of the Company to have been Interest Holders as of the last day of the taxable year for which the allocation or distribution is to be made. All distributions shall be made to the Persons shown on the records of the company to have been Interest Holders as of the date the distribution is to be made. Notwithstanding the foregoing, unless the Company’s taxable year is separated into segments, if there is a Transfer during the taxable year, the Profit or Loss shall be allocated between the original Interest Holder and the successor on the basis of the number of days each was an Interest Holder during the taxable year; provided, however, the Company’s taxable year shall be segregated into two or more segments in order to account for Profit, Loss, or proceeds attributable to any extraordinary nonrecurring items of the Company.

4.5.3. The Manager is authorized, upon the advice of the Company’s tax counsel, to amend this Section IV to comply with the Code and the Regulations promulgated under Code Section 704(b); provided, however, that no amendment shall materially affect distributions to an Interest Holder without the Interest Holder’s prior written consent.

4.6. Clawback. Upon the dissolution of the Company, the Manager shall calculate the amount by which FHE’s Capital Contributions with respect to the Preferred Equity plus the Preference thereon exceeds all distributions made to FHE on account of the provisions of Section IV. This calculated amount is hereinafter referred to as the “Clawback Requirement”. GRMH shall contribute to the Company an amount (hereinafter referred to as the “Minimum Distribution”) equal to the lesser of (a) the Clawback Requirement or (b) the aggregate amount of distributions received by GRMH from the Company after the date of this Agreement. The Company, upon receipt of the Minimum Distribution, shall pay an amount equal to the Minimum Distribution to FHE. The amount distributed to FHE shall be accounted for as a guaranteed payment under Code Section 707(c). The partnership expense arising from such guaranteed payment shall be allocated to GRMH.

Section V.

Management: Rights, Powers, and Duties

5.1. Management.

5.1.1. Manager. The Company shall be managed by one or more Managers, who may, but need not, be Members. The initial Managers are Stanton Nelson and Robert M. Byers.

5.1.2. General Powers. The Manager shall have full, exclusive, and complete discretion, power, and authority, subject in all cases to the other provisions of this Agreement and the requirements of applicable law, to manage, control, administer, and operate the business and affairs of the Company and to make all decisions affecting such business and affairs, including, for Company purposes, the power to:

(a) acquire by purchase, lease, or otherwise, any real or personal property;

(b) construct, operate, maintain, finance, and improve, and to own, sell, convey, assign, mortgage, or lease any real or personal property;

(c) enter into agreements and contracts and give receipts, releases, and discharges;

(d) purchase liability and other insurance to protect the Company’s properties and business;

(e) borrow money for and on behalf of the Company;

(f) prepay, in whole or in part, refinance, amend, modify, or extend any mortgages or deeds of trust that may affect any asset of the Company and in connection therewith to execute for and on behalf of the Company any extensions, renewals, or modifications of such mortgages or deeds of trust;

(g) execute any and all other instruments and documents that may be necessary or in the opinion of the Managers desirable to carry out the intent and purpose of this Agreement, including documents whose operation and effect extend beyond the term of the Company;

(h) make any and all expenditures that the Manager, in its sole discretion, deems necessary or appropriate in connection with the management of the affairs of the Company and the carrying out of its obligations and responsibilities under this Agreement, including all legal, accounting, and other related expenses incurred in connection with the organization and financing and operation of the Company;

(i) enter into any kind of activity necessary to, in connection with, or incidental to the accomplishment of the purposes of the Company;

(j) invest and reinvest Company reserves in short- term instruments or money market funds; and

(k) direct the Company to make a loan (with an interest rate equal to the applicable federal rate) to GRMH in an amount equal to the Capital Contribution made by FHE with respect to the Preferred Equity.

5.1.3. Extraordinary Transactions. Notwithstanding anything to the contrary in this Agreement (other than Section 5.1.4 below), the Manager shall not undertake any of the following without the approval of the Members:

(a) the sale, exchange, lease, or other disposition of all or substantially all of the assets of the Company;

(b) the merger, consolidation, or reorganization of the Company with or into any other Person;

(c) subject to Section 5.1.4, the amendment or restatement of the Certificate of Formation of the Company or this Agreement; and

(d) the admission of additional members to the Company.

5.1.4. [RESERVED]

5.1.5. Limitation on Authority of Members.

(a) No Member is an agent of the Company solely by virtue of being a Member, and no Member has authority to act for the Company solely by virtue of being a Member.

(b) Any Member who takes any action or binds the Company in violation of this section shall be solely responsible for any loss and expense incurred by the Company as a result of the unauthorized action and shall indemnify and hold the Company harmless with respect to the loss or expense.

5.1.6. Removal of Manager. GRMH at any time and from time to time and for any reason may remove any Manager then acting and select a new Manager.

5.2. Meetings of and Voting by Members.

5.2.1. A meeting of the Members may be called at any time by the Manager or any Member. Meetings of Members shall be held at the Company’s principal place of business or at any other place designated by the Manager. Not less than ten (10) nor more than ninety (90) days before each meeting, the Manager or the Member calling the meeting shall give written notice of the meeting to each Member. The notice shall state the time, place, and purpose of the meeting. Notwithstanding the foregoing provisions, each Member waives notice if before or after the meeting the Member signs a waiver of the notice that is filed with the records of Members meetings or is present at the meeting in person or by proxy. Unless this Agreement provides otherwise, at a meeting of Members, the presence in person or by proxy of GRMH constitutes a quorum. A Member may vote either in person or by written proxy signed by the Member or by the Member’s duly authorized attorney-in-fact.

5.2.2. Except as otherwise provided in this Agreement, the affirmative vote of the Members whose Membership Interest Percentages total more than fifty percent (50%) shall be required to approve any matter coming before the Members.

5.2.3. Except as otherwise provided in this Agreement, FHE shall not be entitled to vote.

5.2.4. In lieu of holding a meeting, the Members may vote or otherwise take action by a written consent stating the action taken executed by the Members holding a majority or other required amount of Membership Interests then held by Members.

5.3. Personal Services.

5.3.1. No Member shall be required to perform services for the Company solely by virtue of being a Member. Unless approved by the Members, including FHE only so long as FHE holds Common Equity in the Company, no Member shall be entitled to compensation for services performed for the Company by the Member. However, upon substantiation of the amount and purpose thereof, the Members shall be entitled to reimbursement for expenses reasonably incurred in connection with the activities of the Company, including but not limited to, reasonable expenses incurred in connection with services provided to the Company by employees of Affiliates.

5.3.2. Unless approved by Members whose Membership Interest Percentages total more than fifty percent (50%) and FHE only so long as FHE holds Common Equity in the Company, a Manager shall not be entitled to compensation for services performed for the Company. However, upon substantiation of the amount and purpose thereof, the Managers shall be entitled to reimbursement for expenses reasonably incurred in connection with the activities of the Company.

5.4. Officers. Unless determined otherwise by GRMH, the Manager may appoint agents of the Company, referred to as “Officers,^” to carry out the Manager’s decisions and the day-to-day activities of the Company. Unless determined otherwise by GRMH, the Officers shall have the titles, power, authority, and duties as from time to time may be assigned by the Manager or GRMH.

5.5. Duties of Parties.

5.5.1. The Manager shall not be liable, responsible, or accountable in damages or otherwise to the Company or to any Member for any action taken or any failure to act on behalf of the Company within the scope of the authority conferred on the Manager by this Agreement or by law, unless the action or omission constituted a breach of the Manager’s duty of loyalty, was not in good faith, involved intentional misconduct or knowing violation of law, resulted in the receipt of an improper personal benefit, or constituted recklessness.

5.5.2. Nothing in this Agreement shall be deemed to restrict in any way the rights of any Member, or of any Affiliate of any Member, to conduct any other business or activity whatsoever, and the Member shall not be accountable to the Company or to any Member with respect to that business or activity even if the business or activity competes with the Company’s business. The organization of the Company shall be without prejudice to the Member’s respective rights (or the rights of their respective Affiliates) to maintain, expand, or diversify such other interests and activities and to receive and enjoy profits or compensation therefrom. Each Member waives any rights the Member might otherwise have to share or participate in such other interests or activities of any other Member or the Member’s Affiliates.

5.5.3. Each Member understands and acknowledges that the conduct of the Company’s business may involve business dealings and undertakings with Members and their Affiliates. In any of those cases, those dealings and undertakings shall be at arm’s length and on commercially reasonable terms.

5.6. Indemnification. The Company shall indemnify the Manager and Officers for any action taken or failure to act on behalf of the Company within the scope of the authority conferred on the Manager or Officers by this Agreement or by law, unless such action or omission was not in good faith, involved intentional misconduct or knowing violation of law, resulted in the receipt of an improper personal benefit, or constituted recklessness. The Company shall promptly notify the Members whenever the Manager or an Officer has been indemnified by the Company for any act, matter, or thing whatsoever.

Section VI.

Transfer of Interests; Additions and Withdrawals of Members

6.1. Transfers. Except as provided in Section 4.7, no Member may make a Voluntary Transfer of all, or any portion of, or any interest or rights in, the Membership Interests owned by the Member, and no Interest Holder may make a Voluntary Transfer of all, or any portion of, or any interest or rights in, any Economic Interest. Each Member hereby acknowledges the reasonableness of this prohibition in view of the purposes of the Company and the relationship of the Members. Any attempt to make a Voluntary Transfer of any Membership Interests or Economic Interests in violation of the prohibition contained in this Section 6.1 shall be invalid, null, and void, and of no force or effect. Any Person to whom a Membership Interest is attempted to be transferred in violation of this Section 6.1 shall not be entitled to vote on matters coming before the Members, participate in the management of the Company, act as an agent of the Company, receive distributions from the Company, or have any other rights in or with respect to the Membership Interests.

6.2. Withdrawal. No Member shall have the right or power to withdraw voluntarily from the Company.

6.3. Involuntary Transfer. Immediately upon the occurrence of an Involuntary Transfer, the successor of the Member shall thereupon become an Interest Holder but shall not become a Member.

6.4. Additional Members. Notwithstanding anything in this Agreement to the contrary, the Manager may, without the consent of the Members, (i) admit one or more additional Members to the Company, (ii) issue Preferred Equity to such additional Members, which shall entitle the holder to distributions pursuant to Sections 4.1, 4.1A, 4.1B, and 4.4 on the same terms and in the same priority as distributions payable to FHE thereunder.

Section VII.

Dissolution, Liquidation, and Termination of the Company

7.1. Events of Dissolution. The Company shall dissolve and its affairs shall be wound up on the first to occur of the following events:

7.1.1. upon a determination by GRMH or

7.1.2. upon the entry of a decree of judicial dissolution of the Company under the Act.

7.2. Procedure for Winding Up and Dissolution. If the Company is dissolved, the Manager shall wind up the Company’s affairs. On winding up of the Company, the assets of the Company shall be distributed, first, to creditors of the Company, including Interest Holders who are creditors, in satisfaction of the liabilities of the Company, and then to the Interest Holders in accordance with Section 4.4.

7.3. Filing of Certificate of Cancellation. If the Company is dissolved, the Manager shall promptly file Certification of Cancellation with the Secretary. If there is no Manager, the Certificate of Cancellation shall be filed by the remaining Members. If there are no remaining Members, the Certificate of Cancellation shall be filed by the last Person to be a Member. If there is no Manager, remaining Members, or a Person who last was a Member, the Certificate of Cancellation shall be filed by the legal or personal representatives of the Person who last was a Member.

Section VIII.

Books, Records, Accounting, and Tax Elections

8.1. Bank Accounts. All funds of the Company shall be deposited in a bank account or accounts opened in the Company’s name. The Manager shall determine the institution or institutions at which the accounts will be opened and maintained, the types of accounts, and the Persons who will have authority with respect to the accounts and the funds therein.

8.2. Books and Records. The Manager shall keep or cause to be kept complete and accurate books and records of the Company and supporting documentation of the transactions with respect to the conduct of the Company’s business.

8.3. Annual Accounting Period. The annual accounting period of the Company shall be its taxable year. The Company’s taxable year shall be selected by the Manager, subject to the requirements and limitations of the Code.

Section IX.

General Provisions

9.1. Assurances. Each Member shall execute all such certificates and other documents and shall do all such filing, recording, publishing, and other acts as the Members deem appropriate to comply with the requirements of law for the formation and operation of the Company and to comply with any laws, rules, and regulations relating to the acquisition, operation, or holding of the property of the Company.

9.2. Notifications. Any notice, demand, consent, election, offer, approval, request, or other communication (collectively, a “notice”) required or permitted under this Agreement must be in writing and either delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested. A notice must be addressed to an Interest Holder at the Interest Holder’s last known address on the records of the Company. A notice to the Company must be addressed to the Company’s principal office. A notice delivered personally will be deemed given only when acknowledged in writing by the person to whom it is delivered. A notice that is sent by mail will be deemed given three (3) business days after it is mailed. Any party may designate, by notice to all of the others, substitute addresses or addressees for notices; and, thereafter, notices are to be directed to those substitute addresses or addressees.

9.3. Specific Performance. The parties recognize that irreparable injury will result from a breach of any provision of this Agreement and that money damages will be inadequate to fully remedy the injury. Accordingly, in the event of a breach or threatened breach of one or more of the provisions of this Agreement, any party who may be injured (in addition to any other

remedies which may be available to that party) shall be entitled to one or more preliminary or permanent orders (i) restraining and enjoining any act which would constitute a breach, or (ii) compelling the performance of any obligation which, if not performed, would constitute a breach.

9.4. Complete Agreement. This Agreement constitutes the final, complete, and exclusive statement of the agreement among the Members. It supersedes all prior written and oral statements, including any prior representation, statement, condition, or warranty. This Agreement may not be amended without the written consent of all of the Members.

9.5. Headings. The headings in this Agreement are inserted as a matter of convenience only, and do not define, limit, or describe the scope of this Agreement or the intent of the Members.

9.6. Binding Provisions. This Agreement is binding upon, and inures to the benefit of, the parties hereto and their respective heirs, executors, administrators, personal and legal representatives, successors, and permitted assigns.

9.7. Jurisdiction and Venue. Any suit involving any dispute or matter arising under this Agreement may only be brought in the United States District Court for the Western District of Oklahoma or the District Court of Oklahoma County, Oklahoma. All Members hereby consent to the exercise of personal jurisdiction by any such court with respect to any such proceeding.

9.8. Terms. Common nouns and pronouns shall be deemed to refer to the masculine, feminine, neuter, singular, and plural, as the identity of the Person may in the context require. “Includes” and “including” are not limiting. The rule of construction that a document is to be construed most strictly against the party who drafted the document shall not be applicable to this Agreement because both parties participated in the preparation of this Agreement.

9.9. Separability of Provisions. Each provision of this Agreement shall be considered separable; and if for any reason, any provision or provisions herein are determined to be determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Agreement that are valid.

9.10. Counterparts. This Agreement may be executed simultaneously in two or more counterparts each of which shall be deemed an original, and all of which, when taken together, constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart.

9.11. Estoppel Certificate. Each Member shall, within ten (10) days after written request by any Member or the Manager, deliver to the requesting Person a certificate stating, to the Member’s knowledge, that: (i) this Agreement is in full force and effect; (ii) this Agreement has not been modified except by any instrument or instruments identified in the certificate; and (iii) there is no default hereunder by the requesting Person, or if there is a default, the nature and extent thereof.

9.12. No Partnership Intended for Nontax Purposes. The Members have formed the Company under the Act, and expressly do not intend hereby to form a partnership under either the Oklahoma Revised Uniform Partnership Act or the Oklahoma Revised Uniform Limited Partnership Act. The Members do not intend to be partners to one another, or partners to any third party. To the extent any Member, by word or action, represents to another person that any other Member is a partner or that the Company is a partnership, the Member making such wrongful representation shall be liable to any other Member who incurs personal liability by reason of such representation. No statement or action of any Member that occurred prior to the formation of the Company shall be construed to constitute the formation of a partnership of that Member with any other Member or any third party.

[Signature page follows.]

EXECUTED as of the date first stated above:

MEMBER:
GRAYMARK HEALTHCARE, INC., an Oklahoma corporation
By:
	Stanton Nelson, CEO
FOUNDATION HEALTH ENTERPRISES LLC, an Oklahoma limited liability company
By:	FHE MANAGERS, LLC,a Delaware limited liability company,
	Its Manager
	By:
	Name:
	Its: Manager

Exhibit A

Membership Interests of Common Equity Holders

Member	Percentage of Common Equity Membership Interest
Graymark Healthcare, Inc.		100	%

Exhibit B

Membership Interests Held by the Company

100% Membership Interests in Foundation Surgery Affiliates, LLC

100% Membership Interests in Foundation Surgical Hospital Affiliates, LLC

Exhibit “E”

FSA and FSHA Financial Information

Foundation Surgery Affiliates, LLC

Balance Sheet

September 30, 2012

ASSETS
Current Assets
Cash	$	1,950,604
Accounts Receivable:
Due from Centers		459,773
Miscellaneous		41,518
Total Accounts Receivable		501,291
Deposits, Prepaids and Adv.		90,550
Total Current Assets		2,542,445
Property & Equipment:
Building Improvements		219,523
Computer Equipment & Software		1,148,129
Furniture, Fixtures, and Equipment		297,451
Total Property & Equipment		1,665,103
Less Accumulated Depreciation		(1,428,685	)
Property & Equipment - Net		236,418
Investment in Management Contracts		2,325,229
Investment in Centers		7,307,080
Total Assets	$	12,411,171

LIABILITIES AND EQUITY
Current Liabilities
Payables and Accruals:
Vendors Payable	$	145,914
Other Payables		521,471
Salaries Payable		385,996
Total Payables and Accruals		1,053,381
Current Portion of Long Term debt:
Total Current Portion of Long Term Debt		1,240,103
Preferred Membership Interest Payable		2,790,340
Total Current Liabilities		5,083,824
Long Term Debt:
Total Long Term Debt		4,298,146
Preferred Membership Payable		7,381,643
Total Liabilities		16,763,613
Equity:
Retained Earnings		1,727,070
Contributed Capital		(287,764	)
Distributions to Related Entities		(8,300,712	)
Current Year Income		2,508,964
Total Equity		(4,352,443	)
Total Liabilities & Equity	$	12,411,171

Foundation Surgery Affiliates, LLC

Statement of Income

For The Nine Months Ended September 30, 2012

Revenues
Management Fees	$	3,357,058
Profit Distributions		3,963,350
Miscellaneous income		105,194
Total Revenues		7,425,602
Expenses
Salaries & Benefits		2,435,921
Travel & Entertainment		119,894
Equipment Rental		67,207
Professional Fees		387,354
Legal Fees		124,198
Repairs & Maintenance		57,583
Rent, Telephone & Insurance		205,948
Other		335,601
Total Expenses		3,733,706
Gain (Loss) on Sale of Investments in Affiliates		347,702
Ebitda		4,039,598
Other Income/(Expense)
Interest Expense		(1,007,609	)
Interest Income		2,061
Depreciation Expense		(525,106	)
Net Income	$	2,508,964

Foundation Surgical Hospital Affilates, LLC

Balance Sheet

September 30, 2012

ASSETS
Current Assets
Cash	$	733,471
Restricted Cash		400,000
		1,133,471
Accounts Receivable:
Due from Centers		1,548,564
A/R Patients		4,352,687
Miscellaneous		83,735
Total Accounts Receivable		5,984,985
Deposits, Prepaids and Adv.		397,478
Inventory		776,189
Total Current Assets		8,292,123
Notes Receivable		—
Property & Equipment:
Building Improvements		93,972
Medical Equipment		10,293,142
Computer Equipment & Software		5,788,681
Furniture, Fixtures, and Equipment		810,540
Total Property & Equipment		16,986,335
Less Accumulated Depreciation		(13,487,061	)
Property & Equipment - Net		3,499,275
Investment in Facilities		(2,806,406	)
Other Investments		374,183
Total Assets	$	9,359,175

LIABILITIES AND EQUITY
Current Liabilities
Payables and Accruals
Vendors Payable	$	3,091,526
Salaries Payable		1,026,469
Other Payables		2,976,120
Total Payables and Accruals		7,094,115
Current Portion - Long Term Debt:
Hospital		2,507,843
Corporate		756,446
Total Current Portion - Long Term Debt:		3,264,289
Preferred Member Interest Payable		702,079
Total Current Liabilities		11,060,483
Deferred Hospital & Healthplex Rent		1,615,506
Long Term Dept:
Hospital		3,111,038
Corporate		409,061
Total Long Term Debt		3,520,099
Preferred Member Payable		3,690,822
Total Liabilities		19,886,910
Equity
Retained Earnings		(24,111,434	)
Paid in Capital		8,636,162
Minority Interest		574,572
Current Year Income		1,084,769
Distributions to Related entities		4,026,847
Less Dividends		(738,652	)
Total Equity		(10,527,734	)
Total Liabilities & Equity	$	9,359,175

Foundation Surgical Hospital Affilates, LLC

Statement of Income

For The Nine Months Ended September 30, 2012

Revenues
Management Fees	$	1,811,998
CBO Income		806,994
Credentialing Income		101,355
Profit Distributions		1,075,393
Miscellaneous Income		105,119
Net Patient Revenue		24,271,115
Total Revenues		28,175,005
Expenses
Medical Supplies		6,836,004
Salaries & Benefits		7,810,158
Travel & Entertainment		91,145
Equipment Rental		323,819
Professional Fees		4,913,874
Legal Fees		507,951
Repairs & Maintenance		320,567
Rent, Telephone & Insurance		2,645,894
Other		1,469,187
Total Expenses		24,915,597
Non-Operating Revenue		627,646
Minority Interest		(1,500,111	)
Ebitda		2,383,943
Other Income/(Expenses)
Interest Expense		(698,478	)
Interest Income		135,544
Franchise Taxes		(94,996	)
Depreciation Expense		(641,244	)
Net Income	$	1,054,769

Exhibit “F”

Graymark Business

Graymark is one of the largest providers of care management solutions to the sleep disorder market based on number of independent sleep care centers and hospital sleep diagnostic programs operated in the United States. Graymark provides a comprehensive diagnosis and care management solution for patients suffering from sleep disorders.

Sleep Management Market

Graymark believes that the market for sleep management solutions is large and growing with no clear market leader. A number of factors support the future growth of this market:

• Large and undiagnosed population of patients that suffer from sleep disorders. There are a substantial number of undiagnosed patients who could benefit from diagnosis and treatment of sleep disorders. There are an estimated 50 million Americans that suffer from chronic, long-term sleep disorders, according to the National Institutes of Health, or NIH. There are over 80 different sleep disorders, including obstructive sleep apnea, or OSA, insomnia, narcolepsy and restless legs syndrome. The primary focus of Graymark’s business is OSA, which the National Sleep Foundation estimates occur in at least 18 million Americans. Moreover, according to the American College of Physicians, about 80% of persons with sleep apnea go undiagnosed.

• Increasing awareness of diagnosis and treatment options, particularly for OSA. Graymark believes there is an increasing awareness among the U.S. population and physicians in particular about the health risks and the availability and benefits of treatment options for sleep disorders. Of significant importance, OSA can have serious effects on people’s health and personal lives. OSA is known to increase the risk for several serious health conditions, including obesity, high blood pressure, heart disease, stroke, diabetes, depression and sexual dysfunction. Additionally, OSA may result in excessive daytime sleepiness, memory loss, lack of concentration and irritability. OSA and its effects may increase the risk for automobile accidents and negatively affect work productivity and personal relationships. In addition, as physicians become aware of the links between OSA and other serious health conditions, physicians are increasingly referring patients for sleep studies.

• Growth in obesity rates. OSA is found in people of every age and body type, but is most commonly found in the middle-aged, obese population. Obesity is found in approximately 72 million adults in America and is a growing problem in the United States. By 2020, the number of obese Americans is expected to be approximately 103 million. Obesity exacerbates OSA by enlarging the upper airway soft tissue structures and narrowing the airway. Not only does obesity contribute to sleep disorders such as OSA, but sleep disorders can also contribute to obesity. We believe individuals suffering from OSA generally have less energy and ability to exercise or keep a strict diet. Medical studies have also shown that sleep disorders can impair metabolism and disrupt hormone levels, promoting weight gain.

• Large aging population. An aging U.S. population, led by approximately 78 million baby-boomers, is becoming increasingly at risk for OSA. As their soft palates enlarge, their pharyngeal fat pads increase in size and the shape of bony structures around the airway change.

Graymark believes these factors present a significant business opportunity for Graymark because Graymark provides a complete continuum of care for those who suffer from OSA – from initial diagnosis to treatment with a continuous positive airway pressure, or CPAP, device to providing ongoing CPAP supplies and long-term follow-up care.

• The amount being spent on sleep disorder diagnosis and treatment is increasing. A 2010 Frost & Sullivan report estimated the U.S. sleep diagnostic market was $1.4 billion in 2008, and that it will grow to $3.4 billion by 2015 for a compound annual growth rate of 14.3%.

• The sleep diagnostic market is highly fragmented. Graymark’s presence as one of the largest overall providers of sleep diagnostic services with 103 total diagnostic and therapy locations comprised of 21 independent sleep care centers and 82 hospital sleep diagnostic programs, out of a total Graymark estimate includes 4,000 sleep clinics in the United States, illustrates the level of fragmentation in the market. Only a limited number of companies provide a comprehensive solution which includes initial diagnosis to treatment with a CPAP device and the provision of ongoing CPAP supplies and long-term follow-up care.

Graymark Sleep Management Solution

The Graymark sleep management solution is driven by the Graymark clinical approach to managing sleep disorders. The Graymark clinical model is led by the Graymark staff of medical directors who are board-certified physicians in sleep medicine, who oversee the entire life cycle of a sleep disorder from initial referral through continuing care management. The Graymark approach to managing the care of Graymark patients diagnosed with OSA is a key differentiator for Graymark. Five key elements support the Graymark clinical approach:

• Referral: The Graymark medical directors, who are board-certified physicians in sleep medicine, have forged strong relationships with referral sources, which include primary care physicians, as well as physicians from a wide variety of other specialties and dentists.

• Diagnosis: Graymark owns and operates sleep testing clinics that diagnose the full range of sleep disorders including OSA, insomnia, narcolepsy and restless legs syndrome.

• CPAP Device Supply: Graymark sells CPAP devices, which are used to treat OSA.

• Re-Supply: Graymark offers a re-supply program for Graymark patients and other CPAP users to obtain the required components for their CPAP devices that must be replaced on a regular basis.

• Care Management: Graymark provides continuing care to the Graymark patients led by our medical directors who are board-certified physicians in sleep medicine and their staff.

The Graymark clinical approach increases the long-term compliance of Graymark patients, and enables Graymark to manage a patient’s sleep disorder care throughout the lifecycle of the disorder, thereby allowing Graymark to generate a long-term, recurring revenue stream. Graymark generates revenues via three primary sources: providing the diagnostic tests and related studies for sleep disorders through the Graymark sleep diagnostic centers, the sale of CPAP devices, and the ongoing re-supply of components of the CPAP device that need to be replaced. In addition, as a part of the Graymark ongoing care management program, Graymark monitors the patient’s sleep disorder and as the patient’s medical condition changes, Graymark is paid for additional diagnostic tests and studies.

In addition, Graymark believes that the Graymark clinical approach to comprehensive patient care provides higher quality of care and achieves higher patient compliance. Graymark believes that higher compliance rates are directly correlated to higher revenue generation per patient compared to our competitors through increased utilization of the Graymark patient reorder supply program, or PRSP, and a greater likelihood of full reimbursement from federal payors and those commercial carriers who have adopted federal payor standards.

Referral and Diagnosis

Patients at risk for, or suspected of suffering from, a sleep disorder are referred to one of the Graymark sleep clinics by independent physicians, dentists, group practices, or self-referrals. At the Graymark independent sleep care centers and hospital sleep diagnostic programs, which Graymark refers to as our sleep clinics, Graymark administers an overnight polysomnogram, or sleep study, to determine if the Graymark patients suffer from a sleep disorder. The Graymark medical directors provide a diagnosis and comprehensive report to the referring physician based on analysis of the patient’s sleep study results.

CPAP Device Supply

If the physician determines the patient suffers from OSA following the review of the sleep study results, then the patient is generally prescribed the American Academy of Sleep Medicine’s, or AASM, preferred method of treatment, which is with a CPAP device. Patients return to the Graymark clinic for an overnight study to determine the optimal air pressure to prescribe with the CPAP device. Sometimes, both the diagnosis and air pressure study are done in one night. Regulatory restrictions prevent Medicare from making payments to sleep diagnostics centers that sell CPAP devices unless the diagnosis has been made by a medical director who is board-certified in sleep medicine or who meets other specified criteria. All of the sleep studies Graymark conducts, except for those conducted at one of Graymark non-accredited centers, qualifies Graymark to receive Medicare reimbursement for the sale of CPAP devices.

Re-supply

In addition to selling CPAP devices to people with OSA, Graymark offers the Graymark patient reorder supply program, or PRSP. The PRSP periodically supplies the components of the CPAP device that must be regularly replaced (such as masks, hoses, filters, and other parts) to the Graymark patients and other CPAP users. This enables them to better maintain their CPAP devices, increasing the probability of ongoing compliance and a better long-term clinical outcome and providing Graymark with a long-term recurring revenue stream.

Care Management

The Graymark thorough wellness and continuing care program led by the Graymark medical staff provides the greatest opportunity for Graymark patients to use their CPAP devices properly and stay compliant. After the initial CPAP device set-up, the Graymark clinical staff contacts the patient regularly during the initial six months (at 48 hours, two weeks, two months and six months) and each six months thereafter to enhance patient understanding and to ensure the greatest chance for the short- and long-term success for the patient. Most importantly, where Graymark has the program in place, the Graymark medical staff has an in-person visit with the patient and their CPAP device approximately 45 days after the initial set-up. The purpose of the visit is to verify initial compliance and to enhance compliance by assuring proper fit and feel of the CPAP device (usually the mask), determining if there are any medical impediments to compliance (such as untreated allergies), and answering any questions about the operation or care of the equipment. Graymark also works closely with the patient’s physicians to aid in their follow-up care and monitoring of the treatment.

Recently, as the public and medical communities have become increasingly aware of the sleep diagnostic and treatment markets, federal and state lawmakers and regulators have taken a greater interest in implementing stricter criteria to ensure a high standard of care. Federal payors, and commercial carriers who have adopted similar standards, will only pay CPAP providers for equipment over a 13-month period in equal installments. Payment is stopped if the CPAP provider cannot document patient compliance levels that meet their established standards within the first 90 days after the initial set-up.

Exhibit “G”

Graymark Financial Information

GRAYMARK HEALTHCARE, INC.

Consolidated Condensed Balance Sheets

(Unaudited)

	September 30, 2012			December 31, 2011
ASSETS
Cash and cash equivalents	$	113,327		$	4,915,032
Accounts receivable, net of allowances for contractual adjustments and doubtful accounts of $3,160,741 and $3,100,612, respectively		3,264,556			3,095,447
Inventories		375,690			427,039
Current assets from discontinued operations		34,486			1,059,023
Other current assets		718,778			274,049
Total current assets		4,506,837			9,770,590
Property and equipment, net		3,128,640			2,935,992
Intangible assets, net		1,092,591			1,214,633
Goodwill		10,688,571			13,729,571
Other assets from discontinued operations		—			54,255
Other assets		266,408			280,289
Total assets	$	19,683,047		$	27,985,330
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Liabilities
Accounts payable	$	2,291,735		$	782,367
Accrued liabilities		2,719,741			2,262,096
Current portion of long-term debt		18,423,280			2,071,597
Current liabilities from discontinued operations		580,391			723,274
Total current liabilities		24,015,147			5,839,334
Long-term debt, net of current portion		158,925			17,203,691
Other liabilities		117,282			117,282
Total liabilities		24,291,354			23,160,307
Equity
Graymark Healthcare shareholders’ equity (deficit):
Preferred stock $0.0001 par value, 10,000,000 authorized; no shares issued and outstanding		—			—
Common stock $0.0001 par value, 500,000,00 shares authorized; 15,195,634 and issued and outstanding respectively		1,520			1,507
Paid-in capital		40,214,976			40,080,923
Accumulated deficit		(44,536,078	)		(35,113,386	)
Total Graymark Healthcare shareholders’ equity (deficit)		(4,319,582	)		4,969,044
Noncontrolling interest		(288,725	)		(144,021	)
Total equity (deficit)		(4,608,307	)		4,825,023
Total liabilities and shareholders’ equity (deficit)	$	19,683,047		$	27,985,330

GRAYMARK HEALTHCARE, INC.

Consolidated Condensed Statements of Operations

For the Nine Months Ended September 30, 2012 and 2011

(Unaudited)

	2012			2011
Net Revenues:
Services	$	9,711,137		$	9,388,267
Product sales		3,254,655			3,707,840
		12,965,792			13,096,107
Cost of Services and Sales:
Cost of Services		4,133,334			3,814,933
Cost of sales		1,210,069			1,259,404
		5,343,403			5,074,337
Gross Margin		7,622,389			8,021,770
Operating Expenses:
Selling general and administrative		10,989,745			10,039,289
Bad debt expense		1,024,207			628,215
Impairment of goodwill		3,041,000			—
Depreciation and amortization		920,905			836,936
		15,975,857			11,504,440
Other (Expense):
Interest expense, net		(843,562	)		(975,735	)
Other expense		—			(12,234	)
Net other (expense)		(843,562	)		(987,969	)
Income (loss) from continuing operations, before taxes		(9,197,030	)		(4,470,639	)
(Provision) benefit for income taxes		—			(10,494	)
Income (loss) from continuing operations, net of taxes		(9,197,030	)		(4,481,133	)
Income (loss) from discontinued operations, net of taxes		(364,172	)		376,478
Net income (loss)		(9,561,202	)		(4,104,655	)
Less: Net income (loss) attributable to noncontrolling interests		(138,510	)		(130,626	)
Net income (loss) attributable to Graymark Healthcare	$	(9,422,692	)	$	(3,974,029	)
Earnings per common share (basic and diluted):
Net income (loss) from continuing operations	$	(0.60	)	$	(0.42	)
Income (loss) from discontinued operations		(0.02	)		0.04
Net income (loss) per share	$	(0.62	)	$	(0.38	)
Weighted average number of common shares outstanding		15,121,218			10,332,069
Weighted average number of diluted shares outstanding		15,121,218			10,332,069

Exhibit “H”

Subscription Materials

152

Class B Units

at

$105,000.00 per Unit

Foundation Health Enterprises LLC

Subscription Materials

These subscription materials (the “Subscription Materials”) are to be used to subscribe for Class B membership interests consisting of a one percent (1%) Class B membership interest in Foundation Health Enterprises, LLC, a Delaware limited liability company (the “Company”) representing one Class B membership unit in the Company and 10,000 shares of restricted shares of common stock of Graymark Healthcare, Inc., (“Class B Units”) offered for sale pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. The Class B units are being offered for sale in units (each, a “Unit”) or fractional part thereof. These Subscription Materials are intended for use only by the party to whom they were delivered by the Company for the purpose of such party’s possible investment in the Class B Units. By acceptance of the Subscription Materials said party acknowledges that the Subscription Materials may not be distributed or reproduced, in whole or in part, or used for any other purpose without the express written consent of the Company. The Company reserves the right to request at any time that the Subscription Materials be returned to the Company.

SUBSCRIPTION MATERIALS

TO SUBSCRIBE:

PLEASE REMIT AN ORIGINALLY EXECUTED COPY OF THESE SUBSCRIPTION MATERIALS TO: FOUNDATION HEALTH ENTERPRISES LLC, 210 PARK AVENUE #1350, OKLAHOMA CITY, OK 73102

March 18, 2013

Foundation Health Enterprises LLC

INSTRUCTIONS FOR COMPLETION AND EXECUTION OF SUBSCRIPTION MATERIALS

- PLEASE READ CAREFULLY -

All of the enclosed documents should be completed in accordance with these instructions and returned to the Company at 210 Park Avenue #1350, Oklahoma City, Ok 73102. For any questions, please contact Stanton Nelson, the Company’s Chief Executive Officer, at (405) 601-5390 or by e-mail at Stanton Nelson <snelson@grmh.com>

The following procedure should be followed in order to assure proper execution of the documents:

A. Investor Questionnaire (pages 1-13)

1. Complete thoroughly either Section I on pages 4-7 or Section II on pages 8-11, whichever is applicable.

2. On page 12, date and sign on Signature of Subscriber line and otherwise complete the requested information. The signature of and certain information from your Investor Representative (if any) is also required on page 12. If the Subscriber is a corporation or a partnership, a Notary Public must complete and sign on page 13.

B. Investor Representative Questionnaire (pages 14-18)

1. The individual (if any) designated as your Investor Representative must complete all questions on pages 15, 16, 17 and 18. The signature of and certain information from your Investor Representative (if any) is required on pages 17 and 18.

2. The signature or acknowledgment of Subscriber is also required on the designated line on page 18.

C. Subscription Agreement and Operating Agreement Subscription Page (pages 19-27)

1. Fill in all information requested on pages 26 and 27.

2. The signature of the subscriber is required on page 27.

D. Joinder of Member to Second Amended and Restated Operating Agreement (page 28)

1. Fill in the total dollar amount of your subscription where indicated on page 28.

2. Date, sign and complete the address information on page 28.

1

PART A

INVESTOR QUESTIONNAIRE

(pages 3-13)

1. Complete either Section I on pages 4-7 or Section II on pages 8-11, whichever is applicable.

2. On page 12, date and sign on Signature of Subscriber line. The signature of your Investor Representative (if any) is also required on page 12. If the Subscriber is a corporation or a partnership, a Notary Public must complete and sign on page 13.

Please print or type your answers. If the answer to any question is “No” or “Not Applicable,” please so state. Please provide information for every Subscriber, using a separate questionnaire for each. If your spouse is not a co-subscriber and you have listed property held in joint tenancy or tenancy-in-common, please indicate your share of such property. Please do not confuse individual assets or income with assets or income of a trust, corporation or partnership in which you have an interest; do, however, list the value of your interest in such entities.

2

Foundation Health Enterprises LLC

INVESTOR QUESTIONNAIRE

ALL INFORMATION HEREIN WILL BE TREATED CONFIDENTIALLY UNLESS REQUIRED

BY COURT ORDER OR OTHERWISE REQUIRED BY THE COMPANY TO

DEMONSTRATE THE AVAILABILITY OF EXEMPTIONS FROM THE REGISTRATION

REQUIREMENTS OF RELEVANT FEDERAL AND STATE LAWS GOVERNING THE

OFFER AND SALE OF THE SECURITIES.

Foundation Health Enterprises LLC

210 Park Avenue #1350

Oklahoma City, Ok 73102

Gentlemen:

The information contained herein is being furnished to the Company in order for it to determine whether the attached Subscription Agreement to subscribe for Class B membership interests consisting of a one percent (1%) Class B membership interest in Foundation Health Enterprises, LLC, a Delaware limited liability company (the “Company”) representing one Class B membership unit in the Company and 10,000 shares of restricted shares of common stock of Graymark Healthcare, Inc., (“Class B Units”), by the undersigned, either individually or as a partner or member of an investor which is a partnership or limited liability company, may be accepted by you in accordance with the requirements of the Securities Act of 1933, as amended (the “Act”), and Regulation D promulgated thereunder (“Regulation D”). Accordingly, we acknowledge that the Company will rely on the information contained herein for purposes of determining whether the undersigned is an Accredited Investor or Non-Accredited Investor in accordance with Regulation D.

I understand that my answers will at all times be kept confidential unless required by court order or otherwise required by the Company to demonstrate the availability of exemptions from the registration requirements of relevant federal and state laws governing the offer and sale of the Units. Furthermore, by signing this Investor Questionnaire I agree that the management of the Company (the “Management”) may present this Investor Questionnaire to such parties as they deem appropriate if called upon under law to establish the availability under federal or state laws of an exemption from registration of the offer and sale of the Units.

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INDIVIDUAL SUBSCRIBERS MUST COMPLETE SECTION I

AND

CORPORATIONS, PARTNERSHIPS, LLCS AND OTHER

ENTITY SUBSCRIBERS MUST COMPLETE SECTION II

- ALL QUESTIONS IN THE APPROPRIATE SECTION MUST BE ANSWERED -

SECTION I. QUESTIONS FOR INDIVIDUAL SUBSCRIBERS

1. Name:                                                                                                                                            Age:                                  

U.S. Citizen:     Yes                No            

Number of Dependents:                    Social Security No.:                                                                                 

2. Permanent residence address (other than Post Office Box), including telephone number:

3.(a) Name of current business, business address and telephone number:

(b) Type of current business position held, responsibilities involved in position and number of years employed in position:

4. Position(s) held during past five (5) years, responsibilities involved and number of years employed or, if retired, position held in previous business, responsibilities involved in position and number of years employed in position:                                         

5. Send correspondence to:             Home:                Office:            

Other:                                                                                                                                                                                                                                                           

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6. Business or professional education and the degrees received are as follows:

School Degree Year Received

7. Are you purchasing the Units of the Company for your own account?

                Yes                         No            

If no, please specify:                                                                                                                                                                                                  

8. Describe any other substantial experience in business, investment or financial  matters that enables you to evaluate the merits and risks of this investment:                                                                                                                                                                                                                

9. Method of Investment Qualification: An individual will qualify as an Accredited Investor if he or she meets any one of the following requirements. Please indicate if you meet any of the following requirements:

(A) I am a natural person and had an individual income in excess of $200,000 in each of the two most recent years and reasonably expect an income in excess of $200,000 in the current year. For these purposes, “income” means my individual adjusted gross income for federal income tax purposes, plus (i) any deduction for long term capital gains; (ii) any deduction for depletion; (iii) any exclusion for interest; and (iv) any losses allocated to me with respect to the Units.

                Yes                         No            

(B) I am a natural person and had a joint income with my spouse in excess of $300,000 in each of the two most recent years and reasonably expect a joint income with my spouse in excess of $300,000 in the current year. For these purposes, “income” shall be determined as set forth in Section 9 (A) above.

                Yes                         No            

(C) I am a natural person and had an individual net worth at the time of purchase (or joint net worth with spouse) in excess of $1 million (including my home, home furnishings and automobiles).

                Yes                         No            

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(D) I am a director or executive officer of the Company.

                Yes                         No            

10. Method of Investment Evaluation: Each subscriber is required to retain the services of an advisor when such prospective subscriber does not have sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of acquiring the Units. Please indicate below if you have such knowledge and experience or, alternatively, require the services of an advisor.

(A) I have such knowledge and experience in financial matters that I am capable of evaluating the merits and risks of an investment in the Units, and will not require the services of an Investor Representative. I offer as evidence of such knowledge and experience in these matters the information contained in this Investor Questionnaire.

                Yes                         No            

(B) I have retained the services of an Investor Representative(s). I acknowledge the following named person(s) to be my Investor Representative(s) in connection with evaluating the merits and risks of an investment in the Units.

                Yes                         No            

Name:                                                                                                                                                                                                                             

Answer the following only if you checked “Yes” to Question 10(B):

The above-named Investor Representative(s) has furnished to me a completed Investor Representative Questionnaire, a copy of which I reviewed prior to signing this questionnaire and I am delivering to you herewith. I and the above-named Investor Representative(s) together have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of an investment in the Units.

                Yes                         No            

IF YOU HAVE CHECKED “YES” UNDER METHOD B, THIS INVESTMENT QUESTIONNAIRE MUST BE ACCOMPANIED BY ONE COMPLETED AND SIGNED COPY OF THE INVESTOR REPRESENTATIVE QUESTIONNAIRE.

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I understand that the Company and the Management will rely upon the accuracy and completeness of my responses to the foregoing questions and I represent and warrant to the Company and the Management as follows:

(a) The answers to the above questions are complete and correct and may be relied upon by the Company and the Management in determining whether the undersigned is an Accredited Investor.

(b) I will immediately notify the Company and the Management of any material change in any statement made herein occurring prior to the closing of any subscription for the Units.

(c) I am a person who is able to bear the economic risk of an investment in the Units of the size contemplated. In making this statement, consideration has been given to whether I can afford to hold the investment for an indefinite period of time and whether I can afford a complete loss of my investment. I offer as evidence of my ability to bear the economic risk the information contained in this Investor Questionnaire.

(d) The purchase of the Units will be solely for my account, and not for the account of any other person or with a view toward transfer, resale, assignment, fractionalization or distribution thereof (except as expressly permitted in the Subscription Agreement and Power of Attorney).

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SECTION II. QUESTIONS FOR CORPORATIONS, PARTNERSHIPS AND OTHER ENTITY SUBSCRIBERS

1. Name and Nature (e.g., limited partnership, corporation, trust, limited liability company) of Entity:                                                                                                                                                       

2. Date of Organization:                                                                                                                               

3. State of Organization:                                                                                                                               

4. Taxpayer Identification No.:                                                                                                                    

5. Principal Business Address:                                                                                                                    

6. Telephone: (    )                                                                                                                                         

7. Send Correspondence to Principal Office:                                           Other: (see below)                     

Other Address:                                                                                                                                                   

8. Accredited Investor Suitability Requirements.

(A) Has the subscribing corporation, partnership, employee benefit plan, individual retirement account or other entity been formed for the specific purpose of investing in the Units?

Yes                    No             

(B) If your answer to question A is “No,” INITIAL OR CHECK whichever of the following statements is applicable to the subscribing entity; if your answer to question A is “Yes,” the subscribing entity must be able to certify to statement (2) below in order to qualify as an “Accredited Investor.”

(1) The undersigned entity certifies that it is an “Accredited Investor” because it is:

(i) a bank as defined in Section 3(a)(2) of the Act, or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Act, whether acting in an individual or fiduciary capacity;

Yes                    No             

(ii) a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934;

Yes                    No             

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(iii) an insurance company as defined in Section 2(13) of the Act;

Yes                    No             

(iv) an investment company registered under the Investment Company Act of 1940;

Yes                    No             

(v) a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940;

Yes                    No             

(vi) a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958;

Yes                    No             

(vii) a plan established by a state or political subdivision, or any agency or instrumentality of a state or political subdivision, for the benefit of its employees provided that such employee benefit plan has total assets in excess of $5,000,000;

Yes                    No             

(viii) an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974, provided that the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, and the plan fiduciary is either a bank, insurance company or registered investment adviser or provided that the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, the investment decisions are made solely by persons that are Accredited Investors (if a self-directed plan with more than one investment account, (1) each participant must maintain a separate investment account within the plan, and (2) the funds of the separate investment accounts within the plan must not be commingled);

Yes                    No             

(ix) a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;

Yes                    No             

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(x) an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, a corporation, a Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Units, with total assets in excess of $5,000,000; or

Yes                    No             

(xi) a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of investing in the Units, whose subscription is directed by a sophisticated person as defined in Rule 506(b)(2)(ii) promulgated under the Act.

Yes                    No             

(2) The undersigned entity certifies that it is an “Accredited Investor” because each of its Unit holders, partners or beneficiaries meets at least one of the following conditions:

(i) The Unit holder, partner or beneficiary is a natural person and had an individual net worth at the time of subscription for (or joint net worth with spouse) in excess of $1 million (including my home, home furnishings and automobiles).

Yes                    No             

(ii) The Unit holder, partner or beneficiary is a natural person and had an individual income (without including any income of spouse) in excess of $200,000 (or joint income with spouse in excess of $300,000) in each of the two most recent years and reasonably expect an individual income in excess of $200,000 (or joint income with spouse in excess of $300,000) in the current year. For these purposes, “income” means my individual adjusted gross income for federal income tax purposes, plus (i) any deduction for long term capital gains; (ii) any deduction for depletion; (iii) any exclusion for interest; and (iv) any losses allocated to me with respect to the Units.

Yes                    No             

(iii) The Unit holder, partner or beneficiary is a corporation, partnership, trust or other entity which meets the description of at least one of the organizations specified in statement B(1) above.

Yes                    No             

9. Is the subscribing entity registered as a bank holding company under the Bank Holding Company Act of 1956, as amended?

Yes                    No             

10. The undersigned corporation, partnership, employee benefit plan or individual retirement account has all requisite authority to acquire the Units hereby subscribed for and to enter into the Subscription Agreement.

Yes                    No             

10

I understand that the Company and the Management will rely upon the accuracy and completeness of my responses to the foregoing questions and I represent and warrant to the Company and the Management as follows:

(a) The answers to the above questions are complete and correct and may be relied upon by the Company and the Management in determining whether the undersigned is an Accredited Investor.

(b) I will immediately notify the Company and its Management of any material change in any statement made herein occurring prior to the closing of any subscription by me of the Units.

(c) I am a person who is able to bear the economic risk of an investment in the Units of the size contemplated. In making this statement, consideration has been given to whether I can afford to hold the investment for an indefinite period of time and whether I can afford a complete loss of my investment. I offer as evidence of my ability to bear the economic risk the information contained in this Investor Questionnaire.

(d) The subscription of the Units will be solely for my account, and not for the account of any other person or with a view toward transfer, resale, assignment, fractionalization or distribution thereof.

(e) The Units may not be suitable for certain categories of subscribers. The Company and its Management reserve the right to make additional inquiries of any subscriber and to require additional representations prior to accepting any such subscriber’s subscription.

11

IN WITNESS WHEREOF, I have executed this Investor Questionnaire this             day of             , 2013 and declare that it is truthful and correct.

INDIVIDUAL SUBSCRIBERS	CORPORATIONS, PARTNERSHIPS AND OTHER ENTITIES
Signature of Subscriber	Name of Entity Subscribing
	Authorized Signature
PRINT Name of Subscriber	PRINT Name and Title of Person Signing
Subscriber’s Address:	Subscriber’s Address:

The undersigned Investor Representative hereby certifies that he or she has reasonable grounds to believe the above Investor is a person who is able to bear the economic risk of an investment in the Units and that the above information has been properly completed.

Signature of Investor Representative

PRINT Investor Representative Name

Investor Representative’s

    Office Address:

(    )

Office Telephone Number

12

ACKNOWLEDGEMENT FOR CORPORATE SUBSCRIBER

(Individual Subscribers Need Not Use a Notary)

STATE OF	)
	) SS
COUNTY OF	)

On this             day of             , 2013, before me personally appeared             to me known, who, being first by me duly sworn, did depose and say that (s)he resides at             that (s)he is the             of             , the corporation described in and which executed the above instrument; that [the corporation has no seal]* [(s)he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it is so affixed by order of the Board of Directors of said corporation]*, and that (s)he signed his(her) name thereto by order of said corporation’s Board of Directors.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written.

Notary Public:

My Commission Expires:

[SEAL]

* Strike out whichever bracketed clause does not apply.

13

PART B

INVESTOR REPRESENTATIVE QUESTIONNAIRE

(pages 15-18)

1. The individual (if any) designated as your Investor Representative must complete all questions on pages 15, 16, 17 and 18. The Investor Representative’s signature is required on pages 17 and 18.

2. Subscriber’s signature or acknowledgment is also required on the letter on page 18.

14

Foundation Health Enterprises LLC

INVESTOR REPRESENTATIVE QUESTIONNAIRE

Foundation Health Enterprises LLC

210 Park Avenue #1350,

Oklahoma City, Ok 73102

Gentlemen:

The information contained herein is being furnished to you in order for you to determine whether a sale of Class B membership consisting of a one percent (1%) Class B membership interest in Foundation Health Enterprises, LLC, a Delaware limited liability company (the “Company”) representing one Class B membership unit in the Company and 10,000 shares of restricted shares of common stock of Graymark Healthcare, Inc., (“Class B Units”), may be made to the following individual (either individually or as a partner or member of an investor which is a partnership or limited liability company):

(Insert name of Subscriber)

in light of your decision to sell the Units only to qualified investor for purposes of Regulation D promulgated under the Securities Act of 1933, as amended (the “Act”). The undersigned understands that (i) you will rely on the information set forth herein for purposes of determining whether the undersigned a qualified investor and (ii) this Questionnaire is not an offer to sell the Units or any other securities to the undersigned Investor Representative.

I note that you have not provided to the above-named Subscriber any written material in connection with the offering of the Units OTHER THAN THE OPERATING AGREEMENT AND THE SUBSCRIPTION MATERIALS TO WHICH THIS INVESTOR REPRESENTATIVE QUESTIONNAIRE IS ATTACHED, WHICH I UNDERSTAND IS NOT A COMPLETE DESCRIPTION OF ALL OF THE RISKS ATTENDANT WITH AN INVESTMENT IN THE COMPANY OR THE UNITS.

It should be noted by you that nothing herein shall be construed as a representation by me that I have attempted to verify any of the foregoing information; rather, to the contrary, the scope of my engagement by, and my discussions with, the above subscriber have been limited to a determination of the suitability of an investment in the Units by the above-named subscriber in light of such subscriber’s current investment circumstances as such circumstances have been presented to me. For this purpose I have assumed, but do not in any way represent or warrant, either to you or to the above-named subscriber, that the information stated above is accurate and complete in all material respects. Each and every statement made by me in the following paragraphs is qualified by reference to the foregoing.

15

With the above in mind, I herewith furnish you with the following information:

A. (i) the Company has made available to me all documents relating to an investment in the Company that I have requested and has provided answers to all of my questions concerning the private placement; (ii) I have discussed the Company with the above-named Subscriber with a view to determining whether an investment in the Units by such Subscriber is appropriate in light of such Subscriber’s financial circumstances, as such circumstances have been disclosed to me by such Subscriber; and (iii) I have advised the party whom I represent as to the merits and risks of an investment in the Units. In evaluating the suitability of an investment in the Units for the Subscriber, I have not relied upon any representation or other information, whether oral or written, or as contained in any documents, other than as set forth in the Subscription Agreement and answers to questions furnished to me in writing by the Company, if any. None of the information provided to me orally (if any) contradicts any written statements contained in the Subscription Materials or exhibits thereto and I have not relied on any such oral statements in forming my opinion that this investment is suitable for the Subscriber.

B. I have such knowledge and experience in financial and business matters to be capable of evaluating, alone, or together with other investor representatives of the Subscriber, the merits and risks of an investment in the Company. I offer as evidence thereof the following additional information (e.g., investment experience, business experience, profession, education):

C. I am not “affiliated” with and am not “compensated” by the Company or any affiliate or selling agent of the Company directly or indirectly (see Note on the following page).

There is no material relationship between me or my affiliates and the Company or the Management or other affiliates which now exists or is mutually understood to be contemplated or which has existed at any time during the previous two years.

[State “No Exceptions” or set forth exceptions and give details. Please note that any exceptions must not cause you to be “affiliated” with or “compensated” by the Company or an affiliate of the Company as defined on the following page].

[If any exceptions exist and are described above, please confirm that such exceptions were disclosed to the above-named Subscriber in writing prior to the date hereof by attaching hereto a copy of such disclosure statement.]

16

NOTE:

The relationships which will render a person “affiliated” include: (i) a present or intended relationship of employment, either as an employee, employer, independent contractor or principal; (ii) any relationship within the definition of the term “affiliate” set forth below, or as an officer, director or general partner of an affiliate; and (iii) the beneficial ownership by the Investor Representative of securities of the Company or its affiliates or selling agent, except that the ownership of one percent (1%) or less of such securities shall not render an Investor Representative affiliated.

“Affiliate” of the Company shall mean a person controlling, controlled by or under common control with the Company. A person controls another person within the meaning of this definition through the possession, direct or indirect, of the power to direct or cause the direction of the management, policies or actions of such other person.

I agree to notify you promptly of any changes to the information described in this Questionnaire which may occur prior to the completion of the transaction.

	Very truly yours,
Dated:             , 2013
	(Signature of Investor Representative)
	Print Investor Representative Name
	Investor Representative’s Office Address:
(Subscriber)
Subscriber’s Address:

Telephone (    )

17

Dear Sir/Madam:

You have asked me to act as your Investor Representative in connection with the offering to you or to an investor, partnership or limited liability company of which you are a partner or member by Foundation Health Enterprises LLC, (the “Company”), of Units (as described in the Company’s Operating Agreement). Prior to such appointment, I am required to disclose to you any material relationship between me and (i) the Company or the management or Unit holders of the Company or (ii) any investor, partnership or limited liability company of which you are a partner or member or the management or equity owners of such investor, partnership or limited liability company, which now exists or is contemplated or which has existed at any time during the last two years. [Describe material relationships below:]

I have no other relationship to the Company or its Management, or the Company’s Unit holders or other affiliates that is material to this offering.

		Very truly yours,
		(Investor Representative)
Received and acknowledged:
By:
	Signature of Investor
Date:                         , 2013

18

PART C

SUBSCRIPTION AGREEMENT AND OPERATING AGREEMENT SUBSCRIPTION PAGE

(pages 20-27)

1. Fill in all information requested on pages 26 and 27.

2. The signature of the subscriber is required on page 27.

19

Foundation Health Enterprises LLC

SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY

This Subscription Agreement and Power of Attorney (this “Subscription Agreement”) is made by and between Foundation Health Enterprises LLC, a Delaware limited liability company (the “Company”), and the undersigned who is subscribing hereby for Class B membership interests consisting of a one percent (1%) Class B membership interest in Foundation Health Enterprises, LLC, a Delaware limited liability company (the “Company”) representing one Class B membership unit in the Company and 10,000 shares of restricted shares of common stock of Graymark Healthcare, Inc., (“Class B Units”) of the Company being sold as Class B Units (“Units”) through a private placement by the Company (the “Private Placement”). The terms of the units are described in the Company’s Operating Agreement, dated             , 2013 (the “Operating Agreement”), with which this Subscription Agreement has been delivered.

By executing this Agreement I hereby acknowledge that I have received a copy of the Operating Agreement. I further acknowledge that I (or my Investor Representative) have read the Operating Agreement and that I fully understand the terms and conditions of the Operating Agreement and the Class B Units represented by the Units, including the terms and conditions governing the amount and timing of distributions (if any) on such Class B Units

In consideration of the Company’s agreement to issue Units to the undersigned, upon the terms and conditions set forth herein, the undersigned agrees and represents as follows:

A. SUBSCRIPTION

1. The undersigned hereby subscribes for the number of Units (the “Units”), or fractional part thereof, set forth on the signature page below, at a price of One Hundred Five Thousand Dollars ($105,000) per Unit, in cash payable in U.S. currency by money order, bank draft or check made payable to “Foundation Health Enterprises LLC” at the time of the delivery of this executed Subscription Agreement to the Company, or by conversion of debt owed by the Company to the undersigned, The undersigned agrees to execute and deliver to the Company any other documents or loan documents reasonably requested by the Company to substantiate satisfaction by the undersigned of the terms and conditions established for investors as conditions precedent to the issuance of Units of the Company and any other documents subsequently required by any lender, state securities commission or other authority or by Management. If the foregoing subscription is accepted by the Company, the undersigned acknowledges that the undersigned will be issued the Units.

2. The undersigned understands that the undersigned may become a Unit holder at any time following the Company’s receipt and acceptance of this subscription at the discretion of Management, after execution of this Agreement and the remittance of funds to the Company (although such remittance of funds is not required to render this Agreement enforceable once signed and delivered to the Company) at which time the undersigned’s subscription funds and other documents will be released for use by the Company. Subscriptions will be accepted or rejected on a rolling basis and there is no requirement that the Company sell a minimum number of Class B Units before accepting this subscription.

3. The undersigned understands and acknowledges that:

20

a. This subscription may be accepted or rejected in whole or in part by Management in Management’s sole and absolute discretion and that the undersigned will not become a member of the Company or be issued any Class B Units therein until the Subscription Agreement is countersigned by Management. Management shall have the right to reduce each investor’s (including that of the undersigned) subscription to reduce the total subscription if such is deemed to be in the best interest of the Company and its Interest holders.

b. If this subscription is accepted, the Units purchased pursuant hereto will be owned only in the name of the undersigned as indicated on the signature page below. If this subscription is rejected, any funds submitted in connection with the Subscription Agreement will be refunded to the undersigned by check or bank draft, without interest.

c. Except as provided under applicable state securities laws, this subscription is and shall be irrevocable, except that the undersigned shall have no obligations hereunder in the event that this subscription is for any reason rejected or the Private Placement is for any reason canceled.

d. The following securities law matters are applicable to the offering:

THE UNITS OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE, AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, OR BY THE SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THESE SUBSCRIPTION MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. THE UNITS MAY NOT BE TRANSFERRED, WHOLLY OR IN PART, EXCEPT IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS.

e. The Units are being purchased for the undersigned’s own account for investment and not for distribution or resale to others. The undersigned agrees that the undersigned will not sell or otherwise transfer the undersigned’s Units unless they are registered under the Securities Act of 1933, as amended (the “Securities Act”), or unless an exemption from such registration is available. The undersigned represents that the undersigned has adequate means of providing for the undersigned’s current needs and possible personal contingencies and that the undersigned has no need for liquidity in this investment. It is understood that all documents, records and books pertaining to this investment have been made available for inspection by the undersigned and as requested by any of the undersigned’s attorney, accountant and Investor Representative.

f. No federal or state agency has made any finding or determination as to the adequacy of the information set forth herein or as to the fairness of the Private Placement or any recommendation or endorsement of the Units.

g. Any federal or state tax results of an investment in the Units are not susceptible to absolute prediction and audit adjustments to Company returns or returns of individual Unit holders, new developments in rulings of the Internal Revenue Service, court decisions or legislative or administrative changes may have an adverse effect on one or more of the tax consequences sought by the Company.

21

h. Because the Units have not been registered under the Securities Act or any applicable state securities laws, the economic risk of the investment must be borne indefinitely by the undersigned and the Units cannot be sold unless subsequently registered under the Securities Act and such laws. Any such registration is unlikely at any time in the future. Neither the Company nor Management is obligated to file a notification under Regulation A of the Securities Act or a registration statement under the Securities Act; Rule 144 adopted under the Securities Act, governing the possible disposition of the Units, is not currently available and is not expected to be available in the foreseeable future and neither the Company nor Management has covenanted to take any action necessary to make Rule 144 available for a resale of the Units; additionally, it is not anticipated that there will be any market for resale of the Units in the foreseeable future.

i. The undersigned acknowledges that the Units are subject to certain transfer restrictions set forth in the Operating Agreement. Further, if the undersigned desires to transfer any of the Units purchased hereby, in addition to complying with such transfer restrictions the undersigned agrees to comply with applicable federal and state securities laws and regulations and applicable federal and state banking laws and regulations (collectively, the “Securities Laws”).

j. The undersigned hereby acknowledges and agrees that this Subscription Agreement may not be canceled, revoked or withdrawn by the undersigned, and that this Subscription Agreement and the documents submitted herewith shall survive death or disability of the undersigned.

k. The undersigned understands and acknowledges that the Company is relying on representations, warranties and agreements made by the undersigned to the Company herein and in the Investor Questionnaire delivered herewith by the undersigned to the Company (the “Investor Questionnaire”) and, therefore, hereby agrees to indemnify the Company, Management and their partners, directors, officers, affiliates, employees, agents and attorneys, and hold each of them harmless against any and all loss, damage, liability or expense, including reasonable attorneys’ fees, which they or any of them may suffer, sustain or incur by reason of or in connection with any misrepresentation or breach of warranty or agreement made by the undersigned under this Subscription Agreement, the Investor Questionnaire or in connection with the sale or distribution by the undersigned of the Units purchased by the undersigned pursuant hereto: (i) in violation of the Securities Act or any other applicable law; or (ii) in violation of any of the Securities Laws.

B. REPRESENTATIONS AND WARRANTIES

1. The undersigned hereby represents, warrants and agrees that:

a. The undersigned is acquiring the Class B Units in the Company represented by the Units for the undersigned’s own account and not with a view to distribution or resale; has not subdivided the Units subscribed for hereby, nor is the undersigned holding all or any portion of the Units for, any other person; and agrees not to sell, hypothecate or otherwise dispose of all or any part of the undersigned’s Unit (except that transfers for estate planning purposes to a trust or other entity the beneficial ownership of which is held be members of the purchaser’s immediate family shall not be prohibited) unless: (i) the Units represented thereby have been registered under the Securities Act and applicable state securities laws or, in the opinion of counsel acceptable to the Company, an exemption from the registration laws is available; and (ii) such transfer will not, in the opinion of counsel acceptable to the Company, cause the Company to violate any of the Securities Laws.

22

b. The undersigned is an “Accredited Investor” because the undersigned meets the suitability requirements discussed in the Subscription Materials attached hereto or is a “Non-Accredited Investor.”

c. The undersigned’s overall commitment to investments that are not readily marketable is not disproportionate to the undersigned’s net worth and the undersigned’s investment in the Units will not cause such overall commitment to become excessive.

d. The undersigned has adequate net worth and means of providing for the undersigned’s current needs and personal contingencies necessary to sustain a complete loss of the undersigned’s investment in the Company and the undersigned has no need for liquidity in this investment in the Units.

e. The undersigned has, or the undersigned and the undersigned’s Investor Representative have, such knowledge and experience in financial and business matters in general and in particular with respect to this type of investment that the undersigned is, or they are, capable of evaluating the merits and risks of an investment in the Company.

f. The undersigned has evaluated and understands the risks and terms of investing in the Company.

g. The Company has made available to the undersigned and as requested to any of the undersigned’s attorney, accountant or Investor Representative all documents that the undersigned or any of the foregoing has requested relating to an investment in the Company and has provided answers to all of the undersigned’s or their questions concerning the Private Placement and an investment in the Company. In evaluating the suitability of an investment in the Company and acquiring the Units, the undersigned has not been furnished with or relied upon any representations or other information (whether oral or written) that contradict or expand upon the information set forth herein and in the Operating Agreement.

h. The undersigned recognizes and understands that there are substantial risks related to the purchase of Units.

i. The undersigned has discussed with the undersigned’s professional, legal, tax and financial advisors the suitability of an investment in the Company for the undersigned’s particular tax and financial situation.

j. The undersigned is a bona-fide resident of the State set forth in the undersigned’s address below and agrees that, in the event the undersigned’s principal residence is changed prior to purchase of the Units, the undersigned will promptly notify Management, and if the change is to a State in which offers and/or sales of Units in the manner contemplated by the Management is prohibited by applicable law, that any offer to sell the Units to him prior to notification of the changes shall be deemed retracted and the undersigned shall no longer be entitled to purchase Units pursuant to such offer.

k. All information which the undersigned has provided to the Company concerning the undersigned and the undersigned’s financial position, including, but not limited to, the Investor Questionnaire, is true, correct and complete as of the date set forth below, and shall be true, correct and complete as of the date of the acceptance hereof by the Company and the issuance of the Units to the undersigned.

23

l. The undersigned is not an officer or director of and does not directly or indirectly hold any interest in any company, partnership or other entity which is a licensed broker/dealer or which owns a bank or bank holding company other than as disclosed in the undersigned’s Investor Questionnaire.

m. If the undersigned is a corporation, partnership, trust or other entity, it represents that: (i) it is duly organized, validly existing and in good standing in its jurisdiction of incorporation or organization and has all the requisite power and authority to invest in the Units as provided herein; (ii) such investment does not result in any violation of, or conflict with, any term or provision of the charter, organizational documents or bylaws of the undersigned or any other instrument or agreement; (iii) such investment has been duly authorized by all necessary action on behalf of the undersigned; and (iv) this Subscription Agreement has been duly executed and delivered on behalf of the undersigned and constitutes a legal, valid and binding agreement of the undersigned.

n. If the undersigned is a corporation or a partnership, the person signing this Subscription Agreement on its behalf hereby represents and warrants that the information contained in any Investor Questionnaire completed by any Unit holders of such corporation or partners of such partnership are true and correct with respect to such Unit holders or partners (and if any such Unit holder or partner is itself a corporation or a partnership, with respect to all persons having an interest in such corporation or partnership, whether directly or indirectly) and that the person signing this Subscription Agreement has made due inquiry to determine the truthfulness and accuracy of the information contained in any such Investor Questionnaire.

o. If the undersigned is purchasing the Units subscribed hereby in a representative or fiduciary capacity, the representations and warranties contained herein (and in any other written statement or document delivered to the Company in connection herewith) shall be deemed to have been made on behalf of the person or persons for whom such Units are being purchased.

p. All information which the undersigned has heretofore furnished and furnishes herewith to the Company, including, without limitation, the certification as to the undersigned’s status as an “accredited investor” or “non-accredited investor” within the meaning of Regulation D promulgated under the Securities Act, and any other information with respect to the undersigned’s financial position and business experience set forth in the undersigned’s Investor Questionnaire is correct and complete as of the date of this Subscription Agreement, and if there should be any material change in such information prior to the notification to the undersigned of the acceptance by the Company of this subscription for Units (the “Closing”), the undersigned will immediately furnish such revised or corrected information to the Company.

q. Within five days after receipt of a request from the Company, the undersigned hereby agrees to provide such information and to execute and deliver such documents as may be reasonably necessary to comply with any and all laws and ordinances to which the Company is subject.

r. The undersigned has not distributed copies of these Subscription Materials to anyone other than the undersigned’s advisors or Investor Representative, if any, and no one other than the undersigned and the undersigned’s advisors or Investor Representative, if any, has used these materials.

s. The foregoing representations, warranties and agreements, together with all other representations and warranties made or given by the undersigned to the Company in any other written statement or document delivered in connection with the transactions contemplated hereby, shall be true and correct in all respects on and as of the date of the Closing as if made on and as of such date and shall survive such date. If more than one person is signing this Subscription Agreement, each representation, warranty and undertaking hereby shall be the joint and several representation, warranty and undertaking of each such person.

24

t. The undersigned acknowledges that the Company will impress appropriate legends on each instrument representing the Units (if any), including the following:

The Units represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any applicable state law, and such Units may not be sold or otherwise transferred unless (a) they are registered under the Securities Act and any applicable state law or (b) such sale or transfer is exempt from such registration and the Company has received an opinion of counsel acceptable to it to the effect that such sale or transfer is so exempt.

u. The undersigned understands that the Company will not obtain a revenue ruling from the Internal Revenue Service or an opinion of counsel as to the tax aspects of the transaction including the status of the Company for tax purposes.

C. POWER OF ATTORNEY

The undersigned, desiring to become a Class B Member of the Company, hereby agrees to all of the terms of the Operating Agreement and agrees to be bound by the terms and conditions thereof. The undersigned hereby constitutes and appoints the Manager of the Company or its successors as the undersigned’s true and lawful attorney and in the undersigned’s name, place, and stead to make, execute, sign, acknowledge, swear to, deliver, record, and file the Operating Agreement and any documents or instruments which may be considered necessary or desirable by the Management to carry out fully the provisions of the Operating Agreement and, without limitation by enumeration, an amendment or amendments to said Operating Agreement, or the Articles of Organization for the Company for the purpose of adding the undersigned and others as members of the Company (in which amendments the undersigned hereby joins and executes and authorizes this Agreement to be attached to any such amendment) or otherwise amending said Operating Agreement or Certificate or canceling the same, or any other action permitted and shall be irrevocable and survive the undersigned’s death, incapacity, insolvency, dissolution, or termination, as the case may be, or the undersigned’s delivery of an assignment of the whole or any part of the undersigned’s Interests. This Power of Attorney shall be supplementary to any power of attorney granted in the Operating Agreement.

D. MISCELLANEOUS

1. All pronouns and any variations thereof used herein shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons may require.

2. Notices required or permitted to be given hereunder shall be in writing and shall be deemed to be sufficiently given when personally delivered or when sent by registered or certified mail, return receipt requested, addressed to the other party at the address of such party set forth herein, or to such other address furnished by notice given in accordance with this Paragraph.

3. Failure of the Company to exercise any right or remedy under this Subscription Agreement or any other agreement between the Company and the undersigned, or otherwise, or delay by the Company in exercising same, will not operate as a waiver thereof. No waiver by the Company will be effective unless and until it is in writing and signed by the Company.

25

4. This Subscription Agreement shall be enforced, governed and construed in all respects in accordance with the laws of the State of Delaware. This Subscription Agreement and the rights, powers and duties set forth herein shall be binding upon the undersigned, the undersigned’s heirs, estate, legal representatives, successors and assigns and shall inure to the benefit of the Company, its successors and assigns. In the event that any provision of this Subscription Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

5. The undersigned hereby certifies under the penalties of perjury that the social security number or tax identification number provided below and the information provided with respect to Section 3406a(a)(1)(C) of the Internal Revenue Code of 1986, as amended, is true and correct.

Pursuant to the Unit and Dividend Tax Compliance Act of 1983, payors of interest, dividends and certain other payments must withhold thirty one percent (31%) of such amounts (this is referred to as “backup withholding”) if the payee fails to furnish the payor with: (i) the payee’s correct taxpayer identification number (the payee’s social security number); and (ii) a statement certified under penalties of perjury concerning: (a) the accuracy of the payee’s taxpayer identification number; and (b) the fact that the payee is not subject to backup withholding because the Internal Revenue Service has not notified the payee that he is subject to backup withholding due to a failure to report all interest and dividends. Funds deposited with the Company by subscribers may earn interest. Therefore, absent receiving the undersigned’s taxpayer identification number and the foregoing certification by checking the appropriate box that he is not subject to backup withholding pursuant to Section 3406(a)(1)(C) of the Internal Revenue Code, backup withholding will be applicable in general.

Make an “X” in the following blank if you are NOT subject to backup withholding under the provisions of Section 3406(a)(1)(C) of the Internal Revenue Code of 1986, as amended.        

Taxpayer Identification Number or Social Security Number:

6. This Subscription Agreement constitutes the entire agreement of the parties and there are no further agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof. This Agreement supercedes all prior negotiations, agreements and undertakings (in each case, if any) between the parties with respect to the subject matter hereof.

7. The undersigned has not been provided with any written information concerning the Company other than the Operating Agreement and the Subscription Materials of which this Subscription Agreement is a part. No oral information provided to the undersigned conflicts with or in any way contravenes or diminishes any of the disclosures or risk factors set forth herein, and the undersigned has not relied on any oral representations (if any) in making a decision to invest in the Units.

26

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed, or has caused to be executed by its duly authorized officers, partners or other representatives, this Subscription Agreement this             day of             , 2013, and declare that it is truthful and correct.

Total Number of Class B Units at $105,000.00 per Unit:
Total Subscription Amount:	$

INDIVIDUAL SUBSCRIBER:	NON-INDIVIDUAL SUBSCRIBER:
Signature of Subscriber	Printed Name of Subscriber
Printed Name of Subscriber	Signature and Title of Officer, Partner or Other
	Representative
	Printed Name of Officer or Authorized Agent
Individual Subscriber’s Residence Address	Non-Individual Subscriber’s Office Address

TO BE COMPLETED BY ALL SUBSCRIBERS

Subscriber’s Mailing Address
If other than provided above:	Tel:
	E-mail;

ACCEPTANCE BY COMPANY: The undersigned, the Manager of Foundation Health Enterprises LLC, hereby accepts the Subscription of the Subscriber listed above as of the date set forth below.

FOUNDATION HEALTH ENTERPRISES LLC
By:
Its:	Date:

27

JOINDER OF MEMBER TO

OPERATING AGREEMENT

FOR

FOUNDATION HEALTH ENTERPRISES LLC

The undersigned hereby joins in the execution of the Operating Agreement (the “Agreement”) for FOUNDATION HEALTH ENTERPRISES LLC, a Delaware limited liability company (the “Company”) as a Class B Member with such rights provided by the Agreement.

The undersigned hereby acknowledges that upon payment by the undersigned of a Capital Contribution to the Company in the amount of $            in cash and acceptance of this Joinder by the Company (a) this Joinder shall be a counterpart execution of the Agreement and (b) the undersigned shall be a party to the Agreement as a Class B Member with Class B Units. The undersigned hereby agrees to be bound by all the terms of the Agreement as though the undersigned was an original party thereto.

IN WITNESS WHEREOF, the undersigned has executed this Joinder as of this             day of             , 2013.

Signature

Print Name

Address:

ACCEPTANCE

The foregoing Joinder is hereby accepted by the Company as of             , 2013.

FOUNDATION HEALTH ENTERPRISES LLC

By:

Title:

28

EX-10.27

Exhibit 10.27

PROMISSORY NOTE

Principal	Loan Date	Maturity	Loan No	Call / Coll	Account	Officer	Initials
$2,010,027 00	03-19-2013	03-18-2014	11119391	4a	37027	RUSSN
References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item Any item above containing **** has been omitted due to text length limitations

Borrower Foundation Surgery Affiliates, LLC (TIN 80-0322719) East El Paso Physicians’ Medical Center LLC (TIN 26-1281512) 14000 N PORTLAND AVE STE 205 OKLAHOMA CITY, OK 73134-4004 Lender Legacy Bank OKC May 2801 W Memorial Oklahoma City OK 73134

Principal Amount $2,010,027 00 Date of Note March 19, 2013

PROMISE TO PAY Foundation Surgery Affiliates, LLC, and East El Paso Physicians Medical Center, LLC (“Borrower”) jointly and severally promise to pay to Legacy Bank (“Lender”), or order, in lawful money of the United States of America the principal amount of Two Million Ten Thousand Twenty-seven & 00/100 Dollars ($2,010,027 00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance interest shall be calculated from the date of each advance until repayment of each advance

PAYMENT Borrower will pay this loan in full immediately upon Lenders demand If no demand is made, Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on March 18, 2014 In addition Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning April 19, 2013, with all subsequent interest payments to be due on the same day of each month after that Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs then to any late charges, then to any accrued unpaid interest and then to principal Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing

VARIABLE INTEREST RATE The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the minimum prime lending rate for large U S Money Center Commercial banks as published in the Money Rate Section of the Wall Street Journal (the “Index”) The Index is not necessarily the lowest rate charged by Lender on its loans If the Index becomes unavailable during the term of this loan Lender may designate a substitute index after notifying Borrower Lender will tell Borrower the current Index rate upon Borrower’s request The interest rate change will not occur more often than each day Borrower understands that Lender may make loans based on other rates as well The Index currently is 3 250% per annum Interest on the unpaid principal balance of this Note will be calculated as described in the “INTEREST CALCULATION METHOD” paragraph using a rate of 3 750 percentage points over the Index rounded up to the nearest 0 001 percent adjusted if necessary for any minimum and maximum rate limitations described below resulting in an initial rate of 7 000% per annum based on a year of 360 days NOTICE Under no circumstances will the interest rate on this Note be less than 7 000% per annum or more than the maximum rate allowed by applicable law

INTEREST CALCULATION METHOD Interest on this Note is computed on a 365/360 basis, that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding All interest payable under this Note is computed using this method

PREPAYMENT Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default) except as otherwise required by law Except for the foregoing Borrower may pay without penalty all or a portion of the amount owed earlier than it is due Early payments will not unless agreed to by Lender in writing relieve Borrower of Borrower’s obligation to continue to make payments of accrued unpaid interest Rather early payments will reduce the principal balance due Borrower agrees not to send Lender payments marked “paid in full” “without recourse or similar language If Borrower sends such a payment Lender may accept it without losing any of Lender’s rights under this Note and Borrower will remain obligated to pay any further amount owed to Lender All written communications concerning disputed amounts including any check or other payment instrument that indicates that the payment constitutes “payment in full of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to Legacy Bank OKC May 2801 W Memorial Oklahoma City OK 73134

LATE CHARGE if a payment is 11 days or more late Borrower will be charged 5 000% of the unpaid portion of the regularly scheduled payment or $23 50, whichever is greater

INTEREST AFTER DEFAULT Upon default including failure to pay upon final maturity the interest rate on this Note shall be increased by adding an additional 5 000 percentage point margin (“Default Rate Margin”) The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no default However in no event will the interest rate exceed the maximum interest rate limitations under applicable law

DEFAULT Each of the following shall constitute an event of default (“Event of Default”) under this Note

Payment Default Borrower fails to make any payment when due under this Note

Other Defaults Borrower fails to comply with or to perform any other term obligation covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term obligation covenant or condition contained in any other agreement between Lender and Borrower

Default in Favor of Third Parties Borrower or any Grantor defaults under any loan extension of credit security agreement purchase or sales agreement or any other agreement in favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents

False Statements Any warranty representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect either now or at the time made or furnished or becomes false or misleading at any time thereafter

Death or Insolvency The dissolution of Borrower (regardless of whether election to continue is made) any member withdraws from Borrower or any other termination of Borrower’s existence as a going business or the death of any member the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property any assignment for the benefit of creditors any type of creditor workout or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower

Creditor or Forfeiture Proceedings Commencement of foreclosure or forfeiture proceedings whether by judicial proceeding self-help repossession or any other method by any creditor of Borrower or by any governmental agency against any collateral securing the loan This includes a garnishment of any of Borrower’s accounts including deposit accounts with Lender However this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding in an amount determined by Lender in its sole discretion as being an adequate reserve or bond for the dispute

Events Affecting Guarantor Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor does or becomes incompetent or revokes or disputes the validity of or liability under any guaranty of the indebtedness evidenced by this Note

Adverse Change A material adverse change occurs in Borrower’s financial condition or Lender believes the prospect of payment or performance of this Note is impaired

Insecurity Lender in good faith believes itself insecure

Cure Provisions If any default other than a default in payment is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months it may be cured if Borrower after Lender sends written notice to Borrower demanding cure of such default (1) cures the default within ten (10) days or (2) if the cure requires more than ten (10) days immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical

LENDER S RIGHTS Upon default Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due and then Borrower will pay that amount

Loan No 11119391 PROMISSORY NOTE (Continued) Page 2

ATTORNEYS FEES EXPENSES Lender may hire or pay someone else to help collect this Note if Borrower does not pay Borrower will pay Lender that amount This includes subject to any limits under applicable law Lender’s attorneys fees and Lenders legal expenses whether or not there is a lawsuit including without limitation all attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction) and appeals If not prohibited by applicable law Borrower also will pay any court costs in addition to all other sums provided by law

GOVERNING LAW This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Oklahoma without regard to its conflicts of law provisions This Note has been accepted by Lender in the State of Oklahoma

DISHONORED ITEM FEE Borrower will pay a fee to Lender of $20 00 if Borrower makes a payment on Borrower’s loan and the check or other payment order including any preauthorized charge with which Borrower pays 5 later dishonored

RIGHT OF SETOFF To the extent permitted by applicable law Lender reserves a right of setoff in a Borrower’s accounts with Lender (whether checking savings or some other account) This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future However this does not include any IRA or Keogh accounts or any trust accounts for which setoff would be prohibited by law Borrower authorizes Lender to the extent permitted by applicable law to charge or setoff all sums owing on the indebtedness against any and all such accounts and at Lender’s option to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph

COLLATERAL Borrower acknowledges this Note is secured by the following collateral described in the security instruments listed herein inventory chattel caper accounts equipment and general intangibles described in Commercial Security Agreements dated March 19 2013

LINE OF CREDIT This Note evidences a revolving line of credit Advances under this Note may be requested orally by Borrower or as provided in this paragraph All oral requests shall be confirmed in writing or the day of the request All communications instructions or directions by telephone or otherwise to Lender are to be [ILLEGIBLE] to Lender’s office shows above The following person or persons are authorized to request advances and authorize payments under the line of credit until Lender receives from Borrower at Lender’s address shown above written notice of revocation of such authority Robert M Byers, President/Manager of Foundation Healthcare Affiliates, L L C , Manager of Foundation Surgery Affiliates, LLC, Robert M Byers, President/Manager of Foundation Healthcare Affiliates, L L C, Manager of Foundation Surgical Hospital Affiliates, LLC, Manager of Foundation Surgical Hospital Holdings, LLC, Manager of East El Paso Physicians Medical Center LLC, Scott Banks Chief Financial Officer of Foundation Surgical Hospital Affiliates, LLC and Brad Ottwell, Chief Financial Officer of Foundation Surgery Affiliates, LLC Borrower agrees to be liable for all sums either (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrowers accounts with Lender The unpaid principal balance owing or this Note at any time may be evidenced by endorsements on this Note or by Lenders internal records including daily computer print-outs Lender will have no obligation to advance funds under this Note if (A) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender including any agreement made in connection with the signing of this Note (B) Borrower or any guarantor ceases doing business or is insolvent (C) any guarantor seeks claims or otherwise attempts to [illegible] modify or revoke such guarantors guarantee of this Note or any other loan with Lender (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender or (E) Lender in good faith believes itself insecure

ADDITIONAL FEES Borrower(s) agrees to pay any and all fees or costs associated with this indebtedness as deemed necessary by Lender for fee documentation or security perfect or These additional fees or costs may include but not be limited to attorney fees appraisal fees title fees filing and recording fees or abstracting fees Said fees if required for Borrower(s) specific loan If not paid when Incurred will be added to the principal of this indebtedness

ADVANCES Notwithstanding any other provision of this Agreement Borrower acknowledges and agrees that all Advances shall be used for the stated purpose as specified in each application for Advance Borrower further acknowledges and agrees that Advances shall not be made by Lender to any deposit account owned by Borrower or when applicable a related entry of Borrower which is held at a financial institution other than that of Lenders

DOCUMENTATION/INFORMATION FEE Lender may require additional documentation or information related to this Indebtedness from the Borrower for loan security or the documentation as deemed appropriate and at the sole discretion of Lender or in accordance with covenants described in the Business Loan Agreement In the event Borrower fails to provide requested documentation or information within 60 days from written request by Lender a fee may be assessed for each incidence in an amount which is the greater of $100 00 or 03% ( 0003) of the outstanding principal balance of the Indebtedness for each incidence Said fee if not paid when incurred will be added to the principal of this indebtedness

TIMELY ADVANCES After appropriate written request from Borrower for an advance of funds on this indebtedness Lender shall have a reasonable time to consider approval and process of the advance request While Lender will use reasonable effort to fund the advance as soon as feasible Borrower understands and agrees that a reasonable time may be up to 72 hours from the time of delivery of the request not including non business days such as weekends or holidays If delays are expected beyond 72 hours Lender will notify Borrower of the delay and expected funding date and time

CROSS PLEDGED AND CROSS COLLATERALIZED This Note is secured by all Collateral evidenced guaranteed and granted on all Notes and Indebtedness with Lender

SUCCESSOR INTERESTS The terms of this Note shall be binding upon Borrower and upon Borrowers heirs personal representatives successors and assigns and shall inure to the benefit of Lender and its successors and assigns

NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES Borrower may notify Lender if Lender reports any inaccurate information about Borrower’s account(s) to a consumer reporting agency Borrower’s written notice describing the specific inaccuracy(ies) should be sent to Lender at the following address Legacy Bank OKC May 2801 W Memorial Oklahoma City OK 73134

GENERAL PROVISIONS This Note is payable on demand The inclusion of specific default provisions or rights of Lender shall not preclude Lender’s right to declare payment of this Note on its demand If any part of this Note cannot be enforced this fact will not affect the rest of the Note Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them Each Borrower understands and agrees that with or without notice to Borrower Lender may with respect to any other Borrower (a) make one or more additional secured or unsecured loans or otherwise extend additional credit (b) alter compromise renew extend accelerate or otherwise change one or more times the time for payment or other terms of any indebtedness including increases and decreases of the rate of interest on the indebtedness (c) exchange enforce waive subordinate fail or decide not to perfect and release any security with or without the substitution of new collateral (d) apply such security and direct the order or manner of sale thereof including without limitation any non judicial sale permitted by the terms of the controlling security agreements as Lender in its discretion may determine (e) release substitute agree not to sue or deal with any one or more of Borrower’s sureties endorsers or other guarantors on any terms or in any manner Lender may choose and (f) determine how when and what application of payments and credits shall be made on any other indebtedness owing by such other Borrower Borrower and any other person who signs guarantees or endorses this Note to the extent allowed by law waive presentment demand for payment and notice of dishonor Upon any change in the terms of this Note and unless otherwise expressly stated in writing no party who signs this Note whether as maker guarantor accommodation maker or endorser shall be released from liability All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral or impair fail to realize upon or perfect Lender’s security interest in the collateral and take any other action deemed necessary by Lender without the consent of or notice to anyone All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made The obligations under this Note are joint and several

Loan No 11119391 PROMISSORY NOTE (Continued) Page 3

PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS EACH BORROWER AGREES TO THE TERMS OF THE NOTE

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE

BORROWER
FOUNDATION SURGERY AFFILIATES, LLC
FOUNDATION HEALTHCARE AFFILIATES, L L C, Manager of Foundation Surgery Affiliates, LLC
By
	Robert M Byers, President/Manager of Foundation Healthcare Affiliates, L L C
EAST EL PASO PHYSICIANS’ MEDICAL CENTER LLC
FOUNDATION SURGICAL HOSPITAL HOLDINGS, LLC. Manager of East El Paso Physicians’ Medical Center, LLC
FOUNDATION SURGICAL HOSPITAL AFFILIATES, LLC, Manager of Foundation Surgical Hospital Holdings LLC
FOUNDATION HEALTHCARE AFFILIATES, L L C. Manager of Foundation Surgical Hospital Affiliates LLC
By
	Robert M Byers, President/Manager of Foundation Healthcare Affiliates, L L C

[ILLEGIBLE]

EX-10.28

Exhibit 10.28

PROMISSORY NOTE

Principal	Loan Date	Maturity	Loan No	Call / Coll	Account	Officer	Initials
$1,000,000.00	03-21-2012	03-21-2014	10968635	4a		RUSSN
References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item. Any item above containing “***” has been omitted due to text length limitations.

Borrower: East El Paso Physicians’ Medical Center, LLC (TIN: 26-1281512) 1416 George Dieter Drive El Paso, TX 79936-7601 Lender: Legacy Bank OKC May 2801 W Memorial Oklahoma City, OK 73134

Principal Amount: $1,000,000.00 Date of Note: March 21, 2012

PROMISE TO PAY. East El Paso Physicians’ Medical Center, LLC (“Borrower”) promises to pay to Legacy Bank (“Lender”), or order, in lawful money of the United States of America, the principal amount of One Million & 00/100 Dollars ($1,000,000.00), together with interest on the unpaid principal balance from March 21, 2012, until paid in full.

PAYMENT. Subject to any payment changes resulting from changes in the Index, Borrower will pay this loan in accordance with the following payment schedule, which calculates interest on the unpaid principal balances as described in the “INTEREST CALCULATION METHOD” paragraph using the interest rates described in this paragraph: 6 monthly consecutive interest payments, beginning April 21, 2012, with interest calculated on the unpaid principal balances using an interest rate based on the minimum prime lending rate for large U.S. Money Center Commercial banks as published in the Money Rate Section of the Wall Street Journal (currently 3.250%), plus a margin of 1.500 percentage points, the sum rounded up to the nearest 0.001, adjusted if necessary for the minimum and maximum rate limitations for this loan, resulting in an initial interest rate of 6.500% per annum based on a year of 360 days; 17 monthly consecutive principal and interest payments in the initial amount of $23,755.22 each, beginning October 21, 2012, with interest calculated on the unpaid principal balances using an interest rate based on the minimum prime lending rate for large U.S. Money Center Commercial banks as published in the Money Rate Section of the Wall Street Journal (currently 3.250%), plus a margin of 1.500 percentage points, the sum rounded up to the nearest 0.001, adjusted if necessary for the minimum and maximum rate limitations for this loan, resulting in an initial interest rate of 6.500% per annum based on a year of 360 days; and one principal and interest payment of $679,005.90 on March 21, 2014, with interest calculated on the unpaid principal balances using an interest rate based on the minimum prime lending rate for large U.S. Money Center Commercial banks as published in the Money Rate Section of the Wall Street Journal (currently 3.250%), plus a margin of 1.500 percentage points, the sum rounded up to the nearest 0.001, adjusted if necessary for the minimum and maximum rate limitations for this loan, resulting in an initial interest rate of 6.500% per annum based on a year of 360 days. This estimated final payment is based on the assumption that all payments will be made exactly as scheduled and that the Index does not change; the actual final payment will be for all principal and accrued interest not yet paid, together with any other unpaid amounts under this Note. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs; then to any late charges; then to any accrued unpaid interest; and then to principal. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the minimum prime lending rate for large U.S. Money Center Commercial banks as published in the Money Rate Section of the Wall Street Journal (the “Index”). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender will tell Borrower the current Index rate upon Borrower’s request. The interest rate change will not occur more often than each day. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 3.250% per annum. The interest rate or rates to be applied to the unpaid principal balance during this Note will be the rate or rates set forth herein in the “Payment” section. Notwithstanding any other provision of this Note, after the first payment stream, the interest rate for each subsequent payment stream will be effective as of the last payment date of the just-ending payment stream. NOTICE: Under no circumstances will the interest rate on this Note be less than 6.500% per annum or more than the maximum rate allowed by applicable law. Whenever increases occur in the interest rate, Lender, at its option, may do one or more of the following: (A) increase Borrower’s payments to ensure Borrower’s loan will pay off by its original final maturity date, (B) increase Borrower’s payments to cover accruing interest, (C) increase the number of Borrower’s payments, and (D) continue Borrower’s payments at the same amount and increase Borrower’s final payment.

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrower’s making fewer payments. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: Legacy Bank, OKC May, 2801 W Memorial, Oklahoma City, OK 73134.

LATE CHARGE. If a payment is 11 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment or $23.00, whichever is greater.

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased by adding an additional 5.000 percentage point margin (“Default Rate Margin”). The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no default. After maturity, or after this Note would have matured had there been no default, the Default Rate Margin will continue to apply to the final interest rate described in this Note. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

Payment Default. Borrower fails to make any payment when due under this Note.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Death or Insolvency. The dissolution of Borrower (regardless of whether election to continue is made), any member withdraws from Borrower, or any other termination of Borrower’s existence as a going business or the death of any member, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Loan No: 10968635 PROMISSORY NOTE (Continued) Page 2

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

Insecurity. Lender in good faith believes itself insecure.

Cure Provisions. If any default, other than a default in payment is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after Lender sends written notice to Borrower demanding cure of such default: (1) cures the default within ten (10) days; or (2) if the cure requires more than ten (10) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit, including without limitation all attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Oklahoma without regard to its conflicts of law provisions. This Note has been accepted by Lender In the State of Oklahoma.

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower makes a payment on Borrower’s loan and the check or other payment order including any preauthorized charge with which Borrower pays is later dishonored.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

COLLATERAL. Borrower acknowledges this Note is secured by the following collateral described in the security instrument listed herein: inventory, chattel paper, accounts, equipment, general intangibles and fixtures described in a Commercial Security Agreement dated March 21, 2012.

ADDITIONAL FEES. Borrower(s) agrees to pay any and all fees or costs associated with this indebtedness as deemed necessary by Lender, for file documentation or security perfection. These additional fees or costs, may include, but not be limited to, attorney fees, appraisal fees, title fees, filing and recording fees, or abstracting fees. Said fees, if required for Borrower(s) specific loan, if not paid when incurred, will be added to the principal of this indebtedness.

ADVANCES. Notwithstanding any other provision of this Agreement, Borrower acknowledges and agrees that all Advances shall be used for the stated purpose as specified in each application for Advance. Borrower further acknowledges and agrees that Advances shall not be made by Lender to any deposit account owned by Borrower, or, when applicable, a related entity of Borrower, which is held at a financial institution other than that of Lender’s.

DOCUMENTATION/INFORMATION FEE. Lender may require additional documentation or information related to this Indebtedness from the Borrower for loan security or file documentation as deemed appropriate and at the sole discretion of Lender or in accordance with covenants described in the Business Loan Agreement. In the event Borrower fails to provide requested documentation or information within 60 days from written request by Lender, a fee may be assessed for each incidence in an amount which is the greater of $100.00 or .03% (.0003) for each incidence. Said fee, if not paid when incurred, will be added to the principal of this Indebtedness.

TIMELY ADVANCES. After appropriate written request from Borrower for an advance of funds on this indebtedness, Lender shall have a reasonable time to consider approval and process of the advance request. While Lender will use reasonable effort to fund the advance as soon as feasible, Borrower understands and agrees that a reasonable time may be up to 72 hours from the time of delivery of the request, not including non-business days, such as weekends or holidays. If delays are expected beyond 72 hours, Lender will notify Borrower of the delay and expected funding date and time.

LINE OF CREDIT NON REVOLVING. This Note evidences a straight line of credit. Once the total amount of principal has been advanced, I am not entitled to further loan advances. I agree to be liable for all sums either: (A) advanced in accordance with the instruction of an authorized person or (B) credited to any of my accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by lender’s internal records, including daily computer print-outs.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES. Borrower may notify Lender if Lender reports any inaccurate information about Borrower’s account(s) to a consumer reporting agency. Borrower’s written notice describing the specific inaccuracy(ies) should be sent to Lender at the following address: Legacy Bank, OKC May, 2801 W Memorial, Oklahoma City, OK 73134.

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

BORROWER:
EAST EL PASO PHYSICIANS’ MEDICAL CENTER, LLC
By:
	Robert M. Byers, Manager of East El Paso Physicians’ Medical Center, LLC

LASER PRO Lending, Ver. 5.57.10.001 Copr. Harland Financial Solutions, Inc. 1997, 2012. All Rights Reserved. - OK [ILLEGIBLE]

EX-10.29

Exhibit 10.29

PROMISSORY NOTE

Principal	Loan Date	Maturity	Loan No	Call / Coll	Account	Officer	Initials
$1,000,000.00	03-21-2012	03-21-2014	10968623	4a		RUSSN
References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

Borrower: East El Paso Physicians’ Medical Center, LLC (TIN: 26-1281512) 1416 George Dieter Drive El Paso, TX 79936-7601 Lender: Legacy Bank OKC May 2801 W Memorial Oklahoma City, OK 73134

Principal Amount: $1,000,000.00 Date of Note: March 21, 2012

PROMISE TO PAY. East El Paso Physicians’ Medical Center, LLC (“Borrower”) promises to pay to Legacy Bank (“Lender”), or order, in lawful money of the United States of America, the principal amount of One Million & 00/100 Dollars ($1,000,000.00), together with interest on the unpaid principal balance from March 21, 2012, until paid in full.

PAYMENT. Subject to any payment changes resulting from changes in the Index, Borrower will pay this loan in accordance with the following payment schedule, which calculates interest on the unpaid principal balances as described in the “INTEREST CALCULATION METHOD” paragraph using the interest rates described in this paragraph: 6 monthly consecutive interest payments, beginning April 21, 2012, with interest calculated on the unpaid principal balances using an Interest rate based on the minimum prime lending rate for large U.S. Money Center Commercial banks as published In the Money Rate Section of the Wall Street Journal (currently 3.250%), plus a margin of 1.500 percentage points, the sum rounded up to the nearest 0.001, adjusted if necessary for the minimum and maximum rate limitations for this loan, resulting in an initial interest rate of 6.500% per annum based on a year of 360 days; 17 monthly consecutive principal and interest payments in the initial amount of $23,755.22 each, beginning October 21, 2012, with Interest calculated on the unpaid principal balances using an interest rate based on the minimum prime lending rate for large U.S. Money Center Commercial banks as published in the Money Rate Section of the Wall Street Journal (currently 3.250%), plus a margin of 1.500 percentage points, the sum rounded up to the nearest 0.001, adjusted if necessary for the minimum and maximum rate limitations for this loan, resulting in an initial interest rate of 6.500% per annum based on a year of 360 days; and one principal and interest payment of $679,005.90 on March 21, 2014, with interest calculated on the unpaid principal balances using an interest rate based on the minimum prime lending rate for large U.S. Money Center Commercial banks as published in the Money Rate Section of the Wall Street Journal (currently 3.250%), plus a margin of 1.500 percentage points, the sum rounded up to the nearest 0.001, adjusted if necessary for the minimum and maximum rate limitations for this loan, resulting in an initial interest rate of 6.500% per annum based on a year of 360 days. This estimated final payment is based on the assumption that all payments will be made exactly as scheduled and that the Index does not change; the actual final payment will be for all principal and accrued interest not yet paid, together with any other unpaid amounts under this Note. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs; then to any late charges; then to any accrued unpaid interest; and then to principal. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the minimum prime lending rate for large U.S. Money Center Commercial banks as published in the Money Rate Section of the Wall Street Journal (the “Index”). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender will tell Borrower the current Index rate upon Borrower’s request. The interest rate change will not occur more often than each day. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 3.250% per annum. The interest rate or rates to be applied to the unpaid principal balance during this Note will be the rate or rates set forth herein in the “Payment” section. Notwithstanding any other provision of this Note, after the first payment stream, the interest rate for each subsequent payment stream will be effective as of the last payment date of the just-ending payment stream. NOTICE: Under no circumstances will the interest rate on this Note be less than 6.500% per annum or more than the maximum rate allowed by applicable law. Whenever increases occur in the interest rate, Lender, at its option, may do one or more of the following: (A) increase Borrower’s payments to ensure Borrower’s loan will pay off by its original final maturity date, (B) increase Borrower’s payments to cover accruing interest, (C) increase the number of Borrower’s payments, and (D) continue Borrower’s payments at the same amount and increase Borrower’s final payment.

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrower’s making fewer payments. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: Legacy Bank, OKC May, 2801 W Memorial, Oklahoma City, OK 73134.

LATE CHARGE. If a payment is 11 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment or $23.00, whichever is greater.

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased by adding an additional 5.000 percentage point margin (“Default Rate Margin”). The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no default. After maturity, or after this Note would have matured had there been no default, the Default Rate Margin will continue to apply to the final interest rate described in this Note. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

Payment Default. Borrower fails to make any payment when due under this Note.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Death or Insolvency. The dissolution of Borrower (regardless of whether election to continue is made), any member withdraws from Borrower, or any other termination of Borrower’s existence as a going business or the death of any member, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Loan No: 10968623 PROMISSORY NOTE (Continued) Page 2

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

Insecurity. Lender in good faith believes itself insecure.

Cure Provisions. If any default, other than a default in payment is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after Lender sends written notice to Borrower demanding cure of such default: (1) cures the default within ten (10) days; or (2) if the cure requires more than ten (10) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit, including without limitation all attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Oklahoma without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Oklahoma.

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower makes a payment on Borrower’s loan and the check or other payment order including any preauthorized charge with which Borrower pays is later dishonored.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

COLLATERAL. Borrower acknowledges this Note is secured by the following collateral described in the security instrument listed herein: inventory, chattel paper, accounts, equipment, general intangibles, fixtures and mineral, oil and gas described in a Commercial Security Agreement dated March 21, 2012.

ADDITIONAL FEES. Borrower(s) agrees to pay any and all fees or costs associated with this indebtedness as deemed necessary by Lender, for file documentation or security perfection. These additional fees or costs, may include, but not be limited to, attorney fees, appraisal fees, title fees, filing and recording fees, or abstracting fees. Said fees, if required for Borrower(s) specific loan, if not paid when incurred, will be added to the principal of this indebtedness.

ADVANCES. Notwithstanding any other provision of this Agreement, Borrower acknowledges and agrees that all Advances shall be used for the stated purpose as specified in each application for Advance. Borrower further acknowledges and agrees that Advances shall not be made by Lender to any deposit account owned by Borrower, or, when applicable, a related entity of Borrower, which is held at a financial institution other than that of Lender’s.

DOCUMENTATION/INFORMATION FEE. Lender may require additional documentation or information related to this Indebtedness from the Borrower for loan security or file documentation as deemed appropriate and at the sole discretion of Lender or in accordance with covenants described in the Business Loan Agreement. In the event Borrower fails to provide requested documentation or information within 60 days from written request by Lender, a fee may be assessed for each incidence in an amount which is the greater of $100.00 or .03% (.0003) for each incidence. Said fee, if not paid when incurred, will be added to the principal of this Indebtedness.

TIMELY ADVANCES. After appropriate written request from Borrower for an advance of funds on this indebtedness, Lender shall have a reasonable time to consider approval and process of the advance request. While Lender will use reasonable effort to fund the advance as soon as feasible, Borrower understands and agrees that a reasonable time may be up to 72 hours from the time of delivery of the request, not including non-business days, such as weekends or holidays. If delays are expected beyond 72 hours, Lender will notify Borrower of the delay and expected funding date and time.

LINE OF CREDIT NON REVOLVING. This Note evidences a straight line of credit. Once the total amount of principal has been advanced, I am not entitled to further loan advances. I agree to be liable for all sums either: (A) advanced in accordance with the instruction of an authorized person or (B) credited to any of my accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by lender’s internal records, including daily computer print-outs.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES. Borrower may notify Lender if Lender reports any inaccurate information about Borrower’s account(s) to a consumer reporting agency. Borrower’s written notice describing the specific inaccuracy(ies) should be sent to Lender at the following address: Legacy Bank, OKC May, 2801 W Memorial, Oklahoma City, OK 73134.

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

BORROWER:
EAST EL PASO PHYSICIANS’ MEDICAL CENTER, LLC
By:
	Robert M. Byers, Manager of East El Paso Physicians’ Medical Center, LLC

LASER PRO Lending, Ver. 5.57.10.001 Copr. Harland Financial Solutions, Inc. 1997, 2012. All Rights Reserved. - OK [ILLEGIBLE]

EX-10.30

Exhibit 10.30

FIRST MODIFICATION TO PROMISSORY NOTES

AND TO FIRST AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

This First Modification to Promissory Notes and to First Amended and Restated Loan and Security Agreement (“First Modification Agreement”) is made and entered into this 28th day of June, 2013, to be effective as of the 26^th day of June, 2013, by and between by and between FOUNDATION BARIATRIC HOSPITAL OF SAN ANTONIO, L.L.C., a Texas limited liability company, d/b/a FOUNDATION SURGICAL HOSPITAL OF SAN ANTONIO, L.L.C. (“FBH of SA” or “Borrower”), the Doctor Members of Borrower, as shown on Schedule 2 attached to the First Amended and Restated Loan and Security Agreement, FOUNDATION SURGICAL HOSPITAL HOLDINGS, LLC, a Nevada limited liability company (“FSHH”), FOUNDATION SURGICAL HOSPITAL AFFILIATES, LLC, a Nevada limited liability company (“FSHA”), FOUNDATION SURGICAL HOSPITAL MANAGEMENT, LLC, an Oklahoma limited liability company (“FSHM”), FOUNDATION SURGERY AFFILIATES, LLC, an Oklahoma limited liability company (“FSA”), FOUNDATION SURGERY HOLDINGS, LLC, a Delaware limited liability company (“FSH”), FOUNDATION SURGERY MANAGEMENT, LLC, a Delaware limited liability company (“FSM”), and FOUNDATION HEALTHCARE AFFILIATES, LLC, an Oklahoma limited liability company (“FHA”) (FSHH, FSHA, FSHM, FSA, FSH, FSM, and FHA are collectively referred to herein as “Company Guarantors,” and the Doctor Members of Borrower and the Company Guarantors are collectively referred to herein as “Guarantors”), and LEGACY BANK (“Lender”), 2801 W. Memorial Road, Oklahoma City, Oklahoma 73134.

WITNESSETH:

WHEREAS, effective August 11, 2010, FBH of SA, as Borrower, FSHH, as Guarantor, and Lender entered into that certain Loan and Security Agreement (“Loan Agreement”), pursuant to which FBH of SA executed and delivered to Lender those two certain Promissory Notes as follows: (a) Note No. 1 in the amount of $5,000,000.00, and (b) Note No. 2 in the amount of not to exceed $2,000,000.00; and FSHH and the Doctor Members of Borrower executed and delivered to Lender their respective certain Loan Guaranty Agreements dated of even date therewith (the loan transaction heretofor described is hereafter referred to as the “Prior Loan Agreement”), and

WHEREAS, effective September 7, 2010, Borrowers hereinafter described and Lender agreed to modify the structure of the Prior Loan Transaction to three (3) Loans pursuant to that certain First Amended and Restated Loan and Security Agreement, in the following amounts: (1) Loan #1 having FBH of SA as Borrower, in the amount of not to exceed ONE MILLION AND 00/100 DOLLARS ($1,000,000.00), (2) Loan #2 having FBH of SA as maker, in the amount of ONE MILLION AND 00/100 DOLLARS ($1,000,000.00), and (3) Loan #3 having FBH of SA, FSHA, FSHH, and FSHM, as makers (FBH of SA, FSHA, FSHH, and FSHM are collectively referred to herein as the “Note #3 Borrowers”), jointly and severally, in the amount of FOUR MILLION AND 00/100 DOLLARS ($4,000,000.00) (the loan transaction herein described is hereafter referred to as the “First Amended Loan Agreement”); and

WHEREAS, effective March 30, 2011, Borrowers, Guarantors, and Lender entered into that certain First Addendum to First Amended and Restated Loan and Security Agreement, which modified certain terms of the First Amended Loan Agreement as stated therein (the “Addendum”); and

WHEREAS, effective April 22, 2011, the Note No. 3 Borrowers and Lender agreed an extension of the Note No. 3 Maturity date from September 7, 2011, to May 7, 2013 (the “Extension Agreement”); and

WHEREAS, Borrower has requested that Note No. 1 and Note No. 3 be amended to provide for modification of the interest rate and an extension of the maturity dates; and

WHEREAS, pursuant to said request Lender has agreed to said modification, all as more particularly set forth hereinafter.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Lender, Borrowers, and Guarantors hereby covenant and agree as follows:

1. Interest Rate: Effective June 26, 2013, interest shall accrue on Note No. 1 and Note No. 3 based upon the Minimum Debt Service Coverage Ratio of FBH of SA for the twelve month period preceding the end of the first and third calendar quarters, and shall be modified effective every subsequent December 1^st and June 1^st during the term of Note No. 1 and Note No. 3, as follows:

Minimum DSCR	Effective Interest Rate
<1.5:1	Wall Street Journal Prime rate plus three and three quarter percent (3.75%)
1.5:1 -1.8999:1	Wall Street Journal Prime rate plus three and one quarter percent (3.25%)
1.9:1 or greater	Wall Street Journal Prime rate plus two and three quarter percent (2.75%)

Minimum Debt Service Coverage Ratio (“DSCR”) shall be calculated as follows: net income, plus interest expenses, plus depreciation expenses, plus amortization expense, divided by debt service, all for the twelve month immediately preceding a determination date and all as determined in accordance with GAAP. “GAAP” shall mean generally accepted accounting principles in the United States of America in effect from time to time. The DSCR will be tested semi-annually at the end of the first and third quarters of each year.

2. Non-Usage Fee. Borrower agrees to pay to Lender, on a quarterly basis, within thirty (30) days of the end of each calendar quarter, a Non-Usage Fee on Note No. 1 in an amount equal to one quarter percent (0.25%) of unadvanced funds under Note No. 1 for the immediately preceding calendar quarter. The unadvanced funds under Note No. 1 will be

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calculated on the amount of Note No. 1 not advanced during the preceding calendar quarter on average based upon the sum of balance available on a daily basis divided by the actual number of days during the quarter.

3. Maturity Dates. The Maturity Date on Note No. 1 is hereby extended from June 7, 2013 to June 7, 2014. The Maturity Date on Note No. 3 is hereby extended from May 7, 2013 to September 7, 2015.

4. Current Balance Due. The current principal balance of Note No. 1 is $896,000.00. The current principal balance of Note No. 3 is $1,997,286.20.

5. Effectiveness of Loan Documents. Except as specifically modified by the terms and provisions hereof, each and every of the terms and provisions of the Loan Documents are and shall remain in full force and effect and are hereby assumed, ratified, and confirmed; and the execution, delivery, and effectiveness of this First Modification Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Lender under any of the Loan Documents nor constitute a waiver of any provision of any of the Loan Documents. The parties hereto agree that the modifications herein contained to the Loan Documents shall not affect or impair the Loan Documents or any lien(s) securing the same.

6. Execution Counterparts. This First Modification Agreement may be executed in any number of counterparts, each of which so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument.

7. Governing Law. The terms and provisions hereof shall be governed by, construed, and enforced in accordance with the laws of the State of Oklahoma.

8. Entire Agreement. This First Modification Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof, and may be amended only in writing, executed by all parties herein.

9. Modification Only. This agreement is only a modification of the Note and not a novation. Except as provided in this First Modification Agreement, all terms and conditions of the Note and all loan agreements executed in connection with said Note shall remain in full force and effect.

10. Guarantor’s Consent. Guarantors acknowledge that they have executed that their respective Guaranty Agreements dated September 7, 2010, guaranteeing Borrower’s payment and performance of the Notes and the Loan Documents. Guarantors hereby consent to this First Modification Agreement. Guarantors hereby reaffirm their respective Guaranty Agreements dated effective September 7, 2010, in favor of Lender which Guaranty Agreements guaranteed payment of the Promissory Notes payable to Lender in the respective amounts of $1,000,000.00 and $4,000,000.00. Guarantors acknowledge and agree that the aforesaid Guaranty Agreements are hereby amended to guaranty the Borrower’s Notes as modified by this First Modification Agreement which is modifying the interest rate and maturity dates of the

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Promissory Notes as stated above, together with any and all renewals thereof. Performance by Guarantors under the Guaranty Agreements will not entitle Guarantors to any payment from Borrower under any claim for contribution, indemnification, subrogation, or otherwise.

IN WITNESS WHEREOF, the parties hereto have executed this First Modification Agreement as of the date first above written.

BORROWER:		FOUNDATION BARIATRIC HOSPITAL OF SAN ANTONIO, L.L.C., a Texas limited liability company, d/b/a FOUNDATION SURGICAL HOSPITAL OF SAN ANTONIO, LLC
	By:	FOUNDATION SURGICAL HOSPITAL HOLDINGS, LLC, a Nevada limited liability company, its Class B Manager
	By:	/s/ ROBERT M. BYERS
		ROBERT M. BYERS, Manager
COMPANY GUARANTORS:		FOUNDATION SURGICAL HOSPITAL AFFILIATES, LLC, a Nevada limited liability company
	By:	/s/ ROBERT M. BYERS
		ROBERT M. BYERS, Manager
		FOUNDATION SURGICAL HOSPITAL HOLDINGS, LLC, a Nevada limited liability company
	By:	/s/ ROBERT M. BYERS
		ROBERT M. BYERS, Manager

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	FOUNDATION SURGICAL HOSPITAL MANAGEMENT, LLC, an Oklahoma limited liability company
By:	/s/ ROBERT M. BYERS
	ROBERT M. BYERS, Manager
	FOUNDATION SURGERY AFFILIATES, LLC, a Nevada limited liability company
By:	/s/ ROBERT M. BYERS
	ROBERT M. BYERS, Manager
	FOUNDATION SURGERY HOLDINGS, L.L.C., a Delaware limited liability company
By:	/s/ ROBERT M. BYERS
	ROBERT M. BYERS, Manager
	FOUNDATION SURGERY MANAGEMENT, LLC, a Delaware limited liability company
By:	/s/ ROBERT M. BYERS
	ROBERT M. BYERS, Manager
	FOUNDATION HEALTHCARE AFFILIATES, LLC, an Oklahoma limited liability company
By:	/s/ ROBERT M. BYERS
	ROBERT M. BYERS, Manager

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LENDER:		LEGACY BANK
	By:	/s/ RUSS NATION
		RUSS NATION, Sr. Vice-President

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EX-10.31

Exhibit 10.31

PROMISSORY NOTE

(Note #2)

$1,000,000.00 Effective September 7, 2010

FOR VALUE RECEIVED, FOUNDATION BARIATRIC HOSPITAL OF SAN ANTONIO, L.L.C., a Texas limited liability company, d/b/a FOUNDATION SURGICAL HOSPITAL OF SAN ANTONIO, LLC (hereinafter “Borrower”), unconditionally promises to pay to the order of LEGACY BANK (“Lender”), at 2801 W. Memorial Road, Oklahoma City, OK 73134, or at such other place as may be designated in writing by the holder of this promissory note, the principal sum of ONE MILLION AND 00/100 DOLLARS ($1,000,000.00), together with interest thereon at the rate hereinafter specified:

INTEREST RATE. Interest shall accrue on the outstanding principal balance of this loan at the rate of Wall Street Journal Prime Rate plus one percent (1.0%) per annum, adjusted on date of change. Interest on this Note shall be computed on the basis of a 360 day year. The Wall Street Journal Prime Rate (WSJP) means that annual rate of interest published in The Wall Street Journal or a similar substitute rate determined by the Lender in its sole discretion as most nearly approximating that rate in the case this prime rate is no longer published. Each change in the WSJP shall become effective without notice (which notice is hereby waived) on the date of change. In no event shall the interest rate be less than seven percent (7.0%) per annum.

PAYMENT TERMS. Beginning on October 15, 2010, and on the fifteenth (15^th) day of each month thereafter through the Maturity Date, Borrower shall pay Lender monthly installment payments of principal and interest based upon a sixty (60) month amortization. Lender may adjust the monthly payments, as needed, to maintain the scheduled amortization period. On the Maturity Date of September 7, 2015, all accrued interest and unpaid principal shall be due and payable in full.

DEFAULT INTEREST: Any sum not paid when due shall bear interest at a rate of six percent (6%) per annum greater than the per annum interest rate prevailing on this Note at the time the unpaid amount came due, but in no event at a rate less than fourteen percent (14%) per annum.

Of even date herewith the Borrower and Lender have entered into that certain First Amended and Restated Loan and Security Agreement (“Agreement”). This Promissory Note is defined in the Agreement as the “Note #2.” Unless otherwise defined herein, all words and phrases with their initial letter capitalized shall be afforded the meaning given in the Agreement.

This Note is executed, delivered, and accepted not in payment of but to restructure and modify the terms of that certain Promissory Note dated August 11, 2010, in the original principal amount of not to exceed Two Million and 00/100 Dollars ($2,000,000.00) (“Prior Note No. 2”).

The Lender’s records of advances and repayments will be prima facie evidence of the amount owed by the Borrower to the Lender with respect to this Note, in the absence of manifest error.

All payments made upon this Note shall be applied first to the outstanding accrued interest, if any, through the date of payment and the balance, if any, to the principal balance due and owing under this Note.

Borrower hereby waives any and all suretyship type defenses to payment of this Note.

Borrower agrees that if, and as often as, this Note is placed in the hands of an attorney for collection or to defend or enforce any of the Lender’s rights hereunder or under any instrument securing payment of this Note, Borrower shall pay the Lender its reasonable attorneys’ fees and all court costs and other expenses incurred in connection therewith.

It is expressly understood that time is of the essence of this Note, and if the Borrower shall fail to pay, within ten (10) days of when due, any amount payable under the provisions of this Note or fail to perform any other obligation to the Lender, or upon the occurrence of an Event of Default under the Agreement such event shall constitute a default hereunder (any of the foregoing being hereinafter referred to as “Default”). Upon Default (i) this Note and all other liabilities together with all accrued but unpaid interest hereon and thereon, at the option of the Lender, and without notice, demand or presentment, or notice of intent to accelerate to the Borrower or any other person or party, may be declared, and thereupon immediately shall become, due and payable; and (ii) the Lender may exercise, from time to time, any and all other rights, remedies and recourses now or hereafter existing in equity, at law, herein or under the Agreements, any other Loan Documents between Borrower and Lender, by virtue of statute or otherwise, including but not limited to, all rights and remedies available to it under the Uniform Commercial Code as in effect from time to time in the State of Oklahoma, and the right to foreclose any and all liens and security interests securing this Note. Notwithstanding anything herein or in the Agreement to the contrary, this Note and all other liabilities of Borrower to Lender, at the option of Lender, may be accelerated, without notice or demand of any kind in the event Borrower fails to make when due any payments to Lender as required herein or in the Agreement.

This Note may be prepaid in whole or in part at any time without premium or penalty. At any time additional payments may be made to be credited to principal. Monthly payments shall not be reduced as a result of any prepayments.

The invalidity, or unenforceability in particular circumstances, of any provision of this Note shall not extend beyond such provision or circumstances, and no other provision of this instrument shall be affected thereby.

Borrower expressly stipulates and agrees that it is the intent of Borrower and Lender at all times to comply with applicable state law or applicable United States federal law (to the extent that it permits Lender to contract for, charge, take, reserve, or receive a greater

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amount of interest than under state law) and that this section shall control every other covenant and agreement in this Note and the other Loan Documents. If the applicable law (state or federal) is ever judicially interpreted so as to render usurious any amount called for under the Note or under any of the other Loan Documents, or contracted for, charged, taken, reserved, or received with respect to the Note, or if Lender’s exercise of the option to accelerate the maturity of the Note, or if any prepayment by Borrower results in Borrower having paid any interest in excess of that permitted by applicable law, then it is Borrower’s and Lender’s express intent that all excess amounts theretofore collected by Lender shall be credited on the principal balance of the Note (or, if the Note has been or would thereby be paid in full, refunded to Borrower), and the provisions of the Note and the other Loan Documents immediately shall be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new documents, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder or thereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the loan proceeds evidenced by the Note shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Note until payment in full so that the rate or amount of interest on account of the Note does not exceed the maximum rate permitted under applicable law from time to time in effect and applicable to the Note for so long as the Note is outstanding. Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.

This Note, to the extent of the full face amount hereof, evidences indebtedness of Borrower to Lender. This Note is issued by the Borrower as part of a commercial transaction and no part of this loan is for a personal use.

Borrower hereby consents to the jurisdiction and/or venue of any state district court or federal district court within the State of Oklahoma, as Lender may elect with respect to any action involving this Note.

BORROWER HEREBY VOLUNTARILY, AND KNOWINGLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN THE BORROWER AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR ANY RELATED LOAN DOCUMENT.

Borrower stipulates and agrees that the Lender may, at its sole discretion, assign this Note to any such person it may select, upon such terms and conditions as it may deem appropriate, and that such assignee shall thereafter become the holder of this Note and shall be entitled to enforce all rights, remedies, and other benefits which shall or may inure to the benefit of the Lender.

Borrower further stipulates, represents and agrees that this instrument evidences the valid, enforceable, and binding obligation of the Borrower to the Lender in accordance with

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the terms and provisions hereof, without any defense (as of the date of this Note) to the enforcement thereof, whether denominated as affirmative defense, offset, counterclaim, or otherwise, and whether at law or in equity. Borrower hereby waives all defenses (existing as of the date of this Note and/or based upon acts or omissions occurring prior to the date of this Note) to the enforcement of this Note.

IN WITNESS WHEREOF, Borrower have executed this instrument this 7TH day of September, 2010, and made effective as of the date first above appearing.

		“BORROWER”
	FOUNDATION BARIATRIC HOSPITAL OF SAN ANTONIO, L.L.C., a Texas limited liability company, d/b/a FOUNDATION SURGICAL HOSPITAL OF SAN ANTONIO
By:	FOUNDATION SURGICAL HOSPITAL HOLDINGS, LLC, a Nevada limited liability company, its Class B Manager
By:
	ROBERT M. BYERS, Manager

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EX-10.32

Exhibit 10.32

SECOND AMENDED AND RESTATED PROMISSORY NOTE

(NOTE NO. 1)

$3,629,057.00 Effective July 5, 2013

FOR VALUE RECEIVED, FOUNDATION SURGERY AFFILIATES, LLC, a Nevada limited liability company (“FSA”), FOUNDATION SURGERY HOLDINGS, L.L.C., a Delaware limited liability company (“FSH”) and FOUNDATION SURGERY MANAGEMENT, LLC, a Delaware limited liability company (“FSM”) (hereinafter collectively referred to as the “Borrowers”), jointly and severally, unconditionally promise to pay to the order of LEGACY BANK (“Lender”), at 2801 W. Memorial Road, Oklahoma City, OK 73134, or at such other place as may be designated in writing by the holder of this promissory note, the principal sum of THREE MILLION SIX HUNDRED TWENTY-NINE THOUSAND FIFTY-SEVEN AND 00/100 DOLLARS ($3,629,057.00), together with interest thereon at the rate hereinafter specified:

INTEREST RATE. Interest shall accrue on the outstanding principal balance of this loan at the rate of Wall Street Journal Prime Rate plus one and one half percent (1.5%) per annum, adjusted on date of change. Interest on this Note shall be computed on the basis of a 365/360 day year. The Wall Street Journal Prime Rate (WSJP) means that annual rate of interest published on the Wall Street Journal and is defined herein as the base rate on corporate loans posted by at least 75% of the nations thirty (30) largest banks or a similar substitute rate determined by the Lender in its sole discretion as most nearly approximating that rate in the case this prime rate is no longer published. Each change in the WSJP shall become effective without notice (which notice is hereby waived) on the date of change. In no event shall the interest rate be less than six and one quarter percent (6.25%) per annum.

PAYMENT TERMS. Beginning on July 20, 2013, and on the twentieth (20^th) day of each month thereafter, Borrower shall pay Lender monthly installment payments based upon a thirty-eight (38) month amortization. On the Maturity Date of September 20, 2016, all accrued interest and unpaid principal shall be due and payable in full.

DEFAULT INTEREST: Any sum not paid when due shall bear interest at a rate of six percent (6%) per annum greater than the per annum interest rate prevailing on this Note at the time the unpaid amount came due, but in no event at a rate less than twelve percent (12%) per annum.

PREPAYMENTS: On any installment payment date additional payments may be made to be credit to principal. Borrower agrees to a prepayment premium of two percent (2.0%) of any additional principal amount paid at any time prior to the Maturity Date. Prepayments shall be credited to installments of principal in the inverse order of their maturity. Monthly payments shall not be reduced as a result of any prepayments. The foregoing prepayment premium shall be payable regardless of whether the loan is prepaid voluntarily or involuntarily.

Of even date herewith the Borrowers and Lender have entered into that certain Fourth Modification to Third Amended and Restated Loan and Security Agreement (“Agreement”). This Promissory Note is defined in the Agreement as the “Note No. 1”. Unless otherwise defined herein, all words and phrases with their initial letter capitalized shall be afforded the meaning given in the Agreement.

The Lender’s records of advances and repayments will be prima facie evidence of the amount owed by the Borrowers to the Lender with respect to this Note, in the absence of manifest error.

All payments made upon this Note shall be applied first to the outstanding accrued interest, if any, through the date of payment and the balance, if any, to the principal balance due and owing under this Note.

This Note is an amendment, renewal, extension, and modification of, but does not pay or satisfy, that certain First Amended and Restated Promissory Note payable by Borrowers to Lender dated April 20, 2011, in the principal amount of Five Million Four Hundred Fifty-Two Thousand Eight Hundred Sixty-One and 47/100 DOLLARS ($5,452,861.47) (“Prior Note”).

Borrowers and each of them hereby waive any and all suretyship type defenses to payment of this Note.

Borrowers agree that if, and as often as, this Note is placed in the hands of an attorney for collection or to defend or enforce any of the Lender’s rights hereunder or under any instrument securing payment of this Note, Borrowers shall pay the Lender its reasonable attorneys’ fees and all court costs and other expenses incurred in connection therewith.

It is expressly understood that time is of the essence of this Note, and if the Borrowers shall fail to pay, when due, any amount payable under the provisions of this Note or fail to perform any other obligation to the Lender, or upon the occurrence of an Event of Default under the Agreement such event shall constitute a default hereunder (any of the foregoing being hereinafter referred to as “Default”). Upon Default (i) this Note and all other liabilities together with all accrued but unpaid interest hereon and thereon, at the option of the Lender, and without notice, demand or presentment, or notice of intent to accelerate to the Borrowers or any other person or party, may be declared, and thereupon immediately shall become, due and payable; and (ii) the Lender may exercise, from time to time, any and all other rights, remedies and recourses now or hereafter existing in equity, at law, herein or under the Agreements, any other Loan Documents between Borrowers and Lender, by virtue of statute or otherwise, including but not limited to, all rights and remedies available to it under the Uniform Commercial Code as in effect from time to time in the State of Oklahoma, and the right to foreclose any and all liens and security interests securing this Note. Notwithstanding anything herein or in the Agreement to the contrary, this Note and all other liabilities of Borrowers to Lender, at the option of Lender, may be accelerated, without notice or demand of any kind in the event Borrowers fail to make when due any payments to Lender as required herein or in the Agreement.

At any time additional payments may be made to be credited to principal. Monthly payments shall not be reduced as a result of any prepayments.

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The invalidity, or unenforceability in particular circumstances, of any provision of this Note shall not extend beyond such provision or circumstances, and no other provision of this instrument shall be affected thereby.

Borrowers expressly stipulate and agree that it is the intent of Borrowers and Lender at all times to comply with applicable state law or applicable United States federal law (to the extent that it permits Lender to contract for, charge, take, reserve, or receive a greater amount of interest than under state law) and that this section shall control every other covenant and agreement in this Note and the other Loan Documents. If the applicable law (state or federal) is ever judicially interpreted so as to render usurious any amount called for under the Note or under any of the other Loan Documents, or contracted for, charged, taken, reserved, or received with respect to the Note, or if Lender’s exercise of the option to accelerate the maturity of the Note, or if any prepayment by Borrowers result in Borrowers having paid any interest in excess of that permitted by applicable law, then it is Borrowers’ and Lender’s express intent that all excess amounts theretofore collected by Lender shall be credited on the principal balance of the Note (or, if the Note has been or would thereby be paid in full, refunded to Borrowers), and the provisions of the Note and the other Loan Documents immediately shall be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new documents, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder or thereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the loan proceeds evidenced by the Note shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Note until payment in full so that the rate or amount of interest on account of the Note does not exceed the maximum rate permitted under applicable law from time to time in effect and applicable to the Note for so long as the Note is outstanding. Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.

This Note, to the extent of the full face amount hereof, evidences indebtedness of Borrowers to Lender. This Note is issued by the Borrowers as part of a commercial transaction and no part of this loan is for a personal use.

Borrowers hereby consent to the jurisdiction and/or venue of any state district court or federal district court within the State of Oklahoma, as Lender may elect with respect to any action involving this Note.

BORROWERS HEREBY VOLUNTARILY, AND KNOWINGLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN THE BORROWERS AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR ANY RELATED LOAN DOCUMENT.

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Borrowers stipulate and agree that the Lender may, at its sole discretion, assign this Note to any such person it may select, upon such terms and conditions as it may deem appropriate, and that such assignee shall thereafter become the holder of this Note and shall be entitled to enforce all rights, remedies, and other benefits which shall or may inure to the benefit of the Lender.

Borrowers further stipulate, represent and agree that this instrument evidences the valid, enforceable, and binding obligation of the Borrowers to the Lender in accordance with the terms and provisions hereof, without any defense (as of the date of this Note) to the enforcement thereof, whether denominated as affirmative defense, offset, counterclaim, or otherwise, and whether at law or in equity. Borrowers hereby waive all defenses (existing as of the date of this Note and/or based upon acts or omissions occurring prior to the date of this Note) to the enforcement of this Note.

IN WITNESS WHEREOF, Borrowers have executed this instrument this 29th day of August, 2013, and made effective as of the date first above appearing.

“BORROWERS”		FOUNDATION SURGERY AFFILIATES, LLC, a Nevada limited liability company
	By:	/s/ ROBERT M. BYERS
		ROBERT M. BYERS, Manager
		FOUNDATION SURGERY HOLDINGS, L.L.C., a Delaware limited liability company
	By:	/s/ ROBERT M. BYERS
		ROBERT M. BYERS, Manager
		FOUNDATION SURGERY MANAGEMENT, LLC, a Delaware limited liability company
	By:	/s/ ROBERT M. BYERS
		ROBERT M. BYERS, Manager

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EX-10.33

Exhibit 10.33

PROMISSORY NOTE

(NOTE NO. 3)

$1,000,000.00 Effective December 30, 2011

FOR VALUE RECEIVED, FOUNDATION SURGERY AFFILIATES, LLC, a Nevada limited liability company (“FSA”), FOUNDATION SURGERY HOLDINGS, L.L.C., a Delaware limited liability company (“FSH”) and FOUNDATION SURGERY MANAGEMENT, LLC, a Delaware limited liability company (“FSM”) (hereinafter collectively referred to as the “Borrowers”), jointly and severally, unconditionally promise to pay to the order of LEGACY BANK (“Lender”), at 2801 W. Memorial Road, Oklahoma City, OK 73134, or at such other place as may be designated in writing by the holder of this promissory note, the principal sum of not to exceed ONE MILLION AND 00/100 DOLLARS ($1,000,000.00), together with interest thereon at the rate hereinafter specified:

INTEREST RATE. Interest shall accrue on the outstanding principal balance of this loan at the rate of Wall Street Journal Prime Rate plus two and one-half percent (2.5%) per annum, adjusted on date of change. Interest on this Note shall be computed on the basis of a 365/360 day year. The Wall Street Journal Prime Rate (WSJP) means that annual rate of interest published on the Wall Street Journal and is defined herein as the base rate on corporate loans posted by at least 75% of the nations thirty (30) largest banks or a similar substitute rate determined by the Lender in its sole discretion as most nearly approximating that rate in the case this prime rate is no longer published. Each change in the WSJP shall become effective without notice (which notice is hereby waived) on the date of change. In no event shall the interest rate be less than six and three quarters percent (6.75%) per annum.

PAYMENT TERMS. Beginning January 31, 2012, and on the last day of each month through December 30, 2016, Borrowers shall pay Lender monthly installment payments of principle and interest based upon a sixty (60) month amortization. On the Maturity Date of December 30, 2016, all accrued interest and unpaid principal shall be due and payable in full. The payments may be adjusted as needed to maintain the sixty (60) month amortization.

DEFAULT INTEREST: Any sum not paid when due shall bear interest at a rate of six percent (6%) per annum greater than the per annum interest rate prevailing on this Note at the time the unpaid amount came due, but in no event at a rate less than twelve percent (12%) per annum.

PREPAYMENTS: Prepayments are permitted without penalty.

On February 5, 2010, Borrowers and Lender entered into that certain Third Modification to Third Amended and Restated Loan and Security Agreement (“Agreement”). This Promissory Note is defined in the Agreement as “Note No. 3”. Unless otherwise defined herein, all words and phrases with their initial letter capitalized shall be afforded the meaning given in the Agreement.

The Lender’s records of advances and repayments will be prima facie evidence of the amount owed by the Borrowers to the Lender with respect to this Note, in the absence of manifest error.

All payments made upon this Note shall be applied first to the outstanding accrued interest, if any, through the date of payment and the balance, if any, to the principal balance due and owing under this Note.

Borrowers and each of them hereby waive any and all suretyship type defenses to payment of this Note.

Borrowers agree that if, and as often as, this Note is placed in the hands of an attorney for collection or to defend or enforce any of the Lender’s rights hereunder or under any instrument securing payment of this Note, Borrowers shall pay the Lender its reasonable attorneys’ fees and all court costs and other expenses incurred in connection therewith.

It is expressly understood that time is of the essence of this Note, and if the Borrowers shall fail to pay, when due, any amount payable under the provisions of this Note or fail to perform any other obligation to the Lender, or upon the occurrence of an Event of Default under the Agreement such event shall constitute a default hereunder (any of the foregoing being hereinafter referred to as “Default”). Upon Default (i) this Note and all other liabilities together with all accrued but unpaid interest hereon and thereon, at the option of the Lender, and without notice, demand or presentment, or notice of intent to accelerate to the Borrowers or any other person or party, may be declared, and thereupon immediately shall become, due and payable; and (ii) the Lender may exercise, from time to time, any and all other rights, remedies and recourses now or hereafter existing in equity, at law, herein or under the Agreements, any other Loan Documents between Borrowers and Lender, by virtue of statute or otherwise, including but not limited to, all rights and remedies available to it under the Uniform Commercial Code as in effect from time to time in the State of Oklahoma, and the right to foreclose any and all liens and security interests securing this Note. Notwithstanding anything herein or in the Agreement to the contrary, this Note and all other liabilities of Borrowers to Lender, at the option of Lender, may be accelerated, without notice or demand of any kind in the event Borrowers fail to make when due any payments to Lender as required herein or in the Agreement,

At any time additional payments may be made to be credited to principal. Monthly payments shall not be reduced as a result of any prepayments.

The invalidity, or unenforceability in particular circumstances, of any provision of this Note shall not extend beyond such provision or circumstances, and no other provision of this instrument shall be affected thereby.

Borrowers expressly stipulate and agree that ii is the intent of Borrowers and Lender at all times to comply with applicable state law or applicable United States federal law (to the extent that it permits Lender to contract for, charge, take, reserve, or receive a greater amount of interest than under state law) and that this section shall control every other covenant and agreement in this Note and the other Loan Documents. If the applicable law (state or federal) is ever judicially interpreted so as to render usurious any amount called for under the

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Note or under any of the other Loan Documents, or contracted for, charged, taken, reserved, or received with respect to the Note, or if Lender’s exercise of the option to accelerate the maturity of the Note, or if any prepayment by Borrowers result in Borrowers having paid any interest in excess of that permitted by applicable law, then it is Borrowers’ and Lender’s express intent that all excess amounts theretofore collected by Lender shall be credited on the principal balance of the Note (or, if the Note has been or would thereby be paid in full, refunded to Borrowers), and the provisions of the Note and the other Loan Documents immediately shall be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new documents, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder or thereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the loan proceeds evidenced by the Note shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Note until payment in full so that the rate or amount of interest on account of the Note does not exceed the maximum rate permitted under applicable law from time to time in effect and applicable to the Note for so long as the Note is outstanding. Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.

This Note, to the extent of the full face amount hereof, evidences indebtedness of Borrowers to Lender. This Note is issued by the Borrowers as part of a commercial transaction and no part of this loan is for a personal use.

Borrowers hereby consent to the jurisdiction and/or venue of any state district court or federal district court within the State of Oklahoma, as Lender may elect with respect to any action involving this Note.

BORROWERS HEREBY VOLUNTARILY, AND KNOWINGLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN THE BORROWERS AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR ANY RELATED LOAN DOCUMENT.

Borrowers stipulate and agree that the Lender may, at its sole discretion, assign this Note to any such person it may select, upon such terms and conditions as it may deem appropriate, and that such assignee shall thereafter become the holder of this Note and shall be entitled to enforce all rights, remedies, and other benefits which shall or may inure to the benefit of the Lender.

Borrowers further stipulate, represent and agree that this instrument evidences the valid, enforceable, and binding obligation of the Borrowers to the Lender in accordance with the terms and provisions hereof, without any defense (as of the date of this Note) to the enforcement thereof, whether denominated as affirmative defense, offset, counterclaim, or otherwise, and whether at Saw or in equity. Borrowers hereby waive all defenses (existing as of the date of this Note and/or based upon acts or omissions occurring prior to the date of this Note) to the enforcement of this Note.

-3-

IN WITNESS WHEREOF, Borrowers have executed this instrument this 30th day of December, 2011, and made effective as of the date first above appearing.

“BORROWERS”		FOUNDATION SURGERY AFFILIATES, LLC, a Nevada limited liability company
	By:
		ROBERT M. BYERS, Manager
		FOUNDATION SURGERY HOLDINGS, L.L.C., a Delaware limited liability company
	By:
		ROBERT M. BYERS, Manager
		FOUNDATION SURGERY MANAGEMENT, LLC, a Delaware limited liability company
	By:
		ROBERT M. BYERS, Manager

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EX-10.34

Exhibit 10.34

CHANGE IN TERMS AGREEMENT

Principal $327,490 62	Loan Date 09-07-2006	Maturity 02-17-2016	Loan No 10228482	Call / Coll 4a/3	Account	Officer RUSSN	Initials
References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item Any item above containing “***” has been omitted due to text length limitations

Borrower: Foundation Surgical Hospital Affiliates, LLC (TIN 80-0322730) 14000 N PORTLAND AVE STE 205 OKLAHOMA CITY, OK 73134-4004 Lender Legacy Bank OKC May 2801 W Memorial Oklahoma City, OK 73134

Principal Amount: $327,490.62 Date of Agreement. 02/17/2013

DESCRIPTION OF EXISTING INDEBTEDNESS Legacy Bank Note No 10228482 dated 09/07/2006 with an original principal amount of $650 500 00 and an Assumption Agreement dated 06/19/2012

DESCRIPTION OF COLLATERAL All Collateral previously granted to Lender

DESCRIPTION OF CHANGE IN TERMS Adjusting payment terms, interest terms and maturity date Re-amortizing the remaining balance of the Note A ClT fee of $750. interest of $1,682 32 and principal of $7,230 81 will be paid in cash with this Change in Terms

PROMISE TO PAY Foundation Surgical Hospital Affiliates, LLC (“Borrower”) promises to pay to Legacy Bank (“Lender”), or order, in lawful money of the United States of America, the principal amount of Three Hundred Twenty-seven Thousand Four Hundred Ninety & 62/100 Dollars ($327,490 62), together with interest on the unpaid principal balance from March 17, 2013, until paid in full

PAYMENT Subject to any payment changes resulting from changes in the index, Borrower will pay this loan in 35 payments of $10,161 73 each payment Borrower’s first payment is due April 17, 2013, and all subsequent payments are due on the same day of each month after that Borrower’s final payment will be due on February 17, 2016, and will be for all principal and all accrued interest not yet paid Payments include principal and interest Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs, then to any late charges, then to any accrued unpaid interest, and then to principal Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing

VARIABLE INTEREST RATE The interest rate on this loan is subject to change from time to time based on changes in an independent index which is the minimum prime lending rate for large U S Money Center Commercial banks as published in the Money Rate Section of the Wall Street Journal (the “Index”) The Index is not necessarily the lowest rate charged by Lender on its loans If the Index becomes unavailable during the term of this loan Lender may designate a substitute index after notifying Borrower Lender will tell Borrower the current Index rate upon Borrower’s request The interest rate change will not occur more often than each day Borrower understands that Lender may make loans based on other rates as well The index currently is 3 250% per annum Prior to adding or subtracting any margin to the index, the index is rounded up to the nearest 0 001 percent, resulting in a current rounded Index of 3 250% Interest on the unpaid principal balance of this loan will be calculated as described in the “INTEREST CALCULATION METHOD” paragraph using a rate of 1 000 percentage point over the Index, rounded up to the nearest 0 001 percent, adjusted if necessary for any minimum and maximum rate limitations described below, resulting in an initial rate of 5 500% per annum based on a year of 360 days NOTICE Under no circumstances will the Interest rate on this loan be less than 5 500% per annum or more than the maximum rate allowed by applicable law Whenever increases occur in the interest rate. Lender, at its option, may do one or more of the following (A) increase Borrower’s payments to ensure Borrower’s loan will pay off by its original final maturity date, (B) increase Borrower’s payments to cover accruing interest, (C) increase the number of Borrower’s payments, and (D) continue Borrower’s payments at the same amount and increase Borrower’s final payment

INTEREST CALCULATION METHOD Interest on this loan is computed on a 365/360 basis, that is, by applying the ratio of the Interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding All Interest payable under this loan is computed using this method

PREPAYMENT Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments under the payment schedule Rather, early payments will reduce the principal balance due and may result in Borrower’s making fewer payments Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language If Borrower sends such a payment. Lender may accept it without losing any of Lender’s rights under this Agreement, and Borrower will remain obligated to pay any further amount owed to Lender All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to Legacy Bank, OKC May, 2801 W Memorial, Oklahoma City, OK 73134

LATE CHARGE If a payment is 11 days or more late, Borrower will be charged 5 000% of the unpaid portion of the regularly scheduled payment or $20 00, whichever is greater

INTEREST AFTER DEFAULT Upon default, including failure to pay upon final maturity, the Interest rate on this loan shall be increased by adding an additional 5 000 percentage point margin (“Default Rate Margin”) The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no default However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law

DEFAULT Each of the following shall constitute an Event of Default under this Agreement

Payment Default Borrower fails to make any payment when due under the Indebtedness

Other Defaults Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower

Default in Favor of Third Parties Any guarantor or Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of any guarantor’s or Borrower’s property or ability to perform their respective obligations under this Agreement or any of the Related Documents

False Statements Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter

Death or Insolvency The dissolution of Borrower (regardless of whether election to continue is made), any member withdraws from Borrower, or any other termination of Borrower’s existence as a going business or the death of any member, the Insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower

Creditor or Forfeiture Proceedings Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method by any creditor of Borrower or by any governmental agency against any collateral securing the Indebtedness This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute

Events Affecting Guarantor Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness evidenced by this Note

Adverse Change A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired

Insecurity Lender in good faith believes itself insecure

Loan No: 10228482 CHANGE IN TERMS AGREEMENT (Continued) Page 2

Cure Provisions If any default, other than a default in payment is curable and if Borrower has not been given a notice of a breach of the same provision of this Agreement within the preceding twelve (12) months, it may be cured if Borrower after Lender sends written notice to Borrower demanding cure of such default (1) cures the default within ten (10) days, or (2) if the cure requires more than ten (10) days immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical

LENDER’S RIGHTS Upon default, Lender may declare the entire unpaid principal balance under this Agreement and all accrued unpaid interest immediately due, and then Borrower will pay that amount

ATTORNEYS’ FEES, EXPENSES Lender may hire or pay someone else to help collect this Agreement if Borrower does not pay Borrower will pay Lender that amount This includes, subject to any limits under applicable law. Lender’s attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit, including without limitation all attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction) and appeals If not prohibited by applicable law. Borrower also will pay any court costs, in addition to all other sums provided by law

GOVERNING LAW This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Oklahoma without regard to its conflicts of law provisions This Agreement has been accepted by Lender in the State of Oklahoma

DISHONORED ITEM FEE Borrower will pay a fee to Lender of $20 00 if Borrower makes a payment on Borrower’s loan and the check or other payment order including any preauthorized charge with which Borrower pays is later dishonored

RIGHT OF SETOFF To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account) This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law Borrower authorizes Lender to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph

COLLATERAL Borrower acknowledges this Agreement is secured by Collateral securing other loans with Lender may also secure this loan To the extent collateral previously has been given to Lender by any person which may secure this Indebtedness, whether directly or Indirectly it is specifically agreed that to the extent prohibited by law all such collateral consisting of household goods will not secured this Indebtedness In addition, if any collateral requires the giving of a right of rescission under Truth in Lending for this Indebtedness such collateral also will not secure this Indebtedness unless and until all required notices of that right have been given

CONTINUING VALIDITY Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in full force and effect Consent by Lender to this Agreement does not waive Lender’s right to strict performance of the obligation(s) as changed, nor obligate Lender to make any future change in terms Nothing in this Agreement will constitute a satisfaction of the obligation(s) It is the intention of Lender to retain as liable parties all makers and endorsers of the original obligation(s), including accommodation parties, unless a party is expressly released by Lender in writing Any maker or endorser, including accommodation makers, will not be released by virtue of this Agreement If any person who signed the original obligation does not sign this Agreement below, then all persons signing below acknowledge that this Agreement is given conditionally based on the representation to Lender that the non-signing party consents to the changes and provisions of this Agreement or otherwise will not be released by it This waiver applies not only to any initial extension modification or release, but also to all such subsequent actions

DOCUMENTATION/INFORMATION FEE Lender may require additional documentation or information related to this Indebtedness from the Borrower for loan security or file documentation as deemed appropriate and at the sole discretion of Lender or in accordance with covenants described in the Business Loan Agreement In the event Borrower fails to provide requested documentation or Information within 60 days from written request by Lender, a fee may be assessed for each incidence in an amount which is the greater of $100 00 or 03% ( 0003) of the outstanding principal balance of the Indebtedness for each incidence Said fee, if not paid when incurred, will be added to the principal of this Indebtedness

SUCCESSORS AND ASSIGNS Subject to any limitations stated in this Agreement on transfer of Borrower’s interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns If ownership of the Collateral becomes vested in a person other than Borrower, Lender, without notice to Borrower, may deal with Borrower’s successors with reference to this Agreement and the indebtedness by way of forbearance or extension without releasing Borrower from the obligations of this Agreement or liability under the Indebtedness

NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES Please notify us if we report any inaccurate information about your account(s) to a consumer reporting agency Your written notice describing the specific inaccuracy(ies) should be sent to us at the following address Legacy Bank, OKC May, 2801 W Memorial, Oklahoma City, OK 73134

MISCELLANEOUS PROVISIONS If any part of this Agreement cannot be enforced, this fact will not affect the rest of the Agreement Lender may delay or forgo enforcing any of its rights or remedies under this Agreement without losing them Borrower and any other person who signs, guarantees or endorses this Agreement, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor Upon any change in the terms of this Agreement, and unless otherwise expressly stated in writing, no party who signs this Agreement whether as maker, guarantor, accommodation maker or endorser, shall be released from liability All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral, or impair, fail to realize upon or perfect Lender’s security interest in the collateral, and take any other action deemed necessary by Lender without the consent of or notice to anyone All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made The obligations under this Agreement are joint and several

PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS BORROWER AGREES TO THE TERMS OF THE AGREEMENT

BORROWER

FOUNDATION SURGICAL HOSPITAL AFFILIATES, LLC

By	/s/ Robert M Byers
	Robert M Byers, Manager of Foundation Surgical Hospital Affiliates, LLC

LENDER

LEGACY BANK

/s/ Russ Nation

Authorized Signer

EX-10.35

Exhibit 10.35

	Date of Agreement
DEFERRAL/EXTENSION AGREEMENT	10/25/13

MAKER(S) NAME AND ADDRESS	LENDER/SECURED PARTY NAME AND ADDRESS
East El Paso Physicians’ Medical Center, LLC 14000 N Portland Ave Ste 204 Oklahoma City, OK 73134	LEGACY BANK 2801 W Memorial Rd Oklahoma City OK 73134

The undersigned Maker executed the below described Promissory Note payable to the Lender/Secured Party named above

******DESCRIPTION OF ORIGINAL PROMISSORY NOTE******
Original Principal	Original Loan Date	Original Maturity Date	Loan Number
$         800,000.00	8/30/2012	3/30/2013	11041948

By the terms of the above described Promissory Note, a payment of principal and interest is now due, but the Maker desires to pay an extension fee and defer in whole or part the payment of principal and unpaid interest (if any). The Lender/Secured Party by acceptance of the interest (if applicable) and extension fee shown below agrees to extend the Maturity and the Due Date of the Final Payment as follows. The obligation evidenced by the Promissory Note is otherwise continued on its original terms and is not satisfied or replaced by this agreement.

a)      Unpaid Principal balance on Note prior to transactions made today			$	804,000.00
b)      Interest on Note has been previously paid to				9/30/2013
c)      Amount of Principal paid today
d)      Interest paid today	$	6,242.16
e)      Additional Premium Charges paid today to extend Credit Life Insurance
(Extension of this insurance is not required by Lender/Secured Party)
f)      Additional Premium Charges paid today to extend Disability Insurance
(Extension of this insurance is not required by Lender/Secured Party)
g)      Extension Fee paid today		waived
h)      Total Charges, Principal & Interest paid in cash today by maker			$	6,242.16
i)       Finance Charges on Note now paid to (enter date to which interest is last paid up)				11/12/2013
j)       SIMPLE INTEREST RATE				6.500	%
k)      Maturity and Due Date of Final Payment now extended to				12/10/2013
l)       Unpaid Principal Balance on Note after transactions made today			$	804,000.00
m)    Next Payment by Maker due on				12/10/2013
n)      Amount of Next Payment		All accrued interest and principal

REASON FOR DEFERRAL / EXTENSION

Extending the Note to 12/10/2013 to allow more time for possible long term extension

SIGNATURES

MT            

Maker agrees to the Interest and other Charges itemized above and to the terms of this Deferral Agreement. Maker also acknowledges receipt of a copy of this Agreement.

	Legacy Bank
/s/ Robert M Byers	/s/ Russ Nation
Robert M Byers, Manager of East El Paso Physicians’ Medical Center, LLC	Lender

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Stanton Nelson, certify that:

1. I have reviewed this Form 10-Q for the period ended September 30, 2013 of Graymark Healthcare, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, was made known to us by others within those entities, particularly during the period in which this report was being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 20, 2013

/S/ STANTON NELSON

Stanton Nelson

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Mark R. Kidd, certify that:

1. I have reviewed this Form 10-Q for the period ended September 30, 2013 of Graymark Healthcare, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, was made known to us by others within those entities, particularly during the period in which this report was being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 20, 2013

/S/ MARK R. KIDD

Mark R. Kidd

Chief Financial Officer

(Principal Financial Officer)

EX-31.3

EXHIBIT 31.3

CERTIFICATION

I, Grant A. Christianson, certify that:

1. I have reviewed this Form 10-Q for the period ended September 30, 2013 of Graymark Healthcare, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, was made known to us by others within those entities, particularly during the period in which this report was being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 20, 2013

/S/ GRANT A. CHRISTIANSON

Grant A. Christianson

Chief Accounting Officer

(Principal Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief Executive Officer of Graymark Healthcare, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2013 (the “Quarterly Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 20, 2013	/S/ STANTON NELSON
	Chief Executive Officer (Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief Financial Officer of Graymark Healthcare, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2013 (the “Quarterly Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 20, 2013	/S/ MARK R. KIDD
	Chief Financial Officer (Principal Financial Officer)

EX-32.3

EXHIBIT 32.3

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief Accounting Officer of Graymark Healthcare, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2013 (the “Quarterly Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 20, 2013	/S/ GRANT A. CHRISTIANSON
	Chief Accounting Officer (Principal Accounting Officer)

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Related Party Transactions

9 Months Ended

Sep. 30, 2013

Related Party Transactions [Abstract]

Related Party Transactions

Note 12 – Related Party Transactions

On July 22, 2013, the Company issued Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates, 17,970,295 shares of common stock for full satisfaction of debt owed to Mr. Oliver totaling $8,136,390. The Company previously used the proceeds from the debt to fund its payment obligations to Arvest Bank.

As of September 30, 2013, the Company had $5.9 million on deposit at Valliance Bank. Valliance Bank is controlled by Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates. In addition, the Company is obligated to Valliance Bank under certain notes payable totaling approximately $5.9 million and $0.8 million at September 30, 2013 and December 31, 2012, respectively. The interest rates on the notes range from 5% to 10%. Non-controlling interests in Valliance Bank are held by Mr. Stanton Nelson, the Company’s chief executive officer and Mr. Joseph Harroz, Jr., a director of the Company. Mr. Nelson and Mr. Harroz also serve as directors of Valliance Bank.

The Company occupies office space subject to a lease agreement with City Place, LLC (“City Place”). Under the lease agreement, the Company pays monthly rent of $17,970 until June 30, 2014; $0.00 from July 1, 2014 to January 31, 2015 and $17,970 from February 1, 2015 to March 31, 2017 plus additional payments for allocable basic expenses of City Place; the lease expires on March 31, 2017. Non-controlling interests in City Place are held by Roy T. Oliver, one of the Company’s greater than 5% shareholders and affiliates, and Mr. Stanton Nelson, the Company’s Chief Executive Officer. During the period from July 22, 2013 to September 30, 2013, the Company incurred approximately $54,000 in lease expense under the terms of the lease.

As of September 30, 2013 and December 31, 2012, the Company has obligations of $1.4 million that are owed to FHA and certain real estate subsidiaries and affiliates of FHA related to transactions that occurred prior to the Foundation acquisition in July 2013. The amounts owed to FHA and FHA affiliates are included in “Other liabilities” on the accompanying consolidated balance sheets.

The Company has entered into agreements with certain of its Affiliate ASCs and hospitals to provide management services. As compensation for these services, the surgery centers and hospitals are charged management fees which are either fixed or are based on a percentage of the Affiliates cash collected or the Affiliates net revenue. The percentages range from 2.25% to 6.0%.

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Condensed Consolidated Statements of Operations (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Net Revenues:
Patient services	$ 21,724,423	$ 8,747,414	$ 56,211,160	$ 23,962,216
Management fees from affiliates	1,460,163	1,880,610	4,986,012	5,951,165
Equity in earnings of affiliates	1,448,898	1,637,354	4,502,759	4,833,992
Other revenue	1,048,381	171,804	3,845,254	1,169,884
Provision for doubtful accounts	(682,319)	(123,413)	(2,409,733)	(386,165)
Revenue	24,999,546	12,313,769	67,135,452	35,531,092
Operating Expenses:
Salaries and benefits	6,974,734	3,472,076	19,770,112	10,246,078
Supplies	6,659,330	2,201,344	16,993,555	6,836,004
Other operating expenses	8,609,650	4,330,938	24,513,007	11,325,500
Impairment of goodwill	20,847,608		20,847,608
Depreciation and amortization	1,290,779	565,675	3,636,840	1,709,612
Total operating expenses	44,382,101	10,570,033	85,761,122	30,117,194
Other Income (Expense):
Interest expense, net	(552,763)	(285,844)	(1,575,535)	(840,602)
Gain (loss) on sale of equity investments in affiliates		83,533		365,111
Other income	36,694		39,852
Net other (expense)	(516,069)	(202,311)	(1,535,683)	(475,491)
Income (loss) from continuing operations, before taxes	(19,898,624)	1,541,425	(20,161,353)	4,938,407
Provision for income taxes	961,105		961,105
Income (loss) from continuing operations, net of taxes	(20,859,729)	1,541,425	(21,122,458)	4,938,407
Loss from discontinued operations, net of tax	(196,705)		(196,705)
Extraordinary gain, net of tax, attributable to Graymark Healthcare	4,872,746		4,872,746
Extraordinary gain, net of tax, attributable to noncontrolling interests	2,094,856		2,094,856
Net income (loss)	(14,088,832)	1,541,425	(14,351,561)	4,938,407
Less: Net income attributable to noncontrolling interests	2,402,532	384,257	1,522,445	452,157
Net income (loss) attributable to Graymark Healthcare	(16,491,364)	1,157,168	(15,874,006)	4,486,250
Earnings per common share (basic and diluted):
Net income (loss) attributable to Graymark Healthcare from continuing operations	$ (0.14)	$ 0.01	$ (0.14)	$ 0.03
Loss from discontinued operations, net of tax
Basic and diluted net income (loss) per share	$ (0.10)	$ 0.01	$ (0.10)	$ 0.03
Weighted average number of common and diluted shares outstanding	162,703,399	162,523,276	162,703,399	162,523,276
Pro Forma [Member]
Other Income (Expense):
Provision for income taxes	(1,008,978)	(616,570)	(1,240,455)	(1,975,363)
Less: Net income attributable to noncontrolling interests	2,401,087	230,554	1,170,410	271,294
Net income (loss) attributable to Graymark Healthcare	$ (16,537,792)	$ 694,301	$ (15,801,321)	$ 2,691,750
Earnings per common share (basic and diluted):
Basic and diluted net income (loss) per share	$ (0.10)		$ (0.10)	$ 0.02
Graymark Healthcare
Earnings per common share (basic and diluted):
Extraordinary gain, net of tax	$ 0.03		$ 0.03
Noncontrolling interests
Earnings per common share (basic and diluted):
Extraordinary gain, net of tax	$ 0.01		$ 0.01

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Discontinued Operations

9 Months Ended

Sep. 30, 2013

Discontinued Operations And Disposal Groups [Abstract]

Discontinued Operations

Note 5 – Discontinued Operations

Prior to the reverse acquisition, Graymark committed to a plan to divest of or close certain sleep diagnostic and sleep therapy locations. The decision was based on a combination of the financial performance of the facilities and the shift in focus to the business model of Foundation. As a result of the pending closure or sale of these locations, the related assets, liabilities, results of operations and cash flows were classified as discontinued operations which were acquired by the Company in the reverse acquisition.

Under the plan, from July 2013 to October 2013, Graymark closed or sold 24 sleep diagnostic locations including both IDTF and contracted locations in Georgia, Iowa, Kansas, Missouri, Nevada, Oklahoma and Texas and 5 sleep therapy locations in Iowa, Kansas, Nevada, Oklahoma and Texas.

As part of the reverse acquisition, the Company acquired the special charge liability of $475,570 related to the estimated closing costs resulting from the plan to sell or close the sleep diagnostic and therapy locations. From July 22, 2013 to September 30, 2013, the activity in the acquired accruals for restructuring charges established for lease termination and other exit costs were as follows:

	Lease Termination Costs			Other Exit Costs			Total
Acquired balance at July 22, 2013	$	335,028		$	140,542		$	475,570
Cash payments		(41,873	)		(140,542	)		(182,415	)
Balance at September 30, 2013	$	293,155		$	—		$	293,155

Additional charges may be recorded in future periods dependent upon the Company’s ability to sub-lease or otherwise mitigate future lease costs at closed facilities.

The operating results of the discontinued sleep diagnostic and therapy locations and the Company’s other discontinued operations from July 22, 2013 to September 30, 2013 are summarized below:

	July 22 to September 30, 2013
Revenues	$	724,145
Net loss before taxes	$	(327,841	)
Income tax benefit		131,136
Net loss from discontinued operations, net of tax	$	(196,705	)

The balance sheet items for discontinued operations are summarized below:

	September 30, 2013
Cash and cash equivalents	$	(53,793	)
Accounts receivable, net of allowances		743,001
Inventories		23,583
Other current assets		244,870
Total current assets		957,661
Fixed assets, net		215,832
Other assets		200,000
Total noncurrent assets		415,832
Total assets	$	1,373,493
Payables and accrued liabilities	$	2,280,207
Short term debt		4,450,233
Current portion of long-term debt		103,370
Total current liabilities		6,833,810
Long-term debt		28,384
Other liabilities		81,660
Total liabilities	$	6,943,854

The Company’s borrowings and capital lease obligations included in discontinued operations as of September 30, 2013 is as follows:

	Rate (1)			Maturity Date		September 30, 2013
Short-term Debt
Senior bank debt		6	%		Dec. 2013	$	4,450,233
Long-term Debt
Notes payable on equipment		6	%		Dec. 2013	$	30,220
Sleep center notes payable		6	%		Jan. 2015		38,835
Notes payable on vehicles		2.9	%		Dec. 2013		3,119
Equipment capital leases		8.2% - 11.5	%		Jan. 2015		59,580
Total							131,754
Less: Current portion of long-term debt							(103,370	)
Long-term debt						$	28,384

(1) Effective rate as of September 30, 2013

At September 30, 2013, future maturities of long-term debt included in discontinued operations were as follows:

Twelve months ended September 30,
2014	$	103,370
2015		28,384
2016		—
2017		—
2018		—
Thereafter		—

On July 22, 2013, the Company’s subsidiaries, SDC Holdings, LLC and ApothecaryRx, LLC (collectively the “Borrowers”), the Company and Mr. Stanton Nelson (the “Guarantor” and the Company’s chief executive officer) entered into a Second Amended and Restated Loan Agreement (the “New Loan Agreement”) and an Amended and Restated Promissory Note (the “New Note”) with Arvest Bank. The Company, Borrowers, Guarantor and other guarantors previously entered into the Amended and Restated Loan Agreement dated effective December 17, 2010, as amended by the First Amendment to Loan Agreement dated January 1, 2012, the Second Amendment to Loan Agreement dated effective June 30, 2012, and the Third Amendment to Loan Agreement dated effective October 12, 2012 (the “Prior Agreement”). Under the Prior Agreement, the Company and Borrowers were indebted to Arvest Bank under the Amended and Restated Promissory Note, in the original principal amount of $15,000,000 dated June 30, 2010 and the Second Amended and Restated Promissory Note, in the original principal amount of $30,000,000, dated June 30, 2010 (the “Prior Notes”). Arvest Bank, the Company, the Borrowers and the Guarantor have agreed to restructure the loan evidenced by the Prior Notes and the Prior Agreement. As of September 30, 2013, the outstanding principal amount of the New Note was $10,450,233.

On July 22, 2013, in conjunction with the New Loan Agreement with Arvest Bank, the Company entered into a Participation Agreement with Arvest Bank in which we purchased a $6,000,000 participation in the New Note from Arvest Bank in exchange for 13,333,333 shares of the Company’s common stock. The Company purchased the participation in the last $6,000,000 of the principal amount due under the Arvest credit facility. The Company’s participation in the note is eliminated against the New Note in the long-term debt table shown above.

The New Loan Agreement and New Note were entered into on the same date as and in conjunction with the reverse acquisition. As such, the New Note is included in the opening balance sheet in the reverse acquisition accounting (see Note 4 – Reverse Acquisition).

The New Note is collateralized by substantially all of the assets of the Borrowers and the personal guaranty of the Guarantor which is limited to $2,919,000. The note bears interest at the greater of the prime rate or 6.0% and provided the Borrowers are not in default, the Borrowers are required to make monthly payments of interest only. The entire unpaid principal balance and all accrued and unpaid interest thereon will be due and payable on December 31, 2013. Additionally, the New Note is subject to certain financial covenants including a debt service coverage ratio (“DSR”) covenant of not less than 1.25 to 1. Arvest Bank has waived the DSR and other financial covenant requirements through December 31, 2013, which is the maturity date of the New Note.

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Goodwill and Other Intangibles (Tables)

9 Months Ended

Sep. 30, 2013

Goodwill And Intangible Assets Disclosure [Abstract]

Changes in Carrying Amount of Goodwill

Changes in the carrying amount of goodwill as of September 30, 2013 and December 31, 2012 were as follows:

	Gross Amount		Accumulated Impairment Losses			Net Carrying Value
December 31, 2012	$	1,154,528	$	—		$	1,154,528
Reverse acquisition		20,847,608		—			20,847,608
Impairment charge		—		(20,847,608	)		(20,847,608	)
September 30, 2013	$	22,002,136	$	(20,847,608	)	$	1,154,528

Changes in Carrying Amount of Intangible Assets

The carrying amount of intangible assets as of September 30, 2013 and December 31, 2012 follows:

	September 30, 2013		December 31, 2012
Gross amount	$	11,791,500	$	3,498,500
Additions		3,800,000		8,293,000
Carrying value	$	15,591,500	$	11,791,500

Intangible Assets

Intangible assets as of September 30, 2013 and December 31, 2012 include the following:

	Useful Life (Years)		September 30, 2013							December 31, 2012 Net
			Carrying Value		Accumulated Amortization			Net
Management fee contracts		2 – 8	$	3,498,500	$	(1,626,320	)	$	1,872,180	$	2,202,858
Non-compete		5		1,825,000		(334,584	)		1,490,416		1,764,167
Physician memberships		7		6,468,000		(902,915	)		5,565,085		6,303,833
Service contracts		7		3,800,000		(110,600	)		3,689,400		—
Total			$	15,591,500	$	(2,974,419	)	$	12,617,081	$	10,270,858

Amortization Expense for Next Five Years Related to Intangible Assets

Amortization expense for the next five years related to these intangible assets is expected to be as follows:

Twelve months ended September 30,
2014	$	2,281,976
2015		2,266,727
2016		2,266,727
2017		2,266,727
2018		1,624,904

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Subsequent Events

9 Months Ended

Sep. 30, 2013

Subsequent Events [Abstract]

Subsequent Events

Note 13 – Subsequent Events

Management evaluated all activity of the Company and concluded that no material subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements, except as noted below:

On October 2, 2013, the Company and FHE completed the sale of 12 FHE Units for total consideration of $1,260,000 which was comprised of $1,200,000 attributable to the preferred noncontrolling interest and $60,000 attributable to the 120,000 shares of the Company’s common stock. See Note 8 – Preferred Noncontrolling Interests for additional information.

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Extraordinary Gain - Additional Information (Detail) (USD $)	1 Months Ended	9 Months Ended
	Aug. 30, 2013	Sep. 30, 2013
Extraordinary Item [Line Items]
Extradinory gain resulting from agreement	$ 11,136,121	$ 11,136,121
Total consideration for Assignment Agreement with DOC		40,000,000
Estimated excess value of assets compared to consideration paid		4,027,561
Amount of certain liabilities forgiven		7,108,560
Seller
Extraordinary Item [Line Items]
Purchase price of the property purchased under the agreement		39,066,428
Legal and Closing Expenses
Extraordinary Item [Line Items]
Amount paid for certain legal and closing expenses		69,894
Hs Reit
Extraordinary Item [Line Items]
Amount paid to the company		463,678
DOC FSH El Paso Medical Center, LLC
Extraordinary Item [Line Items]
Amount retained by DOC as a security deposit		400,000
Capital lease obligations
Extraordinary Item [Line Items]
Amount of certain liabilities forgiven		714,822
Accrued and unpaid interest
Extraordinary Item [Line Items]
Amount of certain liabilities forgiven		467,132
Unpaid past due rent
Extraordinary Item [Line Items]
Amount of certain liabilities forgiven		2,767,905
Other accrued liabilities
Extraordinary Item [Line Items]
Amount of certain liabilities forgiven		3,158,701
FMC
Extraordinary Item [Line Items]
Purchase price of the property purchased under the agreement		10,588,235
OKC MOB Assignment Agreement
Extraordinary Item [Line Items]
Total consideration for Assignment Agreement with DOC		15,600,000
Amount paid to the company		4,885,328
Amount paid for certain legal and closing expenses		35,937
Area of building purchased under agreement		52,000
OKC DOC
Extraordinary Item [Line Items]
Sales lease back, terms		10 years
Annual rental payments		1,248,000
Percentage of annual lease escalations		2.00%
Income on underlying sub-lease		$ 900,000

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Goodwill and Other Intangibles - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Goodwill And Intangible Assets Disclosure [Abstract]
Reverse acquisition			$ 20,847,608
Amortization expense	$ 556,816	$ 129,970	$ 1,453,777	$ 434,199

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Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)	0 Months Ended	9 Months Ended
	Jul. 22, 2013	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Finite-Lived Intangible Assets [Line Items]
Federal and state effective tax rate	40.00%
Adjustments for cost report settlements		$ 0	$ 0
Cost settlements adjustment amount		$ 88,800		$ 3,500
Likelihood percentage for impairment minimum		50.00%
Minimum
Finite-Lived Intangible Assets [Line Items]
Estimated useful lives		5 years
Maximum
Finite-Lived Intangible Assets [Line Items]
Estimated useful lives		7 years

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Basis of Presentation - Additional Information (Detail) (USD $)	2 Months Ended	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Organization Consolidation And Presentation Of Financial Statements [Abstract]
Accumulated deficit	$ (31,481,526)	$ (31,481,526)		$ (31,481,526)		$ (14,744,688)
Working capital deficiency	20,600,000	20,600,000		20,600,000
Net income (loss) attributable to Graymark Healthcare	(22,026,176)	(16,491,364)	1,157,168	(15,874,006)	4,486,250
Cash flow from operating activities from continuing operations				5,134,746	1,250,951
Goodwill impairment charge		$ 20,847,608		$ 20,847,608

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Preferred Noncontrolling Interest - Additional Information (Detail) (USD $)	2 Months Ended	12 Months Ended		2 Months Ended	0 Months Ended	2 Months Ended	0 Months Ended		0 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Mar. 13, 2013	Sep. 30, 2013 Common Stock	Mar. 13, 2013 Foundation Health Enterprises LLC	Sep. 30, 2013 Foundation Health Enterprises LLC	Mar. 13, 2013 Foundation Health Enterprises LLC Class B member interests	Mar. 13, 2013 Foundation Health Enterprises LLC Private placement	Jul. 22, 2013 Tyche	Jul. 22, 2013 Tyche Five year warrants	Jul. 22, 2013 Tyche Seven and one-half year warrants	Jul. 22, 2013 Tyche Ten year warrants
Noncontrolling Interest [Line Items]
Offering cost					$ 105,000		$ 100,000	$ 15,960,000
Number offering units							152
Common stock issued					10,000
Common stock value	16,327	16,252			5,000
Sale of units						75
Total consideration	7,875,000			375,000		7,500,000
Number of shares sold				750,000
Cumulative preferred annual return					9.00%
Amount of unreturned capital contribution and undistributed preferred distributions			10,000
Conversion price per share			$ 2.00
Outstanding preferred membership interest	7,500,000	11,072,465
Preferred member interest, annual cash dividends rate		11.50%
Cash paid as a part of consideration									11,102,372
Promissory notes issued as a part of consideration									2,339,905
Business acquisition total consideration paid									13,442,277
Warrants issued for purchase of common stock, units										$ 1,937,500	$ 3,516,204	$ 2,296,296
Warrants issued for purchase of common stock, exercise price										$ 1.00	$ 1.35	$ 1.60

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Operating Results and Balance Sheet Items of Discontinued Operations (Detail) (USD $)	2 Months Ended
	Sep. 30, 2013
Discontinued Operations And Disposal Groups [Abstract]
Revenues	$ 724,145
Net loss before taxes	(327,841)
Income tax benefit	131,136
Net loss from discontinued operations, net of tax	(196,705)
Cash and cash equivalents	(53,793)
Accounts receivable, net of allowances	743,001
Inventories	23,583
Other current assets	244,870
Total current assets	957,661
Fixed assets, net	215,832
Other assets	200,000
Total noncurrent assets	415,832
Total assets	1,373,493
Payables and accrued liabilities	2,280,207
Short term debt	4,450,233
Current portion of long-term debt	103,370
Total current liabilities	6,833,810
Long-term debt	28,384
Other liabilities	81,660
Total liabilities	$ 6,943,854

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Intangible Assets (Detail) (USD $)				9 Months Ended				9 Months Ended				9 Months Ended		9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Dec. 31, 2011	Sep. 30, 2013 Minimum	Sep. 30, 2013 Maximum	Sep. 30, 2013 Management fee contracts	Dec. 31, 2012 Management fee contracts	Sep. 30, 2013 Management fee contracts Minimum	Sep. 30, 2013 Management fee contracts Maximum	Sep. 30, 2013 Non-compete	Dec. 31, 2012 Non-compete	Sep. 30, 2013 Physician memberships	Dec. 31, 2012 Physician memberships	Sep. 30, 2013 Service contracts
Finite-Lived Intangible Assets [Line Items]
Useful Life				5 years	7 years			2 years	8 years	5 years		7 years		7 years
Carrying Value	$ 15,591,500	$ 11,791,500	$ 3,498,500			$ 3,498,500				$ 1,825,000		$ 6,468,000		$ 3,800,000
Accumulated Amortization	(2,974,419)					(1,626,320)				(334,584)		(902,915)		(110,600)
Net	$ 12,617,081	$ 10,270,858				$ 1,872,180	$ 2,202,858			$ 1,490,416	$ 1,764,167	$ 5,565,085	$ 6,303,833	$ 3,689,400

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Income Taxes Related to Extraordinary Gain and Amount of Extraordinary Gain Attributable to Noncontrolling Interests (Detail) (USD $)	1 Months Ended	3 Months Ended	9 Months Ended
	Aug. 30, 2013	Sep. 30, 2013	Sep. 30, 2013
Extraordinary And Unusual Items [Abstract]
Attributable to Graymark Healthcare, Gross			$ 7,864,051
Attributable to noncontrolling interests, Gross			3,272,070
Total extraordinary gain, Gross	11,136,121		11,136,121
Attributable to Graymark Healthcare, Tax			(2,991,305)
Attributable to noncontrolling interests, Tax			(1,177,214)
Total extraordinary gain, Tax			(4,168,519)
Attributable to Graymark Healthcare, Net		4,872,746	4,872,746
Attributable to noncontrolling interests, Net		2,094,856	2,094,856
Total extraordinary gain, Net			$ 6,967,602

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Acquisition Revenue and Earnings of Combined Entity Reverse Acquisition (Detail) (USD $)	2 Months Ended	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Business Combinations [Abstract]
Revenues	$ 454,759	$ 24,999,546	$ 12,313,769	$ 67,135,452	$ 35,531,092
Loss from Continuing Operations	(21,698,335)	(20,859,729)	1,541,425	(21,122,458)	4,938,407
Net income (loss)	(22,026,176)	(14,088,832)	1,541,425	(14,351,561)	4,938,407
Net Income (Loss) Attrib to Graymark	(22,026,176)	(16,491,364)	1,157,168	(15,874,006)	4,486,250
Net Income (Loss) Attrib to Graymark per Share		$ (0.10)	$ 0.01	$ (0.10)	$ 0.03
Supplemental Pro Forma, Revenues				72,637,964	48,496,884
Supplemental Pro Forma, Loss from Continuing Operations				(4,895,543)	(25,106,231)
Supplemental Pro Forma, Net Income (Loss)				1,868,402	(25,470,403)
Supplemental Pro Forma, Net Income (Loss) Attrib to Graymark				165,138	(25,784,049)
Supplemental Pro Forma, Net Income (Loss) Attrib to Graymark per Share				$ 0.00	$ (0.16)

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Borrowings and Capital Lease Obligations - Additional Information (Detail) (USD $)	1 Months Ended	9 Months Ended			0 Months Ended		1 Months Ended	9 Months Ended			2 Months Ended		0 Months Ended
	Mar. 19, 2013	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Sep. 03, 2013 Note payable - FHA	Jul. 22, 2013 Note payable - FHA	Jul. 22, 2013 Note payable - S&H Leasing	Sep. 30, 2013 Bank Note Payable	Sep. 30, 2013 Legacy Bank	Sep. 30, 2012 Legacy Bank	Jul. 22, 2013 Promissory note Note payable - FHA	Oct. 14, 2013 Promissory note Subsequent Events Note payable - FHA	Jul. 22, 2013 Senior Lender Note payable - FHA
Debt Instrument [Line Items]
Short-term working capital loan	$ 2,010,027	$ 7,316,083		$ 2,007,597
Spread over prime rate	3.75%				2.00%
Minimum variable rate of interest	7.00%
Debt instrument maturity date	Mar. 31, 2014						Aug. 01, 2014
Debt instrument											2,000,000
Debt instrument fixed rate of interest							11.50%	7.70%			7.00%		6.75%
Repayment of debt instrument											286,904
Outstanding principal and interest amount												1,727,377
Monthly principal and interest payments					51,449			16,000					11,628
Notes payable assumed		1,991,773				1,200,000
Notes payable interest rate, Minimum						5.25%
Notes payable interest rate, Maximum						8.00%
Legacy Debt									12,100,000	11,500,000
Debt service coverage ratio		Debt Service Coverage Ratio of 1.05 to 1 and increasing to 1.1 to 1 by December 31, 2013; 1.15 to 1 by March 31, 2014; and 1.2 to 1 by June 30, 2014;	1.25 to 1
Minimum Tangible Net Worth									$ 11,100,000
Percentage of minimum tangible net worth									50.00%

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Extraordinary Gain and Other Item (Tables)

9 Months Ended

Sep. 30, 2013

Extraordinary And Unusual Items [Abstract]

Income Taxes Related to Extraordinary Gain and Amount of Extraordinary Gain Attributable to Noncontrolling Interests

The income taxes related to the extraordinary gain and the amount of the extraordinary gain attributable to noncontrolling interests are summarized below:

	Gross		Tax			Net
Attributable to Graymark Healthcare	$	7,864,051	$	(2,991,305	)	$	4,872,746
Attributable to noncontrolling interests		3,272,070		(1,177,214	)		2,094,856
Total extraordinary gain	$	11,136,121	$	(4,168,519	)	$	6,967,602

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Nature of Business

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Nature of Business

Note 1 – Nature of Business

Graymark Healthcare, Inc. (the “Company”) is organized under the laws of the state of Oklahoma and owns controlling and noncontrolling interests in surgical hospitals located in Texas. The Company also owns noncontrolling interests in ambulatory surgery centers (“ASCs” and “Affiliates”) located in Texas, Oklahoma, Louisiana, Pennsylvania, New Jersey, Maryland and Ohio. Additionally, the Company provides sleep testing management services to various rural hospitals in Iowa, Minnesota, Missouri, Nebraska and South Dakota under management contracts with the hospitals. The Company provides management services to a majority of its Affiliates under the terms of various management agreements.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 3 – Summary of Significant Accounting Policies

For a complete list of the Company’s significant accounting policies, please see the Company’s Annual Report on Form 10-K for the year ending December 31, 2012 and the consolidated financial statements of FSA as of December 31, 2012 as filed in the Company’s Form 8-K on November 13, 2013.

Interim Financial Information – The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial statements and in accordance with Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2013 are not necessarily indicative of results that may be expected for the year ended December 31, 2013. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2012 and the consolidated financial statements of FSA as of December 31, 2012 as filed in the Company’s Form 8-K on November 13, 2013. The December 31, 2012 consolidated balance sheet was derived from audited financial statements.

Pro forma income information – Prior to July 22, 2013, FSA’s and FSHA’s member had elected to have FSA’s and FSHA’s income taxed as an “S” Corporation under provisions of the Internal Revenue Code and a similar section of the state income tax law. Therefore, taxable income or loss is reported to the individual member for inclusion in its tax returns and no provision for income taxes is included in the Company’s consolidated financial statements for periods prior to July 22, 2013. The pro forma income information provides an adjustment for income tax expense as if FSA and FSHA had been a “C” Corporation prior to July 22, 2013 at an assumed combined federal and state effective tax rate of 40%, which approximates the calculated statutory tax rates for the periods.

Consolidation – The accompanying consolidated financial statements include the accounts of the Company and its wholly owned, majority owned and controlled subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

The Company accounts for its investments in Affiliates in which the Company exhibits significant influence, but not control, in accordance with the equity method of accounting. The Company does not consolidate its equity method investments, but rather measures them at their initial costs and then subsequently adjusts their carrying values through income for their respective shares of the earnings or losses during the period. The Company monitors its investments for other-than-temporary impairment by considering factors such as current economic and market conditions and the operating performance of the companies and records reductions in carrying values when necessary.

Use of estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition and accounts receivable – The Company recognizes revenues in the period in which services are performed. Accounts receivable primarily consist of amounts due from third-party payors and patients. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Amounts the Company receives for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third-party payors such as health maintenance organizations, preferred provider organizations and other private insurers are generally less than the Company’s established billing rates. Additionally, to provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. Accordingly, the revenues and accounts receivable reported in the Company’s consolidated financial statements are recorded at the net amount expected to be received.

Contractual Discounts and Cost Report Settlements – The Company derives a significant portion of its revenues from Medicare, Medicaid and other payors that receive discounts from its established billing rates. The Company must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the Company’s accompanying consolidated statements of operations.

Cost report settlements under reimbursement agreements with Medicare and Medicaid are estimated and recorded in the period the related services are rendered and are adjusted in future periods as final settlements are determined. There is a reasonable possibility that recorded estimates will change by a material amount in the near term. There were no adjustments for estimated cost report settlements during the nine months ended September 30, 2013 and 2012. The net cost report settlements due to the Company and included as a receivable under the caption “Prepaid and other current assets” in the accompanying consolidated balance sheets was $88,800 and $3,500, respectively, at September 30, 2013 and December 31, 2012. The Company’s management believes that adequate provisions have been made for adjustments that may result from final determination of amounts earned under these programs.

Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on the Company’s financial statements. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties and exclusion from the Medicare and Medicaid programs.

Provision and Allowance for Doubtful Accounts – To provide for accounts receivable that could become uncollectible in the future; the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The primary uncertainty lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients.

The Company has an established process to determine the adequacy of the allowance for doubtful accounts that relies on a number of analytical tools and benchmarks to arrive at a reasonable allowance. No single statistic or measurement determines the adequacy of the allowance for doubtful accounts. Some of the analytical tools that the Company utilizes include, but are not limited to, the aging of accounts receivable, historical cash collection experience, revenue trends by payor classification, revenue days in accounts receivable, the status of claims submitted to third party payors, reason codes for declined claims and an assessment of the Company’s ability to address the issue and resubmit the claim and whether a patient is on a payment plan and making payments consistent with that plan. Accounts receivable are written off after collection efforts have been followed in accordance with the Company’s policies.

Due to the nature of the healthcare industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available, which could have a material impact on the Company’s operating results and cash flows in subsequent periods. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

The patient and their third party insurance provider typically share in the payment for the Company’s services. The amount patients are responsible for includes co-payments, deductibles, and amounts not covered due to the provider being out-of-network. Due to uncertainties surrounding deductible levels and the number of out-of-network patients, the Company is not certain of the full amount of patient responsibility at the time of service. The Company estimates amounts due from patients prior to service and generally collects those amounts prior to service. Remaining amounts due from patients are then billed following completion of service.

The activity in the allowances for doubtful accounts for the nine months ending September 30, 2013:

	Balance at Beginning of Year		Additions Recognized as Reduction to Revenues		Write-offs, Net of Recoveries			Balance at End of Year
Nine months ended September 30, 2013	$	1,659,337	$	2,409,733	$	(1,414,984	)	$	2,654,086

Cash and cash equivalents – The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. Certificates of deposit with original maturities of more than three months are also considered cash equivalents if there are no restrictions on withdrawing funds from the account.

Goodwill and Intangible Assets – The Company evaluates goodwill for impairment at least on an annual basis and more frequently if certain indicators are encountered. Goodwill is to be tested at the reporting unit level, defined as an ASC or hospital (referred to as a component), with the fair value of the reporting unit being compared to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired. The Company will complete its annual impairment test in December 2013.

Intangible assets other than goodwill which include physician membership interests, service contracts and covenants not to compete are amortized over their estimated useful lives using the straight line method. The remaining lives range from five to seven years. The Company evaluates the recoverability of identifiable intangible asset whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable.

Net income (loss) per share – Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted loss per share are excluded from the calculation.

Recently Adopted and Recently Issued Accounting Guidance

Adopted Guidance

On January 1, 2013, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) to the testing of indefinite-lived intangible assets for impairment, similar to the goodwill changes adopted in September 2011. These changes provide an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the fair value of an indefinite-lived intangible asset is less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. Notwithstanding the adoption of these changes, management plans to proceed directly to the two-step quantitative test for the Company’s indefinite-lived intangible assets. The adoption of these changes had no impact on the Company’s consolidated financial statements.

On January 1, 2013, the Company adopted changes issued by the FASB to the disclosure of offsetting assets and liabilities. These changes require an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The enhanced disclosures will enable users of an entity’s financial statements to understand and evaluate the effect or potential effect of master netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. The adoption of these changes had no impact on the Company’s consolidated financial statements.

Issued Guidance

In February 2013, the FASB issued changes to the accounting for obligations resulting from joint and several liability arrangements. These changes require an entity to measure such obligations for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and (ii) any additional amount the reporting entity expects to pay on behalf of its co-obligors. An entity will also be required to disclose the nature and amount of the obligation as well as other information about those obligations. Examples of obligations subject to these requirements are debt arrangements and settled litigation and judicial rulings. These changes become effective for the Company on January 1, 2014. Management has determined that the adoption of these changes will not have an impact on the consolidated financial statements, as the Company does not currently have any such arrangements.

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Goodwill and Other Intangibles

9 Months Ended

Sep. 30, 2013

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangibles

Note 6 – Goodwill and Other Intangibles

Changes in the carrying amount of goodwill as of September 30, 2013 and December 31, 2012 were as follows:

	Gross Amount		Accumulated Impairment Losses			Net Carrying Value
December 31, 2012	$	1,154,528	$	—		$	1,154,528
Reverse acquisition		20,847,608		—			20,847,608
Impairment charge		—		(20,847,608	)		(20,847,608	)
September 30, 2013	$	22,002,136	$	(20,847,608	)	$	1,154,528

Goodwill and intangible assets with indefinite lives must be tested for impairment at least once a year. Carrying values are compared with fair values, and when the carrying value exceeds the fair value, the carrying value of the impaired asset is reduced to its fair value. The Company tests goodwill for impairment on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company generally determines the fair value of its reporting units using the income approach methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation methodologies. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill.

The Company has estimated the goodwill associated with the reverse acquisition to be $20,847,608. The Company then determined the projected cash flows from the continuing operations of the legacy Graymark business were not sufficient to support the recorded goodwill. The Company evaluated the fair value of the goodwill subsequent to the reverse acquisition and determined the acquired goodwill was fully-impaired.

The carrying amount of intangible assets as of September 30, 2013 and December 31, 2012 follows:

	September 30, 2013		December 31, 2012
Gross amount	$	11,791,500	$	3,498,500
Additions		3,800,000		8,293,000
Carrying value	$	15,591,500	$	11,791,500

Intangible assets as of September 30, 2013 and December 31, 2012 include the following:

	Useful Life (Years)		September 30, 2013							December 31, 2012 Net
			Carrying Value		Accumulated Amortization			Net
Management fee contracts		2 – 8	$	3,498,500	$	(1,626,320	)	$	1,872,180	$	2,202,858
Non-compete		5		1,825,000		(334,584	)		1,490,416		1,764,167
Physician memberships		7		6,468,000		(902,915	)		5,565,085		6,303,833
Service contracts		7		3,800,000		(110,600	)		3,689,400		—
Total			$	15,591,500	$	(2,974,419	)	$	12,617,081	$	10,270,858

Amortization expense for the three months ended September 30, 2013 and 2012 was $556,816 and $129,970 respectively. Amortization expense for the nine months ended September 30, 2013 and 2012 was $1,453,777 and $434,199 million, respectively. Amortization expense for the next five years related to these intangible assets is expected to be as follows:

Twelve months ended September 30,
2014	$	2,281,976
2015		2,266,727
2016		2,266,727
2017		2,266,727
2018		1,624,904

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Reverse Acquisition

9 Months Ended

Sep. 30, 2013

Business Combinations [Abstract]

Reverse Acquisition

Note 4 – Reverse Acquisition

On July 22, 2013, the Company acquired FSA and FSA’s consolidated variable interest entity, FSHA, from Foundation Healthcare Affiliates, LLC (“FHA”) pursuant to an Amended and Restated Membership Purchase Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Company (i) issued to FHA 114,500,000 shares of its common stock, (ii) issued to FHA a demand promissory note in the principal amount of $2.0 million, and (iii) assumed certain liabilities and obligations of FHA totaling approximately $2.0 million.

For accounting purposes, the acquisition of FSA was accounted for as a reverse acquisition and as a result, the Company’s historical operating results included in the accompanying condensed consolidated financial statements for the periods prior to July 22, 2013 represent those of FSA. The historical financial statements of FSA have been adjusted for the effect of the recapitalization that occurred as a result of the reverse acquisition.

The acquisition of Foundation was based on management’s belief that Foundation’s acquisition and development strategy and operating model will enable the Company to grow by taking advantage of highly-fragmented markets, an increasing demand for short stay surgery and a need by physicians to forge strategic alliances to meet the needs of the evolving healthcare landscape while also shaping the clinical environments in which they practice. The Company expects the acquisition of Foundation will generate positive earnings and cash flow that will be accretive to the earnings and cash flow of the Company.

Simultaneous with and subject to the reverse acquisition, the Company issued 6,000,000 shares of common stock to purchase a $6.0 million participation in the credit facility owed by the Company to Arvest Bank (see Note 5 – Discontinued Operations for more information) and 17,970,295 shares of common stock to Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates, for full satisfaction of debt owed to Mr. Oliver totaling $8,136,390. Since the completion of the reverse acquisition was subject to these transactions, they have been recorded as part of the reverse acquisition.

Since FSA is deemed to be the accounting acquirer, the reverse acquisition was recorded by allocating the purchase price of the acquisition to the assets acquired, including intangible assets and liabilities assumed, from the legacy business of Graymark Healthcare, Inc. (“Graymark”), based on their estimated fair values at the acquisition date. The excess of the cost of the acquisitions over the net amounts assigned to the estimated fair value of the assets acquired, net of liabilities assumed, was recorded as goodwill, none of which is anticipated to be tax deductible. The fair value amounts recorded are preliminary and are subject to change. Management has engaged a third-party valuation company to complete a valuation of the fair value of the assets acquired and liabilities assumed in the reverse acquisition. Management expects to complete the valuation in the fourth quarter of 2013.

The fair value of the total consideration issued in the reverse acquisition amounted to $17.4 million and included $13.4 million for the issuance of the Company’s common stock to FHA, Arvest Bank and Mr. Oliver, $2.0 million for the promissory note issued to FHA and $2.0 million for the debt obligations and liabilities assumed from FHA.

The preliminary purchase allocation for the reverse acquisition is presented in the table below. These preliminary estimates will be revised in future periods and the revisions may materially affect the presentation of the Company’s consolidated financial results. Any changes to the initial estimates of the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill, subject to a review for impairment.

	Graymark (Preliminary)
Cash and cash equivalents	$	68,170
Accounts receivable		249,333
Current assets from discontinued operations		1,773,471
Other current assets		198,977
Total current assets		2,289,951
Property and equipment		647,862
Intangible assets		3,800,000
Goodwill		20,847,608
Other assets from discontinued operations		295,542
Other assets		12,753
Total assets acquired		27,893,716
Liabilities assumed:
Accounts payable and accrued liabilities		2,501,877
Short term debt		2,000,000
Current portion of long-term debt		714,711
Current liabilities from discontinued operations		7,812,192
Total current liabilities		13,028,780
Long-term debt, net of current portion		742,385
Other liabilities from discontinued operations		174,509
Other liabilities		575,000
Total liabilities assumed		14,520,674
Net assets acquired	$	13,373,042

During the nine months ended September 30, 2013 and 2012, the Company incurred $435,522 and $222,335 in expenses related to the reverse acquisition. The expenses incurred related primarily to legal fees related to the Purchase Agreement and structure of the transaction and professional fees related to the audits of the 2012 and 2011 consolidated financial statements of FSA.

The amounts of acquisition revenues and earnings included in the Company’s consolidated statements of operations for the nine months ended September 30, 2013, and the revenue and earnings of the combined entity had the reverse acquisition date for Graymark been January 1, 2012 are as follows:

	Revenue		Loss from Continuing Operations			Net Income (Loss)			Net Income (Loss) Attrib. to Graymark			Net Income (Loss) Attrib. to Graymark per Share
Actual:
From 7/22/2013 to 9/30/2013	$	454,759	$	(21,698,335	)	$	(22,026,176	)	$	(22,026,176	)
Supplemental Pro Forma:
Nine months ending 9/30/2013	$	72,637,964	$	(4,895,543	)	$	1,868,402		$	165,138		$	0.00
Nine months ending 9/30/2012	$	48,496,884	$	(25,106,231	)	$	(25,470,403	)	$	(25,784,049	)	$	(0.16	)

The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

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Amortization Expense for Next Five Years Related to Intangible Assets (Detail) (USD $)	Sep. 30, 2013
Debt Disclosure [Abstract]
2014	$ 2,281,976
2015	2,266,727
2016	2,266,727
2017	2,266,727
2018	$ 1,624,904

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Allowances for Doubtful Accounts (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Accounting Policies [Abstract]
Balance at Beginning of Year			$ 1,659,337
Additions Recognized as Reduction to Revenues	(682,319)	(123,413)	(2,409,733)	(386,165)
Write-offs, Net of Recoveries			(1,414,984)
Balance at End of Year	$ 2,654,086		$ 2,654,086

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Discontinued Operations - Additional Information (Detail) (USD $)	1 Months Ended	9 Months Ended			1 Months Ended			9 Months Ended	3 Months Ended
	Mar. 19, 2013	Sep. 30, 2013	Sep. 30, 2012	Jul. 22, 2013	Jul. 22, 2012 Arvest Loan Participation	Jun. 30, 2010 First Amendment to Loan Agreement	Jun. 30, 2010 Second Amended and Restated Loan Agreement	Sep. 30, 2012 Amended and Restated Promissory Note	Oct. 31, 2013 Subsequent Events Sleep diagnostic locations Location	Oct. 31, 2013 Subsequent Events Sleep Therapy Business Location
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Number of locations closed or sold									24	5
Amount of special charge liability acquired as part of reverse acquisition		$ 293,155		$ 475,570
Debt instrument amount					6,000,000	15,000,000	30,000,000
Outstanding principal and interest amount								10,450,233
Exchange of Company`s of common stock					13,333,333
Guarantor's liability			$ 2,919,000
Interest Floor Rate								6.00%
Debt instrument maturity date	Mar. 31, 2014							Dec. 31, 2013
Debt service coverage ratio		Debt Service Coverage Ratio of 1.05 to 1 and increasing to 1.1 to 1 by December 31, 2013; 1.15 to 1 by March 31, 2014; and 1.2 to 1 by June 30, 2014;	1.25 to 1

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Changes in Carrying Amount of Goodwill (Detail) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013
Goodwill And Intangible Assets Disclosure [Abstract]
Goodwill gross amount, beginning balance, gross		$ 1,154,528
Goodwill carrying value, reverse acquisition		20,847,608
Goodwill gross amount, ending balance, gross	22,002,136	22,002,136
Goodwill accumulated impairment, beginning balance
Goodwill accumulated impairment, impairment charge	(20,847,608)	(20,847,608)
Goodwill accumulated impairment, ending balance	(20,847,608)	(20,847,608)
Goodwill net carrying value, beginning balance		1,154,528
Goodwill carrying value, reverse acquisition		20,847,608
Goodwill accumulated impairment, impairment charge	(20,847,608)	(20,847,608)
Goodwill net carrying value, ending balance	$ 1,154,528	$ 1,154,528

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Related Party Transactions - Additional Information (Detail) (USD $)					0 Months Ended			9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2013 Minimum	Sep. 30, 2013 Maximum	Jul. 22, 2013 Roy T. Oliver	Sep. 30, 2013 Notes Payable to Banks	Dec. 31, 2012 Notes Payable to Banks	Sep. 30, 2013 Shareholders And Affiliates Minimum	Sep. 30, 2013 Shareholders And Affiliates Maximum	Sep. 30, 2013 City Place	Sep. 30, 2013 Foundation Health Care Affiliates LLC Real Estate	Dec. 31, 2012 Foundation Health Care Affiliates LLC Real Estate
Related Party Transaction [Line Items]
Common stock issued, shares	163,269,214	162,523,276			17,970,295
Common stock issued, amount	$ 16,327	$ 16,252			$ 8,136,390
Percentage of ownership in shareholders and affiliates					5.00%
Related party deposit	5,900,000
Notes payable						5,900,000	800,000
Interest rates on the notes								5.00%	10.00%
Lease agreement monthly rent description										The Company pays monthly rent of $17,970 until June 30, 2014; $0.00 from July 1, 2014 to January 31, 2015 and $17,970 from February 1, 2015 to March 31, 2017 plus additional payments for allocable basic expenses of City Place
Lease expiration date										Mar. 31, 2017
Lease expense										54,000
Related party transactions owned to real estate parties											$ 1,400,000	$ 1,400,000
Management fee Percentages range			2.25%	6.00%

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Future Maturities Long-Term Debt (Detail) (USD $)	Sep. 30, 2013
Discontinued Operations And Disposal Groups [Abstract]
2014	$ 8,134,412
2015	8,654,703
2016	2,227,649
2017	197,395
2018	55,000
Thereafter

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Statement Of Financial Position [Abstract]
Accounts receivable, allowances for doubtful accounts	$ 2,654,086	$ 1,659,337
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, authorized	10,000,000	10,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	500,000,000	500,000,000
Common stock, issued	163,269,214	162,523,276
Common stock, outstanding	163,269,214	162,523,276

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2013

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 9 – Commitments and Contingencies

The Company is exposed to asserted and unasserted legal claims encountered in the normal course of business, including claims for damages for personal injuries, medical malpractice, breach of contracts, wrongful restriction of or interference with physicians’ staff privileges and employment related claims. In certain of these actions, plaintiffs request payment for damages, including punitive damages that may not be covered by insurance. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the operating results or the financial position of the Company. There were no settlement expenses during the nine months ended September 30, 2013. During the nine months ended September 30, 20112, the Company incurred $36,000 in settlement expenses related to its ongoing asserted and unasserted legal claims.

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Condensed Consolidated Statements of Cash Flows (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Operating activities:
Net income (loss)	$ (14,351,561)	$ 4,938,407
Less: Net loss from discontinued operations, net of tax	(196,705)
Less: Extraordinary gain, net of tax	6,967,602
Income (loss) from continuing operations	(21,122,458)	4,938,407
Adjustments to reconcile loss from continuing operations to net cash (used in) operating activities:
Depreciation and amortization	3,636,840	1,709,612
Impairment of goodwill	20,847,608
Stock-based compensation, net of cashless vesting	41,922
Provision for doubtful accounts	2,409,733	386,165
Equity in earnings of affiliates	(4,502,759)	(4,833,992)
Gain on sale of equity investments in affiliates		(365,111)
Changes in assets and liabilities, net of acquisitions and extraordinary items - Accounts receivable, net of provision for doubtful accounts	(6,360,666)	34,291
Receivables from affiliates	202,017	(44,116)
Supplies Inventories	96,593	31,772
Prepaid and other current assets	(684,284)	(519,994)
Other assets	400,415	10,373
Accounts payable	202,838	(52,337)
Accrued liabilities	7,001,418	391,968
Other current liabilities	816,176
Other liabilities	2,149,353	(436,087)
Net cash provided by operating activities from continuing operations	5,134,746	1,250,951
Net cash (used in) operating activities from discontinued operations	(449,993)
Net cash provided by operating activities	4,684,753	1,250,951
Investing activities:
Cash received in business acquisition	68,170
Purchase of property and equipment	(3,478,983)	(820,120)
Disposal of property and equipment	184,313
Distributions from affiliates	4,522,247	4,754,001
Cash received in extraordinary gain transaction	463,678
Sale of equity investments in affiliates		576,873
Purchase of equity investments in affiliates		(200,000)
Net cash provided by investing activities from continuing operations	1,759,425	4,310,754
Net cash provided by investing activities from discontinued operations	200,000
Net cash provided by investing activities	1,959,425	4,310,754
Financing activities:
Debt proceeds	12,190,184	887,421
Debt payments	(5,358,842)	(3,487,018)
Common stock proceeds	375,000
Preferred noncontrolling interests proceeds	7,500,000
Redemption of preferred noncontrolling interests	(13,509,195)
Preferred noncontrolling interests dividends	(919,715)	(211,094)
Distributions to noncontrolling interests	(94,492)	(63,004)
Contributions from noncontrolling interests		12,500
Distributions from (to) member	(766,118)	(1,611,097)
Net cash (used in) financing activities from continuing operations	(583,178)	(4,472,292)
Net cash (used in) financing activities from discontinued operations	(294,039)
Net cash (used in) financing activities	(877,217)	(4,472,292)
Net change in cash and cash equivalents	5,766,961	1,089,413
Cash and cash equivalents at beginning of period	2,524,417	981,105
Cash and cash equivalents at end of period	8,291,378	2,070,518
Cash Paid for Interest and Income Taxes:
Interest expense	1,436,125	1,253,325
Interest expense, discontinued operations	34,689
Income taxes, continuing operations
Income taxes, discontinued operations
Noncash Investing and Financing Activities:
Common stock warrants issued	(936,000)
Seller financing - reverse acquisition	2,000,000
Debt and liabilities assumed - reverse acquisition	1,991,773
Debt converted to common stock	$ (14,138,187)

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Condensed Consolidated Balance Sheets (USD $)	Sep. 30, 2013	Dec. 31, 2012
ASSETS
Cash and cash equivalents	$ 8,291,378	$ 2,524,417
Accounts receivable, net of allowances for doubtful accounts of $2,654,086 and $1,659,337, respectively	11,049,321	6,849,055
Receivables from affiliates	843,468	1,045,485
Supplies inventories	1,846,691	1,943,284
Current assets from discontinued operations	957,661
Prepaid and other current assets	3,299,397	2,416,136
Total current assets	26,287,916	14,778,377
Property and equipment, net	11,857,253	9,403,853
Equity method investments in affiliates	6,994,123	7,013,611
Intangible assets, net	12,617,081	10,270,858
Goodwill	1,154,528	1,154,528
Other assets from discontinued operations	415,832
Other assets	138,897	126,559
Total assets	59,465,630	42,747,786
Liabilities:
Accounts payable	12,130,135	10,596,333
Accrued liabilities	11,562,401	5,585,180
Preferred member dividends payable	120,057	3,549,670
Short term debt	7,316,083	2,007,597
Current portion of long-term debt	8,134,412	5,971,339
Current liabilities from discontinued operations	6,833,810
Other current liabilities	816,176
Total current liabilities	46,913,074	27,710,119
Long-term debt, net of current portion	11,134,747	11,532,751
Other liabilities from discontinued operations	110,044
Other liabilities	8,497,991	5,773,638
Total liabilities	66,655,856	45,016,508
Preferred noncontrolling interest	7,500,000	11,072,465
Commitments and contingencies (Note 9)
Graymark Healthcare shareholders' deficit:
Preferred stock $0.0001 par value, 10,000,000 authorized; no shares issued and outstanding
Common stock $0.0001 par value, 500,000,000 shares authorized; 163,269,214 and 162,523,276 issued and outstanding, respectively	16,327	16,252
Paid-in capital	17,396,990	3,437,219
Accumulated deficit	(31,481,526)	(14,744,688)
Total Graymark Healthcare shareholders' deficit	(14,068,209)	(11,291,217)
Noncontrolling interest	(622,017)	(2,049,970)
Total deficit	(14,690,226)	(13,341,187)
Total liabilities, preferred noncontrolling interest and shareholders' deficit	$ 59,465,630	$ 42,747,786

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Subsequent Events - Additional Information (Detail) (USD $)	2 Months Ended			0 Months Ended
	Sep. 30, 2013	Sep. 30, 2013 Common Stock	Sep. 30, 2013 Foundation Health Enterprises LLC	Oct. 02, 2013 Subsequent Events	Oct. 02, 2013 Subsequent Events Common Stock	Oct. 02, 2013 Subsequent Events Foundation Health Enterprises LLC
Subsequent Event [Line Items]
Sale of units			75			12
Total consideration	$ 7,875,000	$ 375,000	$ 7,500,000	$ 1,260,000	$ 60,000	$ 1,200,000
Number of shares sold		750,000			120,000

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Reverse Acquisition - Additional Information (Detail) (USD $)					0 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2012	Jul. 22, 2013 Arvest Loan Participation	Jul. 22, 2013 Roy T. Oliver	Jul. 22, 2013 Foundation Transaction	Jul. 22, 2013 Foundation Health Care Affiliates, LLC	Jul. 22, 2013 FHA, Arvest Bank and Mr. Oliver
Business Acquisition [Line Items]
Number of shares issued in connection with acquisition						114,500,000
Promissory note						$ 2,000,000
Assumed certain liabilities and obligations						2,000,000
Common stock issued, shares	163,269,214	162,523,276		6,000,000	17,970,295
Common stock issued, amount	16,327	16,252		6,000,000	8,136,390
Percentage of ownership in shareholders and affiliates					5.00%
Fair value of consideration issued in reverse acquisition							17,400,000
Net assets acquired								13,373,042
Incurred expenses	$ 435,522		$ 222,335

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Borrowings and Capital Lease Obligations (Tables)

9 Months Ended

Sep. 30, 2013

Discontinued Operations

Schedule of Long-Term Debt and Capital Lease Obliagtions

The Company’s borrowings and capital lease obligations included in discontinued operations as of September 30, 2013 is as follows:

	Rate (1)			Maturity Date		September 30, 2013
Short-term Debt
Senior bank debt		6	%		Dec. 2013	$	4,450,233
Long-term Debt
Notes payable on equipment		6%			Dec. 2013	$	30,220
Sleep center notes payable		6%			Jan. 2015		38,835
Notes payable on vehicles		2.9%			Dec. 2013		3,119
Equipment capital leases		8.2% - 11.5%			Jan. 2015		59,580
Total							131,754
Less: Current portion of long-term debt							(103,370	)
Long-term debt						$	28,384

(1) Effective rate as of September 30, 2013

Future Maturities of Long-Term Debt

At September 30, 2013, future maturities of long-term debt included in discontinued operations were as follows:

Twelve months ended September 30,
2014	$	103,370
2015		28,384
2016		—
2017		—
2018		—
Thereafter		—

Continuing Operations

Schedule of Long-Term Debt and Capital Lease Obliagtions

The Company’s long-term debt and capital lease obligations are as follows:

	Rate (1)			Maturity Date		September 30, 2013			December 31, 2012
Senior Lender:
Line of credit		7	%		Jun. 2014	$	896,000		$	431,000
Notes payable – working capital		5.5 – 7	%		Mar. 2014 – Feb. 2016		4,059,723			5,216,251
Note payable – equity investments		6.25	%		Sept. 2016		3,538,734			4,289,057
Note payable – management agreements		6.75	%		Dec. 2016		687,808			826,617
Note payable – assumption		6.75	%		Jan. 2015		178,801			—
Other Lenders:
Note payable – preferred interest redemption		10	%		Jul. 2015		5,100,000			—
Notes payable – THE		4.6 – 8	%		Dec. 2014 – Feb. 2016		348,304			453,034
Note payable – HC REIT							—			450,917
Notes payable – physician partners		5.25 – 6.75	%		Oct. 2013 – Nov. 2014		166,413			617,198
Note payable – equity investment		7.7	%		Nov. 2013		30,054			167,841
Note payables – settlements		5.25 – 8	%		Nov. 2013 – Jan. 2018		1,312,411			—
Notes payable – acquisition		6.0	%		Dec. 2014 – Oct. 2015		119,572			172,289
Capital lease obligations		0.2 – 12.3	%		Apr. 2013 – Dec. 2022		2,831,339			4,879,886
Total							19,269,159			17,504,090
Less: Current portion of long-term debt							(8,134,412	)		(5,971,339	)
Long-term debt						$	11,134,747		$	11,532,751

(1) Effective rate as of September 30, 2013

Future Maturities of Long-Term Debt

At September 30, 2013, future maturities of long-term debt were as follows:

2014	$	8,134,412
2015		8,654,703
2016		2,227,649
2017		197,395
2018		55,000
Thereafter		—

Schedule of Short-Term Debt Obliagtions

The Company’s short-term debt obligations are as follows:

	Rate (1)			September 30, 2013		December 31, 2012
Senior Lender:
Notes payable – working capital		6.5 – 7.0	%	$	2,787,937	$	778,287
Other Lenders:
Note payable – FHA		7.0	%		1,730,489		—
Note payable – S&H Leasing		11.5	%		1,865,600		—
Note payable – working capital		5.0	%		800,000		796,231
Note payable – HC REIT					—		100,000
Notes payable – acquisition		6.0 – 8.0	%		25,188		156,242
Insurance premium financings		3.1 – 3.9	%		106,869		176,837
Short-term debt				$	7,316,083	$	2,007,597

(1) Effective rate as of September 30, 2013

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Schedule of Long-Term Debt and Capital Lease Obligations (Detail) (USD $)	9 Months Ended
	Sep. 30, 2013		Dec. 31, 2012
Short-term Debt [Line Items]
Long-term debt	$ 19,269,159		$ 17,504,090
Less: Current portion of long-term debt	(8,134,412)		(5,971,339)
Long-term debt	11,134,747		11,532,751
Capital lease obligations
Short-term Debt [Line Items]
Long-term debt	2,831,339		4,879,886
Senior Lender | Line of credit
Short-term Debt [Line Items]
Debt instrument interest rate	7.00%	[1]
Debt instrument maturity date	2014-06
Long-term debt	896,000		431,000
Senior Lender | Notes payable - working capital
Short-term Debt [Line Items]
Long-term debt	4,059,723		5,216,251
Senior Lender | Note payable - equity investments
Short-term Debt [Line Items]
Debt instrument interest rate	6.25%	[1]
Debt instrument maturity date	2016-09
Long-term debt	3,538,734		4,289,057
Senior Lender | Note payable - management agreements
Short-term Debt [Line Items]
Debt instrument interest rate	6.75%	[1]
Debt instrument maturity date	2016-12
Long-term debt	687,808		826,617
Senior Lender | Note payable - assumption
Short-term Debt [Line Items]
Debt instrument interest rate	6.75%	[1]
Debt instrument maturity date	2015-01
Long-term debt	178,801
Other Lenders | Note payable - equity investments
Short-term Debt [Line Items]
Debt instrument interest rate	7.70%	[1]
Debt instrument maturity date	2013-11
Long-term debt	30,054		167,841
Other Lenders | Note payable - preferred interest redemption
Short-term Debt [Line Items]
Debt instrument interest rate	10.00%	[1]
Debt instrument maturity date	2015-07
Long-term debt	5,100,000
Other Lenders | Notes payable - THE
Short-term Debt [Line Items]
Long-term debt	348,304		453,034
Other Lenders | Note payable - HC REIT
Short-term Debt [Line Items]
Long-term debt			450,917
Other Lenders | Notes payable - physician partners
Short-term Debt [Line Items]
Long-term debt	166,413		617,198
Other Lenders | Notes payable - settlements
Short-term Debt [Line Items]
Long-term debt	1,312,411
Other Lenders | Notes payable - acquisition
Short-term Debt [Line Items]
Debt instrument interest rate	6.00%	[1]
Long-term debt	$ 119,572		$ 172,289
Minimum | Capital lease obligations
Short-term Debt [Line Items]
Debt instrument interest rate	0.20%	[1]
Debt instrument maturity date	2013-04
Minimum | Senior Lender | Notes payable - working capital
Short-term Debt [Line Items]
Debt instrument interest rate	5.50%	[1]
Debt instrument maturity date	2014-03
Minimum | Other Lenders | Notes payable - THE
Short-term Debt [Line Items]
Debt instrument interest rate	4.60%	[1]
Debt instrument maturity date	2014-12
Minimum | Other Lenders | Notes payable - physician partners
Short-term Debt [Line Items]
Debt instrument interest rate	5.25%	[1]
Debt instrument maturity date	2013-10
Minimum | Other Lenders | Notes payable - settlements
Short-term Debt [Line Items]
Debt instrument interest rate	5.25%	[1]
Debt instrument maturity date	2013-11
Minimum | Other Lenders | Notes payable - acquisition
Short-term Debt [Line Items]
Debt instrument maturity date	2014-12
Maximum | Capital lease obligations
Short-term Debt [Line Items]
Debt instrument interest rate	12.30%	[1]
Debt instrument maturity date	2022-12
Maximum | Senior Lender | Notes payable - working capital
Short-term Debt [Line Items]
Debt instrument interest rate	7.00%	[1]
Debt instrument maturity date	2016-02
Maximum | Other Lenders | Notes payable - THE
Short-term Debt [Line Items]
Debt instrument interest rate	8.00%	[1]
Debt instrument maturity date	2016-02
Maximum | Other Lenders | Notes payable - physician partners
Short-term Debt [Line Items]
Debt instrument interest rate	6.75%	[1]
Debt instrument maturity date	2014-11
Maximum | Other Lenders | Notes payable - settlements
Short-term Debt [Line Items]
Debt instrument interest rate	8.00%	[1]
Debt instrument maturity date	2018-01
Maximum | Other Lenders | Notes payable - acquisition
Short-term Debt [Line Items]
Debt instrument maturity date	2015-10

[1] Effective rate as of September 30, 2013

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Changes in Carrying Amount of Intangible Assets (Detail) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Goodwill And Intangible Assets Disclosure [Abstract]
Gross amount, Carrying value, Beginning balance	$ 11,791,500	$ 3,498,500
Additions	3,800,000	8,293,000
Gross amount, Carrying value, Ending balance	$ 15,591,500	$ 11,791,500

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Long-Term Debt (Detail) (USD $)					9 Months Ended											9 Months Ended
	Sep. 30, 2013	Mar. 19, 2013	Dec. 31, 2012	Sep. 30, 2013 Discontinued Operations	Sep. 30, 2013 Discontinued Operations Notes payable on equipment		Sep. 30, 2013 Discontinued Operations Sleep center notes payable		Sep. 30, 2013 Discontinued Operations Notes payable on vehicles		Sep. 30, 2013 Discontinued Operations Equipment capital leases	Sep. 30, 2013 Discontinued Operations Equipment capital leases Minimum		Sep. 30, 2013 Discontinued Operations Equipment capital leases Maximum		Sep. 30, 2013 Senior bank debt Discontinued Operations
Debt Instrument [Line Items]
Debt instrument interest rate					6.00%	[1]	6.00%	[1]	2.90%	[1]		8.20%	[1]	11.50%	[1]	6.00%	[1]
Debt instrument maturity date					2013-12		2015-01		2013-12		2015-01					2013-12
Short-term debt	$ 7,316,083	$ 2,010,027	$ 2,007,597													$ 4,450,233
Total borrowings	19,269,159		17,504,090	131,754	30,220		38,835		3,119		59,580
Less: Current portion of long-term debt	(8,134,412)		(5,971,339)	(103,370)
Long-term debt	$ 11,134,747		$ 11,532,751	$ 28,384

[1] Effective rate as of September 30, 2013

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Schedule of Future Maturities Long-Term Debt (Detail) (USD $)	Sep. 30, 2013
Debt Instrument [Line Items]
2014	$ 8,134,412
2015	8,654,703
2016	2,227,649
2017	197,395
2018	55,000
Thereafter
Discontinued Operations
Debt Instrument [Line Items]
2014	103,370
2015	28,384
2016
2017
2018
Thereafter

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Preferred Noncontrolling Interest

9 Months Ended

Sep. 30, 2013

Noncontrolling Interest [Abstract]

Preferred Noncontrolling Interest

Note 8 – Preferred Noncontrolling Interest

On March 13, 2013, the Company’s wholly-owned subsidiary, Foundation Health Enterprises, LLC (“FHE”) initiated a private placement offering for up to $15,960,000. The offering is comprised of 152 units (“FHE Unit” or “preferred noncontrolling interest”). Each FHE Unit is being offered at $105,000 and entitles the purchaser to one (1) Class B membership interest in FHE, valued at $100,000, and 10,000 shares of the Company’s common stock, valued at $5,000. During the period from July 22, 2013 to September 30, 2013, FHE and the Company completed the sale of 75 FHE Units for total consideration of $7,875,000 which was comprised of $7,500,000 attributable to the preferred noncontrolling interest and $375,000 attributable to the 750,000 shares of the Company’s common stock.

The FHE Units provide for a cumulative preferred annual return of 9% on the amount allocated to the Class B membership interests. The FHE Units will be redeemed by FHE in four annual installments beginning in July 2014. The first three installments shall be in the amount of $10,000 per FHE Unit and the fourth installment will be in the amount of the unreturned capital contribution and any undistributed preferred distributions. The FHE Units are convertible at the election of the holder at any time prior to the complete redemption into restricted common shares of the Company at a conversion price of $2.00 per share. Since the FHE Units have a redemption feature and a conversion feature which the Company determined to be substantive, the preferred noncontrolling interests has been recorded at the mezzanine level in the accompanying consolidated balance sheets and the corresponding dividends are recorded as a reduction of accumulated deficit.

As of December 31, 2012, the Company had an outstanding preferred membership interest of $11,072,465. The preferred member interest was owned by Tyche Health Enterprises, LLC (“Tyche”) and provided for annual cash dividends at a rate of 11.5%. On March 31, 2013, the Company entered into an Asset Purchase Agreement (the “Tyche Agreement”) with Tyche which was subsequently amended on March 31, 2013 and amended and closed on July 22, 2013. Under the Tyche Agreement, the Company purchased from Tyche (i) all of Tyche’s right, title and interest in the Membership Interest Purchase Agreement; (ii) all of Tyche’s right, title and interest in the preferred and common membership interest in FSH and the right to various equity interests in the affiliates of FSH; (iii) all of Tyche’s right, title and interest in the preferred and common membership interest in FSHA and the right to various equity interest in the affiliates of FSHA; and (iv) all of Tyche’s right, title and interest in any preferred or non-preferred ownership interest in any Foundation entities that have been acquired as a result of the Membership Interest Purchase Agreement.

Under the Tyche Agreement, the Company paid $11,102,372 to Tyche and Tyche related entities and TSH issued promissory notes totaling $2,339,905 to Tyche and Tyche related entities for total consideration of $13,442,277. As further consideration for the Tyche Agreement, the Company issued Tyche and certain Tyche related entities warrants for the purchase of Company’s common stock. The warrants issued included:

1. Five year warrants for the purchase of a total of 1,937,500 shares of the Company’s common stock at a strike price of $1.00 per share;

2. Seven and one-half year warrants for the purchase of a total of 3,516,204 shares of the Company’s common stock at a strike price of $1.35 per share; and

3. Ten year warrants for the purchase of a total of 2,296,296 shares of the Company’s common stock at a strike price of $1.60 per share.

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Preliminary Purchase Allocation for Reserve Acquisition (Detail) (USD $)	Sep. 30, 2013	Dec. 31, 2012	Jul. 22, 2013 Foundation Health Care Affiliates, LLC
Business Acquisition [Line Items]
Cash and cash equivalents			$ 68,170
Accounts receivable			249,333
Current assets from discontinued operations			1,773,471
Other current assets			198,977
Total current assets			2,289,951
Property and equipment			647,862
Intangible assets			3,800,000
Goodwill	1,154,528	1,154,528	20,847,608
Other assets from discontinued operations			295,542
Other assets			12,753
Total assets acquired			27,893,716
Liabilities assumed:
Accounts payable and accrued liabilities			2,501,877
Short term debt			2,000,000
Current portion of long-term debt			714,711
Current liabilities from discontinued operations			7,812,192
Total current liabilities			13,028,780
Long-term debt, net of current portion			742,385
Other liabilities from discontinued operations			174,509
Other liabilities			575,000
Total liabilities assumed			14,520,674
Net assets acquired			$ 13,373,042

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Schedule of Short-Term Debt Obligations (Detail) (USD $)	Sep. 30, 2013	Mar. 19, 2013	Dec. 31, 2012	Jul. 22, 2013 Note payable - S&H Leasing	Sep. 30, 2013 Senior Lender Notes payable - working capital	Dec. 31, 2012 Senior Lender Notes payable - working capital	Jul. 22, 2013 Senior Lender Note payable - FHA	Sep. 30, 2013 Other Lenders Notes payable - working capital		Dec. 31, 2012 Other Lenders Notes payable - working capital	Sep. 30, 2013 Other Lenders Note payable - FHA		Dec. 31, 2012 Other Lenders Note payable - FHA	Sep. 30, 2013 Other Lenders Note payable - S&H Leasing		Dec. 31, 2012 Other Lenders Note payable - S&H Leasing	Sep. 30, 2013 Other Lenders Note payable - HC REIT	Dec. 31, 2012 Other Lenders Note payable - HC REIT	Sep. 30, 2013 Other Lenders Notes payable - acquisition	Dec. 31, 2012 Other Lenders Notes payable - acquisition	Sep. 30, 2013 Other Lenders Insurance premium financings	Dec. 31, 2012 Other Lenders Insurance premium financings	Sep. 30, 2013 Minimum Senior Lender Notes payable - working capital		Sep. 30, 2013 Minimum Other Lenders Notes payable - acquisition		Sep. 30, 2013 Minimum Other Lenders Insurance premium financings		Sep. 30, 2013 Maximum Senior Lender Notes payable - working capital		Sep. 30, 2013 Maximum Other Lenders Notes payable - acquisition		Sep. 30, 2013 Maximum Other Lenders Insurance premium financings
Short-term Debt [Line Items]
Debt instrument interest rate				11.50%			6.75%	5.00%	[1]		7.00%	[1]		11.50%	[1]								6.50%	[1]	6.00%	[1]	3.10%	[1]	7.00%	[1]	8.00%	[1]	3.90%	[1]
Short-term debt	$ 7,316,083	$ 2,010,027	$ 2,007,597		$ 2,787,937	$ 778,287		$ 800,000		$ 796,231	$ 1,730,489			$ 1,865,600				$ 100,000	$ 25,188	$ 156,242	$ 106,869	$ 176,837

[1] Effective rate as of September 30, 2013

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Fair Value Measurements

9 Months Ended

Sep. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 11 – Fair Value Measurements

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market in an orderly transaction between market participants. In determining fair value, the accounting standards established a three-level hierarchy that distinguishes between (i) market data obtained or developed from independent sources (i.e., observable data inputs) and (ii) a reporting entity’s own data and assumptions that market participants would use in pricing an asset or liability (i.e., unobservable data inputs). Financial assets and financial liabilities measured and reported at fair value are classified in one of the following categories, in order of priority of observability and objectivity of pricing inputs:

• Level 1 – Fair value based on quoted prices in active markets for identical assets or liabilities.

• Level 2 – Fair value based on significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data.

• Level 3 – Fair value based on prices or valuation techniques that require significant unobservable data inputs. Inputs would normally be a reporting entity’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

The fair value measurement level for an asset or liability is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.

Recurring Fair Value Measurements: The carrying value of the Company’s financial assets and financial liabilities is their cost, which may differ from fair value. The carrying value of cash held as demand deposits, money market and certificates of deposit, accounts receivable, short-term borrowings, accounts payable and accrued liabilities approximated their fair value. At September 30, 2013, the fair value of the Company’s long-term debt, including the current portion was determined approximate its carrying value.

Nonrecurring Fair Value Measurements:

Business Acquisition – In July 2013, the Company acquired Foundation in a transaction that was treated as a reverse acquisition for accounting purposes; see Note 4 – Reverse Acquisition for additional information. The assets acquired and liabilities assumed from Graymark in the reverse acquisition were recorded at their respective fair values on the date of the acquisition.

These nonrecurring fair value measurements were developed using significant unobservable inputs (Level 3). The primary valuation technique used was an income methodology based on management’s estimates of forecasted cash flows for each business unit, with those cash flows discounted to present value using rates commensurate with the risks of those cash flows. Assumptions used by management were similar to those that would be used by market participants performing valuations of these business units and were based on analysis of current and expected future economic conditions and the updated strategic plan for each business unit.

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Borrowings and Capital Lease Obligations

9 Months Ended

Sep. 30, 2013

Debt Disclosure [Abstract]

Borrowings and Capital Lease Obligations

Note 7 – Borrowings and Capital Lease Obligations

The Company’s short-term debt obligations are as follows:

	Rate (1)			September 30, 2013		December 31, 2012
Senior Lender:
Notes payable – working capital		6.5 – 7.0	%	$	2,787,937	$	778,287
Other Lenders:
Note payable – FHA		7.0	%		1,730,489		—
Note payable – S&H Leasing		11.5	%		1,865,600		—
Note payable – working capital		5.0	%		800,000		796,231
Note payable – HC REIT					—		100,000
Notes payable – acquisition		6.0 - 8.0	%		25,188		156,242
Insurance premium financings		3.1 – 3.9	%		106,869		176,837
Short-term debt				$	7,316,083	$	2,007,597

(1) Effective rate as of September 30, 2013

On March 19, 2013, the Company received a short-term working capital loan for $2,010,027 from its senior lender that is collateralized by the inventory, accounts receivable, equipment and other assets of one of the Company’s hospital subsidiaries. The note bears interest at a variable rate of prime plus 3.75%, with a minimum rate of 7%, and the Company is required to make monthly payments of interest only with the balance due at maturity in March 2014.

On July 22, 2013, in conjunction with the Foundation acquisition, the Company issued a promissory note for $2,000,000 to FHA. The note is unsecured, bears interest at a fixed rate of 7% and is due on demand. During the period from July 22, 2013 to September 30, 2013, the Company made payments totaling $286,904 on the FHA note. On October 14, 2013, the total principal and interest due on the FHA note, totaling $1,727,377 was paid.

On July 22, 2013, in conjunction with the Tyche Transaction (see Note 8 – Preferred Noncontrolling Interests), the Company issued a note payable to S&H Leasing, LLC (“S&H Leasing”), a member of Tyche. The note is unsecured and bears interest at a fixed rate of 11.5%. All principal and interest on the note is due at maturity on August 1, 2014.

In August 2013, the HC REIT short-term note payable (“HC REIT Note 1”) was forgiven by HC REIT in conjunction with the El Paso Real Estate Transaction described in Note 10 – Extraordinary Gain and Other Item.

The Company’s long-term debt and capital lease obligations are as follows:

	Rate (1)			Maturity Date		September 30, 2013			December 31, 2012
Senior Lender:
Line of credit		7	%		Jun. 2014	$	896,000		$	431,000
Notes payable – working capital		5.5 – 7	%		Mar. 2014 – Feb. 2016		4,059,723			5,216,251
Note payable – equity investments		6.25	%		Sept. 2016		3,538,734			4,289,057
Note payable – management agreements		6.75	%		Dec. 2016		687,808			826,617
Note payable – assumption		6.75	%		Jan. 2015		178,801			—
Other Lenders:
Note payable – preferred interest redemption		10	%		Jul. 2015		5,100,000			—
Notes payable – THE		4.6 – 8	%		Dec. 2014 – Feb. 2016		348,304			453,034
Note payable – HC REIT							—			450,917
Notes payable – physician partners		5.25 – 6.75	%		Oct. 2013 – Nov. 2014		166,413			617,198
Note payable – equity investment		7.7	%		Nov. 2013		30,054			167,841
Note payables – settlements		5.25 – 8	%		Nov. 2013 – Jan. 2018		1,312,411			—
Notes payable – acquisition		6.0	%		Dec. 2014 – Oct. 2015		119,572			172,289
Capital lease obligations		0.2 – 12.3	%		Apr. 2013 – Dec. 2022		2,831,339			4,879,886
Total							19,269,159			17,504,090
Less: Current portion of long-term debt							(8,134,412	)		(5,971,339	)
Long-term debt						$	11,134,747		$	11,532,751

(1) Effective rate as of September 30, 2013

On July 22, 2013, as part of the acquisition of Foundation, the Company assumed a note payable with its senior lender from FHA. The note is unsecured and bears interest at a fixed rate of 6.75%. The Company is required to make monthly principal and interest payments under the note of $11,628.

In August 2013, the HC REIT note payable (“HC REIT Note 2”) was assigned to FSHA as part of the El Paso Real Estate Transaction described in Note 10 – Extraordinary Gain and Other Item.

The Company has a note payable with a bank that is collateralized by the Company’s equity investment in one of its Affiliates. The note bears interest at a fixed rate of 7.7% and the Company is required to make monthly principal and interest payments of $16,000.

On July 22, 2013, as part of the acquisition of Foundation, the Company assumed various notes payable from FHA, totaling $1.2 million that are owed to various third parties and a bank. The notes payable were related to past legal settlements of the Company that were funded by FHA through the notes payable. The assumed settlement notes bear interest at fixed rates ranging from 5.25% to 8%. On September 3, 2013, the Company entered into a note payable with a noncontrolling interest holder in one of the Company’s hospital subsidiaries. The note bears interest at prime plus 2% and was entered into as a settlement of a dispute and for the purpose of purchasing the noncontrolling interest from the holder. All of the settlements notes payable are unsecured and the Company is required to make monthly principal and interest payments totaling $51,449.

On August 30, 2013, the Company’s capital lease with HC REIT was forgiven in conjunction with the El Paso Real Estate Transaction described in Note 10 – Extraordinary Gain and Other Item.

The Company has entered into various short-term and long-term notes payable with its senior lender, Legacy Bank (referred to as “Legacy Debt”). As of September 30, 2013 and 2012, the balance of the Legacy Debt was $12.1 million and $11.5 million, respectively. The Legacy Debt is collateralized by substantially all of the assets of the Company’s subsidiaries, FSA and FSHA, and a portion is personally guaranteed by certain officers of the Company. In conjunction with the Legacy Debt, the Company has agreed to comply with certain financial covenants (as defined and calculated at the FSA and FSHA level) including:

• Debt Service Coverage Ratio of 1.05 to 1 and increasing to 1.1 to 1 by December 31, 2013; 1.15 to 1 by March 31, 2014; and 1.2 to 1 by June 30, 2014; and

• Minimum Tangible Net Worth of $11.1 million increased each quarter (beginning in September 30, 2013 by 50% of FSA’s and FSHA’s net income for the quarter).

As of September 30, 2013, FSA and FSHA are in compliance with the Legacy Bank Financial Covenants. Legacy Bank has waived the financial covenants until January 15, 2014. There is no assurance that Legacy Bank will waive any future violations of the financial covenants. The Company anticipates that it will also meet the financial covenants at January 15, 2014. Historically, management has been successful in obtaining waivers from the bank for any covenant non-compliance; however there is no assurance that the Company will be able to obtain waivers in the future.

At September 30, 2013, future maturities of long-term debt were as follows:

2014	$	8,134,412
2015		8,654,703
2016		2,227,649
2017		197,395
2018		55,000
Thereafter		—

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Basis of Presentation

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Basis of Presentation

Note 2 – Basis of Presentation

On July 22, 2013, the Company acquired Foundation Surgery Affiliates, LLC (“FSA”) and FSA’s consolidated variable interest entity, Foundation Surgical Hospital Affiliates, LLC (“FSHA”) (collectively referred to as “Foundation”). For accounting purposes, the acquisition of FSA was accounted for as a reverse acquisition and as a result, the Company’s historical operating results included in the accompanying condensed consolidated financial statements for the periods prior to July 22, 2013 represent those of FSA. The historical financial statements of FSA have been adjusted for the effect of the recapitalization that occurred as a result of the reverse acquisition.

As of September 30, 2013, the Company had an accumulated deficit of $31.5 million and a working capital deficiency of $20.6 million. During the nine months ended September 30, 2013, the Company generated a net loss attributable to Graymark Healthcare of $15.9 million, including a goodwill impairment charge of $20.8 million, and generated cash flow from operating activities from continuing operations of $5.1 million. Management expects to refinance, by the end of the first quarter of 2014, a significant portion of the Company’s long-term debt obligations. Management expects that the Company will be able to significantly reduce its annual debt service payments as part of the refinancing; however, there is no assurance that management will be successful in completing the debt refinancing.

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Commitments and Contingencies - Additional Information (Detail) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Commitments And Contingencies Disclosure [Abstract]
Legal claims settlement expenses	$ 0	$ 36,000

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Activity in The Acquired Accruals for Restructuring Charges Established for Lease Termination and Other Exit Costs (Detail) (USD $)	2 Months Ended
	Sep. 30, 2013
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Beginning Balance	$ 475,570
Cash payments	(182,415)
Ending Balance	293,155
Lease Termination Costs
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Beginning Balance	335,028
Cash payments	(41,873)
Ending Balance	293,155
Other Exit Costs
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Beginning Balance	140,542
Cash payments	$ (140,542)

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2013

Goodwill And Intangible Assets Disclosure [Abstract]

Interim Financial Information

Interim Financial Information – The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial statements and in accordance with Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2013 are not necessarily indicative of results that may be expected for the year ended December 31, 2013. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2012 and the consolidated financial statements of FSA as of December 31, 2012 as filed in the Company’s Form 8-K on November 13, 2013. The December 31, 2012 consolidated balance sheet was derived from audited financial statements.

Pro forma income information

Pro forma income information – Prior to July 22, 2013, FSA’s and FSHA’s member had elected to have FSA’s and FSHA’s income taxed as an “S” Corporation under provisions of the Internal Revenue Code and a similar section of the state income tax law. Therefore, taxable income or loss is reported to the individual member for inclusion in its tax returns and no provision for income taxes is included in the Company’s consolidated financial statements for periods prior to July 22, 2013. The pro forma income information provides an adjustment for income tax expense as if FSA and FSHA had been a “C” Corporation prior to July 22, 2013 at an assumed combined federal and state effective tax rate of 40%, which approximates the calculated statutory tax rates for the periods.

Consolidation

Consolidation – The accompanying consolidated financial statements include the accounts of the Company and its wholly owned, majority owned and controlled subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

The Company accounts for its investments in Affiliates in which the Company exhibits significant influence, but not control, in accordance with the equity method of accounting. The Company does not consolidate its equity method investments, but rather measures them at their initial costs and then subsequently adjusts their carrying values through income for their respective shares of the earnings or losses during the period. The Company monitors its investments for other-than-temporary impairment by considering factors such as current economic and market conditions and the operating performance of the companies and records reductions in carrying values when necessary.

Use of estimates

Use of estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition and accounts receivable

Revenue recognition and accounts receivable – The Company recognizes revenues in the period in which services are performed. Accounts receivable primarily consist of amounts due from third-party payors and patients. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Amounts the Company receives for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third-party payors such as health maintenance organizations, preferred provider organizations and other private insurers are generally less than the Company’s established billing rates. Additionally, to provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. Accordingly, the revenues and accounts receivable reported in the Company’s consolidated financial statements are recorded at the net amount expected to be received.

Contractual Discounts and Cost Report Settlements

Contractual Discounts and Cost Report Settlements – The Company derives a significant portion of its revenues from Medicare, Medicaid and other payors that receive discounts from its established billing rates. The Company must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the Company’s accompanying consolidated statements of operations.

Cost report settlements under reimbursement agreements with Medicare and Medicaid are estimated and recorded in the period the related services are rendered and are adjusted in future periods as final settlements are determined. There is a reasonable possibility that recorded estimates will change by a material amount in the near term. There were no adjustments for estimated cost report settlements during the nine months ended September 30, 2013 and 2012. The net cost report settlements due to the Company and included as a receivable under the caption “Prepaid and other current assets” in the accompanying consolidated balance sheets was $88,800 and $3,500, respectively, at September 30, 2013 and December 31, 2012. The Company’s management believes that adequate provisions have been made for adjustments that may result from final determination of amounts earned under these programs.

Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on the Company’s financial statements. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties and exclusion from the Medicare and Medicaid programs.

Provision and Allowance for Doubtful Accounts

Provision and Allowance for Doubtful Accounts – To provide for accounts receivable that could become uncollectible in the future; the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The primary uncertainty lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients.

The Company has an established process to determine the adequacy of the allowance for doubtful accounts that relies on a number of analytical tools and benchmarks to arrive at a reasonable allowance. No single statistic or measurement determines the adequacy of the allowance for doubtful accounts. Some of the analytical tools that the Company utilizes include, but are not limited to, the aging of accounts receivable, historical cash collection experience, revenue trends by payor classification, revenue days in accounts receivable, the status of claims submitted to third party payors, reason codes for declined claims and an assessment of the Company’s ability to address the issue and resubmit the claim and whether a patient is on a payment plan and making payments consistent with that plan. Accounts receivable are written off after collection efforts have been followed in accordance with the Company’s policies.

Due to the nature of the healthcare industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available, which could have a material impact on the Company’s operating results and cash flows in subsequent periods. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

The patient and their third party insurance provider typically share in the payment for the Company’s services. The amount patients are responsible for includes co-payments, deductibles, and amounts not covered due to the provider being out-of-network. Due to uncertainties surrounding deductible levels and the number of out-of-network patients, the Company is not certain of the full amount of patient responsibility at the time of service. The Company estimates amounts due from patients prior to service and generally collects those amounts prior to service. Remaining amounts due from patients are then billed following completion of service.

Cash and cash equivalents

Cash and cash equivalents – The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. Certificates of deposit with original maturities of more than three months are also considered cash equivalents if there are no restrictions on withdrawing funds from the account.

Goodwill and Intangible Assets

Goodwill and Intangible Assets – The Company evaluates goodwill for impairment at least on an annual basis and more frequently if certain indicators are encountered. Goodwill is to be tested at the reporting unit level, defined as an ASC or hospital (referred to as a component), with the fair value of the reporting unit being compared to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired. The Company will complete its annual impairment test in December 2013.

Intangible assets other than goodwill which include physician membership interests, service contracts and covenants not to compete are amortized over their estimated useful lives using the straight line method. The remaining lives range from five to seven years. The Company evaluates the recoverability of identifiable intangible asset whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable.

Net income (loss) per share

Net income (loss) per share – Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted loss per share are excluded from the calculation.

Recently Adopted and Recently Issued Accounting Guidance

Recently Adopted and Recently Issued Accounting Guidance

Adopted Guidance

On January 1, 2013, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) to the testing of indefinite-lived intangible assets for impairment, similar to the goodwill changes adopted in September 2011. These changes provide an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the fair value of an indefinite-lived intangible asset is less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. Notwithstanding the adoption of these changes, management plans to proceed directly to the two-step quantitative test for the Company’s indefinite-lived intangible assets. The adoption of these changes had no impact on the Company’s consolidated financial statements.

On January 1, 2013, the Company adopted changes issued by the FASB to the disclosure of offsetting assets and liabilities. These changes require an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The enhanced disclosures will enable users of an entity’s financial statements to understand and evaluate the effect or potential effect of master netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. The adoption of these changes had no impact on the Company’s consolidated financial statements.

Issued Guidance

In February 2013, the FASB issued changes to the accounting for obligations resulting from joint and several liability arrangements. These changes require an entity to measure such obligations for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and (ii) any additional amount the reporting entity expects to pay on behalf of its co-obligors. An entity will also be required to disclose the nature and amount of the obligation as well as other information about those obligations. Examples of obligations subject to these requirements are debt arrangements and settled litigation and judicial rulings. These changes become effective for the Company on January 1, 2014. Management has determined that the adoption of these changes will not have an impact on the consolidated financial statements, as the Company does not currently have any such arrangements.

Prior to reverse acquisition

Prior to the reverse acquisition, Graymark committed to a plan to divest of or close certain sleep diagnostic and sleep therapy locations. The decision was based on a combination of the financial performance of the facilities and the shift in focus to the business model of Foundation. As a result of the pending closure or sale of these locations, the related assets, liabilities, results of operations and cash flows were classified as discontinued operations which were acquired by the Company in the reverse acquisition.

Impairment of goodwill and intangible assets

Goodwill and intangible assets with indefinite lives must be tested for impairment at least once a year. Carrying values are compared with fair values, and when the carrying value exceeds the fair value, the carrying value of the impaired asset is reduced to its fair value. The Company tests goodwill for impairment on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company generally determines the fair value of its reporting units using the income approach methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation methodologies. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill.

Commitments and Contingencies

The Company is exposed to asserted and unasserted legal claims encountered in the normal course of business, including claims for damages for personal injuries, medical malpractice, breach of contracts, wrongful restriction of or interference with physicians’ staff privileges and employment related claims. In certain of these actions, plaintiffs request payment for damages, including punitive damages that may not be covered by insurance. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the operating results or the financial position of the Company.

Recurring and Nonrecurring Fair Value Measurements

Recurring Fair Value Measurements: The carrying value of the Company’s financial assets and financial liabilities is their cost, which may differ from fair value. The carrying value of cash held as demand deposits, money market and certificates of deposit, accounts receivable, short-term borrowings, accounts payable and accrued liabilities approximated their fair value. At September 30, 2013, the fair value of the Company’s long-term debt, including the current portion was determined approximate its carrying value.

Nonrecurring Fair Value Measurements:

Business Acquisition – In July 2013, the Company acquired Foundation in a transaction that was treated as a reverse acquisition for accounting purposes; see Note 4 – Reverse Acquisition for additional information. The assets acquired and liabilities assumed from Graymark in the reverse acquisition were recorded at their respective fair values on the date of the acquisition.

These nonrecurring fair value measurements were developed using significant unobservable inputs (Level 3). The primary valuation technique used was an income methodology based on management’s estimates of forecasted cash flows for each business unit, with those cash flows discounted to present value using rates commensurate with the risks of those cash flows. Assumptions used by management were similar to those that would be used by market participants performing valuations of these business units and were based on analysis of current and expected future economic conditions and the updated strategic plan for each business unit.

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Extraordinary Gain and Other Item

9 Months Ended

Sep. 30, 2013

Extraordinary And Unusual Items [Abstract]

Extraordinary Gain and Other Item

Note 10 – Extraordinary Gain and Other Item

Extraordinary Gain – On August 30, 2013, the Company, entered into an Agreement of Sale and Purchase (“Purchase Sale Agreement” or “PSA”) with HCRI Texas Properties, Ltd. (“Seller”) and HC REIT and an Agreement in Connection with Assignment and Assumption of PSA (“Assignment Agreement”) with DOC-FSH El Paso Medical Center, LLC (“DOC”) resulting in an extraordinary gain of $11,136,121 (collectively referred to as the “El Paso Real Estate Transaction”). The income taxes related to the extraordinary gain and the amount of the extraordinary gain attributable to noncontrolling interests are summarized below:

	Gross		Tax			Net
Attributable to Graymark Healthcare	$	7,864,051	$	(2,991,305	)	$	4,872,746
Attributable to noncontrolling interests		3,272,070		(1,177,214	)		2,094,856
Total extraordinary gain	$	11,136,121	$	(4,168,519	)	$	6,967,602

Pursuant to the PSA, the Company agreed to acquire from Seller the real property occupied and certain personal property used by the Company’s subsidiary East El Paso Physicians’ Medical Center, LLC (“EEPPMC”) under a master lease agreement (“Master Lease”) between EEPPMC, Seller and HCN.

The real property and other consideration covered by the Purchase Sale Agreement includes the hospital (“Hospital”) and medical office building (“MOB”) occupied by EEPPMC, an adjoining parcel of vacant land (“Excess Land”), the HC REIT Note 2, and certain personal property, including medical equipment, owned by Seller and attached to or located in and used in the operation of the Hospital and MOB (“Personal Property. The purchase price under the Purchase Agreement was $39,066,428.

Simultaneous with the execution of the Purchase Sale Agreement, the Company executed the Assignment Agreement with DOC whereby FSHA assigned and DOC assumed all of FSHA’s right, title, interest and obligations in, to and under the Purchase Sale Agreement, except for the Excess Land, HC REIT Note 2 and Personal Property. The consideration under the Assignment Agreement with DOC was $40,000,000 and was composed of the following:

1. $39,066,428 which was paid directly to Seller;

2. $400,000 which was retained by DOC as a security deposit for the performance of EEPPMC’s payment obligations under the Master Lease;

3. $463,678 which was paid to the Company; and

4. $69,894 which was paid on behalf of the Company to cover certain legal and closing expenses.

The estimated excess value of the assets obtained compared to the consideration paid as a result of the PSA and Assignment agreement was $4,027,561. The Company is in the process of conducting formal valuations of the Excess Land and Personal Property acquired in the transaction and will adjust the extraordinary gain accordingly based on the results of those evaluations.

In conjunction with the execution of the PSA and Assignment Agreement, HC REIT agreed to forgive certain liabilities totaling $7,108,560 due to HC REIT from EEPPMC composed of the following:

1. $714,822 in capital equipment leases net of the write off of the related capital lease assets;

2. $467,132 in a note (HC REIT Note 1) and related accrued and unpaid interest (HC REIT Note 1 and HC REIT Note 2);

3. $2,767,905 in unpaid, past due rent on the hospital and MOB;

4. $3,158,701 in other accrued liabilities related to the hospital and MOB facilities.

The Company determined that the nature of the El Paso Real Estate Transaction was both unusual in nature and infrequent in occurrence given the nature of our business and current operating environment. The event is unusual given we are a health care organization that invests in and manages existing healthcare facilities, not a real estate company. This event is also unique given the complex nature of both the transaction and the unusual level of debt and liabilities forgiven as part of the transaction and as such would not be reasonably expected to reoccur in the foreseeable future.

Other Item – On September 30, 2013, the Company entered into an Agreement of Sale and Purchase (“OKC MOB Agreement”) with Foundation Medical Center of Oklahoma City, LLC (“FMC”) pursuant to which the Company agreed to acquire from Seller the real property occupied as the corporate headquarters of FSA and FSHA.

The real property covered by the OKC MOB Agreement includes an ambulatory surgery center facility owned and operated by a Foundation affiliate called Foundation Surgery Affiliate of Northwest Oklahoma City, LLC. The remainder of the building is medical office space occupied by a physician group, a sleep lab, a medical infusion company, and the Foundation corporate office. The building consists of approximately 52,000 square feet. The purchase price under the Purchase Agreement was $10,588,235.

Simultaneous with the execution of the OKC MOB Agreement, the Company entered into an Agreement in Connection with Assignment and Assumption of PSA (“OKC MOB Assignment Agreement”) with DOC-GREYMARK HQ OKC MOB, LLC (“OKC DOC”) whereby the Company assigned and OKC DOC assumed, all of the Company’s right, title, interest and obligations in, to and under the OKC MOB Agreement. The consideration under the OKC MOB Assignment Agreement with OKC DOC was $15,600,000 and was composed of the following:

1. $10,588,235 which was paid directly to FMC;

2. $4,885,328 which was paid to the Company; and

3. $35,937 which was paid on behalf of the Company to cover certain legal and closing expenses.

Simultaneous with the sale to OKC DOC, the Company executed a 10 year master lease on the building for an annual rent of $1,248,000 with annual escalations of 2%. The current lease income on the underlying sub-leases is approximately $900,000 per year. The master lease is an operating lease. Given the disparity between the annual rent expense under the master lease and the rental income of the underlying sub-leases, the gain on the sale to OKC DOC will be deferred and recorded on a straight-line basis as a reduction in the rent expense under the master lease.

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Discontinued Operations (Tables)

9 Months Ended

Sep. 30, 2013

Discontinued Operations And Disposal Groups [Abstract]

Activity in The Acquired Accruals for Restructuring Charges Established for Lease Termination and Other Exit Costs

From July 22, 2013 to September 30, 2013, the activity in the acquired accruals for restructuring charges established for lease termination and other exit costs were as follows:

	Lease Termination Costs			Other Exit Costs			Total
Acquired balance at July 22, 2013	$	335,028		$	140,542		$	475,570
Cash payments		(41,873	)		(140,542	)		(182,415	)
Balance at September 30, 2013	$	293,155		$	—		$	293,155

Operating Results and Balance Sheet Items of Discontinued Operations

The operating results of the discontinued sleep diagnostic and therapy locations and the Company’s other discontinued operations from July 22, 2013 to September 30, 2013 are summarized below:

	July 22 to September 30, 2013
Revenues	$	724,145
Net loss before taxes	$	(327,841	)
Income tax benefit		131,136
Net loss from discontinued operations, net of tax	$	(196,705	)

The balance sheet items for discontinued operations are summarized below:

	September 30, 2013
Cash and cash equivalents	$	(53,793	)
Accounts receivable, net of allowances		743,001
Inventories		23,583
Other current assets		244,870
Total current assets		957,661
Fixed assets, net		215,832
Other assets		200,000
Total noncurrent assets		415,832
Total assets	$	1,373,493
Payables and accrued liabilities	$	2,280,207
Short term debt		4,450,233
Current portion of long-term debt		103,370
Total current liabilities		6,833,810
Long-term debt		28,384
Other liabilities		81,660
Total liabilities	$	6,943,854

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Allowances for Doubtful Accounts

The activity in the allowances for doubtful accounts for the nine months ending September 30, 2013:

	Balance at Beginning of Year		Additions Recognized as Reduction to Revenues		Write-offs, Net of Recoveries			Balance at End of Year
Nine months ended September 30, 2013	$	1,659,337	$	2,409,733	$	(1,414,984	)	$	2,654,086

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Nov. 19, 2013
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Trading Symbol	GRMH
Entity Registrant Name	Graymark Healthcare, Inc.
Entity Central Index Key	0001272597
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		163,509,214

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Reverse Acquisition (Tables)

9 Months Ended

Sep. 30, 2013

Business Combinations [Abstract]

Preliminary Purchase Allocation for Reserve Acquisition

The preliminary purchase allocation for the reverse acquisition is presented in the table below. These preliminary estimates will be revised in future periods and the revisions may materially affect the presentation of the Company’s consolidated financial results. Any changes to the initial estimates of the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill, subject to a review for impairment.

	Graymark (Preliminary)
Cash and cash equivalents	$	68,170
Accounts receivable		249,333
Current assets from discontinued operations		1,773,471
Other current assets		198,977
Total current assets		2,289,951
Property and equipment		647,862
Intangible assets		3,800,000
Goodwill		20,847,608
Other assets from discontinued operations		295,542
Other assets		12,753
Total assets acquired		27,893,716
Liabilities assumed:
Accounts payable and accrued liabilities		2,501,877
Short term debt		2,000,000
Current portion of long-term debt		714,711
Current liabilities from discontinued operations		7,812,192
Total current liabilities		13,028,780
Long-term debt, net of current portion		742,385
Other liabilities from discontinued operations		174,509
Other liabilities		575,000
Total liabilities assumed		14,520,674
Net assets acquired	$	13,373,042

Acquisition Revenue and Earnings of Combined Entity Reverse Acquisition

The amounts of acquisition revenues and earnings included in the Company’s consolidated statements of operations for the nine months ended September 30, 2013, and the revenue and earnings of the combined entity had the reverse acquisition date for Graymark been January 1, 2012 are as follows:

	Revenue		Loss from Continuing Operations			Net Income (Loss)			Net Income (Loss) Attrib. to Graymark			Net Income (Loss) Attrib. to Graymark per Share
Actual:
From 7/22/2013 to 9/30/2013	$	454,759	$	(21,698,335	)	$	(22,026,176	)	$	(22,026,176	)
Supplemental Pro Forma:
Nine months ending 9/30/2013	$	72,637,964	$	(4,895,543	)	$	1,868,402		$	165,138		$	0.00
Nine months ending 9/30/2012	$	48,496,884	$	(25,106,231	)	$	(25,470,403	)	$	(25,784,049	)	$	(0.16	)