Note 11. – Commitments and Contingencies

Litigation—A settlement was reached on November 3, 2014 relating to litigation as a result of sellers failure to close on the sale of approximately 24.74 acres of real property located in Gilmer County, Georgia purchased by a subsidiary of the Company. In satisfaction of the Company’s claims against the sellers, a five year promissory note in the principal amount of $600 was issued to Castlemark Properties, LLC, (“Castlemark”) one of the Company’s subsidiaries. The note is secured by a mortgage on the real property. Castlemark will have a right to immediate payment of the note if the property is sold prior to maturity. If the owner does not sell the property prior to maturity and does not pay the note in full at maturity or deed the property to Castlemark, then Castlemark will have a right to foreclose the mortgage and take title to the property. The litigation was dismissed by joint stipulation on or about November 12, 2014. As a result of this settlement the Company recorded pre-tax income of $500, the estimated fair value of the real property, which is the most probable value of the judgment in the quarter ended December 31, 2014. The promissory note is included in long-term assets in the December 31, 2014 balance sheet.

SunLink and its subsidiaries are a party to various medical malpractice and other claims and litigation incidental to its business, for which it is not currently possible to determine the ultimate liability, if any. Based on an evaluation of information currently available and consultation with legal counsel, management believes that resolution of such claims and litigation is not likely to but could have a material adverse effect on the financial position, cash flows, or results of operations of the Company. The Company expenses legal costs as they are incurred.

Sale of Hospital Facilities—The Company has sold three hospital facilities since June 30, 2012 and in connection with the sales has retained certain assets and substantial liabilities. – See Note 3 Discontinued Operations.

Office of Inspector General Investigation— In March 2013, SunLink received a document subpoena from the United States Department of Health and Human Services Office of Inspector General (“OIG”) in connection with an investigation of possible improper claims submitted to Medicare and Medicaid. The subpoena was directed to SunLink’s indirect subsidiary Southern Health Corporation of Dahlonega, Inc. (“SHCD”), which owns and operates Chestatee Regional Hospital in Dahlonega, Georgia, and requested documents concerning possible false or fraudulent claims made for intensive outpatient psychiatric services provided by and billed for a third-party outpatient psychiatric service provider. The subpoena also sought information about SHCD’s relationship with the outpatient psychiatric service provider, including financial arrangements. SHCD is continuing to cooperate with the government with respect to an ongoing document production, as well as conducting a joint medical necessity review of a sampling of medical records. We cannot at this time estimate what, if any, impact these matters and any results from these matters could have on our business, financial position, operating results or cash flows.

Contractual Obligations, Commitments and Contingencies

Contractual obligations, commitments and contingencies related to long-term debt, non-cancelable operating leases and interest on outstanding debt from continuing operations at December 31, 2014 were as follows:


Payments due in:	Long-Term Debt		Operating Leases		Interest on Outstanding Debt
1 year	$	866	$	858	$	712
2 years		775		333		708
3 years		1,951		200		650
4 years		601		74		508
5+ years		8,252		22		3,104

	$	12,445	$	1,487	$	5,682

At December 31, 2014, SunLink had a guarantee agreement with one physician. A physician with whom a guarantee agreement is made generally agrees to maintain his or her practice within a hospital geographic area for a specific period (normally three years) or be liable to repay all or a portion of the guarantee received. The physician’s liability for any guarantee repayment due to non-compliance with the provisions of a guarantee agreement generally is collateralized by the physician’s patient accounts receivable and/or a promissory note from the physician. All potential payments payable under this one guarantee have been paid as of December 31, 2014. SunLink expensed $16 and $33 on physician guarantees and recruiting for the three months ended December 31, 2014 and 2013, respectively. SunLink expensed $31 and $67 on physician guarantees and recruiting for the six months ended December 31, 2014 and 2013, respectively.